ML20153C701

Commonwealth Edison,1985 Annual Rept

ML20153C701
Person / Time
Site:	Dresden, Byron, Braidwood, Quad Cities, Zion, LaSalle, 05000000
Issue date:	12/31/1985
From:	Oconner J, Wisiol K COMMONWEALTH EDISON CO.
To:	Office of Nuclear Reactor Regulation
References
NUDOCS 8602210513
Download: ML20153C701 (36)

Text

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Commonwealth Edison 1985 Annual Report

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l ilbout 1 k Cover Commonwealth Edison is an investor-owned utility CNcago company supplying electricity to 3 million customers p-l (8 million people) in Chicago and northern Illinois. / -

i Extending into 25 counties, our i 1,525-square-mile senice area contains nearly 400 municipalities and includes about k(?

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70% of the state's population. Ef4 wp g Our corporate purpose is to provide our customers with 1.4

( an adequate supply of reliable electric senice at competitive

rates and to provide our shareholders with a fair return on i their investment. Although fulfilling that purpose is a IEE s~"*

(omplex responsibility, we are not new to thejob. We base l nearly 100 years of experience. During that time, we have l earned a reputation as a leader in pioneering new technologies, developing skilled employes and responding to the wants and needs of our (ustomers and shareholders.

These things are important to us-and always will be.

But for the near term-for the remainder of the 1980s-we base established a number of key objectises important to the Company's continued success. These objectives are discussed in the Chairman's Letter beginning on page 2.

Commonwealth Edison 1985 Hi.ehlights increase Over 1985 1984 1984 Net income on common stock (millions) $839.6 $761.2 10.3 %

Earnings per common share $4.45 $4.43 0.5%

Cash dividends paid per common share $3.00 $3 00 -

Common shares outstanding at year-end (millions) 194.7 176 2 10.5 %

Common shareholders of record at year-end (thousands) 272 285 4.4%'

Total assets (bilhons) $16.3 $14.7 10.7 %

Electric customers at year-end (thousands) 3.028 3.011 06%

Summer peak load (million kilowatts) 13 255 14.572 9.0%'

Winter peak load (milhon kilowatts) 11.713 11.289 3.8%

• Decrease 1985 Revenues and Sales Electric Operating increase Kilowatthour increase Revenues Over Sales Over (thousands) 1984 (millions) 1984 Residential $1,745,909 08% 17,847 1.4%*

Small commercial and industrial 1,646,365 0.6% 20,920 2.1%

Large commercial and industrial 1,070,193 0.7%* 17,747 0.3%

Public authorities 380,328 4.2% 5,840 3.6%

Electric railroads 25,861 8.2% 396 8.2%

Ultimate consumers $4,868,656 0.7% 62,750 08%

Sales for resale 58.297 1,081 Other revenues 37,198 -

Total $4,964,151 63.831

• Decrease Contents Highlights, Revenues and Sales 1 Letter to Shareholders 2-4 1985 in Review 5-12 Management's Discussion and Analysis of Financial Condition and Results of Ope 7ations , _

13-15 Report of Management 16 Report of Independent Public Accountants to the Audit Committee _ _

16 Report of Independent Public Accountants _ _ _ _ __

1T Consolidated Financial Statements 17-31 Directors and Management 32 Other Information __

inside Back Cover 1

To Our Shareholders We made substantial progress in 1985 toward meeting a number of our key objectives for the remainder of the 1980s.

, Foremost a nong these are:

3 Completing our construction program Obtaining adequate rate relief

]p Improving our competitive position u

. As for our construction program, we placed Unit I at N llyron nuclear generating station in service in April. This M achievement marked the mid-point in completion of our six-I unit nuclear construction program begun in the 1970s. Of the three remaining units, Ilyron 2 and liraidwood I are planned for service in .\tay 1987 and liraidwood 2 is planned for service in September 1988.

Ilearings on our !!raidwo(xi operating license application l are expected to begin in the spring of 1986 and conc lude on a schedule that will allow a license to be issued in time for Unit I fuel loading in September. In order to answer any We .ononor to L Unc that legitimate questions regarding the quality of construction at i omph n~n of th ai<ia ~d n liraidwo<xi, we initiated and completed the tiraidwood the p udem ma 'e Construction Assessment Program. Dt. ring this 17-month program,650,000 items were reinspected and no discrepan-cies were found that would affect safe operation of the plant, adding to our c<mfidence that liraidwcxxl is well designed and well built and that an operating license will be granted.

At the state level, the Illinois Commerce Commission (ICC) is again considering whether construction of Ilraidwo(xi should continue. Previously, in 1980 and 1982, the ICC directed the Company to complete the units in a timely and emnomical manner. We continue to belin e ihat comp!ction of liraidwo<xi is the prudent course because, compared with cancellation, it would produce savings currently worth 52.7 billion. Completion also would mean that our generating capacity will remain among the most modern and fuel-efficient in the nation and that no new capacity will be needed before the late 1990s.

The wrapletion of our construction program n closely related to another of our objectives-obtaining a&quate rate relief.

In late October, the ICC authorized an inc rease in elc<tric service rates of $494.8 million, before add-on revenue taxes, primarily to cmer return, depreciation and other costs associated with placing Ilyron Unit I in service.

Ilowever, mer one-fourth of the increase is expected to be 2

ofTset by nuclear fuel cost savings due to the operation of Byron Unit 1. Additional rate increases will be needed as the three remaining Byron and Braidwood units are completed and brought into service. As with Byron 1, however, the nuclear fuel cost sasings from these units will partially ofTset the higher rates that will be required.

Although rate increases are essential to cover the fixed There i4 no doubt flut w e are costs associated with placing these units in service, we in a f ar more 1ompt titnc recognize that rising rates represent a burden to many of our cncrp enuronmcm than we customers. Actordingly, we have proposed to the ICC that bas e prnioudv nperient ed. the amount reemerable from customers for Braidw(xxt's construction be limited to 55.05 billion, except for cost increases which might result from nudear licensing or other regulatory delays beyond our control. We also have informed the ICC that we will submit a proposal in early 1986 to moderate the near-term effect on customers of placing Byron Unit 2 and the two Braidwood units into rate base.

Increased rates tend to place us at a disadvantage in the energy markets, which leads to another of our key objectives, namely, improving Edison's competitive position.

There is no doubt that we are in a far more competitive energy environment than we have previously experienced.

In addition to the strong traditional competition we face h>cally f rom other energy sources, competition in the sale of bulk power is deseloping among regional electric utilities.

This competition is being encouraged by regulatory authorities and augmented by the existence of large generating reserves throughout the Niidwest.

One way we are responding to this competition is W hrt ' .n u e m through measures to further contain costs and increase n ewh u he ne m samh productivity. In October, for example, we announ<ed an , q n -<m< ,

intensified cost containment program designed to hold 1986 < w. uncm i r!a A ~n operating and maintenance expenses at the 1985 level and at imesumoae the lowest practicable level thereafter. This program, which includes a freeze on new employment and on upper and middle management salaries at least through 1986, will not affect dividend payments, the quality of our service or the safe operation of our plant facilities.

Another way we are responding to the increasingly (ompetitive energy environment is through our sate structure. We are redesigning our rates to make them more 3

responsive to the needs and concerns of our customers, while at the same time encouraging patterns of use that will minimize our future capacity requirements.

We hase developed and are presently offering a new industrial development and jobs preservation rate to large industrial customers. This new rate provides reduced demand charges for a limited period on the increased loads of companies which expand or locate industrial faci?ities in our area. Several large industrial customers qualified for the discounted rate in 1985, and hundreds of new jobs are

'I be o.mi h : .a of it. < n expected to result.

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We also are working closely with our wholesale npn tcd to , nh. s e on: ..

mumcipal customers to keep them on our system at rates o.mpetith e p an n in th" beneficial to them and to all of our ratepayers. These I"'* '"""

customers accounted for less than 2% of our 1985 kilowatthour sales.

We are determined to protect our markets while encouraging economic growth and prosperity in our service area. The completion of Byron and Braidwood stations is expected to enhance our competitive position in the long term because of their low nuclear fuel costs. This will place '

us in a strong position to promote the future growth of our area by offering adequate and reliable power supplies at {

stable rates. l l

In the near term, we are responding to changes in the l energy markets through stringent cost containment measures and i ompetitis e pricing. Our commitment is to the future--to ensuring our position as a competitise energy supplier.

Sinc erely, 9

James J. O'Connor Chairman and President 4

1985 In Review Operations Byron Unit Iin Service A niajor milestone was reat hed in April when Unit I at Ilyron nuclear generating station was placed in service. The 1,120,000-kilowatt nuclear unit was awarded a full-power operating license by the Nuclear Regalatory Commission Ih ron t nit 1N low nmlear (NRC) on February 14 and produced electricity for the first fuel costs will benent our time on hlarch 1.

cucomers and the a on-rm of Ilyron Unit I is our ninth large nuclear unit and the third northern lihnois f or the rcv Na d in service by the Company so far in ihe 1980s. It is a of thk , cmon .md wNl int" tribute to the thousands of men and women whose skills, dedication and perseseram e have produced one of the finest generating facilities in the world. Ilyron Unit l's low nu-clear fuel costs will benefit our customers and the economy of northern Illinois for the rest of this century and wellinto the next.

Byron Unit 2 Status Unit 2 is the second ofIwo nudcar units being installed at flyron station,25 miles south of Rmkford, Illinois. In November, following a reassessment of the status of our tun-struction program, we announced a deferral of the projected service date of flyron Unit 2 by sesen months,to Alay 1987.

Concurrently, we raised the estimated construction cost of Ilyron station to $4.65 billion, or $2,077 per kilowatt. Al-though a separate license will be needed from the NRC lh mdu-! I mi ! n nm before fuel loading can begin at flyron Unit 2, no further "la doh d imi ninc m M n action is required by the Atomic Safety and 1.icensing tw and lir.ohod l 'mt iloard, which previously ruled that Ilyron station meets m w;m mhn 1%

applicable NRC standards and can be operated safely.

Braidu ood Update

()nr audin man oc th o As a result of our construction program reassessment. we c omph tien ol ih mb"d - also announced a deferral of the projected service dates of opp-ed to < am ri!aumn. Units I and 2 at our liraidwood nuclear station by sesen w ould wid s c.ines <unemir months and nine months, respec tis ely. liraidwood Unit 1 is wortb U ~h h n now scheduled for servi < c in htay 1987 and liraidwood Unit 2 in September 1988. The longer periods are required to complete the remaining engineering, constrm tion and start-up work on the two 1,120,000-kilowatt units.

The estimated construction wst of liraidwood station is proje< ted at 55.05 billion, or $2,253 per kilowatt. We base progmsed to the Illinois Commert e Conunission (ICC) that the amount of tonstrut tion < osts re< os erable from customers be limited to the 55.05 billion estimate, ex<cpt for <ost 5

increases which might result from nudear licensing or other regulatory delays beyond our control. Absent such delays, we are confident that liraidwood station can be completed for the $5.05 billion we budgeted last November.

The results of BC \P h.nc The ICC is again considering whether construction of reinfotved our belicf ih.u Braidwood should continue. Our studies indicate that com-the station's salciv n arm, pletion of Ilraidwood, as opposed to cancellation, would were properk incalled and yield savings currently worth $2.7 billion. In 1980 and uill1unoion rcliably again in 1982, the ICC rejected challenges to ihe completion of Ilraidwmxt on economic grounds and ordered us to com-plete the plant in a timely and economical manner.

IIcarings before the Atomic Safety and 1.icensing floard on our liraidwood operatir,g license application are exinted to begin in the spring of 1986 and conclude on a schedule that will allow a license to be issued in time to permit Unit I fuel loading in September. In order to answer any legitimate questions regarding the quality of construction at liraidwood, we initiated the tiraidwom! Construction Assessment Program (llCAP) in 1984. IlCAP was a one-time,17-month program which included reinspections of approximately 650,000 safety-related items. Completed in late 1985, llCAP found no discrepancies that would alTert U "" " ' d C" " ' " "' " " "

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safe operation of the plant. The results of IICAP have reinforced our belief that the station's safety systems were properly installed and will function reliably.

Constrtiction Costs Favorable 4

The cmmated i nr.orm tion Edison is nationally remgnized as an experienced, ,

mstml th ron and Ih.nhui efficient and cost-effectise builder and operator of nuclear rem un am og the I.m co m power plants. 51.950 -

the Unurd mn , hr nm : car Our two-unit Zion station, completed in 1973 and 1974, , .

plans soll under mnurnom" was built with fewer manhours per kilowatt than any mm-parable nuclear plant in the nation. Our I,aSalle County Nj.[

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Units 1.and 2 were mmpleted in 1982 and 1984 at a cost  ;

• n ' s, about three fifths of the industry average for nudear capaci. [ 9' ty placed in service in that time perimi. Even with the recent (, j),. [ 3 , $ ' **

increases, the estimated constrmtion msts of flyron and liraidwood remain among the lowest in the United States N

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for nudear plants still under construction.

Five-Year Cumstrtictwn Budget Our five year mnstruction budget for 1986 90 is 55.2 billion, down $150 million from the previous fise year

Nuclear Generation budget. About two-thirds of the total represents expendi-

c. of tal gener. mon > tures on generating stations, both those in service and

- under construction, and includes the approximately r-t - $1.2 billion increase in the estimated construction costs of

[] _[ _1 ~ ' Byron and Braidwood stations announced in November.

Construction expenditures in 1985 were about $1.8 billion, L. _ . l _ . _ . _,

L ---+-+ - including Allowance for Funds Used During Co, struction.

_ ___. _ _ -4 ses

.- --. . = s4s , Record Nuclear Generation, Savings 455 We generated a record 36.4 billion kilowatthours with i 44V 44% .

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nuclear power in 1985, 59 % of all the elec'ricity we

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produced. It was the second year in a row that nuclear

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power accounted for over one half of our tmal generation.

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Nuclear's share in 1984 was 54 %.

s J Nuclear fuel is our least expensise fuel, costing about

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one-fourth as much as coal and one-ninth as much as oil.

y [ g y j Our nuclear fuel savings over low-sulfur coal in 1985 were approximately 5980 million, raising to more than $3.7 billion the total of such savings since 1980. These savings, which are automatically passed on to our customers through lower fuel adjustment charges, are expected to grow in future years as the remaining flyron and liraidwood units g g., , , ; g ,

are completed and placed in service.  ; , 4 ( .g g ,

New Il' inter Peak l>>ad  ;

Cold weather and increased electric heating require. ,

ments contributed to a new winter peak load of 11,713,000 .

5'80 kilowatts on December 18,1985. The new record was the S

second in as many days and topped the previous annual -M-winter peak of 11,289,000 kilowatts set on January 20,  %'

1984. Our all time peak load of 14,572,000 kilowatu 20

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occurred on August 29,1984. ,

Cost Controls Intendfied

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In October, the Company announced an intensified cost

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containment program designed to hold 1986 operating and maintenanc e expenses at the 1985 ]evel and thereaf ter at the

'y p lf iiJ, v((a 1, Q lowest practicable level coasistent with our current high .

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standards of customer service and plant safety. Md , h ,'-

The program, which will not affc(t Edison's dividends, includes a freeze on new employment and on upper and middle management salaries at least through 1986. Also in-c luded are a reduction in planned mertime and ihe merger 7

As a nuncr of pt udenn of our Chicago-Central Division into our Chicago-North all options relaung to our and Chicago-South Divisions. The merger is expcoted to re-o,nso u tion prwram and all sult in annual savings of $14.5 million and a reduction in the elemens of om budeen will work force of about 275 [mitions.

be subin t to mmimune.

As a matter of prudency, all options relating to our re-cuminarn "~

i d all has d m Ws will be subject to continuing re-examination. Consideration is presently being gis en to the economic c omequences of con-tinuing to operate some fossil-fueled generating units and to further restructuringof theCompany'sorganization. Addi-tional cost-cutting measures ate expected.

New industrial llevelopment Rate About a vo uima larg :~8-'*' c" *~rm"'4-~ fo ,

nentually from a new industrial desclopment and jobs preservation rate that the Company began offering in November.

The new rate provides initial discounts in demand charges ranging from 20% to 100% on new or expanded 'lla ram n npn n d u nera te industrial loads. The discounts are phased out m er a perimi all of om . n+na n hs of three to five years. e nona nne < n nomn

. dcu l, ; mem an.1 hs

.l.he rate is exgwited to lwneh.t all of our customers by im icwn , il c icu nur her enrouraging cronomic dnelopment and by increasing the

. , u bo h suppom ! h on.s h u d rnenue base which suplw>rts Edison s fixed costs. Sescral large industrial customeis qualified for the rate in 1985, with increased loads and hundreds of new jobs expnted to result.

Public Utilities etct l

A new lilinois Public Utilities Att was signniiatolaw in i September,efin iseJanuary 1,19E Amongit5 provisions, the Act makes material thanges in the way the ICC ronducts its businen, dirnis the Gmernor to appoint a i public rounsel to represent < omumers, and provides for appeal of ICC orders dirntly to the Aplwllate Court.

I he A<i pmich , th e ; I om A progmed mandatory penalty for so-called excen prew mi,,lonb a ouhr generating capacity, which woubt hase been damaging to o,nso n,in o s. m i e n , , ,1 Edison, was deleted from the legislation, whic h allows the the amea un+rihcdol,a ICC to determine on a case by case basis whether a utility's c ap.u ity is ext cuive.The Ac t provides that plants prnently built or under < onstrm tion will be itcatolihe same as under the obl law.

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1985in Review Financial Earnings Performance Earnings on mmmon simk were 54.45 per share in 1985, up from 54.43 per share carned in 198 4.

Earning, l'n Shaic Earnings benef ted from increased kilewatthour sales, higher electric service rates and larger construaion-related

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"~ ' credits. These factors were of Tset by increasett expenses and

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_ , $4 39. s4 4,3 ' s4 45 , a greater number of shares outstanding.

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_s3rs; f . Y : [ 3SJth I)ividend Paid

C 2b y Dividend payments on common simk n 1985 were 53.00 gM. (6j:

r per share, with the 75c quarterly dividend paid on 1;f .p(.((

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S November 1,1985 being the 384th consc<utise payment.

.j. .4 .EA - E I)ividends have been paid on common stmk without inter-e Lb + . m n: L 4 ; a' ri'ation sin < c 1890.

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Q' }- },-:,8 Tax Status of 1985 l)ividends b, [ hj k (f.l r:,

All dividends paid by the Company in 1985 on the q r n[ g~

t::. - 9 3 common, preferred and preferem e sim ks represent curtent-

' bi L, . y oQ d ly tax ble dividends (and not a return of rapital) for federal

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income tax purposes. Ilowever, individual shareholders who reinvested dividends in 1985 un6er the Company's Au. gg,, mag,n,n su tomatic Dividend Reinvestment and Stmk Purchase Plan 11nur anmnm o inim are generally eligible to exclude on their 1985 income tax returns up to $750 (51,500 on a j<dnt return) of qualif ed reimested dividends.

• ' 3 * '

• Sales and Revenues w,. so ,

Affected by sluggish economic growth and oxdcr than i h normal summer weather, kilowatthour sales to uhimate

[ J-h ' , qf consumers increased 0.8% in 1985. u.

4 Residential sales, particularly semitise to weather r = A- ,

9-conditions, were down 1.4 %. This was due largely to the ' -

I tool 1985 summer, in which temperatures reac hed 90 de. J s grecs or more on only 12 days mmpared wit h 20 sm h days in 1984 and 16 days in a normal summer.

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Reilc< ting the state of the c<onomy, sales to our large (::J; Q ,

k]lM commercial and industrial omtomers increased 0.3 % over dd " "

j 1984, while those to our small commercial and indmtrial customers rme 2.1 %.

Ilespite imreased sales and higher rates for electric servit e,1985 revenues were up a rmulerate 0.7 % . This was due rnainly Io lower fuel adjmtment < harges resulting from 9

more nuclear generation and to aiol weather during the four Electt;c Operatmg Res enues summer months when higher seasonal rates were in effect.

Ulumate Consumen (bhns)

Stock Price Higher r _4 y . , . ._. ,

, _ _ _ . . _ . . . . i .. . , - - - For the fifth consecutive year, the market price of our

, _ _ . _ _ .  ! $ + 54 e ; common stoc k ended the year higher than the previous year-

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• end closing price.The 1985 year-end price of 29% was the

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highest year-end price since 1976 and compared with a 1984 year-end price of 27%.

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[ . . Rates /ncrcu3rd Ntarket lh e l'er Share

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~ ' Year end The ICC in October approved an increase in cic<tric

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senice rates designed to raise operating revenues on an ,

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. . annual basis by $494.8 million, or 11 %, before add-on  ; . .

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The increase went into effect October 29,1985, except , ,

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i . that one-third of the amount applicable to residential 1

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(ustomers will be deferred until January 1,1987. Under the , g 3 -- l  !

" phase-in" plan, the Company will be allowed to recoser ,

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1 the deferred return and assmiated carrying c harges over ,,,,, ! ,  ;

a two-year perimi. The increase granted was aimed } l , l principally at mscring return, depreciation and other costs j  : ,

i associated with placing flyron Unit 1 in <crvice in April. i lloweser, the ICC order disallowed return and depreciation . . . .

on 5101.5 million of the unit's total costs.  !

l

+ .

19M Financings * ' '

To provide new capital for our construction program and refinance maturing obligations, we raised approximately

$1.56 billion through financings The funds were provided as follows:  !

Amount NIonth (millions)

January ___ l.ong term llank 1.nans 5100 Ntarch Common Stock 277 Starc h 10h% and 10%% Pollution Control

___ _ _ _Rn enue liondn _ , _ _ _ , _ __ ._141_

August 10%% and 11%% First N1ortgage lionds .350 I)cc cmher 59.30 Preference Stock 35 (Various).__ Sale /Leasebaik of Nuclear Fuel 440 _

(Variom) 1)ividend Reinvestment and Enyploye Sto< k l'lans 212 _

Totat .. - . _ . - . . _ - .

$1,555_ - _ _

O 1

In addition to the 10 million shares of common stoc k sold Disidem! Remvestment Plan

• publicly in .\ larch through underwriters, we issued about h"# " *I 7.9 million new common shares in 1985 under our dividend

'~ j _ s198 reimestment and employe stock plans.

_ , - . sisi '.  : Future Financings t -

77~ Ussp  ; in addition to refinancing approximately $500 million of Hy 19M. auuming adequate maturmg obligations, we will need to raise about $730 mil- rate relici, we expeit to bc I, _ _ _!  :  ;

. L. J .  ; lion of new capitalin 1986. After that,our requirements for able to proude < onstrminin new money arc expected to decline sharply as work is com- funds pnmipahy hinn

[ _ _!  ! . ,

F-, . . - pleted on generating units under constructio, and the units imernal soon es.

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are placed in service. By 1988, assuming adequate rate

! ~~ l i relief, we expect to be able to proside construction funds

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[sd} I - .. [ principally from internal sources.

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,.: Dividend Reinvestment Plan l . Approximately one-third of our common shareholders

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I partropated in the Company's Automatic Dividend

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Reinvestment and Stock Purchase Plan in 1985. These wxmow e.n,meo e ms shareholders purchased about 7.3 million shares under the es mew w." plan and provided the Company with nearly $ 198 milhon of new capital in 1985.

Shareholders who participate in the plan may reimest cash dividends on some or all of their shares of common stock to purchase additional shares at a 5% discount from the market price. They also may imest up to $3,000 in cash during any quarter to buy shares at 100% of the market price, whether or not they choose to rein est their disidends.

No fees or brokerage commissions are charged to participants for purchases made under the plan.

The provision in the tax law which generally permitted individual shareholders an annual exc lusion on their in< ome tax returns up to 5750 (51,500 on a joint return) of their qualified reinvested dividends in the years 1982 through 1985 expired for dividends paid after December 31,1985.

Iloiders of our common sto<k who are interested in joining ihe plan may obtain a prospet tus and an enrollment form from Shareholder Services, P. O. Box 767, Chicago, Illinois 60690. Phone requests in the metropolitan Chicago 312 Area Code can be made by calling 294-3186 or shareholders may wish to me one of the following toll-free numbers: In Illinois, call 1 800 341-4321; in other states, call I 800 2531122.

11

Board and Management Changes th ron 1.ec, Jr. and Ilide I., Thomas, Executise Vice Presidents of the Company, were elected to the lloard of I)irectors at the 1985 annual meeting of simkhohlers.

'l Lem.M . .u n s Ch. nrm.m Under the retirement pdi(y set forth in our lly l.aws, ofihr E m sn e ('onunmer Thon.as G. Ayers, Chairman of the Executive Committee a nd p.:st ('.ha n m_m .t !Lc and past Chairman of the Company, and Gordon it. Corey, Comp.on .oa!(,r,' a R , former Vice Chairman, retired from the lloard.

Cor n . t on ne r \ "

• 1)uring the year, llennie 11. Stephenson, formerly Chainn m. n m ni imm ihr Manapf PA: ion-Nuclear Stations.and Kenneth I..

""" "I Graesser, formerly Station Nianager of Zion Station, both were named I)isision Vice President-Nuclear Stations.

Alsnin 1985, John 1).Jacobson was appointed hlanager of Fuel and Itobert F.1.indner retired as hlanager of ins estments.

In early 1986,ThomasJ. Staiman, Robert J. Nianning and J. Patrick Sanders were elected Vice Presidents; John C. Ilukovski was appointed Assistant Vice President, and William J. Cormack was named I)isision Vi<e President-Chicago North.

l 12

Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources consistent with the Company's financial viabihty The testimony Capita / Budgets The Company and its electnc utihty subsidiary. concerning these alternatives is expected to be submitted in Commonwealth Edison Company of Indiana. Inc , are engaged late February 1986 in a continuing construction program which has been and will be The Company's continued abihty to finance the construction pro-modified as necessary for adaptation to changing economic con-d!tions, timehness of rate relief, and other relevant factors The gram, as well as its continued viabihty, is dependent upon adequate and t.mely rate rehef Such rate rehef is necessary to construction program for the five-year penod 1986-90 includes provide for the recovery of costs of completed construction expenditures to complete three nuclear generating units with an pro}ects and a level of earnings sufficient to pay for that portion aggregate net capab.hty of 3.360.000 Adowatts The program of the construction program to be financed from intemal sources calls for electnc plant and equipment (excluding nuclear fuel) and to maintain debt and preferred and preference stock cover-expenditures of approumately $5.200 milhon including $1.950 mdhon in 1986. $1.450 mdhon in 1987,1900 mdhon in 1988 $500 ages and common stock equity earnings which will permit the mdhon in 1989 and $500 mdhon in 1990 These estimated empen-issuance of additional secunties of the Company on reasonable datures include $3.535 mahon for production facihties, $1.500 md-terms The construction program. coupled with additional costs imp sed by envir nmental comphance requirements, regulatory hon for transmission and distnbution facilities and $165 mahon delays and difficulties in meeting design and construction for general plant. Construction costs are based on a 6W% an-schedules, has required the Company to seek large amounts of nual escalation rate Purchase commitments poncipally related new carital and has resulted in lower ratings of the Company's to construction and nuclear fuel, approumated $2.097 mdhon at December 31,1985 in addition there are substantial commit. s& unties and higher costs of funds from the sale of debt and equdy SEunties ments for the purchase of coal and od under long term contracts CapitalResources Of the funds required for the 1986-90 con. The current ratings of the Company s secunties by three pon-cipal rating agencies are as follows struction program and other capital requirements. including rett nancing. it is presently estimated that, assuming adequate and Standard Duff and timely rate rehef, approximately two thirds should be provided Moody's & Poor s Phelps from internal sources. with the major partion of the external First mortgage and secured financing requirements expected in 1986 and 1987 The type pollution control bonds A3 A 7 and amount of financing wdl depend on market conditions and Pubbc y he de ures a the resu!ts of rate increase requests dunng the five year penod obhgations Baal A- 8 A portion of the Company's financing will be provided through Convertible preferred stock baal A- 8 the saie and leaseback of nuclear fuel Preference stock baa2 BBB+ 9 Commercial paper P1 A-1 Duff 1 in its October 1985 rate order, the lihnois Commerce Commis-sion (ICC) ordered the Company to fde proposals for phasing Cayal Structure The Company has reduced the long term into rates its investment in Byron Unit 2 and Braidwood Units 1 debt portion of its capitahtation by decreasing its long term and 2. In connection with the Braidwood construction heanngs, debt ratio to 451% at December 31.1985 from 47 9% at the Company fded a report which stated that the Company was December 31.1984 analyzing a number of alternatives to traditional ratemaking which would assure that the near-term effect of rate increases on Results of Operations the Company's customers be moderated and that the Com- Eamings Per Common Share The Company's camings per pany's customers would receive appropnate benefits, common share were $4 45 in 1985. $4 43 in 1984 and $4 39 in 1983 Earnings per share ha<e been affected by rate increases Summary of Selected Consolidated Financial Data (milhons of dollars escept per share data) 1985 1984 1983 1982 1981 Electnc operating revenues $ 4 964 $ 4.930 $ 4 634 $ 4,130 $ 3 737 Net income 1 956 1 875 1 80? ? 007 $ 450 Earnings per common share $ 4 45 $ 4 43 $ 4 39 $ 3 75 $ 3 06 Cash dividends declared per common share $ 3 00 $ 3 00 $ 3 00 $ 2 85 $ 2 70 Total assets (at end of year) $16 285 $14.713 $13.634 $12,582 $11.323 Long-term debt and preference stock subsct to mandatory redemption requirements f at end of year and excludmq current portion) $ 6 531 $ 6 512 $ 6329 $ 6 257 $ 5.698 13

which became effective in December 1982. July 1984 and Oc- of $1131 milhon in other items, pnmarily decreased recovery totnr 1985, stnngent cost control and higher construction relat- of energy costs ed credits. However, eamings per share have been hmited by the effects of inflation and other factors on operating and main. Fue/ Costs Fuel expense decreased in 1985 and 1984 pomanly tenance expenses and increases in interest expense, provisions due to the lower average cost of fuel consumed, reflecting for dividends on preference stock and the average number of greater nuclear generation Fuel expense increased in 1983 common shares outstanding. as well as the factors discussed primanly as the result of increases in net generation of electric tulow Future camings per share are expected to dechne as energy and the price of coal and nuclear fuel consumed The ruw generating units are placed in service in 1987 and 1988 changes in the mix of the fuel sources of electric energy genera-unless higher electnc service rates are granted as the related tion reflect primanly the availabikty of nuclear generating units, construction credits terminate and additional depreciation and 'ncluding nuclear units placed in service in 1984 and 1985 The other costs of operating the facihties are incurred cost of fuel consumed, net generation of electric energy and f uel sources of kilowatthout generahon were as follows Cfdowatthour Sales The Company's kilowatthour sales t 1985 1984 1983 ultimate consumers increased 0 8% in 1985 and were adversely Cost of fuel consumed affected by a sluggish economy, a much cooler than normal (per milhon btu) sumtrer and energy conservation by consumers Kilowatthour Nuclear $0 72 $0 64 $0 55 sales to ultimate consumers incteased 3 4% in 1984. due primar Coal $3 00 $3 00 $2 70 ily to an improved economy, and incteased 3 3% in 1983. reflect. Oil $6 21 $6 41 $7.75 ing the much warmer than normal summer weather and an Natural gas $5 37 $517 $5 40 Aerage au fuels $1.76 $188 $2.07 improving economy.

Net generation of electnc energy (milhons of Electnc Operating Revenues Rate increases approved by the kilowatthours) 61,213 59.887 59,401 Ilknois Commerce Commission had a s.gnificant effect on the Fuel sources of kilowatthour Company's electnc operating revenues in 1985,1984 and 1983 generation and are summanted as follows. Nuclear 59 % 54 % 44 %

Coal 39 42 50 Annual Revenue Oil 1 3 5 Effective Date _ _ _ _ . _ _

(milhons) (a) _ Natural gas _ 1 1 1 October 29,1985 $494 8(b)(c) 100 % 100 % 100 %

July 18,1984 $282.5(c)

December 7,1982 $660 7(d) g ,, ,,, m,,,,, The Company anticipates that upon completion of the nuclear (en inciudes amronesw sat i nii.on of reme to tm octuoed .n rues generating units under construction. a greater percentage of its (c) s on r ea .es total gewabon wiH be from lower fuel cost nuclear generahng td) includes W4 0 maion rtenm increasew e ect* May 7. tW units l

Operating revenues increased $34 5 milhon in 1985 the result of Purchased and Interchanged Power-Net Amounts of pur.

approximately $193 4 milhon from increased rates ano an chased and interchanged power are pnmanly affected by the increase of $210 mahon in other items, primarily from an availabihty of the Company s generating units and the availa-increase in base revenues from higher belowatthour sales to bility and cost of power from other utshties Net purchased and small commercial and industnal customers, off set by $173 9 interchanged power expense decreased in 1985 due to the milhon lower recovery of energy costs greater overall avadabihty of the Company's generating units, an increase in interchange power dehvered to other utikhes and Operating revenues increased $295 7 mahon in 1984, the result of lower cost of power generated by the Company Net purchased approximately $145 2 mahon from increased rates. $70 2 mdhon and interchanged power espense increased in 1984 due to the from increased recovery cf energy costs and an increase of $80 3 increased avadabihty of power from other utihties at costs lower milhon in other items, pnmanly f rom an increase in base revenues resulting from higher kilowatthour sales Operating revenues increased $504 4 mdhon in 1983, the result of approximately $489 3 milhon from increased rates and ap- ,

proximately $128 2 mdhon from an increase in base revenues.

primardy from higher kilowatthour sales, offset by a net dechne 14

l than the incremental costs of generation on the Company ~s long-term debt and notes payable outsM xiing The average system Net purchased and interchanged power expense amounts of long term debt and notes payable outstanding and decreased in 1983 despite an increase in kilowatthours average interest rates thereon were as follows-purchased due to the availability of power from other utilities at 1985 1984 1983 an average cost per kilowatthour lower than the previous year.

Average amount The number and average net cost of kilowatthours purchased outstanding (millions) $6.0319 $5.917 0 $5.8219 and interchanged were as follows Average interest rate 10 47% 10 27 % 9 96 %

1985 1984 Notes payable 1983 Average amount Purchased and interchanged outstanding (millions) $ 0011 $ 322 0 $ 370 6 power-net Average interest rata 810% 13 79% 9 32 %

Kilowatthours (millions) 8 465 8.422 7.601 Cost per kilowattnour 2 31* 2 684 2.57 Other Items The amour is of AF UDC reficct increases in the

1. 9" '*""'"" '* ^ * ##"9" '"

Deferred Under or Overrecovered Energy Costs-IYet Electnc um a as emW in 1dhmh operat:ng expenses for the years 1985.1984 and 1983 reflect the nancial Statements AFUDC was continued on Byron Unit 1 from net change in under or overrecovered allowable energy costs

. in em am o il oc sace ram Reference is made to Notes 1 and 2 of Notes to Financial

'* "9 '" ' ' " ' " " ' ' " ' " ' #'* ** "#

Statemer.ts on October 29,1985, as discussed in Note 2 of Notes to Finan-c al Statements AFUDC does not contnbute to the current cash Operating E penses Operating enpenses increased for the flow of the Company For the year 1985, the equity component of years 1985,1984 and 1983 due pnmanly to placing additional AFUDC constituted 45 6% of net income and the debt compo-nuclear units in service, annual wage and other cost increases nont was equivalent to 16 5% of net income and additional employes The ratios of earnings to fued charges for the years 1985.1984 Depreciation. Depreciation espense increased for the years and 1983 *ere 2 85. 2 82 and 2 82 times. respectively The ratios 1985.1984 and 1983 due pnmanly to additions to plant in of eamings to fined charges and preferred and preference stock service. including nuclear generating units placed in service and dividend requirements for the years 1985.1984 and 1983 were higher average annual depreciation rates Depreciation did not commence on Byron Unit 1 until electnc service rates reficcting 2.15. 211 and 211 times respectively the inclusion of the unit became effective on October 29,1985, as discussed in Note 2 of Notes to Financial Statements regarding the effects of inflation on selected supplementary cata, including cash dividends declared per common share, Interest on Debt Changes in interest on long term debt and the market price per common share and income from notes payable for the years 1985,1984 and 1933 were due to changes in average interest rates and in the amounts of conWng cperahons Price Range' and Dividends Paid per Share of Commrm Stock 1985 (By Ouarters) 1984 (By Quarters)

First Second Third Fourth First Second Third Fourth Price Range:

High 29 % 31 % 32'/o 30% 27 % 24 % 26 % 28"e Low 27 % 28% 28% 27 21 % 21 % 22 % 25 %

Dividends Paid 75C 754 75C 754 754 754 754 754

' As reported as NYSE Composite Transactions.

The company a common stock is traded on the New York. M4 west and Pacific stoch esctianges. eth the toer symtml CWL At oecemtser 31.1985, there were approximateiy 272,000 holders of record of the Company s common stock 15

To the Audit Committee Report of Management of the Board of Directors of Commonwealth Edison Company:

The management of the Company has prepared and is respon We have made a study and evaluation of the system of internal s bte for the conschdated financial statements and the related accounting control of Commonwealth E dison Company and sub financial data contained in this annual report in its opininn. the sidiary compan.cs in effect at December 31.1985 Our study and statements ha.e been prepared in conformity w,th genera!!y evaluation was conducted in accordance with standaras estab accepted accounting pnnciples hshed by the Amencan Institute of Certif'ed Pubhc Accountants To meet its responsib ht.es for the rehabihty of the financial The management of Commonwealth E dison Company is respan statements and the related f nancial data. the Company main- s,ble for estabhshing and maintaining a system of internal ta.r s a s y stem of internal accounting control and supports a pro accounting control in fulfdhng ths responsibihty estimates and g'am of internal audits In order to assure that the system is judgments by management are required to assess the ea pected adequ3tely designed and documented and that it is functioning bentfits and related costs of control procedures The ob i ectives as designed. the Company routinely reuews its system of inter of a system of internal accounting control are to provide man na! accounting control it is management s epinion that the ayment w,th reasonable assurance that assets are safeguard s y stem is adeauate to provide reasonable assurance that asseis ed against !oss from unauthonted use or dispos. tion and that are sa'eguaro ?d from loss or unauthented use and that financial transact:cns are cuecuted in accordance with management s records are rehable for prepanng f.noncial information in confor authontation and recorded property to permit the preparahon of mity with genera'ly accepted accounting principles The c,n financial statements in accordance. with generally accepted cept of reasonable asrurance is based on the recognition that accounting pnnciples the cost of a system of internal accourting control must be relat-ed to the benef ts denved The bafancing of those factors

, ficcause of inherent hmitations in an y s ystem ot internal account -

reau,res estima+cs and judgment ing control errors or irregulanties may occur and not be detected Also pro;cction of any eva'uation of the s, stem to The Board of Directors carnes out its retpons:b+ty for the f: nan future periods is sutyect to the hsk that procedures may become cial statements and the related f.nancial data through its Aud.t inadequate because of changes en conditions or that the degree Committee which is composed solely of outside daectors The of comphance witn the procedures may dr>tenorate Audit Comm;ttee meets penod cahy with rranagement. the inter nat aud. tor. and independent pubhc accountants to ensure that in our opinton the system of internal accounting control nf each is carrpng out its respon5+bthfies, and to discuss aud;t.ng Commonwealth [ dison Company and subsdary compan.es in internal accounting control and financtai reporting matters Oath eMect at December 31, trE taken as a whole. was softcient to the internal aud. tor and the independent pubhc accountants meet the nhjectives s'3ted above insofar as those ob;ectives I have free access to the Aud iComm.ttce Mh and Mhout man pertain to the pre,ent.on nr detection of e,f ors or ircr'gularit es r agement present to discuss the results of their audit work the amounts thaf would be ma'enal in rNation to the consohdated adegaacy of internal account'og control and the.r opinions nn ftnancal statements other f,nanc)al matters G Ok mm QAu 2.

_ _ _, . m -, ~_

CM rman avt Ns* ' Vo Ch+m en i < br w ,1 V%

16

Statements of Consolidated Income Commonwealth Edison Company and Subscary Companies (thousands except per share data) 1985 1984 1983 ELECTRIC OPERATING REVENUES $4.964.151 $4.929 671 $4.634 021 ELECTRIC OPERATING EXPENSES AND TAXES Fuel (Notes 1. 2,10 and 19) $1.205,784 $1.259 539 $1.372236 "

Purchased and interchanged power - nel 195.934 225.702 195.581 Deferred (under)/overrecovered energy costs - net (Notes 1 and 2) (29.464) 63 773 (108.059)

Operation 858 452 766 553 676.007 Maintenance 337.462 316.141 287 572 Depreciation (Notes 1,2 and 19) 455 9fA 390.675 319.255 Taxes (except income)(Note 13) 586.832 565.021 533.799 income taves (Notes 1 and 12) -

Current - Federal 154,948 162.888 135.716

- State 36.071 52.857 27.479 Deferred- Federal - net 205.313 107.625 262.909

- State - net 31 238 18 349 44.114 investment tan credits deferred - net (Notes 1 and 12) 59.152 161.982 21,141

$4.097.686 $4.091.105 $3 767.750 ELECTRIC OPERATING INCOYE

~ ~

$ 866 465 $ 838.566 $ 866 271

~

UTidR 15 COVE AND DifC5UCTIONS Interest on long term debt $ 431.377) $ (607.792) $ (579 642)

Interest on notes payable (24.390) (34.744) (34 551)

Allowance for funds used dunng construction (Notes 1 and 2) -

Borrowed funds 157.961 149.339 122 345 Equity funds 436 08" 388 085 307.632 Deferred return-rate phase in plan (Note 2) 6 76 , - -

Current income fait cred.ts applicable to nonoperating activities (Notes 1 and 12) 150.576 151 380 132.4th Miscellaneous - net (6 353 (9 356) (12 246)

$ 89 271 $ 36 912 $ (63 993)

NET INCOVE $ 955 736 $ 875 478 $ 802 278 PROVISION FOR DIVIDENDS ON PREFERRED AND PREFERENCE STOCKS 116.111 114 316 107 GH0 NET INCOVE ONFOVVON STOCK $ R39 625 $ 761.162 $ (M4 508 AVERAGE NUYBER OF COVMON SHARES OUTSTANDING 188.746 172,013 158,129 E ARNINGS PER COVVON SHARE $4 45 $4 43 $4 39 CASH DIVIDENDS DECLARED PER COVVON SHARE $3 00 $3 00 $100 T% accmpareng wn to F-ai stawes a o an +pai pet v tw arme s'ai.es t > iniu a'n + + rte Report of Independent Public Accountants To the Stockholders of Common Acalth Edison Company We have eramined the consohdated balance sheets and state- In our opinion, the financial statements referred to above present ments of consohdated capitahtation of Common 6catth Edison fairly the financial position of Cornmon*calth Edison Company Company (an Hhnois corporation) and subsidiary companies as of and subsidaary companies as of Decemtwr 3 t.1985 and 1984.

December 31,1985, and 1984, and the related statements of and the results of their operations and the changes in their consohdated income. retained earnings, premium on common financial position for each of the three years in the period ended stock and other paid in capital and changes in ftnancial position December 31,1985, in conformity with generally accepted for each of the three years in the penod ended December 31, accounting pnnciples apphed on a consistent basis 1985 Our esaminations were made in accordance with genera!!f accepted auditing standards and, accord:ngly, included such ""M .

tests of the accounting records and such other auditinq Chicago llhnois, procedures as we considered necessary in the circumstances February 3.1986 17 h . . ..

Consolidated Balance Sheets Commonwealm Edison Company and Subsidiary Coinpenses ASSETS (thousands of dollars) December 31, 1985 1984 UTILITY PLANT (Notes 1. 2. 3. 8.14.16 and 19)

Plant and equipment. at original cost (includes construction work in progress of

$4.914 million and $6.061 million, respectively) $19.156 200 $17.458.121 Less - Accumulated provision for depreciation 3.583.661 3.247.695

$15.572.539 $14 210.426 Nuclear fuel, at amortized cost 953.057 707.026

$16.525.596 $14.917,452 Less - Accumulated deferred income taxes (Note 12) 1.829 351 1.588.765

$14.696.245 $13.328 t;87 INVESTMENTS (Note 15) i Subsidiaries not cont.ohdated (Note 1) $ 145 767 $ 148.454 Other investments at cost 155 f(27 159.361 l

l . - - . -- .. . . _ . - . - - . - - _ . - - ..- -.

$ 301.434 $ 307.815 Cash (Note 9) $ 27.242 $ 27.962 Temporary cash investments. at cost which approximates market 18.865 33.180 Special deposits 9.448 9.443 Receivables -

Customers 390.246 384.153 Other 31 406 18 557 Provision for uncollectible accounts (6.000) (5.500)

Coal and fuel oil at averago cost 393.539 291.451 Materials and supphes, at everage cost 186 962 153 490 Prepayments 26 036 18 318 Octerred underrecovered energy costs (Notes 1 and 2) 56 165 26 701

$ 1.133.909 $ 957.755 DEF E R." ED CHARGE S Unamortized spent nuclear fuel disposal fee and rotated interest (t otes 1 and 10) $ 74 735 $ 81.781 Rate phase in plan (Note 2) 6.765 -

71.958 36.754

_ Other . _ _ _ __ _ _ _ _ _

~ ~ ~ ~ ' ~ ~

$ 153.458 $ 118 535

$16 2H5 046 $14 712 792 1% acompany.rq ea>tes to r v,anr emi Wemem, are en enwral pet or tre arme staten.ents t ) ws. caves or.tur i.,n 18

LIABILITIES (thousands of dollars) December 31, 1985 1984 CAPITALtZATiON (see accompanying statements)-

Common stock equity $ 5.834,765 $ 5,059.282 Preferred and preference stocks without mandatory redemption requirements 451.307 454.803 Preferenco stock subt ect to mandatory redemption requirements 752.372 750.668 5,778,478 5.760.973

_Long term debt

$12.816,922 $12.025,726 CURRENT UABILITIES Notes payable (Note 9)-

Commercial paper $ 309.900 $ 289.100 Bank loans 2,100 1.800 Current portion of long term debt, redeemable preference stock and capitatued lease obligations 626.235 231,901 Accounts payable 511.946 432.341 Accrued interest 190.608 165.144 Accrued taxes 174,866 189.891 Devidends payable 175.201 161.405 Customer deposits 40,704 38.075 Other _ ,

50.077 46.829

$ 2.081.637 $ 1.556.486 OTHER NONCURRENT LIABILITIES.

Accrued spent nuclear fuel disposal fee and interest thereon (Note 10) $ 350.050 $ 322,339 Obligations under post 1982 capital leases (Note 14) 383.135 223.378 Cther _

84,156 74.839

$ 817.341 $ 620.556 ACCUMULATED DEFERRED INVESTMENT TAX CREDITS (Notes 1 and 12) $ 569.146 $ 510.024 COMMITMENTS AND CONilNGENT LIABILITIES (Note 17)

$t62M 046 $14 712 792 the eaompanymg Notes to r noncis siaeements we en meegrw pet or im etme steements 19

Statements of Consolidated Capitalization 1 Commonwealth Edison Company and Subsidiary Companies (thousands of dollars) December 31 1985 1984 COMMON STOCK EOUlTY (Notes 4. 5 and 19).

Common stock. $12 50 par value per share -

Outstanding -194.743.645 shares and 176.209.643 shares, respectively $ 2.434.295 $ 2.202.621 Premium on common stock and other paid in capital 1.886 265 1,607,553 Capital stock and warrant expense (17.903) (17.581)

_ Retained earnings 1.532.108 1.266 689

$ 5.834.765 $ 5.059.282 PREFERRED AND PREFERENCE STOCKS WITHOUT MANDATORY REDEMPTION REQUIREMENTS (Notes 4 and 6)

Preference stock, cumulative, without par value - '

Outstanding - 10.499.549 shares $ 432.320 $ 432.320

$1425 convert,ble preferred stock, cumulative, without par value -

Outstanding -597.084 shares and 707.011 shuts respect.vely 18.987 22.483 Pnor preferred stock. cumulative. $100 par value per share - no shares outstanding - -

$ 451.307 $ 454.803 PREFERENCE STOCK SUBJECT TO MANDATORY REDEMPTION REQUIREMENTS (Notes 4 and 7)

Preterence stock, cumulative without par value -

Outstanding - 10Mt.290 shares and 10.879 205 shares, re spectively $ 791.666 $ 768.425 Current redemption requirements for preference stock included in current liabilit es (29 294) (17.757)

$ 752.372 $ 750.668 LOhG TERM DEBT (Notes 8 and 19)

First mortgage conds Maturing 1985 through 1990 -

3% due Apol 1,1985 $ -

$ 100.000 31s% due June 1.1985 -

4.000 34% due June 1.1986 40.000 40.000 5 80% Pollution Control due July 1.1986 10.000 10.000 4%% due March 1.1987 50,000 50.000 3%% due March 1.1988 50.000 50.000 17WN due November 1.1988 150.000 150.000 16%% due May 15.1989 100.000 100.000 l 14% due July 15.1989 100.000 100.000 4%% due March 1.1990 30.000 30.000 l 16% due March ti 1990 200 000 200.000 5% duc July 1.1990 10.000 10 000 Matunng 1991 through 2000 - 5%% to 14%% 925.000 825 000 Matunng 2001 through 2010 - 6%% to 11%% 1.520 000 1.490.000 Matunng 2011 through 2015 - 10%'. to 16%% . 1.011.000 650 000

$ 4.196.000 $ 3.809.000 Ocbentures due December 15.1986 - 12 4 % 250.000 250.000 Debentures. due March 15.1987 - 14 Pe% 125 000 125.000 Sinking fund debentures. due 1996 through 2011 - 2%% tc 15%% 1.054.019 1.123.352 Pollution control obligations, due 2000 through 2014 - 5!.% te 11 %% 453 200 453.200 Other (pr ncipatty long term notes) 201.672 201.760 Current metunties of long term debt included in current liabilities (460.031) (164.030)

Unamortized r.ct debt discount and premium (Note 1) (41.382) (37.309)

_ _ - _ _ , -. .- ._-_ .._..t . _ _ _ . . . . _ _ _ _ _ _ _ . _ _ _ . , _ _ _

$ 5.778 478 _

$ 5.760.973 512 816 922 $12 025 726 t% .cwr%.ngny %,ns se.,.w.ai si.iiemis c en re.y. poi os tw erm. ivai.wis , i on,w i.: w n.im

Statements of Consolidated Changes in Financial Position Commonwealth Edison Company and Subsidiary Companies (thousands of dollars) 1985 1984 1983 FUNDS DROVIDED BY:

Current operations -

Net income $ 955.736 $ 875,478 $ 802.278 Depreciation and amortization 541.997 480,995 410.379 Deferred income taxes and investment tax credits - not 299.773 294.419 330.085 Equity component of allowance for funds used dunng construction (436.089) (388.085) (307,632)

Other non-cash items - net (6.460) 3.667 (3.225)

Funds provided internally $1.354.957 $1.266,474 $1.231.885 issuance of secunties -

Long term debt 583 582 339.808 510.161 Capital stock 540.924 245.046 550.513 Sale of nuclear fuel 439.648 231.637 35.206 Increase (Decrease) in short-term borrowings 21.100 129.400 (211.210)

$2.940.211 $2 212 365 $2.116.555 FUNDS APPUED TO:

Construction expenditures $1,834.646 $1.602.800 $1.440.256 Nuclear fuel enpenditures 250.718 180.379 230.415 Equity component of allowance for funds used dunng construction (436.089) (388.085) (307.632)

$1.649.275 $1.395.094 $1.363.039 Cash dividends declared on capital stock 690.317 632,926 588.314 Retirement of bonds and debentures for cash 170.361 293.325 149.043 Retirement of long term notes 100,000 100.000 100.000 Redeemed or reacquired preference stock 21.443 25.040 16.721 Termination of a nuclear fuellease 251.402 - -

Increase (Decrease) in investment in subsidiaries not conscidated (5.063) (6.711) (9.188)

Increase (Decrease)in working capital (other than short-term borrowings and current portion of long term debt, redeemable preference stock and capitalized lease obligations) 66.437 (281.692) (104,382)

Other items - net (3.961) 54.383 13.008

$2.940 211 $2 212.365 $2116 555 t I ,es -r.

Statements of Consolidated Retained Earnings (thousands of dollars) 1985 1984 1983 BALANCE AT BEGINNING OF YEAR $1.266.689 $1.024,137 $ 810.173 NET INCOME 955.736 875.478 802.278

$2.222.425 $1.899.615 $1.612,451 DEbOCT - Cash dividends declared on -

Common stock $ 574.129 $ 518.373 $ 480.117 Preferred and preference stocks 116.188 114.553 108.197

$ 690.317 $ 632.926 $ 588.314 BALANCE AT END OF YEAR $1532108 $1266 689 $1.024137 Statements of Consolidated Premium on Common Stock and Other Paid-In Capital (thousands of dollars) 1985 1984 1983 BALANCE AT BEGINNING OF YEAR $1.607.553 $1.508 702 $1.251.138 ADD - Premium on issuance of common stock and gain en reacquired preference stock 278.700 98.905 257.645

$1.886,313 $1.007.007 $1,508.783 DEDUCT - Transfer to common stock account upon esercise of warrants 48 54 81 BALANCE AT END OF YEAR $1886 265 $1607.553 $1.508.702 INi aturparyrw; Prites to F manual Sialefrumis are an mtepal part of the etsne statertwmis

Notes to Financial Statements Comnv>nwealth Edison Company and Subsidiary Companies (1) Summary of Significant Accounting Policies Amortization of Nuclear Fuel The cost of nuclear fuel is amor-Pnnciples of ConsohdJtion The consohdated financial state- tized to fuel expense based on the quantity of heat produced ments include the accounts of Commonwealth Edison using the unit of production method As suthorized by the !!!inois Company (the " Company") and its wholly-owned subsidiary, Commerce Commission (ICC), prove", ions for spent nuclear fuel Commonwealth Edison Company of Indiana, Inc., the only sub- disposal costs are recorded at a rate of two mills per kilowatt-sidiary engaged in the electoc utility business All significant in- hour of net nuclear generation which includes the fee payable on tercompany transactions have been eliminated current nuclear generation and the balance for recovery of the one-time fee for disposal of spent nuc! car fual, and interest Individual financial statements of the Company have been omit- thereon, related to nucleai generation prior to April 7,1983 ted because the Company is pnmanly an operating company Reference is made to Note 10 for further information concerning and the subsidiary included in the consohdated financial state- the disposal of spent nuclear fuel Nuclear fuel expense, includ-ments is totally-held Financial statements of the Company's ing leased fuel costs and provisions for spent nuclear fuel dispos-nonconsolidated subsidianes have been omitted because. al costs, for the years 1985,1984 and 1983 were $291,159.000, considered in the aggregate, they would not constitute a $234.031,000 and $162.251.000 respectively. c significant subsidiary.

Income Taxes. Deferred income taxes are provided for income investments in Subsidlanes not Consohdated The investments and expenses recognizea for financial accounting purposes in in subsidianes not consolidated are accounted for in accordance penods that differ from those for income tax purposes income with the equity method of accounting At December 31,1985. taxes deferred in prior years arc charged or credited to income 1984 and 1983. retained earnings include $20.904.000, as the book / tax timing differences reverse.

$17.992.000 and $20 263.000, respectively, of undistributed eamings of subsidianes not consohdated. The equity in earnings investment tax , viits utilized are deferred for financial account-of subsidianes not consolidated, which is included in miscella- ing purposes ard amortized through credits to income over the neous other income and deduction < for the years 1985,1984 lives of the related property.

and 1983 was $6,413.000, $2,479.00( anct $10,199,000, respec-tively The Company's investment in its uranium subsidiary at Provisions for deferrals of construction-related income tax December 31,1985 includes approximately $3.333.000 benefits (e g accelerated cost recovery and liberalized de-representing the unamortized portion of the purchase cost preciation) reflect consumption of the plant and equipment to attnbutab'e to uranium ore reserves after taking account of the which they relate. Consequently, they are similar to depreciation estimated net value of the subsidiary's other assets at the date provisions, and the related accumulated deferred income taxn, of acquisition This amount is being amortized on the basis of like the accumulated provision for depreciation, is a valuation uranium concentrate produced from the reserves reserve deducted from plant investment in arnving at the rate base used in ratemaking proceedings.

Depreciation Depreciation is provided on the straight-line basis by amortizing the cost of depreciable plant and equipment over income tax credits resulting from interest charges applicable to estimated composite service lives. Such provisions for nonoperating activities, pnncipally construction, are classified as depreciation were at average annual rates of 3 96%,3 91% and other income 3 84% of averaga depreciable utility plant and equ.pmeni for the years 1985,1984 and 1983, respectively. For penods prior to Referme is made to Note 12 for additional information relating Apnl 1984, such rates exciude LaSa!!e County Unit 1 and the de. to income taxes preciation tnereon that had been computed to ref\ect the relative Allowance for Funds Used Dunng Construction (hFUDC) In degree to which the unit was operating as measured by hilowatthour output. As discussed in Note 2 depreciation on  !

regulatory authonties, the Company capitalizes AFUDC,  !

Byron Unit 1, placed in service in Apn! 1985, did not commence '

i ese Mmew until electnc service rates relating to the inclusion of the unit in g rate base became effect>ve on October 29,1985. While the even-on which construction commenced poor to 1983, AFUDC was tual cost of retinng a nuclear generating unit is uncertain at the present time. these composite depreciation rates include al-10 06%,10 08% and 9 70% for 1985,1984 and 1983, Iowances for both intenm chemical cleaning and end of life msp ct4 6 progets on wM constn.iction commad decommissioning after 1982, AFUDC of approximately $23,426.000, $14,207.000 and $4,316.000 was recorded on a pre-tax basis in 1985,1984 22

l and 1983, respectively, at average annual rates of 12 63% respectively. Under the October 1985 rate order, these amounts 12 80% and 12 42% respectively. Reference is made to Note 2 are being recovered in electnc service rates over the remaining regarding the continuance of the capitalization of AFUDC on service life of the unit Byron Unit 1 af ter the in-service date and to the first paragraph The Ithnois Pubhc Utihties Act requires the ICC to hold annual of "Other items" in Management's Discussion and Analysis of ubhc heanngs to determine whether each utthty's fuel Financial Condition and Results of Operations adjustment clause reflects actual costs of fuel prudently purchased and to reconcile amounts collected with actual costs Debt Discount. Premium and Expense. Discount. premium and in November 1985, an ICC statt witness recommended that the expense on long term debt are being amort Zed over the hves of Company refund to customers $815 milhoo in electnc energy the respective issues production costs incurred by the Company and collected DeferredRecovery o/ Energy Costs The uniform fuel adjustment through the fuel adjustment clause in 1983, because of allegedly clause adopted by the ICC provides for the recovery of changes avoidable forced outages of the Company's nuclear generating in fossi! and nuclear fuel costs and the energy portion of stations and slow start-up of Unit 1 at the Company's LaSalle purchased po6er costs as compared to the fuel and purchased County nuclear generating station While the ICC has not yet energy costs included in base rates As authonzed by the ICC. ruled on this matter, the Company beheves that all energy the Company has recorded under or overrecovenes of allowable production costs were proper and it is unreasonable to fuel and energy costs which, under the clause, are recoverable anticipate that any refunds will be required or refundable in subsequent months Reference is made to the (3) Braidwood Construction Hearings fourth paragraph of Note 2 ,gg complete the construction of its nuclear generating units, (2) Rate Matters in its rate order issued October 24,1985. as amended, the ICC including the Braidwood units in as timely and economic a adopted a phase-in plan resulting in a deferral of revenue manner as possible in Apol 1985. the ICC began heanngs with respect to the subject of cancelhng one or bcth of the recognition of retum on a portion of the costs of Byron Unit 1 Braidwood units currently under construction in October 1985.

through December 31,1986 Effective January 1,1987. the plan provides for an increase in rates of $136 2 milhon. which reflects the ICC suspended the proceeding pending complet on by the a full return on the postponed portior, _ dyron Unit 1 costs and Company of its announced reexamination of the economics of the recovery over a two-year penod of the previously deferred completing and operating its generating units under return and associated carrying charges Under the plan, rates construction and ordered that the proceeding be reopened for f urther heanngs and evidence f ollowing such reex amination The designed to decrease annua revenues by $551 milhon will become effective January 1,1989. to reflect completion of the ICC also ordcred the Company to record separately costs for recovery of the deferred amounts The Company records the Braidwood station incurred af ter November 30.1985. and stated amount of return deferred for penods poor to January 1,1987, that in the event the ICC ultimately determines that Braidwood and assoc:ated carrying charges, as a Deferred Charge on the station be cancelled, there would be a strong presumption that the Company would not be allowed to recover such costs Costs Consohdated Balance Sheets and as Other income in the Statements of Consohdated income The capitah2ed amounts incurred for the Braidwood stahon through December 31,1985 were $3,160.951.000. of which $84.179.000 was incurred af ter will be amort:7ed over the two-year recovery penod beginning January 1 1987. November 30.1985 In January 1986, the ICC heanng e a aminer recommended to the In its rate order, the ICC also disallowed return and depreciation ICC that rates tc customers not reflect any plant costs of the on $101 S milhon of Byron Unit 1 costs The Financial Accounting adW MaWn in mess of % M pon, N Gmpan/s Standards Board (FASB; has proposed the revision of an cun n estimate of the cost of the station The proposalis not

- accounting standard which, if adopted. would require the consiMed as Merminahve of the issue of whether Company at some future date to wnte off the disallowed Byron c nstruction at Braidwood stabon should be completed or Unit 1 costs, net of the income tax effect cancelled The Company continues to beheve inat completion of Pursuant to authonzation of the ICC, the Company continued to the Braid Aood station is economically justified and intends to capitakze AFUDC on Byron Unit 1, and postponed complete the station The Company has proposed to the ICC commencement of depreciation on the unit from Apnl 22,1985, that the amount recoverable from customers be hmited to $5 05 the in-sWce date, until electnc service rates reflecting the billion, except for cost increases which might result from inclusion of the unit in rate base became effective on hcensing or other regula:Ory delays In January 1986, the ICC October 29.1985 The amounts of additional AFUDC .ad staff, based on the record in the heanngs. recommended that porponed depreciation were $117 8 milhon and $4/ % Mi! hon, the petition seciong cancellation of the Braidwood station filed by certain parties be denied While the Company can not 23

Notes to Financial Statements (Continued) predict the outcome of the Braidwood construction heanngs. the At December 31,1985 and 1984,184.959 and 196.802 common Company beheves that it would be unreasonable to anticipate stock purchase warrants, respectively, were outstanding The that the ICC weit order cancellation of the Braidwood station. The warrants entitle the holders to convert such warrants int,:

Company also beheves that while rate moderation plans may be common stock at a converstori rate of one share of comnion adopted, it also would be unreasonable to anticipate that rate stock for three warrants rehef ultimately obtained will be insufficient to provide for at least the recovery of its investment in Braidwood (as well as (6) Preferred and Prefer *G M5cks Without Mandatory Byron Unit 2 also presently under construction), together with Redemption flequiremen*

related interest costs, and therefore beheves that under present No shares of preferred or prefetence stocks without mandatory generally accepted accounting pnnciples no matenal write off of redemption requirements were issued or redeemed by the Com-its investment in the Braidwood station would be required. pany dunng 1985,1984 and 1983 The senes of preference stock However, the FASB's proposed revision of an accounting without mandatory redemption requirements outstanding at standard,if adopted, would require the Company to wnte off any December 31,1985 are summanzed as follows disallowed costs net of the income tan effect Aggregate involuntary (4) Authorized Shares and Voting Rights of Capital Stocks Shares Stated Value Redemption Liquidation At December 31,1985. the authonzed shares of capital stocks 0 a}

were. common stock - 250.000.000 shares: preference $190 4.249 549 $106.239 $ 25 25 $2500 stock - 32541.290 shares $1425 convertiole preferred stock -

597 084 shares, and poor preferred stock - 850.000 shares. The p h f

$7 24 750.000 74.340 $10100 $9912 poor preferred and preference stocks are issuable in senes and $8 40 750.000 74 175 $10100 $98 90 may be issued with or without mandatory redemption require. $8 38 750.000 73.566 $102.15(b) $98 09 ments Holders of shares at any time outstanding, regardless of 10.499.549 $432.320 class, are entitled to one vote for each share held on each mat- (a) Per shse plus accrued and urpad d'vdends d any ter submittcd to a vote at a meeting of stockholders, with the (13 Th'ough vecn 31. tw and 1t0016 ttweaner nght to cumulate votes in all elections for directors The outstanding shares of the $1.425 convertible preferred (5) Common Stock stock are convertible at the option of the holders ibereof, at At December 31.1985, shares of common stock were reserved any time, into common stock at the rate of 102 shares of for the following purposes common stock for each share of convertible preferred stock, Automatic Dividend Reinvestment and Stock subject to future adjustment. The convertible preferred stock Purchase Plan 4.589.897 may be redeemed by the Company at $42 per share, plus Employe Stock Purchase Plan 3.778.334 accrued and unpaid dividends,if any. The involuntary liquida-

! Employe Saangs and Investment Plan 1,650,743 Employe Stock Ownership Plan 549,823 tion pnce of the $1.425 convertible preferred stock is $3180 Conversion of $1425 convertible preferred stock 609.025 per share, plus accrued and unpaid dividends, if any. During Conversion of warrants 61,653 1985,1984 and 1983,109.927 shares, 107,978 shares and

~-

11.239.475 330,221 shares, respectively, of the convertible preferred stock were converted into common stock Shares of common stock, $12.50 par value per share, were I issued as follows:

1 1985 1984 1983 Pubhc offenngs 10.000.000 - 11,000.000 Automatic Davidend Reinvestment and i Stock Purchase Plan 7,30f 450 8.080,296 6.299.682 Employe Stock Purchase Plan 420.942 476,626 403.815 Employe Savings and Investment Plan 128.409 116,712 104.136 Employe Stock Ownersh!p Ptan 567.249 179,713 368.289 Conversion of $1425 convertible preferred stock 112.096 108,483 328.019 Conversion of warrants 3.856 4.313 6,461 18.534,002 8.966.143 18.510.402 24

(7) Preference Stock Subject to Mandatory Redemption mandatory redemption requirements were issued The senes of Requirements preference stock subject to mandatory redemption requirements Dunng 1985,1984 and 1983. 350.000 shares,400 000 shares and outstanding at December 31,1985 are summanied as follows 750.000 shares, respectively , of preference stock subject to Aggregate Shares Stated Value Senes Outstandlng (thousands) Redemption Poce(a)

$2 875 1.943.200 $ 46 831 $26 50 through October 31.1989 and $25 25 thereaf ter

$2 375 2.048.700 49 476 $25 75 through October 31,1990. and $25 25 thereaf ter

$8 20 607,140 60.714 Non-callable poor to November 1,1987, except for sinking fund. $105 through October 31,1992. $103 through October 31,1997 and $101 thereafter

$8 40 Senes B 629,750 62.550 $103 through Apn! 30,1988. and $101 thereaf ter

$8 85 675.000 67.500 Non ca!!able pnor to August 1,1988. except for sinking fund. $105 through July 31, 1993 $103 through July 31.1998. and $101 thereafter

$9 25 1.425.000 142.500 Non-callable poor to August 1,1989. except for sinking fund $105 through July 31 1994. $103 through July 31.1999, and $101 thereatter

$1170 712.500 69.875 Non ca4able prior to November 1,1989. except for sinking fund $105 through Oc-tober 31.1994 $103 through October 31,1999. and $101 thereaf ter

$12 75 500 000 49.605 $103 through July 31,1990. and $101 thereaf ter

$15 00 340.000 34.000 Non ca table poor to August 1,1987, except for a change in tarabihty of dividend.

$106 67 through Ju!y 31.1988 $105 through July 31,1989. $103 33 through July 31.1990 $10167 through July 31.1991. and $100 thereafter

$13 25 500.000 50,000 Non callable poor to November 1.1992, except for sinking fund. $103 79 through October 31.1993. $102 84 through October 31,1994. $10189 through October 31, 1995. $100 95 through October 31.1936. and $100 thereaf ter

$11 125 400.000 39.660 Non-ca'lable poor to November 1.1988. $104 95 through October 31. 1989.

$103 71 through October 31.1990. $102 47 through October 31,1991. $10124 through October 31.1992. and $100 thereaf ter

$10 875 350 000 34 654 Non callable poor to November 1,1989 when the entire senes is required to be redeemed at $100

$13 25 Senes B 400 000 39 616 Non callable poor to November 1.1990. $104 42 tnrough October 31. 1991

$102 94 through October 31.1992. $10147 through October 31,1993. and $100 thereafter

$9 30 350 000 34 685 Non callable poor to November 1, 1991. $10310 through October 31, 1992,

$102 07 through October 31,1993. $10103 through October 31.1994. and $100 thereafter 10 881 290 $781.666 (a) Per share PJus accrued ard rpad dwdeNH if a^j 25

i K tes to Financial Statements (Continued)

The annual sinking fund requirements and sinking fund and irwoluntary hquidation pnces per share of the outstanding senes of prefer-ence stock subject to mandatory redemption requirements are summanzed as follows Sinking Fund Involuntary Ser es Annual Sinking Fund Requirement Pnce(a) Liquidation Pnce(a)

$2 875 150.000 shares (b) $ 25 $ 2410

$2 375 150.000 shares (b) $ 25 $ 2415

$8 20 35,715 shares $100 $100 00

$8 40 Senes B 30.000 shares (b) $100 $ 99 326

$8 85 37.500 shares $100 $100 00

$9 25 75.000 shares $100 $100 00

$11.70 37.500 shares (b) $100 $ 98 07 3

$12 75 50,000 shares beginning in 1986(b) $100 $ 99 21

$15 00 68 000 shares beginning in 19881b)(c) $100 $100 00

$13 25 50,000 shares beginning in 1988(b)(d) $100 $100 00

$11 125 80.000 shares beginning in 1989(b) $100 $ 9915 3

$10 875 350.000 shares in 1989(e) $100 $ 99 01

$13 25 Senes B 80.000 shares beginning in 1990(b) $100 $ 99 039 '

$9 30 70.000 shares heginning in 199t(b) $100 $ 9910 ,

[a) per share plus aCC*dwi Anr1,inpM AN= 4q i by The cepan, has a non rumulatae coton to ccr'ase the ann a! usr ng fund pa mer'tr on each s.nk.ng fund requirement r1 ate to +twe an ad4t,ona! nure ber of shares.

not in emcess of the s nong fund requirement at the ar@ cad 6e redempton price (C) Each toder has the ryt to require the Company to e=ercise ets non cumulat+e cction for the hoider s pro ear a portior' of the vreng fund requoement (d) Tr'e manmum rWter of shares a:iowed to tx redeemed ur' der the non carmiatwe opton is 100 000 :.twes (e) The entire 5.enes is required to be redeemed c 19tt3 Annual remaining sink.ng fund requirements through 1990 on The Company's outstanding first mortgage bonds are secured preference stock outstanding at December 31.1985 will ag- by a hen on substantially all property and franchises, other than gregate $29.619.000 in 1986. $34 047.000 in 1987. $45.872.000 in e pressly excepted property, owned by the Company.

1988, $88.872.000 in 1989 and $61.872.000 in 1990 Dunng 1985.

1984 and 1983. 347.915 snares. 592.765 shres and 419.775 (9) Lines of Credit ,

shares, respectively, of preference stock subject to mandatory The Company has unused bank knes of credit of $659.800.000 at redemption requirements were reacquired to meet sinking fund December 31.1985 Borrowings may be made under these knes requirements. of credit on unsecured notes of the Company Of that amount,

$459.800,000. substantially all of which enpires September 30 Sinking fund requirements due within one year are included in 1986 may be borrowed at prevailing pnme interest rates The current habihties Cnmpany maintains cash balances on deposit to provide operating funds, to assure availabihty of such knes of credit and (8) Long-Term Debt to compensate the bank s for other services they perforrn for the Sinking fund requirements and scheduled matunties remaining Company These bank balances for the Company and its con-through 1990 for first mortgage bonds and debentures outstand Sohdated subsidiary are maintained at an average level of ap-ing at December 31.1985, af ter deducting debentures re- proximately $29.000.000 without formal commitments to do so acquired for satisfaction of future sinking func requirements and As demand deposits, these balances may be withdrawn at any I annual sinking fund requirements for f;rst mortgage bonds to be time satisfied by available croperty additions. are summanzed as fob lows: 1986-$360.000.000.1987-5236.088.000.1988- Of the unused bank knes of credit. $200.000.000, which expires

$263.187.000.1989-$264,073.000. and 1990-$306.240.000 March 31,1986, also may be borrowed at prevaihng pnme interest rates Under these knes of credit, the Compaay is At December 31,1985, the Company had outstanding obhgated to pay commitment fees of % of 1% per annurn

$100.000.000 of long term notes due July 17,1986 and

$100.000,000 of long term notes due July 1,1987, at prevaihng in addition, at December 31,1985 the Company has $174,375.000 interest rates Such rates at December 31.1985 averaged of unused bank knes of credit available in connection with the 8 77 % nuclear fuel lease agreements discussed in Note 14 The -

$700.000.000 maximum amount available under these hnes of Long tum debt matunng within one year is included in current credit is reduced by the amount of ruclear fuellease obhgations habihties outstanding under the q eements Of these knes of credit.

I 26 u

l

$300.000.000 expires March 22,1989 and $400,000.000 expires habihty no later than 1989 Because this new standard will be December 1,1990, both with options for extensions, upon implen ented prospectively, the financial statements included mutual agreements between the Company and the banks. of herein will not be restated The Company has tentatively decided one or more one-year penods until March 22,2009 and to implement the new vandard in 1986 Based on a prehminary December 1,2010, respectively B >rrowings made against these review, under existing conditions, the Corrpany ex pects that the knes of credit will be at vanous interest rates new standard, when adopted, will not have a material adverse impact on ei ther the financial position or results of operations.

(10) Disposal of Spent Nuclear Fuel Under the Nuclear Waste Pohcy Act of 1982, the. U S The companies also provide certain post-retirement health care Departrnent of Energy (DOE) is responsible for the ultimate benef:ts for retirees and their dependents and for the surviving storage and disposal of spent nuclear fuel removed from nuclear dependents of chgible employes and retirees Substantially all of teactors. The Company has a contract with DOE for disposal of ths, coir.panies' employes become chg ble for post retirement spent nuclear fuel which requires the Company to pay to DOE a health care benefits if they reach retirement age while working one-time fee apphcable to nuclear generation through Apol 6. 3r the companies in 1980, the companies began funding the 19R3 of approximately $277,000,000, with interest to date of iability for post retirement health care benefits through a truit payment, and a fee payable quarterly equal to 1 mill per fund and the estimated cost of post retirement health care kilowatthour of nuclear generation af ter Apnl 6.1983 The benefits is being accrued and funded over the working hves of Company has elected to pay the one time fee with interest, the employes Provisions for contnbuticsis to the trust fund for pnor to the first scheduled dekscry of spent nuclear fuel to DOE 1985,1984 and 1983 were $30.083,000, $24.8/7 000 and expected to occur not later than January 1998 The Company $16.945,000, respectively, and were based on the aggregate has recorded the habihty for the one-time fe : and the interest cost method and were equivalent to actuanal normal costs plus accrued tnereon. The unrecovered portion of the one-time fee a ten-year amortization of the habihty at January 1,1980 for and the interest accrued has been recorded as a Deferred retirees and surviving spouses The actuanal present values of Charge, and is being recovered through amortization to nuclear accumulated post retirement health care benefits at January 1, fuel expense, as discussed in Note 1. 1985 and 1984, the latest actuanal valuation dates. were

$228.289.000 and $175.403.000, respectively. The net assets of (11) Service Annuity Systems and Post-Retirement Health the trust f und at January 1,1985 and 1984 were $46,790.000 and Care Benefits $27,150,000, respectively The Company and its consohdated subsidiary (the

" companies") have non-contnbutory service annuity systems (12) Income Taxes which cover al1 regular employes. The service annuity systems Provisions for current and deferred federal and state mcome were revised as of January 1,1984 to increase pension benefits taxes and investment tax c' edits deferred for 1985, 1 % 4 Provisions for contnbutions to the related trust funds for 1985, and 1983 resulted in effective tax rates of 33 9% 36 4% and 1984 and 1983 were $63.237.000, $84.810.000 and $72,245,000. 37 6%, respectively, on pre-tax book income for such years of respectively, and were equivafent to actuanal normal costs opproximately $1,446.813,000, $1.376.837,000 and based on the aggregate cost method Portions of the provisions $1,286.677,000, respectively The principal differences between were charged to construction costs these rates and the federal statutory rate of 46 0% were (i) the fcderal income tax effect of the exclusion from taxable income The net assets available for service annuity plan benefits at of the equity component of allowance for funds used January 1,1985 and 1984. the latest actuanal valuation dates, dunrig construction which was 13 9%,13 0% and 110% of were $1,245.489,000 and $1.156 094.000, respectively At pre-tax book income for 1985,1984 and 1983, respectively, January 1,1985 and 1984, the actuanal present values of offset by (ii) state income taxes which, net of the federalincome accumulated plan benefits, based on participants' earnings and tax effect, were 2 5%,2 8% and 2.9% of pre tax book income service rendered to such dates and using rates of reteen of 8W% for 1985,1984 and 1983, respectively and 7%%, respectively were $1,054.175.000 and =

$1,073,747,000 respectively, of which $1,036.013.000 sad

$1.051,337,000, respectively, related to vested benefits In December 1985, the FASB issued an accounting standard on employers' accounting for pens:ons which will require companies to adopt the new pension expense and disclosure standards no later than 1987 and to reflect a minimum pension 27

Notes to Financial Statements (Continued)

Provisions for deferred income taxes on t ,ing differences The Company entered into lease agreements poor to 1983 whoch between financial accounting and for income tax purposes, net would meet the cntena for capitahzation under FAS 13 Such of reversals, were as follows leases have been treated as operating leases for ratemaking 1985 1984 1983 purp ses and are being accounted for in the same manner if (thousands of dollars) - - - -

such leases had been capitahzed. related assets and liabikties f approximately $21.280.000 and $206.250.000 would have I z de re ton $161.049 $101.877 $116.319 Deferred energy costs 14.386 (31.777) 53.707 been recorded at December 31.1985 and 1984. respectively, Overheads capitahzed 26 286 29 331 20.835 and the effect on espenses for 1985,1984 and 1983 would not Repair a'lowance 15.311 37.706 (6.001) have been matenal Spent nuclear fuel disposal costs and related interest 18.999 (15 562) 120.349 Under nuclear fuel lease agreements entered into in 1984 and Other items-net 4 609 10 863 3.735 1985. tne Company may sell and lease back nuclear fuel from

$240 640 $132.438 $308 944 lessors who may borrow an aggregate of $700.000.000 to l Charged to finance the transactions Reference is made to Note 9 for infor-Electnc operations $236.551 $125.974 $307,023 mation concerning lines of credit under the nuclear fuellease O'her income and deduc-agruements At December 31,1985. the Company's obhgation 9 6& W to the lessors for leased nuclear fuel amounted to $525.625.000

$240.640 $132.438 $308.944 The Company has agreed to make lease payments which cover the amortization of the nuclear fuel used in the Company's reac-At December 31,1985, the estimated cumulative net amount tors plu the lessors' related financing costs The Company has j of book / tax timing d.fferences for property placed in service an otAgation for spent rv 1r fuel disposal costs of leased nu-pnor to 1981 for which deferred income taxes have not been clear fuel recorded is approximately $398 000.000 The related deferred income taxes which have not twen recordad approximated Future minimum rental payments, net of executory costs, at

$196.000 000 Except for the effect of reversals of timing differ- December 31,1985. for all leases, are estimated to aggregate ences related to such unrecorded deferred income taxes. net $665.370.000, including $200.360.000 in 1986. $171.560.000 in provisions for deferred income taxes have been recorded for all 1987. $127.090.000 in 1988. $75.910.000 in 1989. $50.320.000 in matenal income tax timing differences for 1985.1984 and 1983 1990 and $40.130.000 in 1991-93 The estimated interest com-ponent of such rental payments aggregates $104.470.000 The At December 31,1985 unused investment tax credits were estimated portions of obligations due within one year under approximately $427 000 000. none of which would expire poor to post-1982 capital leases are included in current liabihties and 1997 et not used it is currently expected that. with reasonable approximated $136.910,000 and $50.114.000 at December 31 rate rehef, the unused inves' ment tax credits will be utthzeo by 1985 and 1984. respectively the expiration dates (15) Investments in Uranium Related Properties (13) Taxes, Except income Taxes At December 31.1985. the Company and its subsidianes had l Provisions for taxes. except income taxes. were as follows. investments of appronmately $207.623.000 in uranium related (thousands of do!!ars) 1985 1984 1983 properties. equ'pment and activities Production from certain of Ilknois public utility revenue the properties has been deferred due to depressed market

$220.465 $219.797 $207.496 Ilkneis invested capital 98 834 91223 86.909 pnces for uranium Management believes that uranium will Municipal utihty gross ultimately be produced at pnces which will provide for recovery receipts 92.595 92.165 88.085 of this investment Real estate 84.996 74.366 72.394 Municipal compensation 63.679 63.554 60.075 (16) Joint Plant Ownership Other-net 26 263 21.916 18.840 The Company has a 75% undivided ownership interest in the

$586.832 $565.021 $533.799 Ouad-Cities nuclear generating station. is responsible for 75% of all costs which are charged to appropnate investment. operation (14) Lease Obligations or maintenance accounts, and provides its own financing At in accordance with Financial Accounting Standards Board State- December 31.1985. for its share of ownership in the station, the ment No 71, the Company has capitahzed leases entered into Company had an investment of $339.859.000 in production and after 1982, which otherwise meet the critena for capitahzation transmission plant in service (before reduction of $97.296.000 for under the Board s Statement No 13 (FAS 13). even though such the related accumulated provision for depreciation) and leases are treated as operating leases for ratemaking purposes $24 452 000 in construction work in progress 28

f (17) Commitments, Contingent Liabilities and the event of nuclear incidents Based en the number of its nuclear Construction Program reactors with operating licenses. the Company would currently Purchase commitments, pnncipally related to construction and be subject to a maumum asseasment of $47,500.000 in the nuclear fuel, approomated $2.097.000.000 at December 31 event of an incident, limited to a maximum of $95.000.000 in 1985. In a jdition the companies have substantial commitments any calendar year.

f a the purchase of coal and oil under long-term contracts In accordance with an Illinois statute additional audit require-The Company is a member of Nuclear Mutual Limited. estab- ments of the construction expenditures and management prac-lished to provide insurance coverage against property damage tices may ecst for Byron Unit 2 and will be required for the to members' nuclear generating facilities The Company would Braidwood station be subject to a raaximum assessment of approximately

$136.000.000 in the event of losses. The Company's ability to continue its construction program is dependent upon adequate and timely rate relief which is neces-The Cempany also is a member of Nuclear Electnc Insurance sary to provide a level of earnings sufficient to pay for that por-Limited, which provides insurance coverage against the cost of tion of the construction program to be financed from internal replacement power during certain prolonged accidental outages sources and to maintain debt and preferred and preference of nuclear gererating units and coverage for property losses in stock coverages and common stock equity earnings which will excess of $500.000.000 at nuclear stations The Company would permit the issuance of addit 6onal secunties of the Company on be subject to maximum assessments of approximatelf reasonable terms Reference is made to the fourth paragraph of

$65.000.000 and $42.000.000 in the event of losses under the re- " Management s Discussion and Analysis of Financial Condition placement power and property damage coverages, respectively and Results of Operations" In addition, the Nuclear Regulatory Commission's indemnity The Company is involved in administrative and legal proceed-for public liability coverage under the Price-Anderson Act is ings concerning air quality, water quality and other matters supported by a mandatory industry-wide program under which The outcome of tnese proceedings may require increases in owners of nuclear generating facilities could be assessed in the the Company's future construction expenditures and c 3 rating expenses (18) Quarterfy FinancialInformation Electnc Electnc Average Number Earnings Per Operating Operating Net Net income on of Common Shares Common Three Months Ended Revenues income income Common Stock Outstanding __ Share (thousands except per share data)

March 31,1984 $1,197.418 $186.956 $192.500 $163.973 168,555 $097 June 30.1984 $1.097.871 $150,497 $166.245 $138.048 170.881 $0 81 September 30.1984 $1.463.083 $312,696 $315.979 $287.671 173.146 $166 December 31,1984 $1.171.299 $188.417 $200.754 $171.470 175.469 $0 98 March 31.1985 $1.203.829 $172.615 $196.229 $167.049 180.090 $093 June 30.1985 $1,110.654 $161,104 $189.718 $160 634 189.453 $0 85 September 30.1985 $1.490.872 $325.338 $366.316 $337.390 191.438 $176 December 31.1985 $1.158.796 $207.408 $203.473 $174.552 194.002 $0 90 29

Notes to Financial Staternents (Concluded)

(19) Supplementary Information Concerning the Effects of and regulation which limits capital recovery and prescnbes Changing Prices (Unaudited) insta!!ation or modification of facilities to comply with increas-Business corporations d gcneral have been adversely affected ingly stnngent safety and environmental requirements. The by inflation because amounts retained after the payment of all Company's estimates of the effects of changing pnces (inflation) costs have been inadequate to replace, at increased costs, the are presented in response to the Financial Accounting productive assets consumed Electoc utilities have been Standards Board Statement No. 33, as amended (FAS 33) especially affected as a result of their capital intensive nature income from Continuira Opurations Adjusted for Changes in Specific Prices (Current Cost)" (Note a)_

(millions of dollars) ,

Year ended December 31,1985 Net income on common stock from ;ortinuing vperations, as reported $840 .

Reduct:on due to increased provisions for depreciauon and amortization to reflect the cumu!ative effect of k inflation (Note b) (806)

Proportionate offset to increased provisions for depreciation and amortization due primanly to debt and non-convertible preference stock financing of utility property (Note c) --

526 Net income nn common stock from continuing operations, adjusted on a current cost basis for the cumulative effect of Dast inflation on the current year" $ 560

• At aerage 1985 pnce leveis "if aco.tionai provisions for cepeciabon and amorteation are re nected without the ofisettmg e#ects resulting pnmanly because of debt and non convert.bie preference stock fir:ancing net mcome on common stock from continumg coerates at average 1985 poce levels adgusted on a cunent cost basis would be $34 m.fiion See Notes on page 31 Five-Year Comparison of Selected Supplementary Financial Data Adjustsu for the Effects of Changing Prices (milhons of dc. tars except per share data) 1985 1984 1983 1982 1981 Electnc operating revenues-As reported $4.964 $4.930 $4.634 $4.130 $3.737 Adjusted for general inflation using average 1985 dollars $4.964 $5.106 $5.004 $4.602 $4.421 Net income on common stock from continuing operations-As reported $ 840 $ 761 $ 695 5 506 $ 352 Adjusted for changes in current cost' $ 560 $ 546 $ 511 $ 356 $ 205 Net income per common share from continuing operations-As reported $ 4 45 5 443 $ 4 39 $ 3 75 $ 3 06 l Adjusted for changes in current cost * $ 2.97 5 317 $ 3 23 $ 2 64 5 178 l Common stocknolders' investment (net assets) at December 31-l As reported $5.835 $5.059 $4.606 $3.904 $3.218 Adjusted for changes in current cost c.f ter adjustment to recoverable amount using year-end 1985 dollars (Note d) $5,835 $5.250 $4c369 $4.371 $3.742 Amount by which the increase in the current cost of net utility plant is greater or (less) than the increase in the general pnce level using average 1985 dollars $1,594 $ 721 $ 981 $ (454) $ 631 Reduction of purchasing power loss through debt and non-convertible preference stock financing using average 1985 dollars (Note c) $ 378 $ 373 $ 344 $ 337 $ 732 Cash dividends declared per common share-As reported $ 3 00 $ 3 00 $ 3 00 $ 2 85 $ 2.70 Adjusted for general inflation using average 1985 dollars $ 3 00 $ 3.11 5 324 $ 318 $ 319 Market pnce per common share at December 31-As reported $29 38 $27 88 $2600 $25 25 $19 88 Adjusted far general inflation using year-er d 1983 dollars $29 38 $28 93 $28 05 $28 27 $2312 Consumer Pnce Index (CPI)(1967-100)-Average 322 2 311.1 298 4 289 1 272.4

-Year-end 327.4 315 5 303 5 292 4 281 5

• if add tional provisions for depreciabon and amortizabon are renected *<thout the cffsett ng ef'ects due pnmmiy to debt and non convertib+e preference stock financing net income poss) on common stock from continuing operaSons. at average 1985 poce leveis on a cur ent cast basis would te E34 miii on or $ 18 per share in 1985 $79 meilson or $ 46 per stare in 1984 $32rmthon or $ 20 per share m 1%3. k104) minion or $( 77) per share m 1982 and $4290) minion or k? 52' per share in 1981 ,

30

Notes to Supplementary Information Concerning the Effects of At December 31,1985, the estimated current cost of net utikty Changing Pnces: plant, including nuclear fuel, befa.e reduction for accumulated

(

deferred income taxes. was $32,323 milhon and the histoncal nct a Generaf The adjustments to recognize the effects of changes cost recoverable through depreciation and amortization was in specific pnces (current cost) on income from continuing oper- $16.526 milhon atsons are intended to measure income af ter reflecting the effects of adjusting the cost of the Company's electoc service Although a substantial portion of accumulated deferred income system to current pnce levels The adjustments to income from taxes is deducted from utility plant investment in arnving at the continuing operations were limited to depreciation of plant and rate base used in ratemaking proceedings. accumulated equipment and amortization of nuclear fuelin accordance with deferred income taxes were treated as monetary habihties, in F AS 33. accordance with FAS 33 in accordance with FAS 33. no adjustments to income tax c Ortset due to debt and non convertible preference stocA expense were made The histoncal costs of inventones of coal financing By holding monetary assets, such as cash and and fuel oil were not adjusted for current cost because the ef'ect receivables. the Company loses purchasing power dunng on earnings are not matenal due to the relatively short inven penods of inflation because these items can purchase less at a tory turnover penod future date Conversely, monetary habihties. pomanly long term debt and non convertible preference stock, as well as related b Utihty plant The current cost of nuclear generating equip- interest and dividends, will be satisfied with payments at fixed ment was based on the estimated cost of constructing new dollar amounts which are not affected by inflation subsequent to capacity at current pnce levels The current cost of all other issuance Because such obhgations are fixed. there is a partial plant and equipment was estimated by applying the HandP offset cf the cost ansing from regulatory use of onginal cost Whitman ir dex of Pubhc Utihty Construction Costs to plant rather than inflation adjusted data for determining the arnount of accounts by year of installation The accumulated provisions for utihty plant and nuclear fuel costs recoverable as depreciation depreciaticn of plant and equipment in seruce were estimated and amortization for each major class of plant and equipment by multiplying tne current cost of piant ar'd equipment by a percentage represent- d Ettect c/ inflation on common stockholders investment ing the ratio of the accumutated book depreciation to the book Because the regulatory process hmits the amount of deprecia-cost of existing depreciable plant in service for each class of tion expense included in the Company's revenue allowance to property at year-end Depreciation of plant and equipment the original cost of utihty plant investment, the resulting cash was determined by applying the rates and methods used ficws are inadequate to provide for replacement of that invest-for computing book depreaation to the current cost data for ment in future years or preserve the purchasing power of plant and equipment corpmon equ:ty capital previously invested The current cost of nuclear fuel was estimated by applying in spite of the partial offset due to debt and non convertible current pnces to existing nuclear fuel The accumul9ed amor- preference stock financing descnbed above, the Company has tization of nuclear fuel adjusted for current cost was calculated incurred a significant not cost due to inflation as a result of its by multiplying the current cost of nuclear fuel by a percentage abihty to recover only the same number of lower-value dollars representing the expired hfe at year-end Fuel expense was today as the number cf higher-value dollars onginally invested adjusted to reflect the amortization of nuclear fuel costs by As a result, in terms of purchasing power, the investment of applying the nuclear fuel usage to the current cost data for common stocliholders has been reduced by an estimated nuclear fuel $201 milhon for the year ended December 31,1985 31

Board of Directors Officers James J. O'Connor m5) Thomas L Martin,Jr.m2x4) James J. O'Connor Robert J. Manning '

Chairman and President of President. Illinois Institute of Chairman and President Vice President the Company Technology Wallace B. Behnke, Jr. Donald A. Petkus Morris A. Aldeen Ox4) Edward A. Mason (4x5) Vice Chairman Vice President Former Chairman and Vice President, Research Byron Lee, Jr. Cordell Reed .

President Amoco Corporation Executive Vice President Vice President Amerock Corporation Patrick G. Ryan 04) Bide L Thomas George P. Rifakes (Cabinet hard,vare) President and Chief Executive Vice President Vice President Jean Allard 04> Executive Officer Raymond P. Bachert J. Patrick Sanders Partner Combined International Vice President and Vice President Sonnenschein Carlin Nath & Corporation Comptroller Rosenthal ( Attorneys) (Insurance hold.ng company) Robert J Schultz Wallace B. Behnke, Jr.m h A. Dean Swift edus) Vice President John J Viera Vice Chairman of the Company President Executive Service Corps of P 9 PbM h Chicago (Nonprofit Vice President Ernest M. Roth 1 Albert B. Dick 111 m4i Former Chatrman of the corporatiori of retired Thomas J. Maiman Treasurer Board executives providirsg Vice President Klaus H. Wisiol A B Dick Company voluntary management Secretary (Copying. duphcating and const station to nonprofit pnnting equipment and agenc es) supplies) Dide L Thcmas (5) UUUff?3 Donald P. Jacobs m4ss, Executive Vice President of a the Company Robert L Bolger John 0. Jacobson Dean.J L KelloggGraduate Wam M %*nt Manage of Fud Schnoi of Management. Eugene P. Wilkinson 04; Northwestern University Former President and Chief John C. Bukovski Arthur W. Kleinrath E=ecut+e O'ficer Ass:stant Vice President Manager of Station George E. Johnson 0344; institute of Nuclear Power Louis O. DelGeorge Construction Chairman and President Johnson Products Company. Operations (Nonpro'it Assistant Vice Pres: dent James J. Maley Inc (Personal care products organization dedica'ed to Harlan M. Dellsy Assistant Vice President and cosmetics) quakty construction and StaM Counsel David W. Nocchi Harvey Kapnick Oddi safety in the opcration of Paul J. Fenoglio Manager of Customer nuclear power plants) Manager of Computer Service Chairman of the Board and President m E secume Comm nee Services Frank A. Palmer Chicago Pacific Corporation Q A4t Comeee Dennis P. Galle Manager of Nuclear Safety (Manufactunng holdjng 3l e Com"""_n

, Assistant Vice President James A. Schneider company) & Wa*9 commnee and General Manager- Operating Manager Byron Lee, Jr. a Nuclear Stations David A. Scholz Executive Vice President of J. Stanley Graves Manager of Corporate the Company Assistant Vice President Planning and General Manager- Walter J. Shewski Fossil Stations Manager of Quahty Charles G. Harnach Assurance Manager of Marketing Norman E. Wandke Assistant Vice President 5)it'i$ ion Vice l'resiclenl5 ant] Other fixecnlives i K. Edward Bartels Donald A. Schindlbeck l Southern (Jchet) Western (Lombard)

William J. Cormack Kenneth L. Graesser Chicago North Division Vice President-William H. Downey Nuclear Stations Rock River (Rockford) Bennie B. Stephenson Lester J. Dugas Division Vice President.

Chicago South Nuclear S ations Anthony E. Enrietto Richard E. VanDerway Northern (Northbrook) General Purchasing Agent 32 i

r Other Information Shareholder Inquiries Registrars inquines about shareholder accounts, dividend payments and Continental lilinois National Bank the dividend reinvestment and stock purchase plan should be and Trust Company of Chicago"

( directed to Shareholder Servu:es as follows 231 South LaSalle Street Chicago, Illinois 60690 By Telephone:

In the metropolitan Chicago 312 Area Code, call The First National Bank of Chicago"*

294-3186 or use these to//-free numbers One First National Plaza

.1 800 341-1321 in Illinois .

in other states .1 800 253 1122 Morgan Guaranty Trust Company of New York 30 West Broadway By Mail: New York, New York 10015 Commonwealth Ed: son Company Attn: Shareholder Services State Street Bank and Trust Company P O. Box 767 225 Franklin Street Chicago, Illinois 60690 Boston, Massachusetts 02110 Other inquiries .".. Common Liock only p,,,,,,m p,g ,,nc, ,,0c, oni, Ouestior.s bcut stock transfers or dividend reinvestment plan accounts should be directed to tne Transfer Agents or the Dividend Reinvestment Plan Agent Dividend Ra,invsetment Plan Agent The First National Bank of Chicago Transfer Agents Shareholder investment Service The First National Bank of Chicago

• Suite 0128 One First National Plaza Chicago, lilinois 60670 0128 Chicago, Illinois 60670 (312) 4074660 Manufacturers Hanover Trust Company

• Annual Meeting 4 New York Plaza The annual meeting of stockholdeis will be held Fnday, New York, New York 10015 Apol 18,1986 at 10 30 a m in the International Ballroom of the Chicago Hilton and Tcwers (formerly the Conrad Hilton)

The Fi rst National Bank of Boston Notice of the meeting and proxy matenals will be mailed to 100 Federal Street stockholders on or about March 10 Boston, Massachusetts 02110 g %so warrant ager-is Form 10-K and Financial Review The 1985 Foim 10-K Annual Report to the Secunties and Exchange Commission and the 1985 ten-year Financial Review wri; be available in early Apol. A copy of both may be obtained without charge from Klaus H Wisiol, Secretary, Commonwealth Edison Company, P. O. Box 767, Chicago, Illinois 60690

w

,I {# -

P .; i: - i: -

J h . . . . _

Commonwealth Edison ,

-- , One First Neonal Plaza Chicago, lilenc:3

'*~'

, Address Reply to: Post Office Box 767 Chicago, Illinois 60690 - 0767 I

February 13, 1986 Director - Division of Reactor Licensing Office of Nuclear Reactor Regulation U. S. Nuclear Regulatory Commission Washington, D. C. 20555 Gentlemen:

Pursuant to the provisions of Section 50.71 of 10CFR, there is enclosed a copy of our 1985 Annual Report for each reactor, as follows:

Dresden Station: 50-10 50-237 50-249 Quad-Cities Station 50-254 50-265 Zion Station 50-295 50-304 LaSalle County Station 50-373 50-374 Byron Station 50-454 50-455 Braidwood Station 50-456 50-457 Sincerek, M

Klaus H. Wisiol Secretary bb

'll? ,