ML20210K828
| ML20210K828 | |
| Person / Time | |
|---|---|
| Site: | Clinton  |
| Issue date: | 07/23/1999 |
| From: | ILLINOIS POWER CO. |
| To: | |
| Shared Package | |
| ML20137Z618 | List: |
| References | |
| NUDOCS 9908060233 | |
| Download: ML20210K828 (200) | |
Text
{{#Wiki_filter:. f UNITED STATES OF AMERICA ( BEFORE THE NUCLEAR REGULATORY COMMISSION In the Matter of )
)
Illinois Power Company )
)
And )
) Docket No. 50-461 AmerGen Energy Company, LLC )
)
(Clinton Power Station) ) l h' APPLICATION FOR ORDER CONSENTING TO LICENSE TRANSFER AND APPROVING CONFORMING ADMINISTRATIVE LICENSE AMENDMENT (NRC FACILITY OPERATING LICENSE NO. NPF-62) , I i f {' 9908060233 990723 PDR ADOCK 05000461 P PDR l
L l l l l l TARI F OF CONTENTS List o f Enclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii List of Enclosures in Proprietary Addendum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv R e fe renc es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . v . I. INT RODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. STATEMENT OF PURPOSE OF THE TRANSFER AND NATURE OF THE TRANSACTION MAKING i THE TRANSFER NECESSARY OR DESIRABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1 III. GENERAL CORPORATE INFORMATION REG ARDING AM ERG EN .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 l A. N AME OF NEW LICENSEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1 l B. AD D RE S S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 C. DESCRIPTION OF BUSINESS OR OCCUPATION . . . . . . . . . . . . . . . . . . . . 4 D. ORGANIZATION AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 6
- 1. State of Establishment and Place of Business . . . . . . . . . . . . . . . . . . . . . 6
- 2. Management Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 l 3. Principal Executives and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 i IV. FOREIGN PARTICIPATION IN AMERGEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 V. TECHNICAL QUALIFICATIONS OF AMERGEN . . . . . . . . . . . . . . . . . . . . . . . . . . 10 VI. FINANCIAL QUALIFICATIONS OF AMERGEN . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 A. PROJECTED OPERATING REVENUES AND OPERATING COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 B. ADDITIONAL SOURCES OF FUNDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 C. DECOMMISSIONING FUNDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 VII. ANTITRUST CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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l e (< \ VIII. RESTRICTED DATA AND CLASSIFIED NATIONAL i S ECURITY INFORM ATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 8 IX. ENVIRONMENTAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . , 28 X. ADDITIONAL INFORMATION REGARDING SPECIFIC REGULATORY REQUIREMENTS, PLANS, PROGRAMS & PROCEDURES . . . . . . . . . . . . . . . . . . 29 A. GENERAL DESIGN CRITERION 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 l 1 i
'B. EMERGENCY PLANNING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 C. EXC LUS ION ARE A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 D. - S EC URITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 I E. QUALITY ASSURANCE PROGRAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 F. UPDATED FINAL S AFETY ANALYSIS REPORT . . . . . . . . . . . . . . . . . . . . 33 G. TRAINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 H. PRICE-ANDERSONINDEMNITY AND NUCLEAR INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4 I. STANDARD CONTRACT FOR DISPOSAL OF SPENT NUCLEAR FUEL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 XI. OTHER REQUIRED REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . 35 j XII. EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 6 )
1 XIII. C ON C LU S I ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7 e
f I IST OF ENCLOSURFR l Enclosure 1 Marked-up Pages of CPS Operating License Reflecting Conforming Administrative License Amendment Associated With Proposed Transfer of CPS Operating License from Illinois Power Company to AmerGen Energy Company, LLC l Enclosure 2 Safety Evaluation ofConforming Administrative License Amendment Associated With Proposed Transfer of CPS Operating License from Illinois Power Company to AmerGen Energy Company, LLC Enclosure 3 CPS Asset Purchase Agreement By and Between Illinois Power Company, as Seller, and AmerGen Energy Company, LLC, as Buyer, Dated as of June 30,1999 (Non-Proprietary Version) Enclosure 4 1998 Annual Report of PECO Energy and 1998/1999 Annual Report of British l Energy i 1 l Enclosure 5 Organizational Chart Showing Post-Acquisition Management and Support Structure Enclosure 6 Projected Income Statement and Opening Balance Sheet of AmerGen's p Anticipated Assets, Liabilities and Capital Structure (Non-Proprietary Version) U l Enclosure 7 Power Purchase Agreement Enclosure 8 ~ Supplemental Agreement of PECO Energy to Provide Funding to AmerGen l Enclosure 9 Supplemental Agreement of British Energy to Provide Funding to AmerGen l Enclosure 10 Projections of Earnings Credit on Decommissioning Funds Using 2% Annual l Real Rate of Return l Enclosure 11 Calculation of NRC Formula Amount For Decommissioning Funding Financial Assurance For CPS (10 CFR Q 50.75(c)) Enclosure 12 Affirmation of Gerald R. Rainey Enclosure 13 Affirmation of Charles E. Bayless Enclosure 14 10 CFR { 2.790 Affidavit of Gerald R. Rainey 111
7-( I IST OF ENCI_OSURFR IN PROPRIETARY ADDENDUM j t
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The following proprietary enclosures are bound separately in a Proprietary Addendum to the Application: 1 Enclosure 3A CPS Asset Purchase Agreement By and Between Illinois Power Company, I as Seller, and AmerGen Energy Company, LLC, as Buyer, Dated as of l June 30,1999 (Proprietary Version) ! Enclosure 6A - Projected Income Statement and Opening Balance Sheet of AmerGen's Anticipated Assets, Liabilities and Capital Structure (Proprietary Version) l l l l I O . IV l l
OL argratsces The following documents are incorporated by reference into this Application: l 1. AmerGen's Certificate of Formation and the AmerGen LLC Agreement (previously provided as Exhibit 1 to Appendix A of AmerGen and GPUN's Application for Approval ! of the TMI-1 license transfer, dated December 3,1998, in Docket No. 50-289).
- 2. Annual Reports For PECO Energy (1995,1996 & 1997); Annual Reports of British Energy plc. (1996/97 & 1997/98); Prospectus for British Energy plc. (1996) (previously provided as Exhibit 2 to Appendix A of the TMI-l Application).
- 3. Letter Agreements of PECO Energy and British Energy to Provide Funding to AmerGen with Respect to TMI-1, dated December 3,1998 and November 5,1998, respectively (previously provided as Exhibit 8 to Appendix A of the TMI-l Application).
O O V
h I. INTRODUCTION l .Q
~ AmerGen Energy Company, LLC (AmerGen) and Illinois Power Company (IP),
hereby request that the Nuclear Regulatory Commission (NRC) issue an order consenting i to the transfer of Facility Operating License No. NPF-62 for Clinton Power Station (CPS) l [ to AmerGen. AmerGen and IP request that the NRC consent to this transfer and i authorize AmerGen to possess, use, and operate CPS under essentially the same conditions and authorizations included in the existing license. No physical changes will be made to the CPS facility as a result of this transfer, and there will be no significant
- changes in the day-to-day operation of CPS. AmerGen and IP also request NRC approval
^
l of certain administrative amendments to conform the license to reflect the proposed transfer. A mark-up of the CPS License showing the conforming amendments are provided in Enclosure 1. IP's Safety Evaluation of the conforming amendments to assure l l O that they do no more than reflect the proposed transfer is provided in Enclosure 2. CPS is an approximately 930 MW ' nuclear power plant consisting of a General l Electric (GE) Boiling Water Reactor, GE steam turbines, and other associated equipment t ! ~ located on Lake Clinton, six miles east of Clinton, Illinois. NRC Facility Operating License No. NPF-62 for CPS was issued on April 17,1987, and will expire on September 29,2026. IP is the sole owner and operator of CPS. l 1/ CPS is licensed to a maximum power level of 2,894 megawatts thermal (MWt). t i I J
[L L q II. STATEMENT OF PURPOSE OF THE TRANSFER AND NATURE OF l V THE TRANSACTION MAKING TIIE TRANSFER NECESSARY OR l DESIRABLE 1 In connection with the ongoing restructuring of the electric utility industry in the I State ofIllinois, IP decided to withdraw from the nuclear business and either sell or shutdown CPS. On June 30,1999,IP and AmerGen executed the CPS Asset Purchase Agreement (the " CPS Agreement"), under which IP will transfer its interests in CPS to l l AmerGen, and also executed certain ancillary agreements, including a Power Purchase I Agreement. The CPS Agreement is included as Enclosure 3A in a separately bound proprietary Addendum to this Application. (AmerGen requests that Enclosure 3A be j l withheld from public disclosure pursuant to 10 CFR Q 9.17(a)(4) and the policy reflected 1 in 10 CFR 2.790, since it contains confidential commercial or financial information, as described in the 10 CFR Q 2.790 Affidavit of Gerald R. Rainey (2.790 Affidavit) in V Enclosure 14. A redacted version of the CPS Agreement, suitable for public disclosure, j is provided as Enclosure 3.) 2 The CPS Agreement incorporates numerous schedules and ancillary agreements totaling thousands of pages that are not being provided with this application; copies of this information can be made available upon request. In accordance with the CPS Agreement, the closing of the transaction will take place on the " Closing Date," as defined in the CPS Agreement, once all conditions precedent are satisfied and regulatory approvals are obtained. The closing is tentatively 2/ AmerGen and IP subsequently agreed to enter into certain amendments to Exhibits and Schedules to the CPS Agreement which have no material effect upon the issues being considered in the application. p)- t 2 l
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,e . scheduled for December 15,1999. On and afler the Closing Date, the following events
( will occur pursuant to the CPS Agreement and the Power Purchase Agreement: (a) AmerGen will assume all right, title, and interest in and to CPS, including all IP buildings, equipment, spare parts, fixtures, inventory, documents, records, assignable contracts, used and spent nuclear fuel, other licensed j materials at CPS and other property necessary for its operation and maintenance, but excluding certain switchyard and transmission facilities and certain other personal property and equipment; 3 AmerGen also will assume all responsibility for the safe operation, maintenance, and eventual decommissioning of CPS; (b) IP's approximately 950 employees located at CPS involved in the l operation and maintenance of CPS will become employees of AmerGen 7-and continue to perform these functions for AmerGen; 1 (c) AmerGen will have the right to offer to employ selected IP corporate l support stafflocated at IP's Decatur, Illinois offices; i I ' l (d) AmerGen will have the right to contract for any necessary transmission l l service under IP's Open Access Transmission Tariff and for back-up l l power to the site consistent with NRC requirements; 3/ Certain real property and facilities, which are not necessary for the safe, efficient and economic operation of CPS, are excluded from the transfer. Three discrete parcels of real . I property totaling approximately 360 acres and located from 6 to 9 miles from the plant are excluded from the transfer. Notably, this property is well outside the Exclusion Zone for CPS which extends approximately 0.6 miles from the plant, and the Low Population Zone which extends to approximately 2.5 miles from the plant. 3
i-l (c) IP will purchase 75% of the capacity and energy from CPS from AmerGen from the Closing Date through the year 2004; and (f) IP will make certain additional contributions to the existing CPS Decommissioning Trust Funds and will transfer the CPS Decommissioning Trust Funds to AmerGen; AmerGen will assure that the fair market value of the funds upon closing will not be less than l S210 million; and the trust funds meet the requirements for the prepayment method of decommissioning funding assurance pursuant to l 10 CFR Q 50.75(e)(1)(i), because this amount exceeds the 10 CFR { 50.75 (b) and (c) radiological decommissioning costs for CPS when a 2% annual real rate of return is credited until the end of CPS's operating i license. III. GENERAL CORPORATE INFORMATION REGARDING AMERGEN A. NAME OF PROPOSED NEW LICENSEE i i AmerGen Energy Company, LLC (AmerGen). 1 1 B. ADDRESS AmerGen's headquarters is located at 965 Chesterbrook Blvd, Wayne, PA 19087. C. DESCRIPTION OF BUSINESS OR OCCUPATION i AmerGen is a limited liability company formed to acquire and operate nuclear power plants in the United States. The NRC recently consented to the transfer of l ownership and operating responsibility for Three Mile Island, Unit 1, to AmerGen. See GPUNuclear, Inc. (Three Mile Island, Unit No.1), Order Approving Transfer of License o and Conforming Amendment,64 FR 19202 (April 19,1999)(hereafter "TMI-l Order"). l Q' 4
q V AmerGen's principal offices are located in Wayne, Pennsylvania. AmerGen is organized under the laws of the State of Delaware pursuant to the Limited Liability Company Agreement of AmerGen dated as of August 18,1997, as amended (LLC Agreement), among PECO Energy Company (PECO Energy), a Pennsylvania corporation, British Energy plc (British Energy), a Scottish corporation, and British Energy Inc. (BE Inc.), a Delaware corporation which is a wholly owned subsidiary of British Energy. British Energy is a party to the LLC Agreement, but only PECO Energy and BE Inc. are members of AmerGen, each holding a 50% ownership interest in AmerGen. Copies of the Cenificate of Fonnation of AmerGen and the AmerGen LLC Agreement, as amended, have previously been provided to NRC (see Reference 1) and are incorporated herein by reference. Both PECO Energy and British Energy have more than twenty years of nuclear operating experience. PECO Energy is the licensed operator of four nuclear reactors at the Limerick and Peach Bottom nuclear generating stations and is a member of the Institute of Nuclear Power Operations (INPO). PECO Energy also owns 100% of the Limerick units,42.49% of the Peach Bottom units, and 42.59% of the two Salem nuclear units. British Energy is the owner and operator of fifteen nuclear reactors at eight nuclear operating sites in the United Kingdom and participates in the World Association of Nuclear Operators (WANO). Copies of the 1995,1996 and 1997 Annual Reports of PECO Energy and the 1996 Prospectus and 1996/97 and 1997/98 Annual Reports of British Energy have previously been provided to NRC (see Reference 2) and are incorporated herein by reference. Copies of the 1998 Annual Report of PECO Energy j g and the 1998/1999 Annual Report of British Energy are provided as Enclosure 4. 5
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O D. ORGANIZATION AND MANAGEMENT 1 U
- 1. State of Establishment and Place of Business AmerGen is a limited liability company established in the State of Delaware.
AmerGen's principal place of business is in the Commonwealth of Pennsylvania. l
- 2. Management Committee The business and affairs of AmerGen are managed by or under the direction of a !
Management Committee, currently consisting of six Representatives, three of whom are U.S. citizens, who are appointed by, and serve at the discretion of, the PECO Energy Member Group, and three of whom are appointed by, and serve at the discretion of, the BE Inc. Member Group. The names, addresses and citizenship of the Representatives of the Management Committee are as follows:
^ Name Address Citizenship PECO Energy Michael J. Egan 2301 Market Street U.S.
Member Group Philadelphia, PA 19101 Gerald R. Rainey 965 Chesterbrook Blvd, U.S. Wayne, PA 19087 Drew B. Fetters 965 Chesterbrook Blvd, U.S. Wayne, PA 19087 BE Inc. Member Dr. Robin Jeffrey, FEng Suite 1000 U.K. Group 69 Yonge Street Toronto, Ontario M5E i 1K3 Canada Duncan Hawthome 965 Chesterbrook Blvd, U.K. Wayne, PA 19087 David Gilchrist Suite 1000 U.K. 69 Yonge Street l Toronto, Ontario M5E l 1K3 l Canada O 6 I 1 I
w ; In addition to the six voting Representatives, Dickinson M. Smith, the Vice-Chairman of AmerGen, a U.S. citizen, is a non-voting Representative on the 1 Management Committee.
- 3. Principal Executives and Officers
. The Chairman of the Management Committee, Michael J. Egan, is a U.S. citizen
- who is appointed by, and may only be removed by the PECO Energy Member Group. )
)
Mr. Egan chairs the meetings of the Committee and has the " casting" or deciding vote on I "all Safety issues," broadly defined in Section 1.7 of the LLC Agreement and which 1 include all issues within the jurisdiction of the NRC, i.e., all matters involving nuclear safety and common defense and security. The AmerGen Chief Executive Officer (CEO), Gerald R. Rainey, is a U.S. citizen l p who is elected by the Management Committee, and is the senior executive responsible for l l- AmerGen's day-to-day operations. The CEO is authorized to employ and retain other l j officers, subject to the approval of the Management Committee. Mr. Rainey also serves i as AmerGen's Chief Nuclear Officer (CNO). The CEO and CNO, if someone other than the CEO, will always be U.S. citizens. The names, titles, addresses, and citizenship of the principal executives and officers of AmerGen are as follows: Name Title Address Citizenship Michael J. Egan Chairman, 2301 Market Street U.S. I Management Philadelphia,PA 19101 l Committee Dickinson M. Smith Vice Chairman, 965 Chesterbrook Blvd, U.S. l Management Wayne,PA 19087 Committee l O 7
[ l Gerald R. Rainey CEO, CNO 965 Chesterbrook Blvd, U.S. Wayne, PA 19087 Dr. Robin Jeffrey, FEng President Suite 1000 U.K. 69 Yonge Street Toronto, Ontario M5E 1K3 Canada Drew B. Fetters Vice President 965 Chesterbrook Blvd, _U.S. Wayne, PA 19087 Duncan Hawthorne Vice President 965 Chesterbrook Blvd, U.K. Wayne, PA 19087 Paul E. Haviland Vice President 2301 Market Street U.S. Philadelphia, PA 19101 Edward J. Cullen, Jr. Secretary 2301 Market Street U.S. Philadelphia, PA 19101 IV. FOREIGN PARTICIPATION IN AMERGEN The NRC recently concluded that the transfer of an NRC operating license for a O commercial nuclear power plant to AmerGen is consistent with the restrictions on foreign ownership and control in the Atomic Energy Act of 1954, as amended (the Act). See TML-1 Order, 64 FR 19202; Safety Evaluation by the Office ofNuclear Reactor Regulation. Transfer ofFacility Operating Licensefrom GPUN, Inc., et o!. to AmerGen. (Three Mile Island, Unit No.1), Docket No. 50-289 (April 12,1999) ("TMI-l Safety Evaluation"). The TMI-l Safety Evaluation took into account the nature and extent of foreign participation in AmerGen and concluded that AmerGen is not subject to foreign ownership, control, or domination within the meaning of the Act or NRC's regulations, nor would the transfer of the TMI-l license to AmerGen be inimical to the common defense and security. There has been no material change in the nature and extent of the O 8 L -
i I l level of foreign participation in AmerGen from that described in the TMI-1 Safety (q
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Evaluation.' l In approving the transfer of the TMI-1 operating license from GPU Nuclear, Inc. to AmerGen, the NRC Staffimposed four license conditions to ensure that AmerGen is not subject to foreign ownership, control, or domination. AmerGen agrees to accept similar license conditions in connection with the proposed transfer of the CPS license. The four license conditions for the TMI-l transfer are: l
- 1. The Limited Liability Company Agreement dated August 18,1997, may not be modified in any material respect conceming decision-making i authority over " safety issues" as defined therein without the prior written consent of the Director, Office of Nuclear Reactor Regulation.
- 2. At least half of the members of AmerGen's Management Committee shall be appointed by a non-foreign member group, all of which appointees shall be U.S. citizens.
O 3- Tae cater exec tive orticer <ceo). caierweciear orricer <cxo) <ir someone other than the CEO), and Chairman of the Management . Committee of AmerGen shall be U.S. Citizens. These individuals shall have the responsibility and exclusive authority to ensure, and shall ensure, that the business and activities of AmerGen with respect to the TMI-l license are at all times conducted in a manner consistent with the protection of the public health and safety and common defense and l security of the United States.
- 4. AmerGen shall cause to be transmitted to the Director, Office of Nuclear Reactor Regulation, within 30 days of filing with the U.S. Securities and Exchange Commission any Schedules 13D or 13G filed pursuant to the Securities and Exchange Act of 1934 that disclose beneficial ownership of a registered class of PECO Energy stock.
4/ In the TMI-1 license transfer case, the Commission construed the terms of Section 104d of the Act. Section 103d of the Act, applicable here,is virtually identical. O 9
I i q V. TECHNICAL QUALIFICATIONS OF AMERGEN O The technical qualifications of AmerGen to carry out its responsibilities under i Facility Operating License NPF-62, as transferred and amended, will meet or exceed the technical qualifications ofIP's current organization as described in the CPS Updated FSAR ("USAR"). The NRC Staff previously determined that "AmerGen has an acceptable corporate-level management" for the operation of a commercial nuclear power plant, and AmerGen continues to have acceptable corporate-level management. TMI-l Safety Evaluation, at 21. 5 In addition, PECO Energy personnel actively assisted in the restart of CPS and continue to be involved in the operation of CPS pursuant to a , Management Services Agreement with IP. 1 When the proposed CPS license transfer and amendments become effective, AmerGen will assume responsibility for, and control over, the operation and maintenance O of CPS. IP's existing nuclear organization at the CPS site will be transferred to i i AmerGen, and IP's nuclear employees at the CPS site will become AmerGen employees. I The overriding philosophy that will govern AmerGen's management of CPS will be to assure that AmerGen manages, operates, and maintains CPS in accordance with the ; i conditions and requirements established by the NRC. The plant staff, including senior managers, will be essentially unchanged. However, as is common for the management and staff at operating nuclear power plants, 5/ Subsequent to NRC's approval of the TMI-1 transfer, AmerGen's fonner CEO, Dickinson M. Smith, became Vice-Chairman of the Management Committee, and AmerGen's CNO, Gerald R. Rainey, assumed the duties of CEO. In addition, Paul E. Haviland became a Vice President of AmerGen with responsibilities relating to the negotiation of agreements for the acquisition of additional nuclear power plants. 10
l l l O individuals routinely transfer to other positions within the same company, retire, resign or V transfer to positions at other sites. Thus, it is to be expected that additional experienced l personnel may join the site organization during the period leading up to and after the j license transfer. Prior to the transfer, decisions regarding such changes will be made by IP, and following the transfer, such decisions will be made by AmerGen. Any new personnel assigned to CPS will meet all existing qualifications requirements in 1 accordance with the CPS license and technical specifications. If AmerGen determines that a senior management position is to be filled with a new individual from outside the l existing CPS organization contemporaneously with the license transfer, AmerGen will inform the NRC in advance of any such change and provide the NRC with a resume for any such individual in advance of the effective date of any such change. Enclosure 5 is an organizational chart for CPS illustrating the post-acquisition v management structure and reporting relationships at CPS. As shown in this chart, the principal AmerGen executive officers and managers, who will be involved in the management of CPS, will report to the Chairman of the Management Committee as follows:
- The CEO and CNO of AmerGen, will report to the Chairman of the Management Committee, and will be responsible for the safe, reliable, and economic operation and maintenance of CPS;
- The Site Vice President, CPS, will report to the AmerGen CNO and have direct, on-site responsibility for the safe, reliable, and economic operation and maintenance of CPS.
p ( l1
p . l
. The Chairman - Nuclear Review and Audit Group (NRAG) will report to the
- pd l AmerGen CNO and will be responsible for providing an independent review and audit function for CPS.
The existing IP technical support organizations for CPS, as described in . Chapter 13 of the USAR, are currently located at the CPS site, and these organizations will continue to perform technical support functions on behalf of AmerGen. The , 1 functions, responsibilities and reporting relationships of these organiznons, especially as I they relate to activities important to the safe operation of CPS, will continue to be clear l and unambiguous, and the performance of these organizations will be essentially l I unaffected by the transfer. Engineering support for CPS is currently provided by a dedicated on-site engineering organization that is an integral part of the site organization that will be transferred to AmerGen. Subject to negotiation ofcertain service contracts and leases with IP, IP will provide certain support functions relating to information technology, the Joint Public Information Center, the Headquarters Support Center and the back-up Emergency Operations Facility. As detailed in Section 2.1 of the CPS Agreement IP will transfer to AmerGen all of the assets related to CPS that AmerGen will need to maintain and operate the unit consistent with NRC requirements. Section 2.1 provides an extensive listing of assets in addition to plant and equipment that will be transferred, such as books, operating records, operating, safety and maintenance manuals, engineering design plans, documents, blueprints and as-built plans, specifications, procedures and similar items. With respect to the many operating records and other documents described in Section 2.l(g) of the CPS Agreement, the Agreement specifically notes that IP's interest in all such materials 12
l 1 will be transfened "wherever located." (Certain assets related to CPS are specifically d,m excluded from being transferred to AmerGen pursuant to Section 2.2 of the agreement, e.g., certain switchyard facilities and related transmission and distribution assets, and cash, bonds, etc.) The records which the NRC requires a licensee to maintain are already located and maintained at CPS. Nevertheless, AmerGen will also ensure that it acquires custody or control of, or access to, any important documents owned by IP that may currently be located at IP's Decatur, Illinois, offices or other off-site locations. Further, any necessary contracts with the Architect Engineer, Nuclear Steam Supply System (NSSS) supplier, and other major vendors, will be assigned to AmerGen if possible, or other appropriate contracts will be obtained by AmerGen on a timely basis. Other contracts and contractor
- q relationships relating to CPS will also be assigned or transferred to AmerGen. See 1 U Sections 2.3 and 4.15 of the CPS Agreement.
VI. FINANCIAL QUALIFICATIONS OF AMERGEN While AmerGen has maintained that it qualifies as an " electric utility" within the meaning of 10 CFR & 50.2, the NRC recently concluded otherwise in connection with the l_ TMI-l license transfer. In any event, this Application demonstrates that AmerGen meets the financial qualification requirements for a non-electric utility pursuant to 10 CFR Q 50.33(f). Significantly, the NRC recently determined in the TMI-1 Safety Evaluation that AmerGen is financially qualified to own and operate TMI-1. As shown below, AmerGen is also financially qualified to own and operate CPS. O
\-) 13
A. PROECTED OPERATING REVENUES AND OPERATING COSTS AmerGen possesses, or has reasonable assurance of obtaining, the funds necessary to cover estimated operating costs for the period of the license in accordance with 3 10 CFR Q 50.33(f)(2) and the Standard Review Plan on Power Reactor Licensee Financial Qualifications and Decommissioning Funding Assurance (NUREG-1577, Rev.1) (hereafter "SRP"). AmerGen has prepared a Projected Income Statement for the operation of CPS from January 2000 through December 2004. In accordance with the SRP, this Projected Income Statement provides the estimated total annual operating costs for CPS and indicates that the source of funds to cover these operating costs will be operating revenues. A copy of the Projected Income Statement is provided in Enclosure 6A. (AmerGen requests that Enclosure 6A be withheld from public disclosure, as described in the 2.790 Affidavit provided in Enclosure 14. A redacted version of the Projected Income Statement, suitable for public disclosure, is provided as Enclosure 6.) The Projected Income Statement shows that the anticipated revenues from sales of capacity and energy from CPS provide reasonable assurance of an adequate source of funds to meet CPS' ongoing operating expenses. During the first five years of AmerGen's operation of CPS (from 2000 through 2004), the majority of AmerGen's income from CPS capacity and energy sales will come from IP. Under the Power Purchase Agreement, IP will purchase 75% of CPS' capacity and energy from AmerGen 14
l until December 31,2004. The remaining capacity and energy during that time will be sold at market-based rates, as will all capacity and energy after December 31,2004. The Power Purchase Agreement is provided in Enclosure 7. Moreover, as described below, PECO Energy and British Energy are making certain financial commitments to AmerGen to provide funds to cover operating expenses as necessary to maintain the safety of CPS (and the other nuclear power plants AmerGen owns) during any periods in which revenues from capacity and energy sales might not cover the operating expenses. PECO Energy and British Energy made similar commitments to provide funds to cover operating expenses as necessary to maintain the safety of TMI-1. B. ADDITIONAL SOURCE OF FUNDS AmerGen is providing a projected opening balance sheet showing its anticipated O assets, liabilities and capital structure relating to CPS as of the Closing Date. This financial statement is also contained in Enclosure 6A. (As noted previously, AmerGen requests that Enclosure 6A be withheld from public disclosure as described in the 2.790 Affidavit attached as Enclosure 14. A redacted version of this statement, suitable for public disclosure, is provided as Enclosure 6). AmerGen expects that by the Closing Date its Members will make capital contributions sufficient to cover the Cash Purchase Price (as defined in section 3.2 of the CPS Agreement). AmerGen's revenues from the sale of electricity from CPS and its other plants will provide AmerGen with working capital on an ongoing basis. Significantly, PECO Energy and British Energy entered into certain additional l financial arrangements that provide further assurance that AmerGen will have sufficient o 15
ro l 1 s funds available to meet its operating expenses. PECO Energy and British Energy have each entered into letter agreements dated December 3,1998 (PECO Energy) and November 5,1998 (British Energy) with AmerGen in which they committed, subject to the terms of their respective agreements, to provide their share of funds to AmerGen to assure that AmerGen will have sufficient funds available to meet its operating expenses for TMI-1. Copies of these two letter agreements, which are effective upon the transfer of TMI-1 to AmerGen, were previously provided to the NRC (see Reference 4) and are incorporated herein by reference (Funding Agreements). Under the terms of these agreements, AmerGen has access to up to $65 million. Based upon conservative average operating cost projections for the ten years following the transfer, AmerGen projects an average operating cost over a six-month period for CPS is approximately $80 million. Recognizing that it has entered into a definitive agreement to acquire Nine Mile O Point Unit 1 (100%) and Unit 2 (59%) in addition to CPS, AmerGen's financial qualifications must be evaluated in light ofits planned operation of multiple units at multiple sites. Therefore, AmerGen has obtained additional funding from PECO Energy
. and British Energy, which have supplemented the original TMI-1 Funding Agreements to increase the total amount of funds that will be made available to AmerGen to
$110 million and to make this funding arrangement applicable to each plant owned and
- operated by' AmerGen. A Copy of the PECO Energy supplemental letter agreement is provided in Enclosure 8, and a copy of the British Energy supplemental letter agreement is provided in Enclosure 9 (hereafter " Supplemental Agreements").
Pursuant to the terms of the Supplemental Agreements, PECO Energy and British 1 I Energy each will provide funding to AmerGen at any time that the Management O. 16
I
,o Committee of AmerGen determines that, in order to protect the public health and safety U
and/or to comply with NRC requirements, such funds are necessary to meet the ongoing operating expenses for any nuclear power plant owned and operated by AmerGen, including CPS, or such funds are necessary to safely maintain any such plant, including CPS; provided, however, that the liability to provide funding under each agreement shall not exceed the lesser of(x) fifly percent (50%) of the total funding required by AmerGen from time-to-time pursuant to the letter agreements, or (y) the aggregate amount of
$55 million cumulatively over the life of the agreements. Pursuant to these agreements, AmerGen will be able to draw upon financial resources of up to $110 million, if such funds are necessary to meet its expenses and/or to meet its obligations to safely maintain any of the nuclear power plants owned and operated by AmerGen. These Supplemental g Agreements become effective upon the transfer of TMI-l or any other nuclear reactor to g
AmerGen. The availability of $110 million pursuant to these agreements provides reasonable assurance that AmerGen will have sufficient funds for an extended outage at CPS. In fact, these Supplemental Agreements provide reasonable assurance that AmerGen would have sufficient funds available to pay its operations and maintenance expenses during a six-month outage of both Nine Mile Point Unit 1 (100%) and Unit 2 (59%). AmerGen considers such an extended outage to be the bounding six-month outage for purposes of NRC's guidance in its SRP on the subject of financial qualifications, because an outage of both units at the Nine Mile Point would be more costly than an outage at any nuclear reactor site for which AmerGen currently has entered into a definitive agreement to acquire. This approach is conservative, because AmerGen contemplates operating (",) 17
m_ several' sites and revenues would be available from operations at these other sites to fund
- O. : operating and maintenance expenses during an outage at Nine Mile Point.
In addition, in the event of simultaneous outages at both CPS and TMI-1, the
$110 million available pursuant to the. agreements would be sufficient to fund a six-month outage at CPS and a simultaneous three-month outage at TMI-1, or a six-month outage at TMI-l and a simultaneous four-month outage at CPS. This approach is conservative, because AmerGen contemplates operating several sites and revenues would be available from operations at other sites, such as Nine Mile Point, to fund operating and maintenance expenses during an outage.
L f The Supplemental Agreements will remain in effect and remain irrevocable until j such time as either: (1) AmerGen has submitted to the NRC a written certification l meeting the requirements of 10 CFR Q 50.4(b)(8) & (9) that the fuel has been lO l permanently removed from all of the reactors owned by AmerGen,i.e.' after AmerGen i i has determined to permanently cease operations at all ofits reactors, or (2) the NRC has ; given its prior written consent to the discontinuance of the funding arrangements
. contemplated by the Supplemental Agreements. These funding arrangements are subject to the understanding that PECO Energy or British Energy shall have the right to demand that AmerGen permanently cease operations at any plant rather than use funds available under these agreements for continued operations; provided that, in such event, Ame Gen shall nevertheless have the right to continue to obtain the funds necessary to assure the safe and orderly shutdown of any such raant and to continue the safe maintenance of any such plant until AmerGen can certify to the NRC that the fuel has been permanently removed from the reacs.or vessel.
c n , s
' The financial ability of PECO Energy to meet its obligations under the foregoing O funding arrangement with AmerGen is amply demonstrated in the financial statements I provided in its 1995,1996,1997, and 1998 Annual Reports. See Enclosure 4 and Reference 2. The financial ability of British Energy to meet its obligations under the foregoing funding arrangement with AmerGen is amply dem~onstrated in the financial staternents provided in its 1996 Prospectus and 1996/97 and 1997/98 Annual Reports.
See Enclosure 4 and Reference 2. AmerGen will have sufficient funds for the safe operation of CPS even if AmerGen needs to operate CPS at a loss over a significant period of time. All or some portion of AmerGen's earnings will be available for distribution to PECO Energy and British Energy in years in which it has operating surpluses, and AmerGen will be able to use any carryover surpluses or obtain additional funds from PECO Energy and British O. Energy in years in which it needs to do so. AmerGen's acquisition of additional nuclear assets in the United States should assist AmerGen in moderating year-to-year fluctuations
. in its ability to distribute camings and/or requirements for additioni contributions.
AmerGen does not anticipate that it will ever need to draw upon the funding commitments provided by PECO Energy and British Energy. AmerGen anticipates that both PECO Energy and British Energy will make adequate contributions to AmerGen, on an ongoing basis, necessary to assure Ame6en's ability to fund the ongoing operation and maintenance of all ofits nuclear power plants, as well as to fund other acquisitions. i Ameden expects that these funds will be provided even in the unlikely event AmerGen l 1 were ever to operate a nuclear plant at a loss over a significant period of time, as hypothesized above. C__
However, in the extraordinary circumstance that AmerGen is forced to draw upon O the Supplemental Agreements-which would require specific findings in a vote of the AmerGen Management Committee-AmerGen will exercise care to assure that it either maintains funds, or holds in reserve the right to draw upon funds, sufficient to assure that AmerGen would be able to fund the transition to a safe shutdown of all ofits operating units. AmerGen will inform the NRC in writing at any time that it draws upon the letter agreements. NRC obviously has the authority to assure that adequate funds will remain available to fund the transition to safe shutdown, should a question arise regarding the availability of adequate funds for such purpose. I Finally, AmerGen will take no action to cause PECO Energy or British Energy to l void, cancel, or diminish the contingency fund commitment to AmerGen. Neither will 1 AmerGen cause PECO Energy or British Energy to fail to perform or impair their ! O performance under the commitments, or remove or interfere with AmerGen's ability to draw upon the commitments. Further, AmerGen shall inform the Director, Office of l l Nuclear Reactor Regulation, in writing, at such time that it draws upon the commitments I for any ofits nuclear power plants. l l The commitments of PECO Energy and British Energy provide reasonable l assurance that AmerGen will have funds sufficient to pay the fixed costs of an outage l lasting six months, as suggested in the guidance provided in the SRP. Moreover, the Projected Income Statements and AmerGen's opening balance sheet showing its anticipated assets, liabilities, and capital structure as of the Closing Date, provide funher l assurance that AmerGen is financially qualified to own and operate CPS. 20
I l 'os C. DECOMMISSIONING FUNDING AmerGen's financial qualifications to own and operate CPS are further demonstrated by the fact that arrangements have been made to ensure that, at the closing, the CPS Decommissioning Tmst Funds will be transferred to AmerGen, and AmerGen's trust funds for CPS will be adequate to pay for the 10 CFR Q 50.75 (b) and (c) radiological decontamination and decommissioning of CPS, when eamings on the funds
)
are credited at a two percent annual real rate of return from the time of the collection of the funds through the end of the CPS license term in the Fall of 2026. The precise funding of the trusts depends upon the outcome of certain private letter ruling requests 1 l filed with the Intemal Revenue Service (IRS), IP's option to provide certain funds over a I five-year period, the possibility of certain contributions by AmerGen, and certain adjustments relating to the Closing Date. However, AmerGen's Decommissioning Trust ,O Funds for CPS, upon closing, will have a Fair Market Value (FMV) of not less than
$210 million.
1 These funds will be held in an extemal fund segregated from AmerGen's assets 1 and outside its administrative control. AmerGen's Nuclear Decommissioning Master Trust Fund Agreement will be in a form which is acceptable to the NRC and will provide, in addition to any other clauses, that: (a) Investments in the securities of AmerGen, PECO Energy, British Energy, their affiliates, subsidiaries or associates, or their successors and assigns shall be prohibited. In addition, except for investments tied to market indexes or other non nuclear sector mutual funds, investments in any entity owning one or more nuclear power plants is prohibited; and (b) The Director, Office of 21 I
Nuclear Reactor Regulation, shall be given 30 days prior written notice of any material amendment to the trust agreement (s). As demonstrated in Enclosure 10, the projected value of the funds for NRC decommissioning funding purposes, based on a $210 million fund at closing would be
.$356.7 million after taking credit for a two percent annual real rate of return from December 31,1999, until the expiration of the CPS license on September 29,2026. This exceeds the current NRC formula amount for the basic radiological decommissioning of CPS, which is approximately $347 9 million, as calculated by AmerGen and IP pursuant l to 10 CFR { 50.75(c), NRC Regulatory Guide 1.159, and NUREG-1307, Rev. 8. A work l
l sheet showing the calculation based upon December 1998 data is provided in l Enclosure 11 Thus, the projected value of the CPS Decommissioning Trust Funds of
$356.7 million, when earnings are credited, exceeds the NRC minimum amount required l
O for decommissioning funding assurance. Moreover, under a scenario where the pre-paid decommissioning trust funds held by AmerGen upon closing would have a value in the range of $210 million at the time of transfer, IP would be required to make five additional annual payments of $5 million totaling $25 million to be paid to AmerGen and to be deposited in the CPS decommissioning trust funds. When these additional funds, and earnings, are taken into account, the projected value of the decommissioning trust funds would be $396.7 million. ' However, NRC need not rely upon any such additional payments because the fi/ Other than its contractual obligations to AmerGen, following the closing, IP will have no responsibility for the decommissioning of CPS, and it does not intend to be an NRC licensee.
.O. 22 l
l
E l L l l
$210 million is adequate to meet NRC's requirements. Notably, based upon its own earnings and inflation projections, AmerGen anticipates that, under any of the scenarios f
presented, it will have adequate funds both to meet NRC's requirements and to provide adequate funding for the total cost to decommission CPS. l l AmerGen and IP believe that the funding mechanisms described above, providing a minimum of $210 million, satisfy the requirements set forth in 10 CFR Q 50.75(e)(1). As the NRC recently confirmed in several recent license transfer proceedings, a transferee is only required to demonstrate that it has sufficient funds to cover the radiological decommissioning cost estimate calculated using the NRC formula in 10 CFR Q 50.75(c).
- l. . See TMI-I Safety Evaluation, at 8. See also In re North Atlantic Energy Service Corp.
(Seabrook Station, Unit 1), CLI-99-06 (March 5,1999) (the NRC formula amount, l utilizing NUREG-1307, Rev. 8, is sufficient to provide decommissioning funding assurance in license transfer cases); Boston Edison Co. (Pilgrim Nuclear Power Station, Unit No.1), Order Approving Transfer of Licenses And Conforming Amendments, 64 FR 24426 (May 6,1999). At any time, if the NRC minimum decommissioning funding requirements are not met by the Fair Market Value of the pre-paid funds in the Master Nuclear Decommissioning Trust with eamings credited at an annual 2% real rate of return, l AmerGen will make additional contributions to the trust funds sufficient to meet NRC's requirements under the regulations or will otherwise provide financial assurance, j ! l; l consistent with NRC's requirements, for decommissioning funding sufficient to meet any ! l shortfall. In light of AmerGen's projected revenues, AmerGen's contractual arrangements with IP, in both the Asset Purchase Agreement and Power Purchase (O 23 L
t c - Agreement, and the commitments provided by PECO Energy and British Energy to L
'\
provide funding to AmerGen, there is reasonable assurance that AmerGen will be able to meet such requirements. l-VII. ANTITRUST CONSIDERATIONS I l In conjunction with the proposed CPS license transfer, the applicants request that i the Commission approve administrative amendments under 10 CFR Q 50.90 deleting the Appendix C antitrust conditions of the CPS license without an antitrust review. The Commission has recently ruled that no antitrust review should be performed in post-operating license proceedings involving license transfers. Further, there is no
- practical or legal reason to support the continued application of the CPS antitrust
! conditions. Following the transfer of CPS to AmerGen, IP will have no ownership , interest in CPS and will no longer be an NRC licensee. Also, the license conditions have no meaningful application to AmerGen. AmerGen is not affiliated with IP,is not a l successor to IP, and does not operate a public utility transmission network. In addition, AmerGen will be an Exempt Wholesale Generator ("EWG") and will sell power at l l market-based rates subject to the review and approval of the Federal Energy Regulatory l Commission. Thus, the antitrust license conditions will no longer serve the purposes for which they were intended. Moreover, the FERC'sjurisdiction over the CPS sale, , l including antitrust review, provides adequate assurance that AmerGen's operation of CPS j will be consistent with the antitrust laws of the United States. 1 Sound policy considerations support terminating the antitrust license conditions ! l once IP transfers CPS to AmerGen and is no longer a licensee. The Commission has determined that an antitrust review of post-operating license transfers is not required by O V 24 L~
n the Atomic Energy Act, and that from a policy, as well as legal, perspective, such a
; e \ /
review should not be conducted. Kansas Gas and Electric Company (Wolf Creek Generating Station, Unit 1), CL1-99-19, June 18,1999 (hereafter "WolfCreek"). Typical of the antitrust policy conditions contained in licenses issued to vertically-integrated electric utilities in the 1970s and 80s, Appendix C of the CPS license required IP to offer to neighboring electric systems the opportunity to participate in the ownership of CPS, to offer bulk power sales, and to enter into interconnection arrangements. As a result of a series of factors, including the emergence of competitive bulk power markets, the enhanced authority of the FERC to require transmission service enacted by the Energy Policy Act of 1992,7 and the decision of the FERC to apply antitrust standards in conducting its review of the transfer of bulk power assets pursuant to section 203 of the m Federal Power Act,8 the competitive and regulatory environment in which electric
! 1 utilities operate today is markedly different from that at the time the Commission reviewed the CPS construction permit application. Specifically, the FERC has determined that the region that includes IP has a workably competitive bulk power market, ' and utilities in the Midwest, including IP, participate in regional l
l 2/ FERC's authority to order wheeling is codified at 16 U.S.C. G 824j (1997). 81 FERC Order No. 592, Inquiry Concerning the Commission 's Aferger Policy Under the Federal Power Act, Policy Statement, FERC Stats. & Regs.1 31, 044 ( 1996), on reconsideration, Order No. 592-A,79 FERC 1 61,321 ( 1997). 9/ Based upon finding the existence of a competitive regional bulk power market, FERC has extended market-based rate authority to IP and its affiliates. Illinois Power Afarketing, Inc., 73 FERC 1 61, 371 ( 1995); Illinois Power Company, 71 FERC 1 61,172 (1995). n 25
p i l I . non-discriminatory power coordination subject to FERC oversight. 8 Moreover, the l State ofIllinois is implementing competitive retail access throughout the service territory i ofIP. " The Commission's observations in WolfCreek conceming the redundancy ofits l authority in light of current conditions and the authority of FERC apply with equal force to this case: FERC now possesses statutory authority overlapping that of the NRC under section 105 (of the AEA] to remedy potential and existing anticompetitive conduct by the NRC's nuclear facility licensees, at least l with respect to transmission services. . . . [T]ransmission services are the
- services without which access to nuclear power facilities is meaningless and which, therefore, were of great concem to Congress in granting
!' prelicensing antitrust review authority to the Commission. With this expanded FERC authority, however, the NRC cannot be said to be in a unique position to address or remedy antitrust problems involving access j l to transmission services. To the contrary, NRC antitrust review might j even be said to be redundant and unnecessary. 1 WolfCreek at 29-30. lO In Wolf Creek, the Commission stated that it could be appropriate to remove antitrust license conditions where they apply to only one licensee and that licensee will i no longer be a licensee after the transfer. WolfCreek at 32. The transfer of CPS l represents such a case and the applicante accordingly request that the Commission 10/ IP is a member of the Illinois-Missouri Power Pool, the MidAmerica Interconnected Network, Inc., and the Midwestem Independent System Operator, Inc., all of which are subject to FERC regulation. See, e.g. MidwestIndependent System Operator,84 FERC 161,231, on reconsideration, 85 FERC 161,372 (1998). l 11/ The Illinois Electric Service Customer Choice and Rate Relief Law of 1997,220 Ill. Comp. Stat. 5/16-101-150 (West 1997), mandates access to altemative electric suppliers by Illinois consumers and establishes a schedule for implementing retail access for IP customers which generally provides access for customers with a demand in excess of 4 MW and 1/3 of non-residential customers on October 1,1999, the remainder of non-residential customers on December 31,2000, and all residential customers on May 1, 2002. O 26
1 I l approve administrative amendments under 10 CFR Q 50.90 deleting the Appendix C
- antitrust conditions from the CPS license. After the sale of CPS to AmerGen, IP will I have no ownership interest in CPS and will no longer be an NRC licensee. Appendix C's antitrust policy conditions currently apply to IP, each ofits subsidiaries and "any I
successor" to IP. AmerGen will not be a " successor" ofIP, in that IP is selling only the CPS generating assets to AmerGen. IP will continue to operate as a public utility in Illinois, will continue to own and control the bulk power transmission network with which CPS is interconnected, and IP and its affiliates will retain the bulk of their public utility assets and all of their bulk power and retail service obligations. Because AmerGen will receive no ownership interest in IP's transmission network as part of the CPS sale, " the Appendix C conditions related to transmission services are not relevant to AmerGen. Moreover, the condition iequiring IP to afford an opportunity to any neighboring electric O l l system in the ownership of CPS or purchase of unit participation power from CPS has expired on its own terms and will not apply to AmerGen as a future owner. IP has also performed the obligation to make bulk power service available under the license conditions. Therefore, following the closing of the sale of CPS, the CPS antitrust license conditions will no longer serve the purposes for which the conditions were established. Based on the foregoing, reasonable assurance exists that the purposes underlying the antitrust policy will be fulfilled through FERC's review of the sale of CPS to l AmerGen and no practical or legal reason supports the continued application of the CPS antitrust license conditions following the transfer of the CPS license to AmerGen. 1 l 12/ AmerGen will own only limited facilities at the CPS site that are considered FERC jurisdictional transmission facilities. 27
r i m VIII. RESTRICTED DATA AND CLASSIFIED NATIONAL SECURITY U INFORMATION This application does not contain any Restricted Data or classified National l Security Infom1ation, and it is not expected that any such information will become l involved in the licensed activities. However, in the event that such infomiation does become involved, AmerGen agrees that it will appropriately safeguard such information ; and will not permit any individual to have access to such information until the Office of Personnel Management shall have made an investigation and reported to the NRC on the character, associations and loyalty of such individual, and the NRC shall have determined that permitting such person to have access to such information will not endanger the common defense and security of the United States. IX. ENVIRONMENTAL CONSIDERATIONS ([ The CPS license transfer application and accompanying administrative amendments are exempt from environmental review, because they fall within the categorical exclusion appearing at 10 CFR 51.22(c)(21) for which neither an I Environmental Assessment nor an Envirorunental Impact Statement is required. l Moreover, the proposed license transfer does not involve any amendment to the hcense or 1 other change that would directly affect the actual operation of CPS in any substantive way. The proposed transfer and amendments to the license do not involve an increase in the amounts, or a change in the types, of any radiological effluents that may be allowed to be released off-site, and involve no increase in the amounts or change in the types of any non radiological effluents that may be released off-site. Further, no increase in the l individual or cumulative occupational radiation exposure is expected. r { 28 i i
~
r l l
)
X. ADDITIONAL INFORMATION REGARDING SPECIFIC REGULATORY l O REQUIREMENTS, PLANS, PROGRAMS & PROCEDURES A. GENERAL DESIGN CRITERION 17 In compliance with General Design Criterion (GDC) 17, IP currently provides off-site power to CPS over transmission facilities owned and operated by IP. 1 Functionally, IP's interconnection with CPS will not change as a result of the proposed I I license transfer. IP has entered into an Interconnection Agreement with AmerGen pursuant to which IP will continue to provide the CPS site with interconnection services. ) l IP's Open Access Transmission Tariff and this Interconnection Agreement will enable AmerGen to have access to the transmission facilities subject to the control of the i Midwest Independent System Operator (Midwest ISO). GDC 17 specifically requires that there be an assured source of off-site power to O the Pi ant. eerseent te this reautrement. iP s OPen iccess Treesmiesiee Tariff eed the Interconnection Agreement provide adequate assurance that: (1) the CPS site will be provided with a continued source of off-site power; and (2) the arrangements for l controlling operation, maintenance, repair, and other activities with respect to the CPS switching station, the transmission lines and the switchyard will continue to provide a reliable source of off-site power. B. EMERGENCY PLANNING l Upon consummation of the transfer, AmerGen will assume authority and l responsibility for functions necessary to fulfill the emergency planning requirements specified in 10 CFR Q 50.47(b) and Part 50, Appendix E. Either before or after the transfer, any changes to the CPS Emergency Plan will be made in accordance with 29 l l L
p
. 1 10 CFR { 50.54(q). IP and AmerGen anticipate that no changes will be made that will V,f g result in a decrease in the effectiveness of the plan, and that the plan will continue to meet I
the s't andards of 10 CFR { 50.47(b) and the requirements of Appendix E of Part 50. Any specific emergency plan changes will be submitted to the NRC within 30 days after the changes are made, pursuant to 10 CFR { 50.54(q) and Appendix E, Section V. IfIP or AmerGen identify any proposed changes that would decrease the effectiveness of the l approved emergency plans, application to the Commission will be made and such j i proposed changes will not be implemented until approved by the Commission. 1 l - l1 Determinations as to whether any proposed change (s) would result in a decrease in I effectiveness will be made in accordance with IP's currently approved plans, programs and procedures. AmerGen anticipates that no substantive changes will be made to the existing O emergency organization. However, certain functions may be performed by Illinois Power pursuant to a services agreement with AmerGen. The current off-site emergency facilities and equipment, including the Joint Public Information Center, Headquarters Support Center, and back-up Emergency Operations Facility, will be leased to AmerGen. ! Ownership of off-site emergency sirens will be transferred to AmerGen, and any existing i easements for the siren locations will be assigned to AmerGen. Additional easements will be provided for those sirens on IP properties. 3 Existing agreements for support from organizations and agencies not affiliated l with IP will be assigned to AmerGen. IP and AmerGen plan to notify the parties to such agreements in advance of the transfer of the CPS license to AmerGen and advise those i parties of AmerGen's responsibility for management and operation of CPS, effective as V 30 l
m l l I of the Closing Date. In sum, the proposed license transfer will not impact compliance with the emergency planning requirements. C. EXCLUSION AREA Upon the transfer of the license to AmerGen, IP will transfer to AmerGen the authority to determine and control all activities within the Exclusion Area for CPS, as defined in Section 4.1 of the Technical Specifications of the CPS Operating License, to the extent required by 10 CFR Part 100, including exclusion of personnel and property l from'the Exclusion Area. l l Under the CPS Agreement, IP will transfer all of the real property within the l Exclusion Area to AmerGen, but AmerGen is not acquiring certain switchyard and other l transmission assets owned by IP, which are located within the Exclusion Area. However, AmerGen will have authority, with respect to IP's ownership of and access to switchyard f . and transmission facilities, to determine and control all activities in the Exclusion Area, including exclusion of personnel and property from the area, to the extent necessary to comply with applicable NRC requirements. This authority is further confirmed in Section 9.2 of AmerGen's Interconnection Agreement with IP. To the cuent permitted j by NRC requirements, Ame Gen will, of course, exercise this control in such a fashion I whereby IP's access to the CPS switchyard and transmission facilities, to facilitate proper operation and maintenance of electric systems, will not be unduly restricted. I Subject to further negotiation between AmerGen and IP, IP may lease certain , environmental laboratory facilities located within the exclusion area. However, l AmerGen will assure that under the terms of the lease or other agreements with IP, l AmerGen will have the authority to determine and control all activities in the Exclusion o 31
q g- Area, including exclusion of personnel and property from the area, to the extent necessary to comply with applicable NRC requirements. !- With respect to the activities unrelated to plant operation that occur in the
. Exclusion Area, such as recreational activities on Lake Clinton, there will be no change l afler license transfer. AmerGen will assume responsibility for the Emergency Plan as discussed above.
D. SECURITY Upon consummation of the transfer, AmerGen will assume authority and responsibility for the functions necessary to fulfill the security planning requirements
- specified in 10 CFR Part 73. Any changes made to the existing NRC-approved physical security, guard training and qualification, and safeguards contingency plans developed
. and implemented by IP will be made in accordance with 10 CFR @ 50.54(p). IP and O AmerGen anticipate that no changes will be made that will result in a decrease in the effectiveness of the plans, and that the plans will continue to meet the standards of 10 CFR Part 73. Any specific security plan changes will be submitted to the NRC within sixty days after the changes are made, pursuant to 10 CFR @ 50.54(p)(2). IfIP or AmerGen identify any proposed changes that would decrease the effectiveness of the approved security plans, application to the Commission will be made, and such proposed changes will not be implemented until approved by the Commission. Determinations as to whether ahy proposed change (s) would result in a decrease in effectiveness will be made in accordance with IP's currently approved plans, programs and procedures.
AmerGen anticipates that no material changes will be made to the existing security l organization. 32
n Existing agreements for support from organizations and agencies not affiliated
.O with IP will be assigned to AmerGen. IP and AmerGen plan to notify the parties to such I agreements in advance of the transfer of the CPS license to AmerGen, and advise those parties of AmerGen's responsibility for management and operation of CPS, effective as of the Closing Date. In sum, the proposed license transfer will not impact compliance I with physical security requirements.
E. QUALITY ASSURANCE PROGRAM Upon consummation of the transfer, AmerGen will assume authority and I responsibility for the functions necessary to fulfill the quality assurance (QA) requirements of 10 CFR Part 50, Appendix B. Any changes made to the existing CPS QA Program Description (QAPD) developed and implemented by IP will be made in accordance with 10 CFR Q 50.54(a). IP and AmerGen anticipate that no changes will be made that will result in a reduction in the commitments in the QAPD description previously accepted by the NRC. If AmerGen or IP identifies any changes to the QAPD that would result in a reduction in commitments, application to the Commission will be made, and such proposed changes will not be implemented until approved by the Commission. Determinations as to whether any proposed change (s) would result in a reduction in commitments will be made in accordance with IP's currently approved plans, programs and procedures. AmerGen anticipates that no material changes will be made to the existing QA organization. F. UPDATED FINAL SAFETY ANALYSIS REPORT With the exception of areas discussed in this Application, the proposed license transfer and confonning administrative amendments will not invalidate information O 33
p l -q presently appearing in the CPS USAR, and any licensing basis commitments will remain G in effect. Changes necessary to accommodate the proposed transfer and confonning i administrative license amendment will be incorporated into the USAR, in accordance with 10 CFR @ 50.71(e), following NRC approval of this Application. G. TRAINING 1 l The Training Center, including the Simulator facility and the staff currently working at these facilities, will be transferred to AmerGen. The proposed license transfer will not impact compliance with the operator re-qualification program requirements of 10 CFR 50.54 and related sections, nor maintenance of the INPO accreditation for licensed and non-licensed training. Upon transfer of the CPS license, AmerGen will assume ultimate responsibility for implementation of present training programs. Changes to the programs to reflect the transfer will not decrease the scope of the approved operator V re-qualification program without the specific authorization of the NRC in accordance with 10 CFR Q 50.54(i). H. PRICE-ANDERSON INDEMNITY AND NUCLEAR INSURANCE I In accordance with 10 CFR { 140.92, Art. IV.2, AmerGen and IP request NRC j approval of the assignment and transfer of the Price Anderson indemnity agreement for CPS to AmerGen upon consent to the proposed license transfer. Prior to the license transfer, AmerGen will obtain all required nuclear property damage insurance pursuant to 10 CFR { 50.54(w) and nuclear energy liability insurance pursuant to Section 170 of the Act and 10 CFR Part 140. Pursuant to 10 CFR Q 140.21(e)-(f), AmerGen's Projected l Income Statement and financial arrangements with PECO Energy and British Energy I O 34 l
y 1 provide adequate assurance that AmerGen will be able to pay a retrospective premium of
$10 million in the twelve-month period following transfer of the license.
L STANDARD CONTRACT FOR DISPOSAL OF SPENT NUCLEAR FUEL On and after the Closing Date, AmerGen will assume title to and responsibility for storage and disposal of spent nuclear fuel located at CPS. IP will assign, and AmerGen will assume, IP's rights and obligations under the Standard Contract with the Department of Energy, except that IP will remain liable for any fees that may be imposed , 1 for electricity generated and sold prior to the Closing Date. XL OTHER REQUIRED REGULATORY APPROVALS The proposed sale of CPS to AmerGen is subject to the approval of the Illinois Commerce Commission (ICC) and the FERC. IP will request FERC approval for the sale O ofjurisdictional assets pursuant to Secti n 203 of the Federal Power Act, and acceptance of the Interconnection Agreement under Section 201 and/or Section 205 of the Federal Power Act. AmerGen will request FERC acceptance of the Power Purchase Agreement under Section 201 and/or Section 205 of the Federal Power Act. AmerGen already has FERC authorization under Section 205 of the Federal Power Act to sell electric generating capacity and energy at wholesale and market-based rates, but will seek FERC acceptance for filing of a change of status under AmerGen's tariff authorizing AmerGen to make wholesale sales of capacity and energy at market-based rates. AmerGen will also file an application with FERC for a determination that AmerGen will continue to be an Exempt Wholesale Generator (EWG) under Section 32 of the Public Utility Holding Company Act of 1935, as amended, in connection with its ownership and operation of l (3 35
r: l CPS. A certification relating to this EWG status will need to be obtained from the ICC. AmerGen will also need to obtain certain approvals from the Pennsylvania Public Utility Commission. AmerGen and IP_will also file any notifications with the Federal Trade Commission and the ' Department of Justice that are required under the Hart-Scott-Rodino - Antitrust Improvements Act of 1976, as amended (HSR Act), and applicable rules and regulations. Any additional information required will be supplied with a goal towards the termination or expiration of the HSR Act waiting period at the earliest possible date after the date of filing. AmerGen and IP believe that certain rulings by the IRS and/or certain legislative changes to the Internal Revem'e Code or changes in IRS regulations will be necessary to assure that decommissioning funds accumulated in the qualified and non-qualified CPS O decommissioning trust funds by IP may be transferred to AmerGen on a tax-free basis. Regardless ofIRS rulings or legislative changes, under no scenario will IP retain possession or any ownership interest in the CPS Decommissioning Trust Funds after the
- closing. These matters are discussed in greater detail in Section 6.12 of the CPS I
Agreement. XH. EFFECTIVE DATE AmerGen and IP request that the NRC's consent to the transfer of CPS to AmerGen be given as promptly as possible, and in any event before November 24,1999,
- to suppon a closing on December 15,1999. A 1999 Closing Date is important to IP because
- (1) a later Closing Date will have significant economic consequences, and (2) Illinova's merger with Dynegy is contingent on the sale of CPS. The NRC's consent O 36 i
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i i should be immediately effective upon issuance, and it should consent to the transfer occurring at any time through twelve months following the date of approval or such later date as may be permitted by the NRC, XIII. CONCLUSION Based upon the forgoing information, AmerGen and Illinois Power respectfully request that NRC issue an Order approving both the transfer of Facility Operating l-License No. NPF-62 to AmerGen and the associated Conforming Administrative License Amendment. 1 l l: O y L l i I l l p i I O 3, I i t; 1
l l lO L F l l l Enclosure 1 Q Marked-up Pages of CPS Operating License Reflecting Conforming Administrative License Amendment Associated With Proposed Transfer of CPS Operating License from Illinois Power Company to AmerGen Energy Company, LLC l l l O i O
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- g. t . UNITED STATES 0 E NUCLEAR REGULATORY COMMISSION "
WASHINGTON, D.C. 20565-0001
' 0( . %,..../ (AMtMied 6deMY CoPlfMY llc ILLIN0IS POWER COMPANY w_ - - -
DOCKET NO. 50-461
~CLINTON POWER STATION. UNIT NO. 1 FACILITY O'PERATING LICENSE License No. NPF-62
- 1. The Nuclear Regulatory Commission (the Commission or e NRO has found that: E Tic 61)
A. The compliesapplication for license with the standards filed byMr and requiremenis or Company (M, Act Ge AGmuc energy of 1954, as amended (the Act), and the Commission's regulations set forth in 10 CFR Chapter I, and all required notifications to other
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agencies or bodies have been duly made;
. B. Construction of the Clinton Power Station, Unit N_o.1 (the facility). .
has been substantially completed in conformity with Construction Permit No. CPPR-137 and the application, as amended, the provisions of the Act and the regulations of the Comission; 10(. ' C. The facility will operate in conformity with the application, as amended, the provisions of the Act, and the regulations of the Commis- - sion-(except as exempted from compliance in Section 2.0. below); D. There is reasonable assurance: (i) that the activities authorized by ,
, this operating license can be conducted without endangering the health dnd safety of the public; and (ii) that such activities will be conducted in compliance with the Commission's regulations set forth in 10 CFR Chapter I (except as exempted from compliance in Section 2.0 below);
E. inoTs P wer onpan is technically qualified to engage in the activ- l 1 es u r is operating license in accordance with the 1 Coimaission's regulations set forth in 10 CFR Chapter I; I F. 1 9has satisfied the applicable provisions of 10 CFR Part 140, i
- inancial Protection Requirements and Indemnity Agreements," of the i Commission's regulations; i
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G. The issuance of this license will not be inimical to the common defense and security or to the health and safety of the public; H. After weighing the environmental, economic, technical, and' other benefits of the . facility against environmental and other costs and considering available alternatives, the issuance of Facility Operating License No. NPF-62, subject to the conditions for protection of the environment set forth in the Environmental Protection Plan attached as Appendix B, is in accordance with 10 CFR Part 51 of the Commission's regulations and all applicable requirements have been satisfied; and I. The receipt, possession, and use of source, byproduct, and special nuclear material as authorized by this license will be in accordance with the Commission's regulations in 10 CFR Parts 30, 40, and 70.
- 2. Based on the foregoing findings regarding this facility, and pursuant to approval by the Nuclear Regulatory Commission at a meeting on April 10, 1987, Facility Operating License No. NPF-62, which supersedes the license for fuel loading and low power testing, License No. NPF-55, issued on September 29, 1986, is hereby issued to (Tilinois Power company)to read as follows: y
'A. This license applies to the Clinton ' Power Sta' tion, Unit No. 1, a boil-ing water nuclear reactor and associated equipment (the facility),
owned by 6111nois Power Company). The facility is located in Harp (j O lownship, uewm t,ounty, approximately six miles east of the city of Clinton in east-central Illinois and is described in the licensee's Final Safety Analysis Report, as supplemented and amended, and in the licensee's Environmental Report-0perating License Stage, as supplemented and amended. B f.Subjecttotheconditionandrequ'irementsincorporatedherein,the Commission hereby licenses: (1) Illinois Power Company (IP9, pursuant to Section 103 of the Act arid 10 CFR Part bo, to possess, use and operate the facility at the designated location in Harp Township, DeWitt County, Illinois, in accordance with the procedures and limitations set forth in this license; (2) Deleted (3) IP pursuant to the Act and 10 CFR Part 70, to receive, possess and to use at any time special nuclear material as reactor fuel, in accordance with the limitations for storage and amounts required for reactor operation, as described in the Final Safety Analysis Report, as supplemented and amended; D MdrhM.biefg mgg LL.C. ~ A -y m . Amendment No. -24, 114 O '
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i (4) -pursuant to the Ai:t and 10 CFR Parts 30, 40,'and 70, to receive,' possess, and use at any time any byproduct, source and special nuclear material as sealed neutron sources for reactor startup, sealed sources for reactor instrumentation and radi-ation monitoring equipment calibration, and as fission detectors- . in amounts as required; . (5)' pursuant to the Act and 10 CFR Parts 30. 40, and 70, to ceive, possess, and use in amounts as required any byproduct, source or special nuclear material without restriction to chemical or physical form, for sample analysis or instrument calibration or associated with radioactive apparatus or components; and (6) I , pursuant to the Act and 10 CFR Parts 30, 40, and 70, to ossess, but not separate, such byproduct and special nuclear materials as may be produced by the operation of the facility. , l C. This'-license shall be deemed to contain and is subject to the condi-tions.specified in the Commission's regulations set forth in 10 CFR Chapter I and is subject to all applicable. provisions of the Act and - to the rules, regulations ano orders of the Comission now or here- a after in effect; and is subject to the additional conditions specified or incorporated below:
.U (1) Maximum Power Level is authorized to operate the facility at reactor core power eyels not in excess of 2894 megawatts thermal (100 percent rated power) in accordance with the conditions specified herein.
The items identified in Attachment I to this license shall be completed as specified. Attachment 1 is hereby incorporated . into this license. (2) Technical Specifications and Environmental Protection Plan The Technical Specifications contained in Appendix A and the Environmental Protection Plan contained in Appendix B, both of which are attached hereto, are hereby incorporated into this license. MB shall operate the facility in accordance with the Technical !Fpecifications and the Environmental Protection Plan. , (3) Antitrust Conditions l P shall comply with the antitrust conditions in Appendix'C attached hereto, which is hereby incorporated into this license.
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l l (.4) Control System Failures (Section 7.7.3.1, SER and SSER 6)* I shall submit, in accordance with comitments contained in etters dated May 15, 1986 and July 16, 1986, the results of the additional evaluations of control system fail 6res and the proposed implementation of any corrective actions that may be found necessary, for staff review four months prior to plant startup after the first refueling outage. Implementation of any corrective actions found acceptable by the staff shall be completed prior to plant startup after the first refueling outage.
, gg (5) New Fuel Storace (Section 9.1.1, SER, SSER 6 and SSER 7) shall store new fuel assemblies in accordance with the N*3S
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Ph*hM requirements specified in Attachment 2. Attachment 2 is hereby incorporated into this license., , (6) Plant Operation Experience (Section 13.1.2.1, SSER 5) e, ( *c4gpa. shall have a licensed senior operator on each shift who has d at least 6 months of hot operating experience on a large ( comercial BWR, including at least 6 weeks at power levels
.. / greater than 20. percent of full power, and who has had BWR startup and shutdown experience. This license condition shall be effective for a period of 1 year from fuel load or until the attainment of a nominal 100 percent power level, whichever occurs later.
(7) E'meroency Plannino (Section 13.3, SSER 6) In the event the NRC staff finds that the lack of progress in completion of the procedures in the Federal Emergency Management Agency's final rule, 44 CFR Part 350, is an indication that a major substantive problem exists in achieving or maintaining an adequate state of emeroency preparedness, the provisions of 10 CFR Section 50.54(s)(2) will apply.
*lhe parenthetical notation following the title of many license conditions denotes the section of the Safety Evaluation Report and/or its supplements wherein the license condition is discussed.
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-S-(8) Post-Fuel loadina Initial Test Procram (Section 14. SER. SSER S and SSER 6)
Any changes to the initial test program described in Section 14 of the FSAR made in accordance with the provisions of 10 CFR 50.59 shall be reported in accordance with 50.59(b) within one month of such change. . (9) Emeraency Response Canabilities (Generic Letter 82-33. Supolement I to NUREG-0737. Section 7.5.3.1. SSER S and SSER 8. and Section 18. SER. SSER 5 and Safety Evaluation Dated April 17. 1987)
- a. P in accordance with the commitment contained in a letter ated December 11, 1986, shall install and have operational
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-- separate power sources for each of the fuel zone level channels as provided fer in Regulatory Guide 1.97 prior to startup following the first refueling outage.
L b. IP shall submit a detailed control room design final supple-ntal summary report within 90 days of issuance of the full power license that completes all the remaining items - f identified in Section 18.3 of the Safety Evaluation dated April 17, 1987. { ') ( .D. The facility requir.es exemptions from certain requirements of 10 CFR ,, Part 50 and 10 CFR Part 70. These include: (a) an exemption from the requirements of 10 CFR 70.24 for the criticality alarm monitors around the fuel-storage area; (b) an exemption from the requirement of 10 CFR Part 50, Appendix J - Option B, paragraph III.B exempting the measured leakage rates from the main steam isolation valves from inclusion in the combined leak rate for local leak rate tests (Section 6.2.6 of SSER 6); and (c) an exemption from the requirements of paragraph III.B of Option 8 of 10 CFR Part 50, Appendix J, exempting leakage from the valve packing and the body-to-bonnet seal of valve IE51-F374 associated with containment penetration IMC-44 from inclusion in the combined leakage rate for penetrations and valves subject to Type B and C tests (SER supporting Amendment 62 to Facility Operating License No. NPF-62). The special circumstances regarding each exemption, except for Item (a) above, are identified in the referenced section of the safety evaluation report and the supplements thereto. Amendment No.105 40 .,
i l 1 k pe=sssa . An exemption was previously anted pursuant to 10 CFR 70.24. The exemption was granted with NRC i erial license No. SNM-1886, issued l November 27, 1985, and rel ed from the requirement of having a criticality alarm system. is ereby exempted from the , criticality i I alarm system provision of. I~0 CFR 70.24 so far as this section applies
. to the storage of fuel assemblies held under this license. 1 i
' These exemptions are authoriz'ed by law, will not present an undue risk to the public health and safety, and are consistent with the common defense and security. The exemptions in items (b) and (c) above are granted pursuant to 10 CFR 50.12. With these exemptions, the facility will operate,-to the extent authorized herein, in conformity with the application,~as amended, the provisions of the Act, and the rules and regulations of the Commission. E. I shall fully implement and maintain in effect all provisions of the mmission-approved physical security plan, guard training and qualification, and safeguards contingency plans including amendments made pursuant to provisions of the Miscellaneous Amendments and Search Requirements revisions to 10 CFR 73.55 (51 FR 27817 and 27822) and to the authority of 10 CFR 50.90 and 10 CFR 50.54(p). The plans, which
. contain Safeguards Information protected under 10 CFR 73.21, are -
entitled: "Clinton Power Station Physical Security Plan," with revisions submitted through May 27,1993; "Clinton Power Station / Training and Qualification Plan," with revisions submitted through \ O , May 27, 1993; and "Clinton Power Station Safeguards Contingency Plan,". with revisions submitted through May 27, 1993. Changes made in ( accordance with 10 CFR 73.55 shall be implemented in accordance with - the schedule set forth therein; F. I shall implement and maintain in effect all provisions of the proved fire protection program as described in the Final Safety Analysis Report as amended, for the Clinton Power Station, Unit No.1, and as approved in the Safety Evaluation Report (NUREG-0853) dated February 1982 and Supplement Nos. I thru 8 thereto subject to the following provision- i IP may make changes to the approved fire protection program w thout prior approval of the Commission only if those changes would not adversely affect the ability to achieve and maintain safe shutdown in the event of a fire. G. Except as otherwise provided in the Technical Specifications or Environmental Protection Plan, IP shall report any violations of the requirements contained in Section 2.C of this license in the following manner: initial notification shall be made within 24 hours to the NRC Operations Center via the Emergency Notification System with written followup within thirty days in accordance with the procedures described in 10 CFR 50.73(b), (c), and (e).
, Amendment No. 44fn 114
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'H . shall have and maintain financial protection of such ype and in such amounts as the Commission shall require in accord-ance with Section 170 of the Atomic Energy Act of 1954, as. amended, to cover public liability claims.
I. This license is effective as of the date of issuance and shall expire at midnight on September 29, 2026. FOR THE NUCLEAR REGULATORY COMMISSION Original signed by: Thomas E. Murley, Director Office of Nuclear Reactor Regulation
Enclosures:
- 1. Attachments 1 and 2
- 2. Appendix A - Technical Specifications (NUREG-1235)
- 3. Appendix B - Environmental Protection Plan
- 4. Appendix C - gnadest Cindittonf -----. QleQ Date of Issuance: April 17, 1987 .
( (o) ' l l l l l 1 Amendment No. 114 ( s, . V
p. ( $l244$66 ATTACHMENT 1 TO NPF-62 Prior to achieving the milestone indicated, the following items shall be
. completed to the satisfaction of Region III. }
I
- 1. Preoperational test PTP-FH, Fuel Handling System, shall be completed prior to off-loading irradiated fuel.
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- 2. IP shall resolve audibility problems encountered o evacuation of' u personnel in high noise areas in accordance with letter dated July 8, 1986. A survey of high noise areas shall be completed within 30 days after achieving maximum anticipated noise level.
All corrective actions required by the survey shall be completed prior to the completion of the first refueling outage. In the ; interim for those areas which are identified as having deficient siren audibility, temporary administrative measures will be taken to f ensure that these areas are evacuated as required.
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- 1 ATTACHMENT 2 TO NPF-62 NEV FUEL 5IuRAGE 1 . -
i IP shall store new fuel assemblies in accordance with the following requirements,
- a. No more than three fuel assemblies shall be outside their shipping j containers, storage racks, or the reactor vessel at any one time.
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- b. The minimum edge-to-edge distance between the groop of three fuel -
assemblies and all other fuel assemblies shall be 12 inches.
- c. Fuel assemblies, when stored in the New Fuel Storage Vault, shall be stored such that: no more than 12 rows of fuel assemblies shall remain uncovered during the loading or unloading of fuel assemblies; metal covers shall cover all other rows containing fuel assemblies during loading and unloading of fuel assemblies; and when loading or i unloading of fuel assembifes is not in progress, metal covers shall -
l cover all rows of fuel assemblies.
- d. Fuel assemblies shall be stored in such a manner that water would drain freely from the assemblies in the event of flooding and sub- .
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sequent draining of the fuel storage area.
- e. Fuel assemblies shall be stored in the containment fuel storage pool )
only under water. (
/ f. No fuel assemblies shall be stored in the control rod racks.
- g. All fire hoses servicing the New Fuel Storage Vault shall be equipped
. with solid stream nozzles.
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DGCUMENT CCMTiiOL u APPENDIX B ' CC LLrD COPY
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TO FACILITY LICENSE No. NPF-62 CLINTON POWER STATION UNIT NO. 1
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fAkggGEN 6M6A%Y CO ; LLC (ILLIg'ER COMPANY DOCKET No. 50-461 ENVIRONMENTAL PROTECTION PLAN (NON-RADIOLOGICAL) April 17, 1987 9
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O. - (. 1.0 OBJECTIVES OF THE ENVIR0!!MINTAL PROTECTION PLAN The Environmental Protection. Plan (EPP) is to provide for protection of non-radiological environmental values during operation of the nuclear facility. The principal objectives of taa EPP are as follows: (a) Verify that the Plant is op'erated in an environmentally acceptable manner, as established by the Final Environmental Statement-Operating License Stage * (FES-OL) and other NRC environmental impact assessmenu. (b) Coordinate NRC requirements and maintain consistency with other Federal, State, and local requirements for environmental protection. (c) Keep NRC informed of the environmental effects of facility construction and operation and of action taken to control j those effects. Environmental concerns identified in the FES-OL which relate to water quality mttters are regulated by way of # ;n.63 I; E lty4.-. ' ({T$)helicensee' NPDES permit. , ( D>/ d d j ' 6 s I
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l CFinal Environmental Statement related to the operation of , Clinton Power Station, Unit No. 1 .' NUREG-0854, May 1982 ; (FES-OL). l 0 1-1
M % umTED STATES (Q ' j
*j NUCLEAR REGULATORY COMMISSION WASHINGT ON. D. C. 20M5
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' April 17, 1987 CU.GT CC. : u. _
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ANTITRUST CONDITIONS FACILITY OPERAT1HG LICENSE NO. NPF-62 DeM*A-s Power Company (IP) is subject to the following antitrust conditions: (1) Definitions I (1)(a) " Licensee" means IP and includes each present o'r future q wholly-own'ed subsidiary of IP and any successor to it; { . (1)(b) " Neighboring electric system" means (i) a financially responsible business corporation, not-for-profit corpo-( ration, rural electric cooperative, municipal corporation lh organized under the laws of the State of Illinois, company, association, joint stock company, fim, partnershi , or person owning or operating, or proposing bona fide y and in good faith to own or operate, facilities for the
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generation, transmission or distribution of electricity for bulk power supply, (ii) whose facilities are or will
. be located in the State of Illinois, (iii) whose facilities are interconnected, or are proposed to be '
interconnected, for the purpose of carrying out one or
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g more of the transactions. referred to herein with facili-ties of the Licensee (provided that any connection shall be lawful and feasible) proposed inter-,and(iv)which is or will be a public utility under the laws of the State of Illinois or the Federal Power Act and is or will be
, providing electric service under a contract or rate schedule on file with and subject to the regulation of the Illinois j Consnerce Comission or the Federal Power Comission. The s
f requirement that a neighboring electric system shall be a / public utility does not apply to a rural electric cooperative 1 or a municipal corporation'but will apply to a rural electric cooperative or a municipal corporation if at a future date it is included within the definition of "public utility" under the Illinois Public Utilities Act or under a similar act. (The definition of neighboring electric system includes systems
.which meet the above requirements either now or in the future.);
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O r 2- - c, (1)(c) " Costs" means all operating and maintenance expenses, capital costs and a reasonable return on investment ~
.which are properly applicable to the particular transaction and the facilities involved in the transaction; (1)(d) " Neighboring entity" means a neighboring electric, system owning or operating, or proposing bona fidely and in good faith to own or operate, facilities for the generation of electricity for bulk power supply; (2) The broad purposes of any interchange or other arrangement for bulk {
power supply transactions between the Licensee and a neighboring electric system are to improve the reliability and quality of service, to avoid the duplication of facilities, and to minimize { costs. Any such arrangements will involve planning by the parties and should be technically and economically feasible and practical. The arrangement should also be reciprocal as nearly as may be although it is recognized that, in any particular arrangement,
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the benefits may not be equal or identical for each party and that a smaller electric system may realize benefits which are - greater than those realized by a larger system. No party should be obligated to enter into an arrangement if it would realize n,o net benefits from the arrangement, or if the arrangement would result in net burdens to the party. The policies herein expressed ( cannot be implemented unilaterally by the Licensee. If an arrangement between the licensee and a neighboring electric system is to be successful and is to operate in the public interest, it must be negotiated and performed-in good fait) and with full cooperation by the parties to it. No party should capriciously reject a proposal submitted by another party and the Licensee and neighboring electric systens sfeuld give.:reasonablinnsideration to proposals made by each other; (3) The Licensee will interconnect with any neighboring entity in order that the parties may seek and realize all benefits practicable to be effected through the coordination and development of their respective i systems and in carrying out various interconnection services and l transactions. The Licensee will assist to the fullest extent feasible (1. any neighboring entity in the coordination of reserves through the sale ; and purchase of emergency energy and maintenance power upon terms that will provide for .the full compensation of the Licensee's costs. No i party shall be required to provide emergency energy or maintenance power
> if to do so will impair the supplying party's ability to render adequate and reliable service to its customers or to discharge its prior comit-ments, if any, to other electric systems.
The Licensee and the neighboring entity shall each provide sufficient capacity (which may include finn contracted-for-capacity) in its system ((4) to enable it to carry its planned-for-pe~ak demand plus an adequate i reserve. An adequate minimum reserve requirement shall be mutually . O.) detennined from time to time as a percentage of planned-for-peak demand (
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(unless other wise agreed) and shall take into account such reserve criteria as the nature of the respective systems and planned-for-peak demand required in order to assure reliability of service and an equitable sharing of reserve responsibility. Each party shall l provide such amount of spinning reserve as shall avoid the imposition ! of an unreasonable demand on the system of the other party.' However. { such spinning reserve requirement shall not exceed the minimum installed reserve requirement. If over a reasonable period, a party has failed to deliver emergency energy, or if a party has appeared to make excessive i calls for emergency energy, the parties shall jointly study the matter for the purpose of detemining the adequacy or inadequacy of the reserve generating capacity and transmission facilities being provided to meet the requirements of the interconnected systems and of determining the manner of correcting any deficiencies; (5) The agreement for the interchange arrangement between the Licensee and a neighboring entity will not include restrictive provisions which would preclude.a party from engaging in interconnection and coordination arrangements with others, but may include appropriate provisions to assure (1) that the Licensee receives adequate notice of such additional - interconnection or coordination. (ii) that the parties will jointly consider and agree upon such measures, if any, as are reasonably necessary to protect the reliability of the interconnected systems and (- to prevent undue burdens from being imposed on any system, and (iii) that Good industry the Licensee.tct11.Je. practice as developed in fully compensated the area from time tofor its costs time (if not unreasonably restrictive) will satisfy this provision; (6) Interconnections will be available for a neighboring electric system on t any of the Licensee's installed transmission and subtransmission facilities if the proposed interconnection is technically and economically feasible and the Licensee is fully compensated for its - costs. Interconnections will not be limited to low voltages when higher voltages are availab1'e from the Licensee's installed . facilities in the area where the. interconnection is desired. Control aind telemetering facilities shall be provided as required for the safety and reliability of the interconnected systans; (7) The Licensee will' afford an opportunity to participate to any neighboring electric system that makes a timely request therefor in the ownership
- of, or purchase of unit participation power from, Clinton Power Station Unit 1 and any additional nuclear generating unit which the Licensee '
I may construct, own, and operate and which in the application filed with the Conmission, or any successor agency, is seneouled for connercial operation prior to January 1,1969, to a reasonable extent and on reasonable tems and conditions and on a basis that will fully compensate the Licensee for its costs incurred and to be incurred and that will not adversely affect the financing of such power station. The , request shall be deemed timely with respect to Clinton Power - j l l
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Station Unit 1, if received by June 30, 1974, and with respect to any additional generating unit if received within a reasonable period of time from a planning and operating standpoint after the public announcement by the. Licensee of the proposed installation of any such unit. As a part of any arrangement that may be reached , with respect to such participation, the Licensee will interconnect j with and deliver any power, to which the neighboring electric system l may be entitled under such arrangement at a delivery point or ( t #
) points on the Licensee's system on a basis that will fully compensate the Licensee for its costs; -
[ , (8) The Licensee will sell bulk power to any neighboring electric system in accordance with rates, :tems and conditions which fully compensate the Licensee for its costs, and which do not restrict use or resale
*except as may be necessary to protect the reliability of the Licensee's system, and as are accepted or approved by the appropriate regulatory body or bodies. The Licensee shall not be required to make any such sale if the Licensee does ,not have available sufficient generation to ,
provide the requested service or if the sale would impair the Licensee's I ability to render adequate and reliable service to its customers or to
' discharge its prior commitments, if any, to other electric systems; (9) The Licensee will work with neighboring electric systems to fac111 tate the exchange of bulk power by transmission over its transmission i
j 9 / facilities between or among two or more neighboring electric systems and between any neighboring electric system and any other electric k system engaging in bulk power supply outside the Licensee's service area between whose facilities the Licensee's transmission lines and other transmission lines would fom a continuous electrical path, provided that (i) pemission to utilize such other transmission lines has been obtained by the proponent of the arrangement, and (ii) the ! arrangements reasonably ce be accocmodated from a functional and - technical standpoint. Such transmission shall be on tenns that fully compensate the Licensee for its costs. Any neighboring electric system l req = sting such transmission arrangements shall give reasonable advance notice of its schedule and requirements. The Licensee shall not be required to enter into any arrangement which would impair system t {. reliabilit,y or emergency transmission capacity, it being recognized that while some transmission facilities may be operated fully loaded, other l transmission facilities may be for emergency use and operated either unloaded or partially loaded; (10) The Licensee shall include in its planning and construction programs j sufficient transmission capacity as required for the transactions referred to in paragraph (9), provided any neighboring electric
\
system gives the Licensee sufficient advance notice as may be
\ necessary to accomodate its requirements from a functional and I technical standpoint and that such neighboring electric system -
fully compensates the Licensee for its costs. The Licensee shall not be required to construct transmission facilities if it finds construction of such facilities infeasible, or if its costs in ( O. connection therewith would exceed its benefits therefrom, or if it finds such facilities would impair system reliability or emergency transmission capacity; -
j'
/ (11)(a) This statement of policy is not intented to affect in any way I
the franchises, certificates of public convenience and necessity, or other rights of the Licensee or of any neighboring electric system to render electric service in the State of Illinois; (
) (11)(b) hothing herein shall be construed as a waiver by 'the Licensee
/ of its right to contest whether or not and the extent to which I a particular factual situation may be covered by this statement of policy or preclude the Licensee from contesting an alleged act of unfair competition; -
(11)(c) The Licensee shall recognize that the carrying out of some of the policies expressed herein in particular circumstances may
. not be in the mutual interest of the Licensee and a neighboring electric system. Nothing herein is intended to preclude the
[
- Licensee and t. neighboring electric system from reaching an agreement which extends, varies or supplements the provisions of the foregoing paragraphs in a manner not inconsistent with k the broad purposes expressed in paragraph 2 and applicable law; (11)(d) The Licensee does not intend by this statement of policy to become a common carrier; and '
O (d (12) The foregoing policies are to be implemented and applied in a d manner consistent with Federal, State and local laws, regulations ard orders. All rates, charges, conditions, terms and practices are and will be subject to the acceptance or approval of any regulatory agencies or courts having jurisdication over them. To the extent that such action may at the time be required in order to effect any such changes, the Licensee and any neighboring electric system affected by any of the foregoing policies reserve the right of recourse to the appropriate forum to seek such changes therein as may at the time be appropriate in accordance with the public interest, or good industry practices m o a dJ
]
l t i Enclosure 2 O Safety Evaluation of Conforming Administrative License Amendment Associated With Proposed Transfer of CPS Operating License from Illinois Power Company to AmerGen Energy Company, LLC i i O
Enclosure 2 Page1of3 A. Proposed Changes t l The proposed changes to the CPS operating license involve (1) the deletion ofreferences to Illinois Power as owner and operator of CPS, and (2) the authorization of AmerGen Energy Company, LLC (AmerGen) to possess, use and operate CPS, under essentially the same c~.xlitions and authorization included in the existing license [with the exception of license condition 2.C(3)]. No changes to the Technical Speci6 cations contained in Appendix A are being requested. The actual wording changes associated with the conforming administrative amendment to the CPS operating license are shown in Enclosure 1. l The following Operating License changes are being requested: l e License No. NPF-62 Title Page - Replace " ILLINOIS POWER COMPANY" in main header with "AMERGEN ENERGY COMPANY. LLC" ; e License Condition (LC) 1.A - Replace " Illinois Power Company (IP)" with "the applicant" e LC 1.E - Replace " Illinois Power Company" with "AmerGen Energy Company, LLC" e LC 1.F - Replace "IP" with "AmerGen Energy Company, LLC" LC 2 - Replace " Illinois Power Company" with "AmerGen Energy Company, LLC" e LC 2.A - Replace " Illinois Power Company" with "AmerGen Energy Company, l LLC" l
=
LC 2.B (1) - Replace " Illinois Power Company (IP)" with "AmerGen Energy ; Company, LLC" '
. LC 2.B (3) - Replace "IP" with "AmerGen Energy Company, LLC"
. LC 2.B (4) - Replace "IP" with "AmerGen Energy Company, LLC" l e LC 2.B (5) - Replace "IP" with "AmerGen Energy Company, LLC"
- LC 2.B (6) - Replace "IP" with "AmerGen Energy Company, LLC" e LC 2.C (1) - Replace "IP" with "AmerGen Energy Company, LLC" e LC 2.C (2) - Replace "IP" with "AmerGen Energy Company, LLC"
. LC 2.C (3) - Delete existing text; insert text " Deleted"
- LC 2.C (4) - Replace "IP" with "The licensee"
. LC 2.C (5) - Replace "IP" with "AmerGen Energy Company, LLC"
. LC 2.C (6) - Replace "IP" with "The licensee" e LC 2.C (9 a.) - Replace "IP" with "The licensee"
- LC 2.c (9 b.) - Replace "IP" with "The licensee" e LC 2.D - Replace "IP" with "the licensee" (first instance); Replace "IP" with "AmerGen Energy Company, LLC" (second instance) e LC 2.E - Replace "IP" with "AmerGen Energy Company, LLC" e LC 2.F - Replace "IP" with "AmerGen Energy Company, LLC" (two places) e LC 2.G - Replace "IP" with "AmerGen Energy Company, LLC"
- LC 2.H - Replace "IP" with "AmerGen Energy Company, LLC"
/3
- Enclosure listing, Item 4 - Delete text " Antitrust Conditions"; insert text " Deleted" V
n Enclosure 2 Page 2 of 3 q e Attachment 1, Item 2 - Replace "IP" with "The licensee" (first instance); Replace C/ *
"IP" with " Illinois Power Company" (second instance).
Attachment 2 - first line, replace "IP" with "AmerGen Energy Company, LLC" e Appendix B Title Page - Replace " ILLINOIS POWER COMPANY" with "AMERGEN ENERGY COMPANY, LLC" e Appendix B, page 1 Replace " Illinois Power's (the licensee's)" with "the licensee's"
- Appendix C - Delete all text; replace deleted text with " Deleted."
The proposed changes to the Operating License are administrative in nature. These changes identify the new owner and operator of CPS. No physical changes will be made to the facility as a result of this change and there will be no significant change in the day-to-day operation of CPS. Therefore, this change does not adversely affect nuclear safety or safe p' ant operations. B. No Sinnificant Hazards Consideration Analysis Applying the three standards set forth in 10 CFR { 50.92, the proposed changes to the license involve no significant hazards consideration, as further explained below: (1) The proposed activity does not involve a significant increase in the probability or consequences of any accident previously evaluated. O The proposed changes are intended only to reflect a transfer of ownership of the facility, and as such are administrative in nature. No physical or operational changes to the facility
. will roult from the proposed changes. the proposed changes do not change or alter the i design assumptions for the systems or components used to mitigate the consequences of an accident, and the initial conditions and methodologies used in the accident analyses for CPS remain unchanged. Therefore, accident analyses results are not impacted. On this basis, the proposed amendment does not involve a significant increase in the probability or consequences of an accident previously evaluated.
(2) The proposed activity does not create the possibility of a new or different kind of accident from any accident previously evaluated. The proposed changes, which are administrative in nature, do not affect the design or operation of any system, structure, or component in the plant. The safety functions of the related structures, systems, or components are not changed in any manner, nor is the reliability of any structures, systems, or component reduced. The changes do not affect the manner by which the facility is operated, and no new or different type of equipment will be installed. Therefore, no new failure modes or potential accident initiators are introduced. On this basis, the proposed amendment does not create the possibility of a new or different kind of accident from any previously evaluated. O
i l Enclosure 2 Page 3 of 3 (3) The proposed activity does not involve a significant reduction in a margin of safety. The proposed changes are administrative in nature and have no impact on the margin of safety of any Technical Specification. There is no impact on safety limits or limiting safety system settings. The changes do not affect any plant safety parameters or setpoints. No l physical or operational changes to the facility will result from the proposed changes. Therefore, the proposed changes do not involve a significant reduction in the margin of safety. i i C. Conclusion i l Based upon the analysis provided herein, the proposed changes will not increase the probability or consequences of an accident previously evaluated, create the possibility of a new or different kind of accident from any accident previously evaluated, or involve a reduction in a margin of safety. Further, for administrative license amendments involving direct transfers of ownership or operating authority of a licensee, the NRC has determined that such transfer actions involve no significant hazards consideration (ref. 10 CFR { 2.1315,63 FR 66721-66735, dated December 3,1998). Therefore, the proposed changes meet the requirements of 10 CFR l 50.92(c) and involve no significant hazards consideration. O l i i
O Enclosure 3 l O CPS Asset Purchase Agreement By and Between Illinois Power Company, as Seller, and AmerGen Energy Company, LLC, as Buyer, Dated as of June 30,1999 (Non-Proprietary Version) 4 1 O
I O 4 CLINTON NUCLEAR POWER STATION ASSET PURCHASE AGREEMENT l BY AND BETWEEN ILLINOIS POWER COMPANY, as SELLER, O AMERGEN ENERGY COMPANY, L.L.C., as BUYER Dated as ofJune 30,1999 REDACTED AREAS IN THIS DOCUMENT CONTAIN I CONFIDENTIAL MATERIAL WITHHELD I FROM PUBLIC DISCLOSURE PURSUANT TO : 10 CFR f 2.790,9.17(a)(4) l
)
O 1 PH/363143.15 C:
F l i p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR f 2.790,9.17(a)(4) TABLE OF CONTENTS PAEC ARTICLE I DEFINITI ON S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 1.1 De finition s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 1.2 Certain Interpretive Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE II PURCHAS E AND S ALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.1 Transfer o f Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.2 Excluded Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.3 Assumed Liabilities and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.4 Excluded Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.5 Control o f Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0 O g ARTICLE III TH E CLOS ING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0 I 3.1 Cl o sin g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 0 1 3.2 Purchase Price; Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.3 Adjustment to Cash Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 3.4 Allocation of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 3.5 Prorati ons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 3.6 Deliveries by S eller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.7 Deliveries by B uyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.1 Organization; Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.2 Au th ori ty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7 4.3 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 , 4.4 Financial Statements; Reports . . . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 l 4.5 Undisclosed Liabilities . . . . . . . . - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 8 4.6 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
,Oi 4.7 Title and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 \v) l Ptu363143.15 i
l l
~
o REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD C FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 4.8 Real Propeny Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4.9 Ins urance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 9 4.10 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.11 Labor M atters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.12 ERIS A; B enefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.13 Real Property; Plant and Equipment . . .............................. 42 4.14 Condemnation; Public Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.15 Certain Contracts and Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 4.16 Legal Proceedings, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4.17 Permits; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4.18 NRC Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4.19 Regulation as a Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 4.20 Tax es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5 4.21 Year 2000 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4.22. Qualified Decommissioning Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4.23 Nonqualified Decommissioning Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 (n\ Q ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.2 A u th ori ty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.3 Consents and Approvals; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.4 Availability of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.5 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.6 WARN A c t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1 5.7 Regulation as a Utility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.8 Quali fi ed Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.9 Limited Liability Company Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE VI COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 6.1 Conduct of Business Relating to the Purchased Assets . . . . . . . . . . . . . . . . . . . 52 6.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 6.3 Exp enses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 8 6.4 Further Assurances; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 6.5 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 p)., \v 1+u363143.15 55
o REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD V FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 6.6 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 6.7 Brokerage Fees and Commissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 6.8 Tax M atters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 6.9 Advice o f Changes . . , . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 6.10 Emp l oyees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5 6.11 Risk o f Lo ss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 6.12 Decommissioning Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 6.13 Spent Nuclear Fuel Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 6.14 Department of Energy Decontamination and Decommissioning Fees . . . . . . . 77 6.15 Cooperation Relating to Insurance and Price-Anderson Act . . . . . . . . . . . . . . . 78 6.16 Tax Clearance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 6.17 Rem edi ati on . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8 6.18 NRC License Transfer Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 6.19 M eterin g . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 9 6.20 Ri ht to Partici ate in Electric Generating Projects . . . . . . . . . . . . . . . . . . . . . 80 6.21 ........ .............................. 82 6.22 Personal Property Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 b ARTICLE VII CO N D ITI O N S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 2 7.1 Conditions to Obligations of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 7.2 Conditions to Obligations of Seller . . . . . . . . . . . . . . . . . ................ 85 ARTICLE VIII IN D E M NI FI CATI O N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7 8.1 Indemni fication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 7 8.2 Defense o f Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 8.3 Waiver and Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 ARTICLE IX TE RM INATI ON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 9.1 Tennination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 9.2 Procedure and Effect of No-Default Termination . . . . . . . . . . . . . . . . . . . . . . 93 m U ... Ill 1 Pw363143.15
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p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD V FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) i ARTICLE X MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 10.1 Amendment and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 10.2 Waiver of Compliance; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 10.3 Survival of Representations, Warranties, Covenants . . . . . . . . . . . . . . . . . . . . . 93 10.4 No ti c es . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 10.5 Assigmn ent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 10.6 Governin g Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 10.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 10.8 In terpre tation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 10.9 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 10.10 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 , 10.11 B ulk S ales Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 7 O V 9 I f\. O 5V 1 w3f.3143.15
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHIIELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR QQ 2.790,9.17(a)(4) LIST OF EXHIBITS AND SCHEDULES EXHIBITS Exhibit A Form of Assignment and Assumption Agreement Exhibit B Form of Bill of Sale Exhibit C Easements Exhibit D Fonn of FIRPTA Affidavit Exhibit E Fonn ofInterconnection Agreement Exhibit F Information Technolo y Service Terms Exhibit G Exhibit H Form of Power Purchase Agreement Exhibit I Form of Special Warranty Deed Exhibit J Form of Opinion from Seller's Counsel Exhibit K Form of Opinion from Buyer's Counsel Exhibit L Exhibit M O SCHEDULES 1.1 (91) List of Seller's Officers 1.l(112) Exceptions to Title 1.l(158) Transferable Permits 2.l(1) Intellectual Property 2.2(a) Excluded Transmission and other Assets l 2.2(k) Excluded Real Propeny Agreements ' 2.2(1) Excluded Parcels 2.2(m) Excluded Other Assets 2.3(i) Assumed Liabilities and Claims 4.3(a) Seller's Third Pany Consents 4.3(b) Seller's Required Regulatory Approvals 4.4 Financial Statements; Repons 4.5 Liabilities 4.6 Absence of Certain Changes or Events 4.8 Real Property Agreements 4.9 Insurance Policies and Exceptions 4.10 Environmental Matters 1-PW363143.1$ V
p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD G/ FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR Q 2.790,9.17(a)(4) 4.11 Noncompliance with Employment Laws 4.12(a) Benefit Plans 4.12(b) Benefit Plan Exceptions 4.13(a) Description of Real Property 4.13(b) Description of Major Equipment Components and Personal Property 4.14 Notices of Condemnation 4.15(a) List of Seller's Agreements 4.15(b) Agreement Exceptions , 4.15(c) Agreement Defaults j 4.16 Legal Proceedings and Court Orders i 4.17(a) Pet.2it Violations l 4.17(b) List of Material Permits (other than Transferable Permits) j 4.18(a) License Violations 4.18(b) List of Material NRC Licenses 4.19 Utility Matters regarding Seller 4.20 Tax Matters j fm 4.21 Year 2000 Compliance () 4.22 Tax and Financial Matters Relating to Qualified Decommissioning Fund 4.23 Financial Matters Relating to Nonqualified Decommissioning Fund 5.3(a) Buyer's Third Party Consents 5.3(b) Buyer's Required Regulatciy Approvals 5.7 Utility Matters regarding Buyer 6.1 Permitted Activities Prior to Closing 6.8(e) Pollution Control Facilities 6.10(d) IBEW Collective Bargaining Agreements 6.15 Buyer's Required Insurance 1 6.17 Site Remediation l l I i \ V l PW363143.15 vj
I l g REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD , Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) ' ASSETPURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of June 30,1999, by and between Illinois Power Company, an Illinois corporation ("E" or " Seller"), and AmerGen Energy Company, L.L.C., a Delaware limited liability company (" Buyer"). Seller and Buyer are referred to individually as a
" Party," and collectively as the " Parties."
WIINES SEIII WHEREAS, Seller owns the Clinton Power Station ("QS"), NRC Facility Operating License No. NPF-62, located near Clinton, Illinois, and certain facilities and other assets associated therewith and ancillary thereto; and l l WHEREAS, Buyer desires to purchase and assume, and Seller desires to sell and assign, the Purchased Assets (as defined in Section 2.1 below) and certain associated liabilities, upon the terms o and conditions hereinafter set forth in this Agreement. b NOW, THEREFORE, in consideration of the mutual covenants, representations, warranties j and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows: l ARTICLE I DEFINITIONS 1.1 Definitions. As used in this Agreement, the following terms have the meanings specified in this Section 1.1. 1 (1) " Affiliate" has the meaning set forth in Rule 12b-2 of the General Rules and l Regulations under the Exchange Act. (2) "Acreement" means this Asset Purchase Agreement together with the Schedules and Exhibits hereto, as the same may be amended from time to time. (3) "Ancillarv Acreements" means the Assignment and Assumption Agreement, the Easement Agreement, the Interconnection Agreement, the PPA, the Post-Closing Decommissioning (q _/ Trust Agreement, the Electric Service Agreement, the Environmental Laboratory Lease, the i=xua n 1
=
g REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) Emergency Off-Site Facility Lease, and the IP Service Agreement, as the same may be amended from time to time. (4)- "Accianment and A=_enmntion Aereement" means the Assignment and Assumption Agreement between Seller and Buyer, substantially in the form of Exhibit A hereto, by which Seller, subject to the terms and conditions hereof, shall assign Seller's Agreements, the Real Property Agreements, the Transferable Permits, certain intangible assets and other Purchased Assets to Buyer and whereby Buyer shall assume the Assumed Liabilities and Obligations. (5) " Assumed Liabilities and Obliontions" has the meaning set forth in Section 2.3. (6) " Atomic Enerev Act" means the Atomic Energy Act of 1954, as amended. (7) " Benefit Plans" has the meaning set forth in Section 4.12(a). (8) " Hill of Sale" means the Bill of Sale, substantially in the form of Exhibit B hereto, to be delivered at the Closing, with respect to the Tangible Personal Property included in the O Purchased Assets transferred to Buyer at the Closing. (9)' " Business Day" means any day other than Saturday, Sunday and any day on which banking institutions in the State ofIllinois are authorized by law or other governmental action to close. (10) " Buyer Benefit Plans" has the meaning set forth in Section 6.10(f). (11) ' " Buyer Indemnitee" has the meaning set forth in Section 8.1(b). (12) " Buyer Material Adverse Effect" has the meaning set forth in Section 5.3(a). (13) " Buyer NOF" has the meaning set forth in Section 6.12(a). (14) " Buyer OF" has the meaning set forth in Section 6.12(a). (15) " Buyer's Reauired Reentatory Anorovals" has the meaning set forth in Section 5.3(b). (16) " Buyer's Total Basis" has the meaning set forth in Section 6.12(b). O _n 2
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FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR j 2.790,9.17(a)(4) (17) "Bvoroduct Material" means any radioactive material (except Special Nuclear Material) yielded in, or made radioactive by, exposure to radiation in the process of producing or utilizing Special Nuclear Material. (18) " Cash Purchase Price" has the meaning set forth in Section 3.2. (19) " Closing" has the meaning set forth in Section 3.1. (20) " Closing Adiustment" has the meaning set forth in Section 3.3(b). , (21) "Closine Dats" has the meaning set forth in Section 3.1. (22) " COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. (23) ". Cods" means the Intemal Revenue Code of 1986, as amended. V (24) " Commercially Reasonable Efforts" means efforts which are designed to enable a Party, directly or indirectly, to satisfy a condition to, or otherwise assist in the consummation of, the transactions contemplated by this Agreement and which do not require the performing Party to expend any funds or assume liabilities other than expenditures and liabilities which are customary and reasonable in nature and amount in the context of the transactions contemplated by this Agreement. (25) " Confidentiality Acreement" means the Confidentiality Agreement, dated March 12, 1999, by and among Seller, Buyer and PECO, as modified by the Interim Agreement. (26) " Construction Waste Landfill" means the real property containing the demolition and constmetion landfill, which is identified separately on Schedule 4.13(a) but is included as part of the Purchased Assets. (27) "2S" has the meaning set forth in the preamble. (28) " Decommissioning" means the complete retirement and removal of the Facilities from service and the restoration of the Site, as well as any planning and administrative activities incidental thereto, including, without limitation, (a) the dismantlement, decontamination, storage and/or entombment of the Facilities, in whole or in part, and any reduction or removal, whether 1-PH/363143.15 I 1 l
i l p - REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD ( FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) before or after termination of the NRC license for the Facilities, ofradioactivity at the Site and (b) all activities necessary for the retirement, dismantlement and decontamination of the Facilities to comply with all applicable Nuclear Laws and Environmental Laws, including the applicable requirements of the Illinois Public Utilities Act, Atomic Energy Act and the NRC's rules, regulations, orders and pronouncements thereunder, the NRC Operating License for the Facilities and any related decommissioning plan. (29) "Decomminaioning Funds" means the Qualified Decommissioning Fund and the Nonqualified Decommissioning Fund. (30) "Denartment of Enerev" means the United States Department of Energy and any successor agency thereto. (31) " Department ofEneruv Decontamination and Deconnnissioninn Fees" means all fees related to the Department of Energy's Special Assessment of utilities for the Uranium Enrichment Decontamination and Decommissioning Fund pursuant to Sections 1801,1802 and 1803 of the Atomic Energy Act and the Department of Energy's implementing regulations at 10 C.F.R. Part 766, O- or any similar fees assessed under amended or superseding statutes or regu%tions applicable to separative work units purchased from the Department of Energy in order to accontaminate and decommission the Department of Energy's gaseous diffusion enrichment facilities. (32) "Denartment of Justice" means the United States Department of Justice and any successor agency thereto. (33) " Direct Claim" hr.s the meaning set forth in Section 8.2(c). (34) " Easement Agreement"means the Easement Agreement between Buyer and Seller, to be entered into at the Closing, containing the Easements with respect to the Real Property referred to on Exhibit C hereto and such other Easements as shall be mutually acceptable to Buyer and Seller. (35) " Easements" means, with respect to the Purchased Assets, the easements, licenses and access rights to be granted by Buyer or Seller or reserved by Seller pursuant to the Interconnection Agreement or the Easement Agreement, including, without limitation, easements authorizing access, use, maintenance, construction, repair, replacement and other activities by Seller or Buyer, as the case may be. (36) " Electric Service Agreement" means the service agreement, to be entered into at the (S Closing, under which Seller shall provide electric service to CPS after the Closing Date. vw m us 4
f~ REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) (37) " Emergency Off-Site Facility Lease" means the lease between Buyer and Seller, to be entered into at the Closing, under which Buyer shall lease from Seller certain back-up emergency off-Site facilities and a public information center in Decatur, Illinois, which lease shall comply with applicable NRC requirements and shall contain such other terms and conditions as shall be mutually i acceptable to Buyer and Seller. (38) "Eminion Allowance" means all authorizations to emit specified units of pollutants
~ or Hazardous Substances from the Purchased Assets, which units are established by the Governmental Authority with jurisdiction over the Purchased Assets under (a) an air pollution control and emission reduction program designed to mitigate global warming or interstate or intrastate transport of air pollutants, (b) a program designed to mitigate impairment of surface waters, watersheds, or groundwater or (c) any pollution reduction program with a similar purpose.
Allowances include allowances, as described above, regardless of whether the Governmental Authority establishing such allowances designates such allowances by a name other than
" allowances." The amount of the Emission Allowances shall be the' amount in effect on the date hereof or subsequently authorized in respect of the Purchased Assets, reduced by the Emission Allowances consumed in the operation of the Purchased Assets between the date hereof and the O Closing Date in the ordinary course of business.
l (39) " Emission Reduction Credits" means credits, in units that are established by the Governmental Authority withjurisdiction over the Purchased Assets that has obtained the credits, resulting from reductions in the emissions of air pollutants from an emitting source or facility (including, without limitation, and to the extent allowable under applicable law, reductions from shutdowns or control of emissions beyond that required by applicable law) that (a) have been identified by the IEPA as complying with applicable Illinois law goveming the establishment of such credits (including, without limitation, that such emissions reductions are enforceable, permanent, quantifiable and surplus) and listed in the Emissions Reduction Credit Registry maintained by the IEPA or with respect to which such identification and listing are pending or (b) have been certified by any other applicable Governmental Authority as complying with the law and regulations governing the establishment of such credits (including, without limitation, certification that such emissions reductions are enforceable, permanent, quantifiable and surplus). The term includes Emission Reduction Credits that have been approved by the IEPA and are awaiting USEPA approval. The term also includes certified air emissions reductions, as described above, regardless as to whether the Govenunental Authority certifying such reductions designates such certified air emissions reductions by a name other than " emission reduction credits." The amount of the Emission Reduction Credits shall be the amount in effect on the date hereof or subsequently authorized in respect of the Purchased Assets, reduced by the Emission Reduction Credits consumed O 5 nwann
1 REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(c)(4) l 1 l in the operation of the Purchased Assets between the date hereof and the Closing Date in the I
- ordinary course ofbusiness.
(40). " Encumbrances" means any mortgages, pledges, liens, security interests, conditional and installment sale agreements, activity and use limitations, conservation easements, deed
- j. restrictions, casements, encumbrances and charges of any kind. !
l l' (41) " Energy Reoronnintion Act" means the Energy Reorganization Act of 1974, as amended. (42) " Environment" means all air, surface water, groundwater or land, including land I surface or subsurface, including all fish, wildlife, biota and all other natural resources. (43) " Environmental Cinim" means any and all pending and/or threatened administrative or judicial actions, suits, orders, claims, liens, notices, notices of violation, investigations, complaints, requests for information, proceedings or other written communication, whether criminal i ' p or civil, pursuant to or relating to any applicable Environmental Law by any Person (including, without limitation, any Governmental Authority, private person and citizens' group) based upon, alleging, asserting, or claiming any actual or potential (a) violation of, or liability under any Environmental Law, (b) violation of any Environmental Permit, or (c) liability for investigatory costs, cleanup costs, removal costs, remedial costs, response costs, natural resource damages, property damage, personal injury, fines, or penalties arising out of, based on, resulting from or related to, the presence, Release, or threatened Release into the Environment of any Hazardous Substances at any location related to the Purchased Assets, including, without limitation, any off-Site location to which Hazardous Substances, or materials containing Hazardous Substances, were sent for handling, storage, treatment or disposal prior to the Closing Date. (44) " Environmental Clean-up Site" means any location which is listed or publicly proposed for listing on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System, or on any similar state list of sites requiring investigation or cleanup.
- (45) " Environmental Condition" means the presence or Release of Hazardous Substances t at the Site prior to the Closing Date.
(46) " Environmental Laboratorv Lease" means the lease between Buyer and Seller, to be entered into at the Closing, under which Seller shall lease from Buyer the environmental testing O o m n o.n 6
F m REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD
- l. h i
FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) laboratory located on the Site, which lease shall comply with applicable NRC requirements and shall contain such other terms and conditions as shall be mutually acceptable to Buyer and Seller. (47) " Environmental Laws" means all federal, state and local civil and crimmal laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to pollution or protection of the Environment, natural resources or human health and safety, including, without limitation, laws relating to Releases or threatened Releases of Hazardous Substances (including, without limitation, Releases to ambient air, surface water, groundwater, land, l surface and subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, Release, transport, disposal or handling of Hazardous Substances. i " Environmental Laws" include, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act (" CERCLA") (42 U.S.C. QQ 9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C. QQ1801 et seq.), the Resource Conservation and Recovery Act (42 l U.S.C. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. QQ 1251 et seq.), the Clean Air Act (42 U.S.C. Q 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. Q@ 2601 et seq.), the Oil Pollution Act (33 U.S.C. Q 2701 et seq.), the Emergency Plannmg and Community Right-to-Know Act (42 U.S.C. QQ l1001 et seq.), the Occupational Safety and Health Act (29 U.S.C.
-Q QQ 651 et seq.), the Illinois Environmental Protection Act (415 ILCS 5/1-101 et seq.), the Illinois Solid Waste Management Act (415 ILCS 20/1-101 et seq.), the Illinois Water Pollutant Discharge Act (415 ILCS 25/1-101 et seq.), the Illinois Groundwater Protection Act (415 ILCS 55/1-101 et seq.), the Illinois Toxic Pollution Prevention Act (415 ILCS 85/1-101 et seq.), the Illinois Pollution Prevention Act (415 ILCS 115/1-101 et seq.), the Illinois Responsible Party Transfer Act (765 ILCS 90/1-101 et seq.), and regulations promulgated under such federal and state laws, and all other state and local laws analogous to any of the above, and any common law doctrine, including, without limitation, negligence, nuisance, trespass, personal injury, or property damage related to or arising out of the presence, Release or exposure to Hazardous Substances. Notwithstanding the foregoing, Environmental Laws do not include Nuclear Laws. j l
(48) " Environmental Pennit" means any federal, state or local permits, licenses, approvals, consents or authorizations required by any Govemmental Authority under or in connection with any Environmental Law and includes any and all orders, consent orders or binding agreements issued or entered into by a Governmental Authority under any applicable Environmental Law. ~
.(49) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
(50) "ERISA Afriliate" has the meaning set forth in Section 2.4(k). O 7 maaio.is
)
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 1 (51) "ERISA Affiliate Plans" has the meaning set fonh in Section 2.4(k). (52) " Estimated Adiustment" has the meaning set forth in Section 3.3(b). (53) " Estimated Closine Statement" has the meaning set forth in Section 3.3(b). (54) "Exchance Act" means the Securities Exchange Act of 1934, as amended. (55) " Excluded Assets" has the meaning set forth in Section 2.2 and includes, without limitation, the " Excluded Parcels" described in Schedule 2.2(1), and the " Excluded Other Assets" described in Schedule 2.2(m). (56) " Excluded Liabilities" has the meaning set forth in Section 2.4. (57) "Exemot Wholesale Generator" means an exempt wholesale generator as defined in Section 32 of the Holding Company Act and the regulations issued thereunder. (58) " Facilities" means the plant, facilities, equipment, materials, supplies and improvements owned by Seller and included in the Purchased Assets. (60) " Federal Power Act" means the Federal Power Act, as amended. (61) " Federal Trade Commission" means the United States Federal Trade Commission and any successor agency thereto. l (62) "FERC" means the United States Federal Energy Regulatory Commission and any l successor agency thereto. (63) "FIRPTA Affidavit" means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit D hereto. (64) " Good Utility Practices" means any of the practices, methods and activities approved by a significant portion of the electric utility industry as good practices applicable to nuclear 1-PWE3143.15
p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR fl 2.790,9.17(a)(4) generating facilities of similar design, size and capacity or any of the practices, methods or activities which, in the exercise of reasonable judgment by a prudent nuclear operator in light of the facts known at the time the decision was made, reasonably could have been expected to accomplish the desired result consistent with good business practices, reliability, efficiency, safety, expedition and applicable law. Good Utility Practices are not intended to be limited to the optimal practices, methods or acts to the exclusion of all others, but rather to be practices, methods or acts generally accepted in the electric utility industry. (65) " Governmental Authority" means any federal, state or local govemmental, regulatory, legislative, executive or administrative agency, authority, commission, body, department, board, or other governmental subdivision, court, tribunal, arbitrating body or other govemmental authority.
'(66) "Hmrdous Subetances" means (a) any petrochemical or petroleum products, oil or ;
coal ash, radioactive materials, radon gas, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contains dielectric fluid which contain levels of polychlorinated biphenyls, (b) any chemicals, materials or substances defined as or included in the definition of" hazardous substances,"" hazardous wastes," " hazardous Oi materials," " hazardous constituents," " restricted hazardous materials," " extremely hazardous substances,"" toxic substances,"" contaminants,"" pollutants,"" toxic pollutants" or words ofsimilar meaning and regulatory effect under any applicable Environmental Law, and (c) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any applicable Environmental Law; excluding, however, any Nuclear Material to the extent regulated under any Nuclear Laws. (67) "High Level Waste" means (a) irradiated nuclear reactor fuel, (b) liquid wastes resulting from the operation of the first cycle solvent extraction system, or its equivalent, and the concentrated wastes from subsequent extraction cycles, or their equivalent, in a facility for reprocessing irradiated reactor fuel, and (c) solids into which such liquid wastes have been converted. (68) "Hinh Level Waste Renository" means a facility which is designed, constructed and operated by or on behalf of the Department of Energy for the storage and disposal of Spent Nuclear Fuel and other High Level Waste in accordance with the requirements set forth in the Nuclear Waste Policy Act. (69) " Holding Comnany Act" means the Public Utility Holding Company Act of 1935, as amended. O 9 l Mt/363143.15 l
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( FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) I (70) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. i (71) "IBEW" means Locals 51 and 1306 of the International Brotherhood of Electrical Workers. (72) "IBEW Collective Barcainine Acreements" has the meaning set forth in Section 6.10(d). (73) "ICC" means the Illinois Commerce Commission and any successor agency thereto. (74) "IDNR" means the Illinois Department of Natural Resources and any successor agency thereto. (75) "IDBS" means the Illinois Department of Nuclear Safety and any successor agency thereto. O Q (76) "IEPA" means the Illinois Environmental Protection Agency and any successor agency thereto. (77) "IPCB" means the Illinois Pollution Control Board and any successor agency thereto. (78) " Income Tax" means any federal, state, local or foreign Tax (a) based upon, measured by or calculated with respect to net income, profits or receipts (including, without limitation, capital gains Taxes and minimum Taxes) or (b) based upon, measured by or calculated with respect to multiple bases (including, without limitation, comorate franchise taxes) if one or more of the bases on which such Tax may be based, measured by or calculated with respect to, is described in clause (a), in each case together with any interest, penalties or additions to such Tax. (79) "Indemnifiable Loss" has the meaning set forth in Section 8.l(a). (80) "Indemnifyine Party" has the meaning set forth in Section 8.l(d) . l (81) " Indemnitee" meals a Buyer Indemnitee or Seller Indemnitee, as the case may be. l (82) "Indeoendent Accountine Firm" means such independent accounting firm ofnational l reputation as is mutually appointed by Seller and Buyer. O] L i.mminis 10 t
y . REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) I (83) " Inspection" means all tests, reviews, examinations, inspections, investigations, verifications, samplings and similar activities conducted by Buyer or its agents or Representatives with respect to the Purchased Assets prior to the Closing.- (84) " Intellectual Pronerty" means all patents and patent rights, trademarks and trademark rights, inventions, copyrights and copyright rights owned by Seller and necessary for the operation and maintenance of the Purchased Assets, and all pending applications for registrations of patents. i trademarks and copyrights, as set forth in Schedule 2.l(1). l
.(85) " Interconnection Agreement" means the Interconnection Agreement, between Seller ,
and Buyer, substantially in the form of Exhibit E hereto. l (86) " Interim Agreement" means the letter agreement,' dated March 31,1999, addressed to IP and which is by and among Buyer, PECO and IP. (87) " Inventories" means nuclear fuel (including fuel in the reactor) or attemative fuel inventories, materials, spare parts, consumable supplies and chemical and gas inventories relating O to the operation of the Facilities located at, or in transit to, the Facilities. (88) "IE" has the meaning set forth in the preamble. (89) "IP Service Anreement" means the IP Service Agreement between Seller and Buyer, to be entered into at the Closing, containing the tenns set forth on Exhibit F hereto with respect to information technology services, and containing such other terms and conditions as shall be mutually acceptable to Buyer and Seller, under which the Seller will provide certain administrative and other services to Buyer for a specified period after the Closing Date. (90) " IRS" means the United States Intemal Revenue Service and any successor agency thereto. (91) "Knowledee" means the actual knowledge of the corporate officers of the specified Person charged with responsibility for the particular function, and with respect to the Seller, only those corporate officers and employees of Seller set forth on Schedule 1.l(91), after reasonable inquiry by them of selected employees of such Person whom they believe, in good faith, to be the persons responsible for the subject matter of the inquiry. (92) " Leased Emolovce Anreement" means the Leased Employee Agreement, dated March 31,1999, by and among PECO, IP and John P. McElwain. mmaus 11
i p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD l FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR lj 2.790,9.17(a)(4) i (93) Loss". means any and all damages, fines, fees, penalties, deficiencies, losses and expenses (including, without limitation, all Remediation costs, fees of attomeys, accountants and other experts, or other expenses oflitigation or proceedings or of any claim, default or assessment). (94) " Low Level Waste" means waste material which contains radioactive nuclides emittir g primarily beta or gamma radiation, or both, in concentrations or quantities which exceed applicable federal or state standards for unrestricted release. Low Level Waste does not include waste containing more than ten (10) nanocuries of transuranic contaminants per gram of material, ' Spent Nuclear Fuel, or material classified as either High Level Waste or waste which is unsuited for disposal by near-surface burial under any applicable federal regulations. (95) " Management Aereement" means the Agreement, dated as of January 15,1998, by and between PECO and IP, as amended by that certain Incentive Compensation Agreement to Amend the Management Agreement, dated as of May 19,1998, by Amendment No. 2, dated March 31,1999, and by Amendment No. 3, dated April 21,1999. (96) " Material Adverse Effect" means any change (or changes taken together) in, or effect O on, the Purchased Assets that is materially adverse to the operations or condition (financial or othenvise) of the Purchased Assets, taken as a whole, other than (i) any change or effect (or changes or effects taken together) generally affecting the international, national, regional or local electric industry as a whole, or the nuclear power industry as a whole, and not affecting the Purchased Assets or the Parties in any manner or degree significantly different than such industries as a whole,
' including, without limitation, changes in local wholesale or retail markets for electric power; national, regional or local electric transmission systems or the operation thereof, (ii) any change or effect (or changes or effects taken together) resulting from action or inaction by a Governmental Authority not specifically relating to the Purchased Assets, or (iii) any change or effect (or changes or effects taken together) directly arising out of or resulting from a material breach by PECO under Section 6.2 of the Management Agreement or directly arising out of or resulting from conduct of a PECO employee that constitutes willful misconduct or gross negligence; provided, however, that conduct of non-PECO employees shall not be imputed to PECO for purposes of this Agreement.
(97) _ "Morteane Indenture" means the mortgage and deed of trust originally granted to Harris Trust and Savings Bank, as Tmstee, dated as of November 1,1943, and all supplements
. thereto; and the deed of trust originally granted to Harris Trust and Savings Bank, as Trustee, dated as of November 1,1992, and all supplements thereto.
(98) " National Labor Relations Board" means the United States National Labor Relations Board and any successor agency thereto, main.is 12
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 1 4 ' (100) "Non-Union Emnlovees" has the meaning set forth in Section 6.10(b). (101) "HRC" means the United States Nuclear Regulatory Commission and any successor agency thereto. (102) " Nuclear Insurance Policies" means all insurance policies carried by or for the benefit of Seller with respect to the ownership, operation or maintenance of the Facilities, including all liability, property damage and business interruption policies in respect thereof. Without limiting the generality of the foregoing, the term " Nuclear Insurance Policies" includes all policies issued or O administered by Nuclear Electric Insurance Limited ("NEIL") or American Nuclear Insurers ("ANI"). (103) " Nuclear Laws" means all federal, state, local, provincial, foreign and international civil and criminal laws, regulations, mies, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to the regulation of nuclear power plants, Source Material, Byproduct and Special Nuclear Material; the regulation of Low Level Waste and High Level Waste; the transportation and storage of Nuclear Material; the regulation of Safeguards Information; the regulation of nuclear fuel; the enrichment of uranium; the disposal and storage of High Level Waste and Spent Nuclear Fuel; contracts for and payments into the Nuclear Waste Fund; and, as applicable, the antitrust laws and the Federal Trade Commission Act to specified activities or proposed activities of certain licensees of commercial nuclear reactors, but shall not include Environmental Laws.
" Nuclear Laws" include the Atomic Energy Act of 1954, the Price-Anderson Act, the Energy Reorganization Act, the Convention on the Physical Protection of Nuclear Material Implementation Act of 1982 (Public Law 97 - 351; 96 Stat.1663), the Foreign Assistance Act of 1961 (22 U.S.C.
Q 2429 et seq.), the Nuclear Non-Proliferation Act of 1978 (22 U.S.C. Q3201), the Low-Level Radioactive Waste Policy Act (42 U.S.C. Q 2021b et seq.), the Nuclear Waste Policy Act, the Low-Level Radioactive Waste Policy Amendments Act of 1985 (42 U.S.C. 2021d,471), the Energy Policy Act of1992 (4 U.S.C. 13201 et seq.), and any state or local laws analogous to the foregoing. O 13 iminis ,
A REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD l Cl FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) (104) " Nuclear ' Material" means Source Material, Special Nuclear Material, Low Level Waste, High Level Waste, Byproduct Material and Spent Nuclear Fuel.' l (105) " Nuclear Waste Fund" means the fund established by the Department of Energy I under the Nuclear Waste Policy Act in which the Spent Nuclear Fuel Fees to be used for the design, construction and operation of a High Level Waste Repository and other activities related to the storage and disposal of Spent Nuclear Fuel and/or High Level Waste are deposited. (106) " Nuclear Waste Policy Act" means the Nuclear Waste Policy Act of 1982, as amended. (107) " Observers" has the meaning set forth in Section 6.l(c). (108) "Eatty" (and the corresponding term " Parties") has the meaning set forth in the ) preamble. { (109) "PBGC" means the Pension Benefit Guaranty Corporation established by ERISA. (110) "PECO" means PECO Energy Company, a Pennsylvania corporation. (111) " Permits" has the meaning set forth in Section 4.17(a). ) (112) "Pemutted Encumbrances" means (a) the Easements,(b) those exceptions to title to the Purchased Assets listed in Schedule 1.l(112) with respect to Real Property and Tangible
- Personal Property, (c) with respect to any date before the Closing Date, Encumbrances created by ,
the Mortgage Indenture, (d) statutory liens for Taxes or other govemmental charges or assessments not yet due or delinquent or the validity of which is being contested in good faith by appropriate proceedings provided that the aggregate amount being so contested does not exceed $250,000, (e) mechanics', materialmens', carriers', workers', repairers' and other similar liens arising or incurred in the ordinary course of business relating to obligations as to which there is no default on the part of Seller or the validity of which is being contested in good faith, and which do not, individually or in the aggregate, exceed $250,000, (f) zoning, entitlement, conservation restriction and other land use and environmental regulations imposed by Govemmental Authorities which do not, individually or in the aggregate, materially detract from the value of the Purchased Assets as currently used and neither secure indebtedness nor, individually or in the aggregate, result in a Material Adverse Effect, and (g) such other liens, imperfections in or failure of title, charges, restrictions, encroachments and defects in title which do not materially, individually or in the aggregate, detract from the value of the Purchased Assets as currently used or interfere with the present use or operation of the Purchased s*xmis 14 i
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD
- FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4)
- Assets and neither secure indebtedness, nor individually or in the aggregate, result in a Material Adverse Effect. (113) " Person" means any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization or Govemmental Authority. (114) " Pollution Control Bonds" has the meaning set forth in Section 2.4(p). l (115) " Pollution Control Facilities" has the meaning set forth in Section 6.8(e). ,
' (116) " Post-Closina Adiustment" has the meaning set forth in Section 3.3(c).
1 (117) " Post-Closine Decommincionino Trust Aereement" means the Post-Closing ) Decommissioning Trust Agreement between the Buyer and the Trustee, substantially in the form of ) Exhibit G hereto, pursuant to which any assets of any of the Decommissioning Funds to be I transferred by Seller at the Closing pursuant to Section 6.12 hereof will be held in trust. (118) " Post-Closine Statement" has the meaning set forth in Section 3.3(c). (119) "EEA"means the Power Purchase Agreement between Seller and Buyer, substantially in the form of Exhibit H hereto, under which Seller will agree to purchase capacity and energy from Buyer for a period after the Closing Date. (120) " Price-Anderson Act" means Section 170 of the Atomic Energy Act and related provisions of Section 11 of the Atomic Energy Act. (121) "Pronosed Post-Closino Adiustment" has the meaning set forth in Section 3.3(c). (122) " Proprietary Information" of a Party means all information about the Party or its Affiliates, including their respective properties or operations, fumished to the other Party or its l Representatives by such Party or its Representatives, after the date hereof, regardless of the manner " or medium in which it is fumished, including information provided to a Party pursuant to the Confidentiality Agreement. In addition, after the Closing Date, " Proprietary Information" includes ! any non-public information regarding the Purchased Assets or the transactions contemplated by this Agreement. Proprietary Information does not include information that (a) is or becomes generally available to the public (other than as a result of a disclosure by the other Party or its Representatives in violation of a confidentiality agreement), (b) was available to the other Party on a nonconfidential basis prior to its disclosure by the Party or its Representatives, (c) becomes available to the other 2*xmus - 15
n I-p- REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD v FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) Party on a nonconfidential basis from a Person, other than the disclosing Party or its Representatives, who is not otherwise bound by a confidentiality agreement with the disclosing Party or its Representatives, or is not otherwise under any obligation to the disclosing Party or any ofits Representatives not to transmit the information to the other Party or its Representatives, or (d) is independently developed by the other Party. (' 123) " Purchased Assets" has the meaning set forth in Section 2.1. (124) ' " Purchase Price" has the meaning set forth in Section 3.2. (125) "Ouali6ed Decommissioning Fund" means the external trust fund that meets the l requirements of Code Section 468A and Treas. Reg. Q l.468A-5, maintained by Seller with respect l to the Facilities prior to the Closing pursuant to the Seller's Decommissioning Trust Agreement and I maintained by Buyer after the Closing pursuant to the Post-Closing Decommissioning Trust Agreement to the extent assets are transferred to such fund by Seller pursuant to Section 6.12. (126) "Real Property" has the meaning set forth in Section 2.1(a). (127) "Real Pronerty Agreements" has the meaning set forth in Section 4.8. (128) " Receiving Party" has the meaning set forth in Section 6.6(i). (129) " Release" means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing of a Hazardous Substance into the Environment. (130) "Remediation" means action of any kind required under applicable Environmental Law to address a Release, the threat of a Release or the presence of Hazardous Substances at the Site or an off-Site location, including, without limitation, any or all of the following activities to the extent they relate to or arise from the presence of a Hazardous Substance at the Site or an off-Site location: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work, (b) obtaining any permits, consents, approvals or authorizations of any Governmutal Authority necessary to conduct any such activity, (c) preparing and implementing any plans or studies for any such activity, (d) obtaining a written notice from a Governmental Authority with jurisdiction over the Site or an off-Site location under Environmental Laws that no material additional work is required by such Governmental Authority, (e) the use, l implementation, application, installation, operation or maintenance of remedial or removal actions on the Site or an off-Site location, remedial technologies applied to the surface or subsurface soils, auxmus 16 I
]
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD s FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) excavation and off-Site treatment or disposal of soils, systems for long term treatment of surface ! water or groundwater, engineering controls or institutional controls, and (f) any other activities I reasonably determined by a Party to be necessary or appropriate or required under Environmental Laws to address the presence or Release of Hazardous Substances at the Site or an off-Site location. (131) "Reclacement Welfare Plans" has the meaning set forth in Section 6.10(e). (132) " Reportable Environmental Condition" means an Environmental Condition for which l a release notification must be made to the National Response Center pursuant to 40 C.F.R. Q302.6, { as may be amended from time to time. l (133) "Recresentatives" of a Party means the Party and its Affiliates and their directors, officers, employees, agents, partners, advisors (including, without limitation, accountants, counsel, j environmental consultants, financial advisors and other authorized representatives) and parents and other controlling persons. (134) "Safecuards Information" means information not otherwise classified as national O security information or restricted data under NRC's regulations which specifically identifies an NRC licensee's detailed (a) security measures for the physical protection of Special Nuclear Material or (b) security measures for the physical protection and location of certain plant equipment vital to the safety of production or utilization facilities. (135) "SEC" means the United States Securities and Exchange Commission and any successor agency thereto. (136) " Securities Act" means the Securities Act of 1933, as amended. (137) " Seller" has the meaning set forth in the preamble. (138) " Seller Benefit Plans" has the meaning set forth in Section 6.10(f). (139) " Seller's Acreements"means those contracts, agreements, licenses and leases relating to the ownership, operation and maintenance of the Purchased Assets that are being assigned to Buyer as part of the Purchased Assets, as more particularly described in Schedule 4.15(a). o O 17 immuis
I REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) l l (141) " Seller Indemnitee" has the meaning set forth in Section 8.1(a). (142) " Seller's Reauired Reculatory Anorovals"has the meaning set forth in Section 4.3(b). (143) " Seller's Savings Plans" has the meaning set forth in Section 6.10(g). (144) " Site" means the parcels ofland included in the Real Property. Any reference to the Site shall include, by definition, the surface and subsurface elements, including the soils and groundwater present at the Site, and any reference to items "at the Site" shall include all items "at, on, in, upon, over, across, under and within" the Site. (145) " Source Material" means (a) uranium or thorium; or any combination thereof, in any q physical or chemical form or (b) ores which contain by weight one-twentieth of one percent (0.05%) ! V or more of(i) uranium, (ii) thorium, or (iii) any combination thereof. Source Material does not include Special Nuclear Material. i l l (146) "Special Nuclear Material" means plutonium, uranium-233, uranium enriched in the l isotope-233 or in the isotope-235, and any other material that the NRC determines to be "Special l Nuclear Material." Special Nuclear Material also refers to any material artificially enriched by any of the above-listed materials or isotopes. Special Nuclear Material does not include Source Material. (147) " Spent Nuclear Fuel" means fuel that has been withdrawn from a nuclear reactor following irradiation, and has not been chemically separated into its constituent elements by reprocessing. Spent Nuclear Fuel includes Special Nuclear Material, Byproduct Material, Source Material and other radioactive materials associated with nuclear fuel assemblies. (148) "Soent Nuclear Fuel Fecs" means those fees assessed on electricity generated at CPS and sold pursuant to the Standard Contract for Disposal of Spent Nuclear Fuel and/or High Level Waste, as provided in Section 302 of the Nuclear Waste Policy Act and 10 C.F.R. Part 961, as the same may be amended from time to time. (149) "Supolemental Payments" has the meaning set forth in Section 6.12. (150) " Tangible Personal Property" has the meaning set forth in Section 2.l(c). 1 Pw363143.15
p REDACTED AREAS CONTAIN CONFIDENTIAL hlATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (151) " Tax Basis" means the adjusted tax basis determined for federal income tax purposes under Code Section 1011(a). (152) " Tax Return" means any return, report, information return, declaration, claim for refund or other document (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto. (153) " Taxes" means all taxes, charges, fees, levies, penalties or other assessments imposed by any federal, state, local, provincial or foreign taxing authority, including, without limitation, income, excise, real or personal property, sales, transfer, franchise, payroll, withholding, social security, gross receipts, license, stamp, occupation, employment or other taxes, including any interest, penalties or additions attributable thereto. (154) " Technical Soecifications"means the technical specifications included in the NRC Operating License for CPS in accordance with the requirements of 10 C.F.R. Q 50.36. ,q (155) " Termination Date" has the meaning set forth in Section 9.l(b). V (156) " Third Party Claim" has the meaning set forth in Section 8.2(a). (157) (158) " Transferable Permits" means those Permits and Environmental Permits identified in Schedule 1.l(156), which may be transferred to Buyer without a filing with, notice to, consent or approval of any Governmental Authority. (159) " Transferred Emnlovee Records" means all records related to Transferred Employees, including, without limitation, the following information: (a) skill and development training, (b) biographies, (c) seniority histories, (d) salary and benefit information, (e) Occupational, Safety and Health Administration reports, (f) active medical restriction forms, (g) fitness for duty, and (h) disciplinary actions. (160) " Transferred Emnlovees" has the meaning set forth in Section 6.10(b). (161) " Transferred Non-Union Emolovees" has the meaning set forth in Section 6.10(b). (162) " Transferred Union Emolovees" has the meaning set forth in Section 6.10(b). O V t*xmus 19 l i l
a 1 1 REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) (163) " Transition Committee" has the meaning set forth in Section 6.1(b). (164) "Transmimmion Assets" has the meaning set forth in Section 2.2(a). (165) " Trustee" means, as the case may be, prior to the Closing the trustee of the Decommissioning Funds appointed by Seller pursuant to the Seller's Decommissioning Tmst Agreements or after the Closing to the extent the assets of the Decommissioning Funds are transferred by Seller pursuant to Section 6.12, the trustee appointed pursuant to the Post-Closing
. Decommissioning Trust Agreement.
(166) " Union Emnlovees" has the meaning set forth in Section 6.10(a).
-(167) "Undatul Safety Analysis Reoort" or "USAR" means the report, as updated, that is required to be maintained for CPS in accordance with the requirements of 10 C.F.R. &50.71(c).
(168) "USEPA" means the United States Environmental Protection Agency and any successor agency thereto. (K9) " WARN Act" means the Federal Worker Adjustment Retraining and Notification Act of 1988, as amended. (170) " Year 2000 Comoliant "" Year 2000 Oualified."" Year 2000 Assets" and " Year 2000 Ready" have the meanings set forth in Section 4.21. " Year 2000 Comoliance" has 'a meaning correlative to the foregoing. 1.2 Certain Interoretlyc Matters. In this Agreement, unless the context otherwise requires, the singular shall include the plural, the masculine shall include the feminine and neuter, and vice versa. The term " includes" or " including" shall mean " including without limitation." References to a Section, Article, Exhibit or Schedule shall mean a Section, Article, Exhibit or Schedule of this Agreement, and reference to a given agreement or instrument shall be a reference
- to that agreement or instrument as modified, amended, supplemented and restated through the date as ofwhich such reference is made. With respect to the Schedules under Articles IV and V of this Agreement (other than Schedules 4.8,4.10,4.13,4.15,4.16, 4.22,4.23, 5.3(a) and 53(b)), matters fully and adequately disclosed on one Schedule shall be deemed disclosed for purposes of any other relevant Schedule under such Anicles.
ARTICLE II p%) wmus 20
i REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) PURCHASE AND SALE 2.1 Transfer of A=M. Upon the terms and subject to the satisfaction of the conditions contained in this Agreement, at the Closing Seller will sell, assign, convey, transfer and deliver to Buyer, and Buyer will purchase, assume and acquire from Seller, free and clear of all Encumbrances (except for and subject to Permitted Encumbrances), all of Seller's right, title and interest in and to all of the assets constituting, or used in the ordinary course of business to operate the Facilities (but excluding assets used only incidentally in the operation of the Facilities and assets or systems which (i) are ordinarily stored or located off-Site and (ii) are used to service multiple facilities of Seller or i
.its Affiliates), including, without limitation, those assets described below (but excluding the Excluded Assets)(collectively," Purchased Assets"):
(a) Except for the Excluded Parcels, the land described on Schedule 4.13(a)
- (which land comprises the Site), together with all buildings, facilities and other improvements thereon, including the Facilities, and all appurtenances thereto, including, without limitation, all related rights ofingress and egress (collectively, the "Real Property"); i (b) All Spent Nuclear Fuel at the Site and all Inventories; (c) Except for property used in the ordinary course of business to operate the Transmission Assets (but excluding property used only incidentally in the operation of the Transmission Assets), other items on Schedule 2.2(a) and the Excluded Other Assets, all machinery, mobile or otherwise, equipment (including computer hardware and software and communications equipment),' vehicles, tools, spare parts, fixtures, furniture and furnishings and other personal property used in the ordinary course of business to operate the Facilities (but excluding such items usal only incidentally in the operation of the Facilities), including, without limitation, the items of personal property included in Schedule 4.13(b) (collectively, " Tangible Personal Pronerty");
(d) Subject to the provisions ofSection 6.4(c), all Seller's Agreements other than ! those identified on Schedules 2.2(k) or 2.2(m); l (e) All Real Property Agreements other than those identified on Schedule 2.2(k); j (f) All Transferable Permits;
~
(g) ' All books, operating records, operating, safety and maintenance manuals, ,
. inspection reports, engineering design plans, documents, blueprints and as built plans, specifications, uwxnun 21
I c REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) procedures and similar items of Seller, wherever located, to the extent such items relate to the Facilities and the other Purchased Assets (and subject to the right of Seller to retain copies of same for its use) other than general ledger accounting records, minutes of meetings of the Board of Directors and shareholders of Seller and other records having to do with the corporate organization ofSeller; 1 (h) All Emission Allowances and Emission Reduction Credits, if any (but only { to the extent necessary to operate the Purchased Assets in the ordinary course of business); (i) All unexpired, transferable warranties and guarantees from third parties with respect to any item ofReal Property or personal property constituting part of the Purchased Assets; l (j) The name "Clinton Power Station" and any derivation thereof; l i (k) All drafts, memoranda, reports, information, technology and specifications n to the extent relating to Seller's plans for Year 2000 Compliance with respect to the Facilities V (subject to the right of Seller to retain copies of same for its use); 1 (1) Except as set forth in Section 2.2(n) or for the Intellectual Property described on Schedule 2.2(1), (i) all Intellectual Property owned by Seller and used in the ordinary course of l business to operate the Purchased Assets (or, in common with Seller, a royalty-free, non-exclusive license to use such Intellectual Property at the Site), and (ii) to the extent transferrable, a non- l assignable (except to Affiliates), royalty-free, non-exclusive site license to use the Intellectual Property described in Schedule 2.1(1); i l i , (m) The substation equipment set forth in Schedule A to the Interconnection l Agreement and designated therein as being transferred to Buyer; (n) The assets comprising the Decommissioning Funds together with all related accounting and other records (subject to the right of Seller to retain copies of same for its use), iraluding, without limitation, records necessary to determine the Tax Basis of each asset in the , l liccommissioning Funds; (o) All rights in and to any causes of action against third parties (including l indemnification and contribution) relating to any Real Property or personal property, Permits, Environmental Permits, Taxes, Real Property Agreements or Seller's Agreements, if any, including any claims for refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation awards, 22 l
q REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD V FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) judgments and the like, whether received as payment or credit against future liabilities, relating specifically to the Facilities or the Site, to the extent such rights relate to the Assumed Liabilities and Obligations arising prior to the Closing Date; i (p) The right to proceeds from insurance policies to the extent covering Assumed Liabilities and Obligations; and-(q) Any claims of Seller related to the Department of Energy's defaults under the Standard Contract for Disposal of Spent Nuclear Fuel and/or High Level Waste other than any claim relating to Seller's investment in the Private Fuel Storage L.L.C. facility in Utah. 2.2 Excluded Assets. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement shall be construed as conferring on Buyer, and Buyer is not acquiring, any right, title or interest in or to the following specific assets which are associated with the Purchased Assets, but which are hereby specifically excluded from the sale and the definition of Purchased
' Assets herein (the " Excluded Assets"):
(a) Except as expressly identified in Schedule 4.13(b) or Schedule A to the Interconnection Agreement, the electrical transmission or distribution facilities (as opposed to generation facilities), the gas transmission and distribution facilitics (and all communication facilities related thereto) of Seller or any ofits Affiliates located at the Site or forming part of the Facilities (whether or not regarded as a " transmission" or " generation" := set for regulatory or accounting j purposes), including all switchyard facilities, substation facilities and support equipment, as well as all permits, contracts and warranties, to the extent they relate to such transmission and distribution assets (collectively, the " Transmission Assets"), and those certain assets, facilities and agreements j identified in Schedule 2.2(a); j (b) Certain switches and meters in the Facilities, gas facilities, revenue meters and remote testing units, drainage pipes and systems, as identified in the special warranty deed or the Easement Agreement; (c) Certificates of deposit, shares of stock, securities, bonds, debentures, evidences ofindebtedness, and interests in joint ventures, partnerships, limited liability companies and other entities (including, without limitation, Seller's investment in the Private Fuel Storage . L.L.C. facility in Utah), except the assets comprising the Decommissioning Funds; V runo.m 23
. f-- REDACTEDIAREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR ff 2.790,9.17(a)(4) l (d) All cash, cash equivalents, bank deposits, accounts and notes receivable (trade or otherwise), and any income, sales, payroll or other Tax receivables, except the assets comprising the Decommissioning Funds;- (e) All rights to distributions, credits (including shutdown credits), premium refunds or premium returns based upon activities prior to the Closing Date under any insurance policies of Seller, including, without limitation, all rights to (i) Seller's member insurance accounts under its Nuclear Insurance Policies and (ii) Seller's future distributions, credits, refunds or returns from its Nuclear Insurance Policies; (f) All claims for refunds of Department of Energy Decontamination and Decommissioning Fees paid by Seller prior to the Closing; i (g) All tariffs, agreements and arrangements to which Seller is a party for the purchase or sale of electric capacity and/or energy or for the purchase of transmission or ancillary services; (h) Except as provided in Section 2.l(h), (i), (o), (p) and (q), the rights of Seller in and to any causes of action against third parties (including indemnification and contribution) relating to any Real Property or personal property, Permits, Environmental Permits, Taxes, Real Property Agreements or Seller's Agreements, including without limitation, any claim for refunds, prepayments, offsets, recoupment, insurance proceeds, condemnation awards, judgments and the like, whether received as payment or credit against future liabilities, including, without limitation, any claim relating to Seller's investment in the Private Fuel Storage L.L.C. facility in Utah; (i) Any rights that accrue or will accrue to Seller under this Agreement, the Ancillary Agreements or the Interim Agreement, the Management Agreement or the Leased Employee Agreement; (j) Any and all of Seller's rights in any contract representing an intercompany transaction between Seller and an Affiliate of Seller, whether or not such transaction relates to the provision of goods and services, payment arrangements, intercompany charges or balances, or the
- like; - --
(k) The Real Property Agreements set forth in Schedule 2.2(k); (1) The real property described in Schedule 2.2(1) (the " Excluded Parcels"); j O - 24 i=um. is
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) (m) The personal property and other assets of Seller set forth in Schedule 2.2(m) ) (the" Excluded Other Assets"); (n) The rights of Seller and its Affiliates to the name "Illinova" or " Illinois Pcwer," or any related or similar trade names, trademarks, service marks, corporate names or logos, 3 or any part, derivative or combination thereof; (o) Subject to Sect!on 2.1(h), all Emission Allowances and Emission Reduction Credits,if any; and (p) Subject to Section 2.1(p), all insurance policies of Seller related to the Purchased Assets, including, without limitation, all Nuclear Insurance Policies. 2.3 Assumed Liabilities and Obligations. On the Closing Date, Buyer shall deliver to Seller the Assignment and Assumption Agreement pursuant to which Buyer shall assume and agree to discharge in accordance with their respective terms, all of the following liabilities and obligations of Seller (collectively, " Assumed Liabilities and Obligations"): V (a). All liabilities and obligations of Seller arising (or related to periods) on or after the Closing Date under Seller's Agreements (other than those identified in Schedule 2.2(m)), the Real Property Agreements (other than those identified in Schedule 2.2(k)) and the Transferable Permits in accordance with the terms thereof, including, without limitation, (i) the contracts, licenses, agreements and personal property leases entered into by Seller with respect to the Purchased Assets and disclosed on the relevant schedule and (ii) the contracts, licenses, agreements and personal property leases entered into by Seller with respect to the Purchased Assets after the date hereof consistent with the terms of this Agreement, except in each case to the extent such liabilities and obligations, but for a breach or default by Seller or a related waiver or extension, would have been paid, performed or othenvise discharged on or prior to the Closing Date or to the extent the same arise out of any such breach or default or related waiver or extension or out of any evem which after the giving of notice would constitute a default by Seller, (b) Except as provided in Sections 2.4(d),2.4(g),2.4(q) and 2.4(r) and except for the Remediation work specifically identified and required by Section 6.17 to be performed by or on behalf of Seller, any liabilities, claims (including, without limitation, third party claims), obligations or responsibilities under or related to applicable Environmental Laws, Nuclear Laws or Environmental Permits with respect to the ownership or operation of the Purchased Assets, whether such liability, obligation or responsibility is known or unknown, contingent or accrued, and whether occurring prior to, on or after the Closing Date; 2.munis 25
I I fm REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR {Q 2.790,9.17(a)(4) l (c) All liabilities and obligations associated with the Purchased Assets in respect of Taxes for which Buyer is liable pursuant to Section 3.5 or 6.8(a) hereof; (d) All liabilities and obligations with respect to the Transferred Employees on and after the Closing Date except for those retained by Seller as provided in Section 6.10; (e) With respect to the Purchased Assets, any Tax that may be imposed by any federal, state or local govemment on the ownership, sale, operation or use of the Purchased Assets ,
~
on or after the Closing Date, except for any Income Taxes attributable to income received by Seller; (f) All liabilities and obligations of Seller for Decommissioning of the Facilities, except for Seller's obligations to make the payments specified in Section 6.12; (g) All liabilities and obligations of Seller to dispose of Nelear Material located in, on or under the Site on or after the Closing Date; n (h) Subject to Section 6.10, all liabilities and obligations relating to Buyer's (j hiring, discrimination in hiring, or unfair labor practices with respect to the employees of CPS; (i) All liabilities and obligations of Seller set forth on Schedule 2.3(i); and (j) All liabilities or obligations for (i) any insurance premiums (including deferred premiums or retrospective premium adjustments) under the nuclear liability and prepedy damage insurance policies which Buyer is required to maintain pursuant to Section 6.15 hereof, and (ii) any retrospective premium adjustments under the Price-Anderson Act's secondary layer of financial protection, in either case arising from events occurring on or after the Closing Date. 2.4 Excluded Liabilities. Notwithstanding anything to the contrary in this Agreement, nothing in this Agreement shall be constmed to impose on Buyer, and Buyer shall not assume or be obligated to pay, perform or otherwise discharge the following liabilities or obligations (the
" Excluded Liabilities"):
(a) Any liabilities or obligations of Seller in respect of any Excluded Assets or other assets of Seller which are not Purchased Assets; (b) Any liabilities or obligations in respect ofTaxes attributable to the ownership, operation or use of Purchased Assets for taxable periods, or ponions thereof, ending before the _ Closing Date, except for Taxes for which Buyer is liable pursuant to Sections 3.5 or 6.8(a) hereof; mumus 26
q REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) (c) An'y liabilities or obligations of Seller accruing under any of Seller's
- Agreements prior to the Closing Date; (d) All liabilities or obligations of Seller arising under or relating to Nuclear Laws or relating to any claim by third parties based on common law, in either case arising as a result of the off-Site disposal, treatment, storage, transportation or recycling of Low Level Waste prior to the Closing Date, including any and all asserted or unasserted liabilities or obligations to third parties (including employees) for property damage, personal injury or tort, or similar causes of action j arising with respect thereto;
]
(c) Any fines, penalties or costs imposed by a Governmental Authority with respect to the Purchased Assets resulting from (i) an investigation, proceeding, request for j information or inspection before or by a Governmental Authority relating to actions or omissions of Seller prior to the Closing Date, except for liabilities and obligations which have been assumed by Buyer under Section 23(b), or (ii) criminal acts, willful misconduct or gross negligence of Seller, (f) Any payment obligations of Seller for goods delivered or services rendered prior to the Closing Date, including, without limitation, rental or lease payments pursuant to the Real Property Agreements and any leases relating to Tangible Personal Property; (g) Any liability, obligation or responsibility under or related to Environmental Laws or the common law, whether such liability, obligation or responsibility is known or unknown, contingent or accrued (whether or not arising or made manifest before the Closing Date or on or after the Closing Date), arising as a result of, in connection with or allegedly caused by, the off-Site disposal, treatment, storage, transportation or recycling of Hazardous Substances (including any discharge or Release in connection therewith) prior to the Closing Date in connection with the ownership or operation of the Purchased Assets; i (h) Except to the extent caused by Buyer or any ofits Affiliates, any liabilities, . obligations or responsibilities to the extent relating to (i) the property, equipment or machinery l within the switchyard for which Seller will retain an Easement, (ii) the transmission lines delineated l in the Easements, or (iii) Seller's operations on, or usage of, the Easements, including, without limitation, liabilities, obligations or responsibilities arising as a result of or in connection with (A) any violation or alleged violation of Environmental Law and (B) loss of life, injury to persons or property or damage to natural resources; (i) Except as provided in Section 23(h), any liabilities or obligations relating to personal injury or tort, discrimination, wrongful discharge, unfair labor practice or similar claim or i=xnu.is 27
q REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR ll 2.790,9.17(a)(4) cause of action filed with or pending before any court or administrative agency on the Closing Date with respect to the Purchased Assets or the Transferred Employees or where the material facts of such claim or cause of action occurred prior to the Closing Date; (j) Except as provided in Section 2.3(b) or 2.3(i) any asserted or unasserted liabilities or obligations to third parties (including employees) for personal injury or tort, or similar causes of action arising out of the ownership or operation of the Purchased Assets prior to the Closing Date; (k) . Subject to Section 6.10, any liabilities or obligations relating to any Benefit Plan maintained by Seller, or any employee benefit plan as defined in Section 3(3) of ERISA and maintained by any trade or business (whether or not incorporated) which is or ever has been under common control, or which is or ever has been treated as a single employer, with Seller under Section 414 (b) , (c) , (m) or (o) of the Code ("ERISA Affiliate") or to which Seller or any ERIS A Affiliate contributed (the "ERISA Affiliate Plans"), including any multi-employer plan contributed to at any time by Seller or any ERISA Affiliate, or any multi-employer plan to which Seller or any ERISA q Affiliate is or was obligated at any time to contribute, including, without limitation, any such Q liability (i) relating to benefits payable under any Benefit Plans, (ii) relating to the PBGC under Title IV of ERISA, (iii) relating to a multi-employer plan, (iv) with respect to noncompliance with the notice and benefit continuation requirements ofCOBRA, (v) with respect to any noncompliance with ERISA or any other applicable laws, or (vi) with respect to any suit, proceeding or claim which is brought against Buyer, any Benefit Plan, ERISA Affiliate Plan, or any fiduciary or former fiduciary of any such Benefit Plan or ERISA Affiliate Plan and the basis of which is related to actions of Seller or its ERISA Affiliates or which is otherwise related to the ownership or operation of the Purchased Assets prior to the Closing Date; (1) Subject to Section 6.10 and Section 2.3(h), any liabilities or obligations relating to the employment or termination of employment, including discrimination, wrongful discharge, unfair labor practices, or constructive termination by Seller of any individual, attributable to any actions or inactions by Seller prior to the Closing Date other than such actions or inactions taken at the written request or with the written consent of Buyer; (m) Subject to Section 6.10, any obligations for wages, overtime, employment Taxes, severance pay, transition payments in respect of compensation or similar benefits or similar claims or causes of action arising or related to facts or perfonnance occurring prior to the Closing Date under any term or provision of any contract, plan, instrument or agreement relating to any of
. the Purchased Assets; O 1*mus 28
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR f 2.790,9.17(a)(4) i (n) Any liability of Seller arising out of a breach by Seller or any ofits Affiliates of any ofits obligations under this Agreement or the Ancillary Agreements; (o) Any obligation of Seller to indemnify a Buyer Indemnitee under this Agreement; (p) Any liabilities relating to the following bonds (collectively, the " Pollution Control Bonds") and any agreements relating thereto: (i) $84,710,000 aggregate principal amount ofIllinois Development Finance Authority 7 3/8% Pollution Control Refunding Revenue Bonds, 1991 Series A (Illinois Power Company Project), (ii) $84,150,000 aggregate principal amount of Illinois Development Finance Authority 7.40% Pollution Control Refunding Revenue Bonds,1994 Series B (Illinois Power Company Project), (iii) $51,770,000 aggregate principal amount ofIllinois
. Development Finance Authority Adjustable Rate Pollution Control Revenue Refunding Bonds,1993 Series A (Illinois Power Company Project), (iv) $30,000,000 aggregate principal amount ofIllinois Development Finance Authority Adjustable Rate Pollution Control Revenue Refunding Bonds,1993 Series B (Illinois Power Company Project), (v) $30,000,000 aggregate principal amount ofIllinois Development Finance Authority Adjustable Rate Pollution Control Revenue Refunding Bonds,1993
( Series C (Illinois Power Company Project), (vi) $70,000,000 aggregate principal amount ofIllinois i Development Finance Authority Adjustable Rate Pollution Control Revenue Refunding Bonds,1997 ! Series A (Illinois Power Company Project), (vii) $45,000,000 aggregate principal amount ofIllinois ; Development Finance Authority Adjustable Rate Pollution Control Revenue Refunding Bonds,1997 ) Series B (Illinois Power Company Project), (viii) $35,000,000 aggregate principal amount ofIllinois j Development Finance Authority Adjustable Rate Pollution Control Revenue Refunding Bonds,1997 Series C (Illinois Power Company Project), (ix) $18,700,000 aggregate principal amount ofIllinois Development Finance Authority 5.40% Pollution Control Revenue Refunding Bonds,1998 Series A (Illinois Power Company Project), (x) $33,755,000 aggregate principal amount of Illinois Development Finance Authority 5.40% Pollution Control Revenue Refunding Bonds,1998 Series B (Illinois Power Company Project), (xi) $25,000,000 aggregate principal amount of Illinois Development Finance Authority. Pollution Control Revenue Bonds,1987 Series B (Illinois Power Company Project) (Adjustable Convertible Exchange Securities), (xii) $25,000,000 aggregate principal amount ofIllinois Development Finance Authority Pollution Control Revenue Bonds,1987 Series C (Illinois Power Company Project) (Adjustable Convertible Exchange Securities), (xiii)
$25,000,000 aggregate principal amount of Illinois Development Finance Authority Pollution Control Revenue Bonds,1987 Series D (Illinois Power Company Project) (Adjustable Convertible Exchange Securities) and (xiv) $35,615,000 aggregate principal amount ofIllinois Development Finance Authority 5.70% Pollution Control Refunding Revenue Bonds,1994 Series A (Illinois Power Company Project);
O 29 ommus
O REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD h FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (q) Any Environmental Claim related to or any other liability, obligation or responsibility attributable to any Environmental Condition at the Construction Waste Landfill, including any Remediation required by an order of a Governmental Authority under Environmental Law; provided, however that Seller shall not have any liability, obligation or responsibility with respect to the Construction Waste Landfill to the extent arising from or attributable to the acts of Buyer or its employees, agents or contractors after the Closing Date, other than for acts required by an order of a Governmental Authority under Environmental Law; (r) Subject to Section 6.17, any Remediation work identified on Schedule 6.17; i (s) All liabilities or obligations for (i) any insurance premiums (including deferred premiums or retrospective premium adjustments) under the Nuclear Insurance Policies, and (ii) any retrospective premium adjustments under the Price-Anderson Act's secondary layer of financial protection, in either case arising from events occurring prior to the Closing Date; and (t) Any other liability or obligation of Seller not specifically assumed hereunder. (~ ()/ 2.5 Control ofLitigation. The Parties agree and acknowledge that Seller shall be entitled exclusively to control, defend and settle any litigation, administrative or regulatory proceeding, and any investigation or other activities arising out of or related to any Excluded Liabilities, and Buyer agrees to cooperate with Seller (at Seller's expense) in connection therewith, including, without limitation, providing access to any relevant real or personal property and staff transferred to Buyer pursuant to this Agreement, so long as such defense, settlement or other activities do not unreasonably interfere with Buyer's operation of the Facilities. ARTICLE III , I THE CLOSING 3.1 Closing. Upon the terms and subject to the satisfaction of the conditions contained in Article VII of this Agreement, the sale, assignment, conveyance, transfer and delivery of the l Purchased Assets to Buyer, the payment of the Cash Purchase Price to Seller, the assumption of the ! Assumed Liabilities and Obligations by Buyer, and the consummation of the other respective l obligations of the Parties contemplated by this Agreement shall take place at a closing (the j
" Closing") (except for obligations specifically contemplated hereby to be completed after the Closing), to be held at the offices of Morgan, Lewis & Bockius LLP,1701 Market Street, p)
Philadelphia, Pennsylvania, at 10:00 a.m. local time, or another mutually acceptable time and 1-PH/363143.ly 30 l
}
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD n) (.. FROM PUBLIC DISCLO$URE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) location, on the date that is fifteen (15) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article VII of this Agreement have been either satisfied or waived by the Party for whose benefit such conditions precedent exist but in any event not after the Termination Date, unless the Parties mutually agree on another date. The date of Closing is hereinafter called the "Closimi Date." The Closing shall be effective for all purposes as of 12:01 a.m. on the Closing Date. 3.2 Purchase Price: Payment. Upon the terms and subject to the satisfaction of the l conditions contained in this Agreement, in consideration of Seller's sale, assignment, conveyance, l transfer and delivery of the Purchased Assets to Buyer, at the Closing Buyer will (a) pay or cause { to be paid to Seller an aggregate amount of Twenty Million Dollars ($20,000,000), plus or minus j any adjustments pursuant to the provisions of Section 3.3 (as so adjusted, the " Cash Purchase j fnc.c"), by wire transfer ofimmediately available funds denominated in U.S. dollars or by such other j means as are agreed upon by Seller and Buyer, and (b) assume the Assumed Liabilities and
. Obligations specified in Section 2.3 (the sum of the Cash Purchase Price and the Assumed Liabilities
]
{ and Obligations is referred to herein collectively as the " Purchase Price"). { 3.3 Adiustment to Cash Purchase Price. (a) Subject to Section 3.3(b), at the Closing, the Cash Purchase Price shall be adjusted, without duplication, to account for the items set forth in this Section 3.3(a): 1 1 (i) The Cash Purchase Price shall be adjusted to account for the items prorated as of the Closing Date pursuant to Section 3.5. ; (ii) The Cash Purchase Price shall be increased by the amount expended by Seller between the date hereof and the Closing Date for capital additions to or replacements of property, plant and equipment included in the Purchased Assets and other expenditures or repairs on property, plant and equipment included in the Parchased Assets that are capitalized by Seller in accordance with its normal accounting policies to the extent that Seller has not been reimbursed by Buyer prior to the Closing for such expenditures by Seller; provided, that such expenditures (A) are not described in the capital budgets listed in Schedule 6.1, (B) are not required (1) for the customary operation and maintenance of CPS, (2) to replace equipment which has failed for any other reason, or (3) to comply with applicable laws, rules and regulations, and (C) Buyer has specifically requested or approved such expenditures in writing. Nothing in this paragraph should be construed to limit Seller's rights and obligations to make all capital expenditures necessary to comply with NRC licenses and other Permits. l
- i. mum.is 31 J
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (b) At least thirty (30) calendar days prior to the Closing Date, Seller shall prepare and deliver to Buyer an estimated closing statement (the " Estimated Closine Statement") that shall set forth Seller's best estimate of all estimated adjustments to the Cash Purchase Price required by Section 3.3(a) (the " Estimated Adiustment"). Within ten (10) calendar days after the delivery of the Estimated Closing Statement by Seller to Buyer, Buyer may object in good faith to the Estimated Adjustment in writing. If Buyer objects to the Estimated Adjustment within such ten (10) day period, the Parties shall attempt to resolve their differences by negotiation. If the Parties are unable to do so prior to the Closing Date (or if Buyer does not object to the Estimated Adjustment), the Cash Purchase Price shall be adjusted (the "Closine Adiustment") for the Closing by the amount of the Estimated Adjustment not in dispute. The disputed portion shall be resolved in accordance with the provisions of Section 3.3(c) and paid as part of any Post-Closing Adjustment to the extent required by Section 3.3(c). (c) Within sixty (60) days after the Closing Date, Seller shall prepare and deliver to Buyer a final closing statement (the " Post-Closine Statement") that shall set forth all adjustments to the Cash Purchase Price required by Section 3.3(a) not previously effected by the Closing Adjustment (the " Proposed Post-Closine Adiustment") and all work papers detailing such adjustments. The Post-Closing Statement shall be prepared using the same accounting principles, policies and methods as Seller has historically used in connection with the calculation of the items reflected on such Post-Closing Statement. Within thirty (30) days after the delivery of the Post-Closing Statement by Seller to Buyer, Buyer may object to the Proposed Post-Closing Adjustment in writing, stating in reasonable detail its objections thereto. Seller agrees to cooperate with Buyer to provide Buyer with the information used to prepare the Post-Closing Statement and information relating thereto. If Buyer objects to the Proposed Post-Closing Adjustment, the Parties shall attempt to resolve such dispute by negotiation. If the Parties are undle to resolve such dispute within thirty (30) days after any objection by Buyer, the Parties shall appoint the Independent Accounting Firm, which shall, at Seller's and Buyer'sjoint expense, review the Proposed Post-Closing Adjustment and determine the appropriate adjustment to the Cash Purchase Price, if any, within thirty (30) days after such appointment. The Parties agree to cooperate with the Independent Accounting Firm and ! provide it with such information as it reasonably requests to enable it to make such determination. The finding of such Independent Accounting Firm shall be binding on the Parties hereto. Upon l determination of the appropriate adjustment (the " Post-Closine Adiustment") by agreement of the I } Parties or by binding determination of the Independent Accounting Firm, the Party owing the l difference shall deliver such amount to the other Party no later than two (2) Business Days after such iwne is 32 l
p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) determination, in immediately available funds or in any other manner as reasonably requested by the payee. 3.4 Allocation of Purchase Price. Buyer and Seller shall agree upon an allocation among the Purchased Assets of the Purchase Price consistent with Section 1060 of the Code and the Treasury Regulations thereunder within sixty (60) days aller the Closing Date, except to the extent any such allocation is required for the calculation of transfer taxes to be paid at Closing in which case Buyer and Seller shall agree upon an allocation for Purchased Assets subject to such transfer taxes at least ten (10) days prior to the Closing Date. If Buyer and Seller cannot agree on any such allocation, such dispute shall be resolved in accordance with Section 6.8(d) of this Agreement. The aliocation required by this Section 3.4 shall be revised based on the Post-Closing . Adjustment within one hundred and eighty (180) days after the Closing Date. Each of Buyer and Seller agrees to file IRS Form 8594, and all federal, state, local and foreign Tax Returns, in accordance with any such agreed allocation as adjusted as provided herein. Each of Buyer and Seller shall report the transactions contemplated by this Agreement for federal Tax and all other Tax pmposes in a manner consistent with any such allocation determined pursuant to this Section 3.4. Each of Buyer and Seller agrees to provide the other promptly with any information required to complete Form 8594.
.)
g Buyer and Seller shall notify and provide the other with reasonable assistance in the event of an examination, audit or other proceeding regarding any allocation of the Purchase Price determined pursuant to this Section 3.4. Buyer and Seller shall not take any position in any Tax Return, Tax proceeding or audit that is inconsistent with such allocation. 3.5 Prorations. (a) Buyer and Seller agree that all of the items normally prorated, including those listed below (but not including Income Taxes), relating to the business and operation of the Purchased Assets shall be prorated as of the Closing Date, with Seller liable to the extent such items relate to any time period prior to the Closing Date, and Buyer liable to the extent such items relate to periods commencing with the Closing Date (measured in the same units used to compute the item in question, othenvise measured by calendar days): (i) Personal property, real estate and occupancy Taxes, assessments and other charges, if any, on or with respect to the business and operation of the Purchased Assets; (ii) Rent, Taxes and all other items (including prepaid services or goods not l included in Inventory) payable by or to Seller under any ofSeller's Agreements assigned to l Buyer pursuant to Section 2.l(d) hereof; i O 33 rwnun I
l p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) i (iii) Any permit, license, registration, compliance assurance fees or other fees with respect to any Transferable Permit; (iv) Sewer rents and charges for water, telephone, electricity and other utilities; (v) Rent and Taxes and other items payable by Seller under the Real Propeny Agreements assigned to Buyer; and (vi) Dues and fees payable to industry organizations under Seller's Agreements assumed by Buyer pursuant to Section 2.l(d) hereof. (b) In connection with the prorations referred to in (a) above, in the event that actual figures are not available at the Closing Date, the proration shall be based upon the actual Taxes or other amounts accrued through the Closing Date or paid for the most recent year (or other appropriate period) for which actual Taxes or other amounts paid are available. Such prorated Taxes or other amounts shall be re-prorated and paid to the appropriate Party within sixty (60) days of the date that the previously unavailable actual figures become available. The prorations shall be based V on the number of days in a year or other appropriate period (i) before the Closing Date and (ii) including and after the Closing Date. Seller and Buyer agree to furnish each other with such documents and other records as may be reasonably requested in order to confirm all adjustment and proration calculations made pursuant to this Section 3.5. 3.6 Deliveries by Seller. At the Closing, Seller will deliver, or cause to be delivered, the following to Buyer: (a) The Bill of Sale, duly executed by Seller; (b) Copies of any and all govemmental and other third party consents, waivers or approvals obtained by Seller with respect to the transfer of the Purchased Assets, or the l consummation of the transactions contemplated by this Agreement; (c) The opinion of counsel, officer's cenificate and other items contemplated by Section 7.1; (d) One or more special warranty deeds conveying the Real Property to Buyer, ; substantially in the form of Exhibit I hereto, duly executed and acknowledged by Seller in recordable form, and any other customary certificates or other documents reasonably required by the title company; C 1 PH/363143.15 34
F n REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD V FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) l (e) All Ancillary Agreements, duly executed by Seller; l (f) A FIRPTA Affidavit, duly executed by Seller; (g) Copies, certified by the Secretary or Assistant Secretary ofSeller, ofcorporate resolutions authorizing the execution and delivery of this Agreement and all of the agreements and instruments to be executed and delivered by Seller in connection herewith, and the consummation of the transactions contemplated hereby; j (h) A certificate of the Secretary or Assistant Secretary of Seller identifying the name and title and bearing the signatures of the officers of Seller authorized to execute and deliver this Agreement and the other agreements and instruments to be executed and delivered by Seller in connection herewith; t (i) A certificate of good standing with respect to Seller (dated within three (3) Business Days of the Closing Date), issued by the Secretary of State of the State ofIllinois; O V (j) To the extent available, originals of the IBEW Collective Bargaining Agreements, all Seller's Agreements, Real Property Agreements and Transferable Permits to be transferred to Buyer hereunder, and, if not available, true and correct copies thereof, together with any required notices to and consents by other Persons which are parties to such Seller's Agreement, Real Property Agreements and Transferable Permits; (k) The assets of the Decommissioning Funds to be transferred pursuant to Section 6.12 shall be delivered to the trustee under the Post-Closing Decommissioning Trust Agreement; (1) All such other instruments of assignment, transfer or conveyance as shall, in the reasonable opinion of Buyer and its counsel, be necessary or desirable to transfer to Buyer the Purchased Assets,in accordance with this Agreement and where necessary or desirable in recordable form; and (m) Such other agreements, consents, documents, instruments and writings as are required to be delivered by Seller at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 3.7 Deliveries by Buyer. At the Closing, Buyer will deliver, or cause to be delivered, the q following to Seller: imma.a 35
l p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD V FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) i (a) The Cash Purchase Price, as adjusted pursuant to Section 3.3; (b) The opinions of counsel, officer's certificates and other items contemplated by Section 7.2; i (c) All Ancillary Agreements, duly executed by Buyer; ! (d) Copies, certified by the Secretary or Assistant Secretary of Buyer, of resolutions authorizing the execution and delivery of this Agreement, and all of the agreements and instruments to be executed and delivered by Buyer in connection herewith, and the consummation of the transactions contemplated hereby; ; (e) A certificate of the Secretary or Assistant Secretary of Buyer identifying the name and title and bearing the signatures of the officers of Buyer authorized to execute and deliver this Agreement, and the other agreements to be executed and delivered by Buyer in connection , herewith;
)
V(3 (f) A certificate of good standing with respect to Buyer (dated within three (3) Business Days of the Closing Date), issued by the Secretary of State of the State of Delaware-(g) All such other instruments of assumption as shall, in the reasonable opinion of Seller and its counsel, be necessary for Buyer to assume the Assumed Liabilities and Obligations in accordance with this Agreement and where necessary or desirable in recordable fonn; (h) Copies of any and all govemmental and other third party consents, waivers or approvals obtained by Buyer with respect to the transfer of the Purchased Assets, or the consummation of the transactions contemplated by this Agreement; (i) Letters of assurance from PECO and British Energy plc in substantially the form of Exhibits L and M, respectively; and (j) Such other agreements, documents, instruments and writings as are required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith. 4 V l PH/363143.15
q REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) ARTICLE IV i REPRESENTATIONS AND WARRANTIES OF SELLER Seller hereby represents and warrants to Buyer as follows:
4.1 Organization
Oualification. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State ofIllinois and has all requisite corporate power and authority to own, lease, and operate its properties and to carry on its business as is now being conducted. Seller has heretofore delivered to Buyer complete and correct copies ofits Articles of Incorporation and Bylaws as currently in effect. 4.2 Authority. Seller has full corporate power and authority to execute and deliver this Agreement and the Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and q thereby have been duly and validly authorized by all necessary corporate action required on the part V of Seller and no other corporate proceedings on the part of Seller are necessary to authorize this Agreement and the Ancillary Agreements to which it is a party or to consummate the transactions contemplated hereby and thereby. This Agreement has been duly and validly executed and delivered by Seller, and assuming that this Agreement constitutes a valid and binding agreement of Buyer, and subject to the receipt of Seller's Required Regulatory Approvals, constitutes the legal, valid and binding agreement of Seller, enforceable against Seller in accordance with its terms , except that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws affecting or relating to the enforcement of creditors rights generally or general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). 4.3 Consents and Anprovals: No Violation. (a) Except as set forth in Schedule 4.3(a), and subject to the receipt of Seller's Required Regulatory Approvals, neither the execution and delivery by Seller of this Agreement or the Ancillary Agreements to which Seller is a party nor the consummation of the transactions contemplated hereby or thereby will (i) conflict with or result in the breach or violation of any provision of the Articles ofIncorporation or Bylaws of Seller, (ii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or O obligation to which Seller is a party or by which Seller or any of the Purchased Assets are bound, b w n u.n 37 l 1
m
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l l REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIHELD (nj FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) except for such defaults (or rights of termination, cancellation or acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, create a Material Adverse Effect, or (iii) constitute violations of any order, writ, injunction, decree, statute, rule or regulation applicable to Seller, or any ofits assets, except where such violations, individually or in the aggregate, would not create a Material Adverse Effect. (b) Except as set forth in Schedule 4.3(b) (the filings and approvals referred to in Schedule 4.3(b) are collectively referred to as the " Seller's Reauired Reculatory Approvals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the consummation by Seller of the transactions contemplated hereby, other than (i) such declarations, filings, registrations, notices, authorizations, consents or approvals which, if not obtained or made, will not, individually or in the aggregate, create a Material Adverse Effect or (ii) such declarations, filings, registrations, notices, authorizations, consents or approvals which become applicable to Seller as a result of the specific l regulatory status of Buyer (or any ofits Affiliates) or the result of any other facts that specifically l relate to the business or activities in which Buyer (or any ofits Affiliates) is or proposes to be I fs engaged. U) 4.4 Financial Statements: Reoorts. Except as set forth in Schedule 4.4, since January 1, 1996, Seller has filed or caused to be filed with the SEC, the applicable state or local utility commissions or regulatory bodies, the NRC and the FERC, as the case may be, all material forms, statements, reports and documents (including all exhibits, amendments and supplements thereto) required to be filed by Seller with respect to the Purchased Ass:ts or the operation thereof under each of the Securities Act, the Exchange Act, the applicable state public utility laws, the Federal Power j Act, the Holding Company Act, the Atomic Energy Act, the Energy Reorganization Act and the Price-Anderson Act and the respective rules and regulations thereunder, all of which complied in all material respects with all applicable requirements of the appropriate act and the rules and regulations thereunder in effect on the date each such report was filed, and, to Seller's Knowledge, there were no material misstatements or omissions relating to the Purchased Assets as of the date of such filings in any such repon; provided however, that Seller shall not be deemed to be making any representation or warranty to Buyer hereunder concerning the financial statements of Seller contained in any such reports. 4.5 Undisclosed Liabilities. Except as set forth in Schedule 4.5, to Seller's Knowledge, the Purchased Assets are not subject to any material liability or obligation (whether absolute, accrued, contingent or otherwise) required to be accrued or reserved against in Seller's financial statements as of the most recent fiscal quader in accordance with generally accepted accounting
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mmms 38 l l
n REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD d FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) principles consistently applied and that was not so accrued or reserved against in Seller's financial statements for such fiscal quarter. 4.6 Absence of Cedain Changes or Events. Since January 1,1999, except as set forth in Schedule 4.6, there has not been (a) any Material Adverse Effect, or (b) any damage, destruction or casualty loss, whether or not covered by insurance, which, individually or in the aggregate, created a Material Adverse Effect. 4.7 Title and Related Matters. Except for Permitted Encumbrances, to Seller's Knowledge, Seller has good and marketable title, insurable at regular rates by a nationally recognized title insurance company, to the Real Property to be conveyed by it hereunder free and clear of all Encumbrances. The Real Propedy constitutes all of the real property necessary to operate the Facilities as currently operated. Except for Permitted Encumbrances, to Seller's Knowledge, Seller has good and valid title to each of the Purchased Assets not constituting Real Property free and clear of all Encumbrances. p 4.8 Real Property Acreements. Schedule 4.8 lists, as of the date of this Agreement, all d real property leases, casements, licenses and other rights in real property (collectively, the "Esal Pronerty Agreements") to which Seller is a party and which (a) are to be transferred and assigned to Buyer on the Closing Date, (b) affect all or any part of any Real Property, and (c) (i) provide for annual payments of more than 5100,000 or (ii) are material to the ownership or operation of the Purchased Assets. Except as set forth in Schedule 4.8, all such Real Property Agreements are valid, binding and enforceable in accordance with their terms, and are in full force and eiTect; there are no existing material defaults by Seller or, to Seller's Knowledge, any other party thereunder; and no event has occurred which (whether with or without notice, lapse of time or both) would constitute a material default by Seller or, to Seller's Knowledge, any other party thereunder. 4.9 Insurance. All material policies of fire, liability, property damage, worker's compensation and other forms ofinsurance owned or held by Seller and insuring the Purchased Assets are listed in Schedule 4.9 along with the amount of the coverage, the type ofinsurance, and the policy renewal date. Except as set forth in Schedule 4.9, to Seller's Knowledge, all of such policies of fire, liability, worker's compensation and other forms ofinsurance owned or held by Seller and insuring the Purchased Assets are in full force and effect, all premiums with respect thereto covering all periods up to and including the date as of which this representation is being made have been paid (other than retrospective premiums which may be payable with respect to nuclear liability and property insurance policies), and no notice of cancellation or termination has been received with respect to any such policy which was not replaced on substantially similar terms prior to the date of such cancellation. Except as described in Schedule 4.9, as of the date of this i v 39 l mancas
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) Agreement, to Seller's Knowledge, Seller has not been refused any insurance with respect to the Purchased Assets nor has Seller's coverage with respect to the Purchased Assets been limited by any insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the last twelve months. 4.10 Environmental Mattm. With respect to the Purchased Assets and the ownership or operation thereof by Seller, to Seller's Knowledge, except as disclosed in Schedule 4.10: , (a) Seller has obtained and holds all material Environmental Permits used in or necessary for the ownership or operation of the Purchased Assets as presently conducted; (b) Seller is in compliance in all material respects with all terms, conditions and provisions of(i) all applicable Environmental Laws and (ii) all material Environmental Permits; (c) there are no pending or threatened Environmental Claims relating to or with respect to the Purchased Assets, and Seller is not aware of any facts or circumstances which could g) ( reasonably be expected to form the basis for any material Environmental Claim with respect to the Purchased Assets; (d) no Releases of Hazardous Substances have occurred at, from, in, to, on, adjacent to or under the Site and no Hazardous Substances are present in, on, about or migrating to
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or from the Site that would give rise to a material liability of Seller under applicable Environmental i Laws for Remediation of Hazardous Substances, except for the Remediation contemplated by I Section 6.17; (e) Seller has not transported or arranged for the treatment, storage, handling, disposal or transportation of any Hazardous Substance from the Site to any off-Site location which is an Environmental Clean-up Site-(f) the Site is not a current or proposed Environmental Clean-up Site; I (g) except for Permitted Encumbrances, there are no Encumbrances existing , under or pursuant to any Environmental Law with respect to the Purchased Assets and there are no facts, circumstances, or conditions that could reasonably be expected to result in a material Encumbrance under any Environmental Law with respect to the ownership, occupancy, development, use or transferability of the Purchased Assets, ! l l-PH/363143.15 l l
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR $$ 2.790,9.17(a)(4) (h) there are not, at the Site (i) any underground storage tanks, active or abandoned, (ii) polychlorinated-biphenyl-containing equipment or (iii) asbestos-containing material, in any such case (i), (ii) or (iii) that requires removal or Remediation under applicable Environmental Law;. (i) there have been no environmental investigations, studies, audits, tests, reviews or other analyses conceming the Purchased Assets conducted by or on behalf of Seller, or which are in the possession of Seller, revealing any violation of applicable Environmental Law or any Release of Hazardous Substances that have not been made available to Buyer prior to execution of this ] Agreement; and (j) there are no pending claims by Seller against comprehensive general liability and excess insurance carriers for any Loss resulting from, relating to or arising from Environmental Claims. 4.11 I shor Mattars. Seller has previously delivered to Buyer a true, correct and complete copy of the IBEW Collective Bargaining Agreements, which are the only agreements with unionized j workers to which Seller is a party or is subject and which relates to the Purchased Assets. With respect to the ownership or operation of the Purchased Assets, to Seller's Knowledge, except to the extent set forth in Schedule 4.11 (which matters shall remain the sole responsibility of Seller): (a) Seller is in compliance in all material respects with all applicable laws respecting employment and employment practices, terms and conditions of employment and wages and hours; (b) Seller has not received notice of any unfair labor practice complaint pending before the National Labor Relations Board; (c) there is no labor strike, slowdown or stoppage actually pending or threatened by any authorized representative of any union or other representative of employees against or affecting Seller; (d) Seller has not received notice that any representation petition respecting the employees of Seller has been filed with the National Labor Relations Board; (e) no arbitration proceeding arising out of or under collective bargaining agreements is pending against Seller; and (f) Seller has not experienced any primary work stoppage since at least December 31,1995. 4.12 ERISA: Benefit Plann. (a) Schedule 4.12(a) lists all deferred compensation, profit-sharing, retirement and pension plans, and all material bonus and other employee benefit or fringe benefit plans, maintained or with respect to which contributions are made by Seller in respect of employees employed at the Purchased Assets (" Benefit Plans"). True, correct and complete copies of all such Benefit Plans have been made available to Buyer. 1-PH463143.15
O REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD (j FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (b) Except as set forth in Schedule 4.12(b), Seller and any ERISA Affiliates have fulfilled their respective obligations under the minimum funding requirements of Section 302 of ERISA and Section 412 of the Code with respect to each Benefit Plan which is an " employee pension benefit plan" as defined in Section 3(2) of ERISA and to which Section 302 of ERISA applies, and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Code. Except as set forth in Schedule 4.12(b), to Seller's Knowledge, neither Seller nor any ERISA Affiliate has incurred any liability under Sections 4062(b),4063 or 4064 of ERISA to the PBGC in connection with any Benefit Plan which is subject to Title IV of ERISA, nor any withdrawal liability to any multiemployer pension plan under Section 4201 et seq. of ERISA or to any multiemployer welfare benefit plan, nor is there or has there been any reportable event (as defined in Section 4043 of ERISA) with respect to any Benefit Plan except as set forth in Schedule 4.12(b). Except as set forth in Schedule 4.12(b), the IRS has issued a letter for each Benefit Plan which is intended to be qualified determining that such plan is exempt from federal Income Tax under Sections 401(a) and 501(a) of the Code, and, to Seller's Knowledge, there has been no occurrence since the date of any such determination letter (including, without limitation, statutory or regulatory changes to the requirements of Section 401(a) of the Code for which the q remedial amendment period has expired) which has or will have adversely affected such
'V qualification.
(c) Neither Seller nor any ERISA Affiliate or parent or successor corporation (within the meaning of Section 4069(b) of ERISA) has engaged in any transaction which may be disregarded under Section 4069 or Section 4212(c) of ERISA. Seller does not contribute to and has no liabilities or obligations under any multiemployer plan (within the meaning of Section 3(37) of ERISA). No Benefit Plan or ERISA Affiliate Plan is a multiemployer plan. (d) Seller has complied in all material respects with all reporting, disclosure, notice, election, coverage and other benefit requirements of Sections 4980B and 9801-9833 of the Code and Sections 601-734 of ERISA as and when applicable to any Benefit Plan. 4.13 Real Pronerty: Plant and Eauioment. (a) Schedule 4.13(a) contains a legal description of, and exhibits indicating the location of, the Real Property owned by Seller and included in the Purchased Assets. All Encumbrances on the Real Property (other than Permitted Encumbrances) shall be released on or before the Closing Date. Complete and correct copies of any current surveys in Seller's possession or any policies of title insurance currently in force and in the possession of Seller with respect to the Real Property have heretofore been delivered by Seller to Buyer. To Seller's knowledge, there are p no encroachments onto, overlaps, boundary line disputes or other similar matters with respect to the G owx:no.is 42
1 p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIlllELD
'd FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) !
I Real Property and no improvements included in the Real Property encroach upon any adjacent propedy or any casement or right-of-way. I (b) Schedule 4.13(b) contains a description of the major equipment components { and personal property comprising the Purchased Assets. 4.14 Condemnation: Public Imorovements. Except as set forth in Schedule 4.14, neither the whole nor any part of the Real Property or any other real property or rights leased, used or {l occupied by Seller in connection with the ownership or operation of the Purchased Assets is subject to any pending suit for condemnation or other taking by any Governmental Authority, and, to Seller's Knowledge, no such condemnation or other taking has been threatened. No assessment for public improvements has been served upon Seller with respect to the Real Property which remains unpaid, including, without limitation, those for construction of sewer, water, electric, gas or steam : lines and mains, streets, sidewalks and curbing. To Seller's Knowledge, there are no required public improvements with respect to the Real Propedy that have not been completed, assessed and paid for prior to the date hereof. O Q 4.15 Cenain Contracts and Arrangements. ' (a) Except (i) as listed in Schedule 4.15(a) or the other schedules to this Agreement (all such agreements being collectively referred to herein as the " Seller's Acreements") or (ii) for contracts, agreements, personal property leases, commitments, understandings or instruments in which all obligations of Seller will expire prior to the Closing Date, Seller is not a party to any written contract, agreement, personal property lease, commitment, understanding or instrument which is material to the ownership or operation of the Purchased Assets. (b) Except as disclosed in Schedule 4.15(b), each of Seller's Agreements (i) constitutes the legal, valid and binding obligation of Seller, and, to Seller's Knowledge, j constitutes the legal, valid and binding obligation of the other parties thereto, (ii) to Seller's { Knowledge, is in fill force and effect, and (iii) to Seller's Knowledge, may be transferred or j assigned to Buyer at the Closing without consent or approval of the other parties thereto, in each case without breaching the terms thereof or resulting in the forfeiture or impairment of any material rights thereunder. (c) Except as set forth in Schedule 4.15(c), there is not, to Seller's Knowledge, any default or event which, with notice or lapse of time or both, would constitute a default on the part of Seller or any of the other panies thereto, except such events of default and other events as to O ! N.] uwaum 43 l l 1
o f REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, create a Material Adverse Effect. 4.16 Legal Proceedings. etc. Except as set forth in Schedule 4.16 or in any filing made by Seller or any ofits Affiliates pursuant to the Securities Act, the Exchange Act, the Nuclear Waste, Policy Act or the~ Atomic Energy Act, there are no claims, actions, proceedings or investigations concerning the Purchased Assets pending or, to Seller's Knowledge, threatened against or relating to Seller before any Govemmental Authority or body which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 4.16 or
" in any filing made by Seller or any ofits Affiliates pursuant to the Securities Act, the Exchange Act, the Nuclear Waste Policy Act or the Atomic Energy Act, Seller is not subject to any outstanding judgment, rule, order, writ, injunction or decree of any Governmental Authority with respect to the Purchased ; sets which, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
'4.17 Permits: Comnliance with Law.
(a) . Seller has all material permits, licenses, franchises and other governmental authorizations, consents and approvals, other than with respect to permits under Environmental Laws referred to in Section 4.10 hereof or permits issued by the NRC referred to in Section 4.18 hereof (collectively, " Permits"), used in or necessary for the ownership and operation of the Purchased Assets as presently conducted. Except as set forth in Schedule 4.17(a), Seller has not received any { written notification that it is in violation of any such Permits, or any law, statute, order, rule,
- regulation, ordinance or judgment of any Governmental Authority applicable to the Purchased Assets, except for notifications of violations which would not, individually or in the aggregate, have a Material Adverse Effect. Except with respect to Environmental Laws referred to in Section 4.10 and NRC matters referred to in Section 4.18, Seller is in compliance with all Permits, laws, statutes, orders, rules, regulations, ordinances orjudgments of any Govemmental Authority applicable to the Purchased Assets, except for violations which would not, individually or in the aggregate, have a Material Adverse Effect.
(b) Schedule 4.17(b) sets forth all material Permits and Environmental Permits other than Transferable Permits (which are set forth in Schedule 1.l(156) applicable to the Purchased Assets. 1 i 4.18 NRC Licenses, o _ o
1 l REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD l FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (a) Seller has all material permits, licenses, and other consents and approvals issued by the NRC necessary to own and operate the Purchased Assets as presently operated, pursuant to the requirements of all Nuclear Laws. Except as set forth in Schedule 4.18(a), Seller has not received any written notification since the CPS shutdown in September 1996, that it is in violation of any such licenses, or any order, rule, regulation or decision of the NRC with respect to the Purchased Assets, except for notifications of violations which would not, individually or in the aggregate, have a Material Adverse Effect. Seller is in compliance with all Nuclear Laws and all orders, rules, regulations or decisions of the NRC applicable to Seller with respect to the Purchased Assets, except for violations which would not, individually or in the aggregate, have a Material Adverse Effect. (b) Schedule 4.18(b) sets forth all material permits, licenses, and other consents q and approvals issued by the NRC applicable to the Purchased Assets. i 4.19 Regulation as a Utility. Seller is an electric utility company within the meaning of the Holding Company Act, a public utility within the meaning of the Federal Power Act and an p electric utility within the meaning of the NRC regulations implementing the Atomic Energy Act. Q Except as set forth in Schedule 4.19 or with respect to local tax, zoning laws and municipal franchises, Seller is not, specifically as a result ofits ownership or operation of the Purchased Assets, subject to regulation as a public utility or public service company (or similar designation) by the United States, any state of the United States, any foreign country or any municipality or any political subdivision of the foregoing. 4.20 Taxes Except as set forth in Schedule 4.20, with respect to the Purchased Assets (a) all Tax Returns required to be filed have been filed and (b) all material Taxes shown to be due on such Tax Retums have been paid in full. Except as set forth in Schedule 4.20, no notice of deficiency or assessment has been received from any taxing authority with respect to liabilities for Taxes of Seller in respect of the Purchased Assets, which have not been fully paid or finally settled, and any such deficiency shown in such Schedule 4.20 is being contested in good faith through appropriate proceedings. Except as set forth in Schedule 4.20, there are no outstanding agreements or waivers extending the applicable statutory periods oflimitation for Taxes associated with the . Purchased Assets for any period. Schedule 4.20 sets forth the taxingjurisdictions in which Seller } owns assets or conducts business that require a notification to a taxing authority of the transactions contemplated by this Agreement, if the failure to make such notification, or obtain Tax clearances in connection therewith, would either require Buyer to withhold any portion of the Purchase Price i or would subject Buyer to any liability for any Taxes of Seller. ! l 3 (G \ manua 45
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD l O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 4.21 Year 2000 Compliance. Seller has made available to Buyer its Y2K Program Manual (the "Y2K Plan"), which complies in all material respects with the standards set forth in Nuclear Utility Year 2000 Readiness, NEI/NUSMG 97-07. Subject to the timely completion of the work described in the Y2K P!= end except as set forth in Schedule 4.21, all of the computer hardware, software and firmware products Oncluding embedded microcontrollers in non-computer equipment), interfaces with internal and extemal systems, and computer systems (including all constituent programs, processors, controllers, applications, routines, modules, processes, tools and other components) which are included in the Purchased Assets and are identified as " mission critical" in the Y2K Plan (collectively, the " Year 2000 Assets") will be Year 2000 Qualified. For purposes of this Agreement, " Year 2000 Oualified" means that all Year 2000 Assets are either " Year 2000 Compliant" or " Year 2000 Ready" as defined in NEI/NUSMG 97-07 and as restated below. Notwithstanding the foregoing definitions, an item required to be Year 2000 Qualified that does not satisfy the definition of Year 2000 Compliant shall only be considered Year 2000 Ready (and consequently Year 2000 Qualified) if(a) the item maintains its function as it crosses any key date even if there may be date errors or some form of compensatory action required to maintain valid functional operation; (b) a deficiency can be addressed by pre-defined manual action; and (c) the integration of all manual actions required are confirmed to be reasonably within the capability of the O facility resources and can be accomplished without any risk ofloss, damage or destruction to facility equipment or the operation of the Facilities or material loss of time. As used herein (and as defined in NEI/NUSMG 97-07)(x) the term "Ymr 2000 Compliant" means Year 2000 Assets that accurately process date/ time data (including, without limitation, calculating, comparing, and sequencing) from, into and between the twentieth and twenty-first centuries, the years 1999 and 2000, and leap years (including accurate leap-year calculations) and (y) the term " Year 2000 Readv" means a Year 2000 Asset that has been determined to be suitable for continued use into the year 2000 even though the Year 2000 Asset is not fully Year 2000 Compliant. For purposes of this Section 4.21, " key dates" include, without limitation, the following: 12/31/99, 1/1/00, 2/28/00, 2/29/00, 3/1/00, 12/31/00, 1/1/01,2/28/01,3/1/01,2/28/04,2/29/04 and 3/1/04. 4.22. Oualified Decommissioning Fund. I 4 4 4' O
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O - 1 EXCEPT FOR THE REPRESENTATIONS AND WAIUtANTIES SET FORTH IN l THIS ARTICLE IV, THE PURCHASED ASSETS ARE BEING SOLD AND TRANSFERRED i "AS IS, WHERE IS," AND SELLER IS NOT MAKING ANY OTHER REPRESENTATIONS OR WARRANTIES, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, CONCERNING SUCH PURCHASED ASSETS, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHER IMPLIED WARRANTY, ALL OF WHICH ARE HEREBY EXPRESSLY EXCLUDED AND DISCLAIMED. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller as follows: 5.1 Organization. Buyer is a limited liability company duly formed, validly existing md in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own, lease and operate its properties and to cany on its business as is now being i.mno.is 49
i A REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) ( l conducted. Buyer has h:retofore delivered to Seller complete and correct copies ofits Certificate of Formation and Operating Agreement (or other similar governing documents), as currently in effect. ' 5.2 Authority. Buyer has full orgamzational power and authority to execute and deliver this Agreement and the Ancillary Agreements and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the Ancillary Agreements ! and the consummation of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action required on the part of Buyer and no other corporate proceedings on the part of Buyer are necessary to authorize this Agreement and the Ancillary Agreements or to consummate the transactions contemplated hereby and thereby. This Agreement has been duly and validly executed and delivered by Buyer, and assuming that this Agreement constitutes a valid and binding agreement of Seller, and subject to the receipt of Buyer's Required Regulatory Approvals, constitutes a valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms. 5.3 Consents and Approvals: No Violation. (a) Except as set forth in Schedule 5.3(a), and subject to the receipt of Buyer's Required Regulatory Approvals, neither the execution and delivery by Buyer of this Agreement and the Ancillary Agreements nor the purchase by Buyer of the Purchased Assets pursuant to this Agreement will (i) conflict with or result in any breach of any provision of the Certificate of Formation or Operating Agreement (or other similar goveming documents) ofBuyer, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, (iii) result in a default (or give rise to any right of termination, cancellation or acceleration) under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, agreement, lease or other instrument or obligation to which Buyer is a party or by which , any ofits assets may be bound, except for such defaults (or rights of termination, cancellation or l l acceleration) as to which requisite waivers or consents have been obtained or which would not, individually or in the aggregate, have a material adverse effect on the ability of Buyer to perform its obligations hereunder (" Buyer Material Adverse Effect"), or (iv) violate any law, regulation, order, ; judgment or decree applicable to Buyer, which violations, individually or in the aggregate, would l create a Buyer Material Adverse Effect. ! 1 (b) Except as set forth in Schedule 5.3(b) (the filings and approvals referred to such Schedule are collectively referred to as the " Buyer's Required Reculatory Aoprovals"), no declaration, filing or registration with, or notice to, or authorization, consent or approval of any n v I PW363143,15 50 4
1 fm REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD h FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) l 1 Governmental Authority is necessary for the consummation by Buyer of the transactions contemplated hereby. 5.4 Availability of Funds. Buyer has sufficient funds available to it or has received binding written commitments from third parties to provide sufficient funds to enable Buyer on the Closing Date to (i) pay the Cash Purchase Price as adjusted by Section 3.3 on the Closing Date, (ii) satisfy NRC financial qualifications requirements contained in 10 C.F.R. @ 50.33(f), (iii) guarantee payment of deferred premiums of $10 million annually pursuant to 10 C.F.R. Q'140.21, and (iv) perform all ofits obligations under this Agreement and the Ancillary Agreements. 5.5 Legal Proceedines. There are no domestic or international actions, suits or proceedings pending against Buyer or its members before any court, arbitrator or Governmental Authority which, individually or in the aggregate, could have a Buyer Material Adverse Effect. Neither Buyer nor its members is subject to any outstanding judgments, rules, orders, writs, injunctions or decrees of any court, arbitrator or Govemmental Authority which, individually or in the aggregate, have a Buyer Material Adverse Effect. (A) 5.6 WARN Act. Buyer does not intend with respect to the Purchased Assets to engage in a " plant closing" or " mass layoff," as such terms are defined in the WARN Act within sixty (60) days after the Closing Date. 5.7 Regulation as a Utility. As of the date hereof, Buyer is a public utility company within the meaning of the Federal Power Act anj may be an electric utility within the meaning of NRC regulations implementing the Atomic Energy Act. Except as set forth on Schedule 5.7, or with respect to local tax and zoning laws, Buyer is not subject to regulation as a public utility or public services company by the United States, any State of the United States, any foreign country, or any municipality or any political subdivision of the foregoing. j l I 5.8 Oualified Buyer. To Buyer's Knowledge, nothing has come to Buyer's attention that would indicate that Buyer is not legally qualified, or will not be legally qualified as of the Closing Date, to obtain all Buyer's Required Regulatory Approvals in a timely manner. 5.9 Limited Liability Company Aereement. Buyer has delivered to Seller a true and l complete copy of the Limited Liability Company Agreement between PECO and British Energy, j Inc., and all amendments thereto in effect on the date of this Agreement. O 1 PH/363143.15
1 REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD 'd, m FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR Q 2.790,9.17(a)(4) r ARTICLE VI COVENANTS OF THE PARTIES 6.1 Conduct of Business Relatine to the Purchased Assets (a) Except as required by law, any Govemmental Authority or the Management Agreement, or as described in Schedule 6.1 or to the extent Buyer otherwise consents in writing, l during the period from the date of this Agreement to the Closing Date, Seller (i) shall operate the
)
Purchased Assets in the ordinary course consistent with Good Utility Practices, (ii) shall use j Commercially Reasonable Efforts to preserve intact the Purchased Assets and preserve the goodwill ' and relationships with customers, suppliers and others having business dealings with Seller with respect to the Purchased Assets, (iii) shall maintain the insurance coverage described in Section 4.9 or other insurance reasonably equivalent thereto, (iv) shall comply in all material respects with all applicable laws, rules and regulations relating to the Purchased Assets, including, without limitation, all Nuclear Laws and Environmental Laws, and (v) shall continue to implement in accordance with p Good Utility Practices and in conformity with all applicable legal requirements Seller's Y2K Plan. I V Without limiting the generality of the foregoing, and, except as contemplated in this Agreement l or the Management Agreement, or as described in Schedule 6.1, or as required under applicable law l or by any Governmental Authority, prior to the Closing Date, without the prior written consent of j Buyer, Seller will not with respect to the Purchased Assets- l l (i) make any material change in the levels of fuel inventory customarily maintained by Seller with respect to the Purchased Assets other than the scheduled November 1999 I fuel purchase; (ii) except for Permitted Encumbrances, sell, lease (as lessor), pledge, encumber, , restrict, transfer or otherwise dispose of, or grant any right with respect to, (A) any Real Property, or (B) any of the other Purchased Assets other than assets used, consumed or replaced in the operation of the Facilities in the ordinary course of business consistent with Good Utility Practices; (iii) modify, amend or voluntarily terminate prior to the expiration date thereof any of Seller's Agreements, and leases listed in Schedule 4.8 (or any other lease to the extent any such extension or amendment thereofwould require the lease to be disclosed in Schedule 4.8) or any material Permit or Environmental Permit or waive any default by, or release, settle or compromise any claim against, any other party thereto, other than (A) in the ordinary course of business, to the extent consistent with Good Utility Practices, (B) witi' cause, to the extent consistent with Good lO V mumus 52
p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD d FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) Utility Practices or (C) as may be required in connection with Seller's obligations to Buyer under this Agreement; I (iv) enter into any commitment for the purchase or sale of nuclear fuel having a ' term that extends beyond December 31,1999, or such other date that the Parties mutually agree to be the date on which the Closing is expected to occur; i (v) enter into any power sales agreement with respect to CPS that obligates or encumbers the Facilities for a term that extends beyond December 31,1999 (other than with respect . to the CPS switchyard so long as there is no impairment of Buyer's access to Seller's Transmission system), or such other date that the Parties mutually agree to be the date on which the Closing is expected to occur; provided, however, that Seller shall be entitled to enter into power sales agreements involving power to be purchased by Seller under the Power Purchase Agreement or terminable by Seller (or after the Closing Date by Buyer) on not more than ten (10) days notice without further liability, or that do not relate to the Purchased Assets; p (vi) amend in any material respect or cancel any liability or casualty insurance U/ policies related thereto, or fail to maintain the policies ofinsurance required by Section 4.9 or other insurance reasonably equivalent thereto with financially responsible insurance companies; (vii) enter into any commitment or contract for goods or services not addressed in clauses (i) through (vi) above that will be delivered or provided after December 31,1999 or such other date that the Parties mutually agree to be the date or, which the Closing is expected to occur that exceeds $250,000 in the aggregate, unless such comraitment or contract is terminable by Seller (or after the Closing Date by Buyer) without further liability, upon not more than sixty (60) days notice; (viii) except as required by the terms of the IBEW Collective Bargaining Agreements or regulatory requirements (A) other than consistent with past practice, increase salaries or wages of employees employed in connection with the Purchased Assets prior to Closing, (B) take any action prior to Closing to effect a material change in the IBEW Collective Bargaining Agreements or enter into any other collective bargaining or representation agreement for employees, or (C) take any action prior to the Closing to increase materially the aggregate benefits payable to employees; or (ix) enter into any agreement or settlement with any Governmental Authority relating to or regarding the tax status of the Purchased Assets for any taxable period ending after p December 31,1999; V 4 mamus 53
3 I I l A REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD V FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) (x) amend or modify Seller's Decommissionng Trust Agreement except as contemplated by this Agreement, provided, however, that Buyer's consent shall not be unreasonably withheld; or (xi) enter into any written or oral contract, agreement, commitment or arrangement with respect to any of the transactions set forth in the foregoing paragraphs (i) through (x). Notwithstanding the provisions ofthis Section 6.l(a), Buyer acknowledges and agrees that Seller shall not be responsible for any breach of this Section 6.l(a) if such breach directly arises out of or results from the performance of services, or any breach by, PECO under the Management Agreement. (b) A committee comprised of one or more senior representatives designated by Seller and one or more senior representatives designated by Buyer (the " Transition Committee") will be established as soon as practicable after the execution of this Agreement to permit Buyer to observe the operation of the Purchased Assets and to facilitate the transfer of the Purchased Assets em to Buyer at the Closing. The Transition Committee will be kept fully apprised by Seller of all U material CPS management and operating developments. The Transition Committee shall have regular access to the management and Nuclear Oversight Committee of the Board of Directors of Seller (including any management repons on CPS operations given to the Board). The Transition Committee shall be accountable directly to the respective chief executive officers of Buyer and Seller and shall from time to time report its findings to the senior management of each of Seller and Buyer. The Transition Committee shall have no authority to take any action inconsistent with Seller's control of NRC licensed activities or to enter into a legally binding agreement to bind Seller or Buyer. (c) Between the date of this Agreement and the Closing Date, in the interest of cooperation between Seller and Buyer and to pennit informed action by Buyer regarding its rights pursuant to Section 6.l(a), the Parties agree that at the sole responsibility and expense of Buyer, and subject to compliance with all applicable NRC rules and regulations and other applicable law, Seller will permit a reasonable number of designated employees (" Observers") of Buyer to observe all operations of Seller that relate to the Purchased Assets, and such observation will be permitted on a cooperative basis in the presence of personnel of Seller but not restricted to the normal business hours of Seller; provided, however, that such Observers shall abide by all NRC rules and regulations with respect to the Site and their actions shall not interfere with the operation of CPS. Buyer's Obsenrers may recommend or suggest actions be taken or not be taken by Seller; provided, however, that Seller will be under no obligation to follow any such recommendations or suggestions and Seller p shall be entitled, subject to this Agreement, to conduct its business in accordance with its own G mann 54
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR
,/ 2.790,9.17(a)(4) judgment and discretion. Buyer's Observers shall have no authority to bind or make agreements on ,
behalf of Seller; to conduct discussions with or make representations to third panies on behalf of Seller; or to issue instructions to or direct or exercise authority over Seller or any of Seller's officers, employees, advisors or agents. Buyer shall be responsible for any breach by Buyer's Observers of this Section 6.l(c). (d) Seller shall advise Buyer regarding implementation of changes in ICC rules or procedures of which Seller has Knowledge which are reasonably likely to have a Material ; Adverse Effect on CPS. (e) Nothing in this Section 6.1 is intended to amend or modify the respective duties, liabilities and obligations of the Parties under the Interim Agreement, the Management Agreement and Leased Employee Agreement. 6.2 Access to Information. p (a) In addition to the rights granted by Sections 6.1 (b), (c) and (d), between the Q date of this Agreement and the Closing Date, Seller will, during ordinary business hours and upon reasonable notice and subject to compliance with all applicable NRC rules and regulations and other applicable law (i) give Buyer and Buyer's Representatives reasonable access to all books, records, plants, offices and other facilities and properties constituting the Purchased Assets; (ii) make available copies of all insurance policies covering the Purchased Assets and the Assumed Liabilities and Obligations; (iii) furnish Buyer with such financial and operating data and other information with respect to the Purchased Assets as Buyer may from time to time reasonably request; and (iv) make available to Buyer a copy of each material repod, schedule or other document filed or received by Seller with respect to the Purchased Assets with the SEC, NRC, FERC, ICC or any other Governmental Authority having jurisdiction over the Purchased Assets; provided, however, that (A) any such inspection shall be conducted in such a manner as not to interfere unreasonably with the operation of the Purchased Assets, (B) Seller shall not be required to take any action which would constitute a waiver of the attomey-client privilege and (C) Seller need not supply Buyer with any information that Seller is legally prohibited from supplying. Seller will provide Buyer with I access to the Transferred Employee Records, but Seller shall not be required to provide access to other employee records or medical information unless required by law or specifically authorized by the affected employee. (b) Buyer and Seller acknowledge that all information fumished to or obtained by Buyer or Buyer's Representatives pursuant to this Section 6.2 shall be subject to the provisions O 2*acio.is 55
n REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD () FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) of the Confidentiality Agreement and shall be treated as " Proprietary Information"(as defined in the Confidentiality Agreement). (c) For a period of seven (7) years after the Closing Date and subject to all applicable NRC rules and regulations, each Party and its respective Representatives shall have reasonable access to (i) all of the books and records relating to the Purchased Assets, including all Transferred Employee Records or other personnel and medical records required by law, legal process or subpoena, in the possession of the other Party, and (ii) personnel employed by the other Party, in each case to the extent that such access may reasonably be required by the requesting Party in connection with the Assumed Liabilities and Obligations or the Excluded Liabilities, or other matters relating to or affected by the operation of the Purchased Assets, including, without limitation, compliance with applicable laws and regulations and any investigations, audits or inquiries by Governmental Authorities. Such access shall be afforded by the Party in possession of such books and records or employing such Persons upon receipt of reasonable advance notice and during normal business hours. The Party exercising this right of access shall be solely responsible for any costs or expenses incurred by the Parties pursuant to this Section 6.2(c). If the Party or Parties in possession of such books and records shall desire to dispose of any such books and records upon or prior to the (n,) expiration of such seven-year period, such Party or Parties shall, prior to such disposition, give the other Party a reasonable opportunity at such other Party's expense, to segregate and remove such books and records as such other Party may select. Notwithstanding the foregoing, the rights of access to medical records and other confidential employee records shall be subject to all applicable legal requirements. (d) Seller agrees (i) not to release any Person (other than Buyer) from any confidentiality agreement now existing with respect to the Purchased Assets, or waive or amend any provision thereof and (ii) at Closing, to assign any rights arising under any such confidentiality agreement (to the extent assignable) to Buyer. (e) Notwithstanding the terms of the Confidentiality Agreement and Section 6.2(b) above, the Parties agree that prior to the Closing Buyer may reveal or disclose Proprietary Information to any other Persons to the extent necessary in connection with Buyer's financing and risk management of the Purchased Assets, and, to the extent that Seller consents, which consent shall not be unreasonably withheld, to (i) existing and potential customers and suppliers, and (ii) to such Persons with whom Buyer expects it may have business dealings regarding the Purchased Assets from and after the Closing Date; provided, however, that all such Persons agree in writing to maintain the confidentiality of the Proprietary Information on substantially the same terms and conditions as the Confidentiality Agreement. The Parties further agree that prior to the Closing p Seller may reveal or disclose Proprietary Information to any other Persons in connection with V uwmms 56
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n REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIHELD h FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) l Seller's financing and risk management and business and financing matters involving Seller's parent, Illinova Corporation, and, to the extent that Buyer consents, which consent shall not be unreasonably withheld, with other Persons; provided, however, that all such Persons agree in writing to maintain i the confidentiality of the Proprietary Information on substantially the same terms and conditions as the Confidentiality Agreement. (f) Except as may be permitted in the Confidentiality Agreement, Interim Agreement, Management Agreement or Leased Employee Agreement, or during the course of Buyer's due diligence investigation of the Purchased Assets prior to the date hereof, Buyer agrees that, prior to the Closing Date, it will not contact any vendors, suppliers, employees or other contracting parties of Seller or Seller's Affiliates with respect to any aspect of the Purchased Assets or the transactions contemplated hereby, without the prior written consent of Seller, which consent j shall not be unreasonably withheld. l I (g) Upon the other Party's prior written approval (which approval shall not be unreasonably withheld or delayed) either Party may provide Proprietary Infonnation of the other Party to the SEC, NRC, FERC, ICC, IDNS, IPSC or any other Governmental Authority having ph jurisdiction over the Purchased Assets or any stock exchange, as may be necessary to obtain Seller's Required Regulatory Approvals or Buyer's Required Regulatory Approvals, respectively, or to comply generally with any relevant law, rule or regulation. The disclosing Party shall seek confidential treatment for the Proprietary Information provided to any such Governmental Authority and the disclosing Party shall notify the other Party as far in advance as practical ofits intention to release to any Governmental Authority any such Proprietary Information. 1 (h) Except as set forth in Section 6.2(e) or as required by law or Governmental Authority, or unless otherwise agreed to in writing by the Parties, the Parties shall keep (i) all Proprietary Information confidential and not disclose or reveal any Proprietary Information to any Person other than Representatives of the Parties who are actively and directly participating in the transactions contemplated hereby or who otherwise need to know the Proprietary Information for such purpose and to cause those Persons to observe the terms of this Section 6.2(h) and (ii) not to use Proprietary Information for any purpose other than consistent with the terms of this Agreement. The Parties shall continue to hold all Proprietary Information according to the same intemal security procedures and with the same degree of care regarding its secrecy and confidentiality as currently applicable thereto. Either Party shall notify the other Party of any unauthorized disclosure to third , parties that it discovers, and shall endeavor to prevent any further such disclosures. Seller shall be responsible for any breach of the terms of this Section 6.2(h) by Seller or Seller's Representatives. Buyer's obligations with respect to the confidentiality of Proprietary Information relating to the vwswus 57
rw REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD C FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4)
. Purchased Assets shall terminate on the Closing Date except as otherwise provided in the )
Confidentiality Agreement.
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After the Closing Date, in the event that Seller is requested pursuant to, or required by, applicable law or regulation or by legal process to disclose any Proprietary Information, Seller shall provide Buyer with prompt notice of such request or requirement in order to enable Buyer to seek an appropriate protective order or other remedy, to consult with Seller with respect to taking steps to resist or narrow the scope of such request or legal process, or to waive compliance, in whole j or in part, with the terms of this Section 6.2(h). Seller agrees not to oppose any action by Buyer to obtain a protective order or other appropriate remedy after the Closing Date. In the event that no i such protective order or other remedy is obtained, or that Buyer waives compliance with the terms of this Section 6.2(h), Seller shall furnish only that portion of the Proprietary Information which Seller is advised by counsel is legally required. In any such event Seller shall use its Commercially j Reasonable Efforts to ensure that all Proprietary Information that is so disclosed will be accorded { confidential treatment. r~ (i) The Parties agree that the Confidentiality Agreement will terminate in ( accordance with its terms, without further act or evidence by the Parties. 6.3 Expenses. Except to the extent specifically provided herein, whether or not the transactions contemplated hereby are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including the cost oflegal, technical and financial consultants and the cost of filing for and prosecuting applications for Required Regulatory Approvals, shall be borne by the Party incurring such costs and expenses. Notwithstanding anything to the contrary herein, Buyer and Seller will share equally the cost of all filing and other fees with respect to any NRC filings, and Buyer shall be responsible for all HSR filing fees, required to consummate the transactions contemplated hereby. 6.4 Further Assurances: Cooperation. l (a) Subject to the terms and conditions of this Agreement, each of the Parties hereto will use Commercially Reasonable Efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the sale of the Purchased Assets pursuant to this Agreement, including, without limitation, using Commercially Reasonable Efforts to ensure satisfaction of the conditions precedent to each Party's obligations hereunder. Neither of the Parties hereto will, without the prior written consent of the other Party or as required by applicable law, take or fail to p) c 1 PH/363143,15
(q / REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) take any action which would reasonably be expected to prevent or materially impede, interfere with or delay the transactions contemplated by this Agreement. (b) From time to time after the Closing Date, without fmther consideration, Seller will, at its own expense, execute and deliver such documents to Buyer as Buyer may reasonably request in order to more effectively consummate the sale and purchase of the Purchased Assets or to more effectively vest in Buyer good and marketable title to the Purchased Assets subject to the Permitted Encumbrances. Seller shall cooperate with Buyer, at Buyer's expense, in Buyer's efforts to cure or remove any Permitted Encumbrances that Buyer reasonably deems objectionable. From time to time after the Closing Date, without further consideration, Buyer will, at its own expense, : execute and deliver such documents to Seller as Seller may reasonably request in order to evidence l Buyer's assumption of the Assumed Liabilities and Obligations. (c) To the extent that Seller's rights under any Seller's Agreement to be transferred to Buyer hereunder may not be assigned without the consent of another Person which consent has not been obtained, this Agreement shall not constitute an agreement to assign the same p if an attempted assignment would constitute a breach thereof or be unlawful, and Seller, at its V expense, shall use Commercially Reasonable Efforts to obtain any such required consent (s) as promptly as possible. Seller and Buyer agree that if any consent to an assignment of any Seller's Agreement to be transferred hereunder shall not be obtained or if any attempted assignment would be ineffective or would impair Buyer's rights and obligations under the applicable Seller's ! Agreement so that Buyer would not in effect acquire the benefit of all such rights and obligations, Seller, to the maximum extent permitted by law and such Seller's Agreement, shall after the Closing appoint Buyer to be Seller's representative and agent with respect to such Seller's Agreement, and Seller shall, to the maximum extent permitted by law and such Seller's Agreement, enter into such l reasonable arrangements with Buyer as are necessary to provide Buyer with the benefits and ! obligations of such Seller's Agreement. Seller and Buyer shall cooperate and shall each use l Commercially Reasonable Efforts after the Closing to obtain an assignment of such Seller's Agreement to Buyer. (d) For a reasonable time after the Closing Date and in addition to the services ; contemplated by the IP Services Agreement, Buyer and Seller agree to provide services to each other j as reasonably required to the extent necessary to ensure the continuity of support for CPS and the j orderly completion of projects or other work in progress that would be adversely affected if those services were interrupted. Such support by one Party to the other will not be unreasonably withheld, provided that requests for such support are made in a timely manner. The Party providing the requested support will be reimbursed for all reasonable costs thereofin accordance with established ; r\ l V ' mmmus 59 i I
Il q REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR fl 2.790,9.17(a)(4)
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accounting procedures or on an altemative cost reimbursement basis as mutually agreed by the Parties.
' 6.5 Public Statements. From the date hereof until thirty (30) days after the Closing Date, the Parties shall not issue any public announcement, statement or other disclosure with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other Party, which consent will not be unreasonably withheld or delayed, except as may be required by law or Governmental Authority or the rules or regulations of the New York Stock Exchange, 6.6 Consents and Approvals.
(a) Seller and Buyer shall each file or cause to be filed with the Federal Trade' Commission and the Department ofJustice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. The Parties shall consult with each other as to the appropriate time of filing such I notifications and shall agree upon the timing of such filings, respond promptly to any requests for additional information made by either of such agencies, and cause the waiting periods under the HSR Act to terminate or expire at the earliest possible date after the date of filing. Each Party will bear O its own costs for the preparation of any such filing. (b) As promptly as practicable after the date of this Agreement and in any event by no later than 60 days after the receipt of any findings required to be made by any other Govemmental Authority as a condition to Buyer making the filings contemplated by this Agreement, Seller and Buyer shall (i) promptly prepare and file all necessary documentation, (ii) effect all necessary applications, notices, petitions and filings and execute all agreements and documents, (iii) use Commercially Reasonable Efforts to obtain the transfer or reissuance to Buyer of all necessary Permits, Environmental Permits, consents, approvals and authorizations of all Governmental Authorities, including, without limitation, Seller's Required Regulatory Approvals and Buyer's Required Regulatory Approvals, and (iv) use Commercially Reasonable Efforts to obtain all
- necessary consents, approvals and authorizations of all other parties necessary or advisable to consummate the transactions contemplated by this Agreement or required by the terms of any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instmment to which Seller or Buyer is a party or by which any of them is bound. The Parties shall respond promptly to any requests for additional information made by such Governmental Authorities, and use their respective Commercially Reasonable Efforts to cause regulatory approval to be obtained at the earliest possible date after the date of filing. Each Party will bear its own costs of the preparation of such filings. Each of Seller and Buyer shall have the right to review in advance all characterizations of the information relating to the transactions contemplated by this Agreement which appear in any filing made in connection with the transactions contemplated hereby.
'i w xu o.n 60
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (c) Seller and Buyer shall cooperate with each other and promptly prepare and file notifications with, and request Tax clearances from, state and local taxing authorities in jurisdictions in which a portion of the Purchase Price may be required to be withheld or in which Buyer would otherwise be liable for any Tax liabilities of Seller pursuant to such state and local Tax law. a / (e) Buyer shall have the primary responsibility for securing the transfer, O reissuance or procurement of the Permits and Environmental Permits (other than Transferable Permits) effective as of the Closing Date. Seller shall cooperate with Buyer's efforts in this regard and provide reasonable assistance in any transfer or reissuance of a Permit or Environmental Permit held by Seller or the procurement of any other Permit or Environmental Pennit when so requested by Buyer. (f) Within fifteen (15) days after the receipt of any Buyer's or Seller's Required Regulatory Approval, the Party receiving such approval (the "Receivine Party") shall notify the other Party in writing if the approval contains any condition that the Receiving Party determines could reasonably be expected to have a Material Adverse Effect on the Receiving Party or, in the case of Buyer, on the Purchased Assets; provided, however, that if the Receiving Party does not provide such notice to the other Party within the fifteen (15)-day period specified in this sentence, the Receiving Party shall be deemed to have accepted such Required Regulatory Approval, including any condition contained therein, and the condition to Closing set forth in Section 7.l(c) or Section 7.2(c), as applicable to such Party with respect to such Required Regulatory Approval, shall be deemed satisfied, except to the extent such Required Regulatory Approval is not then final and non-appealable. Within fifteen (15) days after receipt of any notice specified in the previous sentence, Seller and Buyer shall meet to consider what commercially reasonable efforts the Receiving Party intends to take in order to obtain the Required Regulatory Approval or to eliminate the materially ! adverse conditions. After the Receiving Party has completed such agreed upon commercially reasonable efforts with respect to the materially adverse condition contained in such Required om m us 61 l
r REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD [Qq FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR gg 2.790,9.17(a)(4)
)
I
; Regulatory Approval, within fifteen (15) days of such completion, the Receiving Party shall notify the other Party if the materially adverse condition has been eliminated or remains in effect, and whether the Receiving Party either will accept such materially adverse condition by a waiver of the .
applicable Closing condition in Section 7.l(c) or 7.2(c) with respect to such materially adverse I condition or deem that the applicable Closing condition in Section 7.l(c) or 7.2(c) cannot be satisfied due to the materially adverse condition in such Required Regulatory Approval. ] j i 6.7 Bmkerage Fees and Comminions. Seller and Buyer each represent and warrant to the other that no broker, finder or other Person is entitled to any brokerage fees, commissions or l finder's fees in connection with the transactions contemplated hereby by reason of any action taken j by the Party making such representation. Seller and Buyer will pay to the other or otherwise ( discharge, and will indemnify and hold the other harmless from and against, any and all claims or j liabilities for all brokerage fees, commissions and finder's fees incurred by reason of any action i taken by the indemnifying party. 6.8 Tax Matters. (a) All transfer and sales Taxes incurred in connection with this Agreement and the transactions contemplated hereby shall be bome equally by Buyer and Seller. Buyer will file, , to the extent required by applicable law, all necessary Tax Returns and other documentation with l respect to all such transfer or sales Taxes, and Seller will be entitled to review such returns in l advance and, if required by applicable law, willjoin in the execution of any such Tax Retums or l other documentation. Prior to the Closing Date, Buyer will provide to Seller, to the extent possible, an appropriate exemption certificate in connection with this Agreement and the transactions ; contemplated hereby, due from each applicable taxing authority. , (b) With respect to Taxes to be prorated in accordance with Section 3.5 of this l Agreement, Buyer shall prepare and timely file all Tax Retums required to be filed after the Closing with respect to the Purchased Assets,if any, and shall duly and timely pay all such Taxes shown to be due on such Tax Returns. Buyer's preparation of any such Tax Returns shall be subject to Seller's approval, which approval shall not be unreasonably withheld. Buyer shall make such Tax Retums available for Seller's review and approval no later than twenty (20) Business Days prior to the due date for filing such Tax Return. Not less than ten (10) Business Days prior to the due date of any such Tax Return, Seller shall pay to Buyer the amount shown as due on such Tax Return as determined in accordance with Section 3.5 of this Agreement or shall notify Buyer of any error on such retum. Buyer and Seller shall negotiate in good faith to resolve any disagreement. If Buyer and Seller are unable to agree to any such Tax Retum within five (5) Business Days following O v wwmus 62 L
f REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) Buyer's receipt of notification of an error from Seller, the Parties shall submit the dispute to the Independent Accounting Firm in accordance with the procedures set forth in Section 6.8(d)
'(c) Buyer and Seller shall provide the other Party with such assistance as may reasonably be requested by the other Party in connection with the preparation of any Tax Retum, any audit or other examination by any taxing authority, or any judicial or administrative proceedings relating to liability for Taxes, and each will retain and provide the requesting Party with any records or information which may be relevant to such retum, audit or examination, proceedings or determination. Any information obtained pursuant to this Section 6.8(c) or pursuant to any other Section hereof providing for the sharing ofinformation or review of any Tax Return or other schedule relating to Taxes shall be kept confidential by the Parties hereto.
(d) In the event that a dispute arises between Seller and Buyer as to the amount of Taxes,'or the amount of any allocation of Purchase Price under Section 3.4, the Parties shall attempt in good faith to resolve such dispute, and any amount so agreed upon shall be paid to the appropriate party. If such dispute is not resolved within thirty (30) days thereafter, the Parties shall submit the dispute to the Independent Accounting Firm for resolution, which resolution shall be v final, conclusive and binding on the Parties. Notwithstanding anything in this Agreement to the contrary, the fees and expenses of the Independent Accounting Firm in resolving the dispute shall be bome equally by Seller and Buyer. Any payment required to be made as a result of the resolution of the dispute by the Independent Accounting Firm shall be made within ten (10) days after such resolution, together with any interest determined by the Independent Accounting Firm to be appropriate. (e) On and after the Closing Date until the maturity or redemption date of the Pollution Control Bonds which were issued to finance or refinance all or a portion of the cost of the Pollution Control Facilities: (i) ' Except as otherwise pennitted in clauses (ii) and (iv) below, Buyer will not change or permit to be changed the character or nature of the use of those facilities listed in Schedule 6.8(e) hereto (the " Pollution Control Facilities") from the manner Seller has used such facilities prior to the sale of the Purchased Assets, unless such changed use would constitute a use or purpose of the Pollution Control Facilities (A) permitted under the tax compliance documents or the non-arbitrage certificates for the Pollution Control Bonds or (B) for which tax-exempt bonds have been issued pursuant to Treas. Peg. Q l.103-8(f) or (g) or its successor Income Tax regulations, unless Buyer has obtained at its own expense an opinion addressed to Seller of nationally recognized bond counsel reasonably acceptable to Seller (" Bond Counsel") that such use will not impair (x) the exclusion from gross income of the interest on any issue of Pollution Control Bonds for Federal a i=no.is 63
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) income tax purposes or (y) the deductibility of Seller's payments ofinterest based on the restrictions in Section 150(b)of the Code; , (ii) Buyer and any transferee which becomes subject to the provisions of the foregoing clause (i) by reason of this clause (ii) will not sell or otherwise transfer any portion of the Pollution Control Facilities unless (A) the transferee covenants to satisfy the conditions of the ' foregoing clause (i) with respect to its ownership and use of the Pollution Control Facilities or (B) the transfer relates to personal property; (iii) Buyer will cooperate with Seller and use Commercially Reasonable -{ Efforts to permit Seller to have access to the Pollution Control Facilities at reasonable times to " examine them; and (iv) The foregoing clause (i) shall not be construed to prevent Buyer (or - any transferee) from maintaining or repairing the Pollution Control Facilities, ceasing to operate, maintain or repair any element or item of the Pollution Control Facilities, suspending the operation of the Pollution Control Facilities on a temporary basis, or from terminating the operation of the
'O Pollution Control Facilities on a permanent basis and shutting down, retiring, abandoning and/or decommissioning the Pollution Control Facilities; provided, however, that if the Pollution Control Facilities, in whole or in part, are dismantled and sold (including any sale for scrap), and if the
. operation of the Purchased Assets has not been termmated, then, to the extent it is possible to do so, the proceeds of such sale of the Pollution Control Facilities shall within six months from the date of sale be expended to acquire replacement property to be used for the same qualifying purpose as the Pollution Control Facilities so sold. Seller shall notify Buyer when the Pollution Control Bonds have matured or been redeemed.
6.9 Advice of Changes. Prior to the Closing Date, each Party will promptly advise the other in writing with respect to any matter arising after execution of this Agreement which, if existing or occurring at the date of this Agreement, would have been required to be set forth in this Agreement, including any of the Schedules hereto. If Seller advises Buyer in writing of any change occurring after the date of this Agreement but prior to Closing that is material to any representation, warranty or covenant of Seller under this Agreement, Buyer shall have the right to terminate this ; Agreement pursuant to Section 9.1(e). IfBuyer fails to exercise its termination right, Seller's written q notice under this Section 6.9 will be deemed to have amended this Agreement, including the )
. appropriate schedule, or to have qualified the representations and warranties contained in Article IV.
- Seller shall be entitled to amend, substitute or otherwise modify any Seller's Agreement to the extent that such Seller's Agreement expires by its terms prior to the Closing Date or is terminable without liability to Buyer on or after the Closing Date, or if the terms and conditions of such modified 1 PH/363143.15
' REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD s FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) r Seller's Agreement constituting the Assumed Liabilities and Obligations are on terms and conditions not less favorable to Buyer than the original Seller's Agreement. Nothing contained herein shall relieve Seller or Buyer of any breach of representation, warranty or covenant under this Agreement existing as of the date hereof or any subsequent date as of which such representation, warranty or covenant shall have been made. '
l 6.10' Emnloyees. (a) Buyer will ofter employment, effective on the Closing Date, to all employees of Seller who are covered by the IBEW Collective Bargaining Agreements and are actively i employed as of the Closing Date m positions relating to the Purchased Assets (" Union Emnlovees"). (b) - (i) Buyer will ofter employment, effective on the Closing Date, to all CPS employees whose principal place of employment is located at the Purchased Assets who are not
' covered by the IBEW Collective Bargaining Agreements on the Closing Date, and who provide -
services in support of CPS, but excluding employees of Seller's Support Services Business Group, p and (ii) Buyer may offer employment to any other employee of Seller provided that Buyer obtains Q Seller's written consent prior to any such offer (collectively, the "Non-Union Emnlovees"). Subject to its obligations hereunder, Seller retains the right to transfer any ofits employees employed at CPS to any other Seller facility prior to the Closing Date; provided, however, that key employees critical to the operations of CPS, as determined by Buyer from time to time, shall be transferred only with the written consent of the Buyer. Each person who becomes employed by Buyer pursuant to Section 6.10(a) or (b) shall be referred to herein as a " Transferred Union Emnlovee" or " Transferred Non-Union Emnlovee", respectively, and collectively as " Transferred Emnlovees". (c) All offers of employment made by Buyer to any of Seller's employees will be made subject to the Parties' satisfaction that an employee is (i) qualified to perfomi the duties and responsibilities of their currentjob assignment with or without reasonable accommodation (or will be capable of doing so upon return fro:n authorized leave of absence), and (ii) has the appropriate nuclear power plant access authorization. All offers of employment shall be made in accordance with all applicable federal, state and local laws and regulations (including, without limitation, Section 16-128 of the Illinois Public Uti'ities Act) and, with respect to Union Employees, the IBEW Collective Bargaining Agreements. All such offers of employment will be made in accordance with Section 16-128 of the Illinois Public Utilities Act and will therefore be at no less than the wage rates, and substantially equivalent fringe benefits and terms and conditions of employment that are in effect at the time of transfer of ownership of the Purchased Assets; and such wage rates and ) I substantially equivalent fringe benefits and terms and conditions of employment shall continue for at least 30 months from the time of said transfer of ownership unless the parties mutually agree to owxnun 65
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD ( FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR $ 2.790,9.17(a)(4) different terms and conditions of employment within that 30-month period. Seller and Buyer shall cooperate in developing a transition plan (the " Transition Plan") for Union Employees and Non-Union Employees in accordance with Section 16-128 of the Illinois Public Utilities Act. Seller shall be responsible for implementing and funding the Transition Plan for all such Union Employees and Non-Union Employees who are not Transferred Employees. (d) Schedule 6.10(d) sets forth the collective bargaining agreements, and all amendments thereto, to which Seller is a party with the IBEW in connection with the Purchased Assets ("IBEW Collective Bargaining Aercements"). Unless specifically provided for herein, all Transferred Union Employees shall retain their seniority and receive full credit for service with the
. Seller for eligibility and vesting purposes with regard to Benefit Plans with Seller (including service with a Sponsor to the extent credited by Seller) in connection with entitlement to compensation, vacation, benefits and rights under the IBEW Collective Bargaining Agreements, and benefits and rights under each retirement or employee benefit plan or program Buyer is required to maintain for Transferred Union Employees pursuant to the IBEW Collective Bargaining Agreements. Buyer agrees to recognize the IBEW as the collective bargaining agent for the Transferred Union Employees.
(e) As of the Closing Date, all Transferred Employees shall commence participation in welfare benefit plans of Buyer or its Affiliates (the "Reolacement Welfare Plans") that will provide benefits or coverage substantially similar to the benefits or coverage provided to the Transfeired Employees under Seller's plans and programs in effect for the Transferred Employees immediately prior to the Closing Date. Buyer shall (i) waive all limitations as to pre-existing condition exclusions and waiting periods with respect to the Transferred Employees under the Replacement Welfare Plans, other than, but only to the extent of, limitations or waiting periods that were in effect with respect to such employees under the welfare benefit plans maintained by Seller and that have not been satisfied as of the Closing Date, and (ii) provide each Transferred j Employee with credit for any co-payments and deductibles paid prior to the Closing Date during a plan year under Seller's plan that has not ended as of the Closing Date, in satisfying any deductible or out-of-pocket requirements under the Replacement Welfare Plans (on a pro-rata basis in the event ; of a difference in plan years). (f) (i) Effective as of the Closing Date, Buyer shall, in accordance with Section { 16-128 of the Illinois Public Utilities Act, cause to be established defined benefit pension plans, ; 401(k) plans, post-retirement medical and life insurance, and other welfare benefit plans and fringe benefit plans for the benefit of the Transferred Employees (the " Buyer Benefit Plans"). The Buyer Benefit Plans shall have substantially the same terms as Seller's defined benefit plans,401(k) plans, post-retirement medical and life insurance, and other welfare benefit plans and fringe benefit plans i.wnnis 66
l REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) (the " Seller Benefit Plans") as of the Closing Date provided that no improvements are made after the date of this Agreement and prior to the Closing Date. (ii) The Transferred Employees shall be given credit in the Buyer Benefit Plans for all service with Seller as ifit were service with Buyer for purposes of determining eligibility for and . vesting of benefits under the Buyer Benefit Plans. (iii) Effective as of the Closing Date, Transferred Employees shall cease to actively participate in all Seller Benefit Plans. (iv) Following the Closing Date: (A) Transferred Employees' accrued benefits under Seller's defined 1 benefit pension plans shall be frozen and shall not be increased as the result of any service completed l or any compensation received. for employment with the Buyer after the Closing Date.
. Notwithstanding the preceding sentence, and only for purposes ofdetermining vesting and eligibility n . for early retirement subsidies under the Seller's defined benefit retirement plans, Seller shall V recognize the Transferred Employees' employment with the Buyer after the Closing Date as if such employment was with the Seller. Transferred Employees shall have a right to commence benefits in accordance with Seller's defined benefit plans; provided, however, any subsidies reflecting employment described in this subparagraph shall be paid only if the Transferred Employee terminates employment with the Buyer.
(B) Transferred Employees who, on or before the Closing Date, have satisfied the eligibility requirements for post-retirement health benefits and/or life insurance benefits under the plans maintained by the Seller shall remain eligible for post-retirement benefits pursuant to the terms of such plans. With respect to these Transferred Employees, Seller shall recognize employment with the Buyer after the Closing Date for purposes of determining the amount of such post-retirement benefits and the eligibility for commencement of such post-retirement benefits. (C) With respect to Transferred Employees who attain age 50 on or before the Closing Date, Seller shall recognize employment with the Buyer after the Closing Date for purposes of determining eligibility for post-retirement health and life insurance benefits under the post-retirement benefit plans maintained by the Seller. With respect to these Transferred Employees, Seller shall also recognize employment with the Buyer after the Closing Date for purposes of ~ determining the amount of such post-retirement benefits and the eligibility for 'j commencement of such post-retirement benefits.
- a l
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REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) (D) Buyer shall provide Seller with information regarding the employment status of Transferred Employees no less often than annually. Such data shall be sufficient to enable Seller to implement the provisions of this Section 6.10. (E) Nothing in this Section 6.10(f) shall limit Seller's ability to amend Seller's Benefit Plans after the Closing Date. (g) To the' extent allowable by law, and subject to Seller obtaining written agreement from the IBEW, Seller shall cause to be transferred assets representing ~the account balance of all Transfened Employees under the qualified defined contribution plans maintained by the Seller (the " Seller's Savings Plans"). In implementing this Section 6.10(g): (i) The transfer shall be made as soon as practicable following the Closing Date, in cash and cash equivalents, and shall be made to Buyer's tax-qualified 401(k) plans in which Transferred Employees participate after the Closing Date. q (ii) Buyer agrees that the assets so transferred may include prcmissory Q notes evidencing loans from the Seller's Savings Plans to Transferred Einployea that are outstanding as of the transfer date. However, except as provided in Section 6.10(d), any defined contribution plan of Buyer or its Affiliates accepting such a transfer shall not be required to make any further loans to Transferred Employees after the Closing Date.
.(iii) Buyer agrees that the assets so transferred may include shares of common stock of Seller or its Affiliates representing Transferred Employees' investment in such stock as of the Closing Date. Buyer agrees to maintain the availability to Transfened Employees of an investment in such stock for a period of at least 30 months from the Closing Date. During such period, no additional shares ofsuch stock will be purchased either pursuant to employee or employer contributions to the plan or pursuant to the reinvestment of dividends. However, Transferred Employees may transfer assets out of such stock fund pursuant to rules established under Buyer's tax-qualified 401(k) plan.
(h) Buyer shall establish severance plans (" Buyer's Severance Plans") which will provide (i) benefits to Transferred Union Employees no greater than those benefits provided to Selle'r 's Union Employees pursuant to the " Utility Agreement" dated May 9,1997, and (ii) benefits to Transferred Non-Union Employees no greater than those benefits provided to Seller's Non-Union Employees pursuant to the "Illinova Severance Policy for Nonunion Salaried Employees" dated January 1,1997. Seller shall reimburse Buyer, on no less than an annual basis, for the actual , q severance payments made to any Transferred Employee who is eligible for a benefit under Buyer's V wxmus 68 I l 1 J
I f REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR jj 2.790,9.17(a)(4) Severance Plans and who is terminated for reasons other than for cause or disability during the period beginning on the Closing Date and ending on the second anniversary thereof; provided,
- however, that if more than 25% of the total number of Transferred Employees are so terminated during such two-year period, Seller's liability shall be limited to the actual severance payments made j to the first 25% of the total number of Transferred Employees who are so terminated.
(i) Seller shall be responsible, with respect to the Purchased Assets, for j performing and discharging all requirements to be performed by Seller up to the Closing Date as set ) forth under the WARN Act and under applicable state and local laws and regulations. (j) Seller is responsible for extending COBRA continuation coverage to all employees and former employees at CPS, and qualified beneficiaries of such employees and former employees, who become or became entitled to such COBRA continuation coverage on or before the Closing Date by reason of the occurrence of a qualifying event on or before the Closing Date, including those for whom the Closing Date occurs during their COBRA election period. Buyer shall be responsible for providing COBRA continuation coverage only to Transferred Employees and i ' qualified beneficiaries of such employees who become entitled to such COBRA continuation O coverage on or after the Closing Date by reason of the occurrence of a qualifying event after the Closing Date. (k) Seller shall remain responsible for paying Transferred Employees: (i) all l salary and wages, and a pro rata portion of any bonuses and/or incentive compensation that were earned for time worked for Seller prior to the Closing Date; and (ii) all workers' compensation, disability benefits, or other insurance benefits that were accrued or for which entitlement to payment is based upon events occurring prior to the Closing Date, including any incurred but unreported claims under employee benefit plans maintained by Seller. Seller shall pay to Buyer as promptly as practicable following the Closing Date, but no later than the 45th day, the cash equivalent for all accrued and unused vacation time for Transferred Employees which has accrued as of the Closing Date. (1) Individuals who are otherwise " Union Employees" or "Non-Union ) Employees" but who are not actively at work on the Closing Date due to a leave of absence covered by the Family and Medical Leave Act, or due to any other authorized leave of absence, shall nevertheless be treated as " Union Employees" or as "Non-Union Employees," as the case may be, on such date if they are able (i) to return to work within the protected period under the Family Medical Leave Act or such other leave time, whichever is applicable, and (ii) to perform the essential functions of theirjob, with or without a reasonable accommodation. O 69 maanus
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p , REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD V FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR $% 2.790,9.17(a)(4) (m) All Transferred Employee Records shall be delivered promptly after the Closing Date to Buyer. 6.11 Rin of Loss. (a) Between the date hereof and the Closing Date, Buyer shall not bear any risk ofloss or damage to the property included in the Purchased Assets except to the extent arising out of or resulting from a material breach by PECO under Section 6.2 of the Management Agreement or directly resulting from conduct of a PECO employee that constitutes willful misconduct or gross negligence; provided, however, that conduct ofnon-Peco employees shall not be imputed to PECO for purposes of this Agreement. Seller shall replace or repair any damage to the Purchased Assets in accordance with Good Utility Practices, except as otherwise provided in the following sentence orin paragraphs (b) or(c) below. (b) If, before the Closing Date all or any portion ofthe Purchased Assets are taken by eminent domain or are the subject of a pending or (to the Knowledge of Seller) contemplated m taking which has not been consummated, Seller shall notify Tn.yer promptly in writing of such fact. If such taking would create a Material Adverse Effect, Buyer and Seller shall negotiate in good faith to settle the loss resulting from such taking (including, without limitation, by making a fair and equitable adjustment to the Purchase Price) and, upon such settlement, consummate the transactions contemplated by this Agreement pursuant to the terms of this Agreement. If no such settlement is reached within sixty (60) days after Seller has notified Buyer of such taking, then Buyer or Seller may terminate this Agreement pursuant to Section 9.1(g). I _(c) If, before the Closing Date all or any portion of the Purchased Assets are l I damaged or destroyed by fire or other casualty, Seller shall notify Buyer promptly in writing of such fact. If such damage or destruction would create a Material Adverse Effect and Seller has not notified Buyer ofits intention to cure such damage or destruction within fifteen (15) days after its occurrence, Buyer and Seller shall negotiate in good faith to settle the loss resulting from such casualty (including, without limitation, by making a fair and equitable adjustment to the Purchase Price) and, upon such settlement, consummate the transactions contemplated by this Agreement I pursuant to the terms of this Agreement. Ifno such settlement is reached within sixty (60) days after ! Seller has notified Buyer of such casualty, then Buyer may terminate this Agreement pursuant to Section 9.1(g). O 70 l maus
1 REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD i FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) ! l I 6.12 Decommissioning Funds. S O ~ n O F S i - O 71 texuc.is
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2 6.13 Soent Nuclear Fuel Fees. Between the date hereof and the Closing Date, and at all times thereafter, subject to the terms of the Interim Agreement and the Management Agreement, Seller will pay all Spent Nuclear Fuel Fees and any other fees associated with electricity generated at CPS and sold prior to the Closing Date, and Buyer shall have no liability or responsibility therefor. Buyer shall pay and discharge all fees and expenses associated with the nuclear fuel consumed in CPS and sold from and after the Closing Date, including Spent Nuclear Fuel Fees, calculated based upon electricity generated from such consumed nuclear fuel, as provided in Department of Energy regulations, and Seller shall have no liability or responsibility therefor. Buyer shall assume title to and responsibility for the storage and disposal of the spent nuclear fuel at the Site as of the Closing Date. Subject to Seller's rights to recover its investment in the Private Fuel Storage L.L.C. facility in Utah, Seller shall assign to Buyer the Department of Energy Standard Contract for Disposal of Spent Fuel and/or High Level Waste and shall provide the required notice to the Department of l Energy within ninety (90) days of transfer of title to spent fuel. l 6.14 Deoartment of Energy Decontamination and Decommissioning %. Seller will continue to pay all Department of Energy Decontamination and Decommissioning Fees relating to i=363as. is 77
.- . REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) nuclear fuel purchased and consumed at CPS prior to the Closing Date, including, without limitation, all annual Special Assessment invoices to be issued after the Closing Date by the Department of Energy, as contemplated by its regulations at 10 C.F.R. Part 766 implementing Sections 1801,1802 and 1803 of the Atomic Energy Act, relating to such nuclear fuel purchased and consumed prior to the Closing Date. 6.15 Coooeration Rehting to Insurance and Price-Anderson Act. Until the Closing, Seller will maintain in effect the same level of property damage and liability insurance for the Facilities as in effect on the date hereof, including, without limitation, those insurance policies described in Schedule 4.9 (unless substitute policies are obtained under Section 6.1). Buyer shall obtain prior to or on the Closing Date nuclear insurance and other insurance policies in accordance with Schedule 6.15 or as otherwise required by law. Seller shall reasonably cooperate with Buyer's efforts to obtain insurance, including insurance required under the Price-Anderson Act or other Nuclear Laws with respect to the Purchased Assets. In addition, Seller agrees to use reasonable efforts to assist Buyer in making any claims against pre-Closing insurance policies of Seller that may provide coverage related to Assumed Liabilities and Obligations. Buyer agrees that it will indemnify Seller for its reasonable out-of-pocket expenses incurred in providing such asistance and cooperation.
>O 6.16 Tax Clearance Certificates. Seller and Buyer shall cooperate and use their best efforts to cause the tax clearance certificates described in Schedule 4.20 of this Agreement to be issued by the appropriate taxing authorities prior to the Closing Date or as soon as practicable thereafter.
6.17 Remediation. Buyer has previously completed its Phase I and Phase II environmental site assessments at the Site and has identified those Environmental Conditions at the Site set forth on Schedule 6.17. Buyer will not conduct any additional environmental site assessments unless Buyer becomes aware of any Environmental Condition at the Site that is reasonably likely to give rise to an Environmental Claim or Remediation activity that would result in a liability or obligation in excess of $250,000 or unless otherwise required by law. Buyer agrees to share with Seller all ccports, analyses, and other documents produced or prepared by Buyer, its Affiliates or Buyer's environmental consultants with respect to Buyer's environmental due diligence at the Site. Seller
- hereby agrees to perform the type and scope of Rememtion set forth on Schedule 6.17 in accordance with applicable Environmental Law. Seller s) A use Commercially Reasonable Efforts to complete any such Remediation work prior to the Closing Date to the extent such Remediation work is capable of being performed prior to the Closing Date. With respect to any Remediation work, or portion thereof, which reasonably cannot be completed prior to the Closing Date, Seller may elect to complete such work or permit Buyer to complete such Remediation and Seller shall indemnify Buyer for all reasonable costs thereof. However, Seller shall not be required to perform or indemnify Buyer for any Remediation (1) which is required as a result of any use of or operations ownua 78
q REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) at the Site other than such use and operations as they existed on or prior to the Closing Date (including, without limitation, any improvement or expansion of the current operations or other construction, demolition or excavation activities at the Site), or (2) which arises from acts of Buyer or its employees, agents or independent contractors after the Closing Date. To the extent allowed under Environmental Law, the Remediation measures under this Section 6.17 may include reasonable land use controls, as appropriate, to the extent that such controls do not unreasonably ! interfere with the use or opere'on of the Purchased Assets after the Closing Date. Between the date ! hereof and the Closing Date, Seller shall have exclusive authority over the performance of the Remediation set forth on Schedule 6.17, and except as otherwise required by Environmental Law, i Buyer shall not initiate or permit any communication, orally or in writing, with any Governmental Authority regarding such Remediation without the prior written consent of Seller. With respect to j any Remediation to be performed by Seller after the Closing Date, Buyer will grant to Seller and j its contractors an appropriate license to enter the Site at reasonable times and perform the Remediation work, provided that Seller and its contractors shall comply with all rules and regulations of Buyer and any Govemmental Authority with respect to the Site and shall not unreasonably interfere with the operations of Buyer at the Site. 6.18 NRC License Tramfer Requirements. Buyer will accept conditions in an NRC license transfer order that approves transfer of the CPS license to Buyer that are reasonable, appropriate and similar in scope to the requirements imposed on Buyer by that certain NRC Order Approving Transfer ofLicense and Conforming Amendment, and the associated Safety Evaluation Report, dated April 12,1999, with respect to the transfer of the NRC license ~ for the Three Mile Island Unit I nuclear plant from GPU Nuclear, Inc. to Buyer. 6.19 Meterine. The Parties have heretofore engaged a consultant (the " Metering Consultant") to examine the Facilities and related infrastructure for the purpose of providing two estimates for de cost of acquiring and installing " Revenue Grade Metering" (as defined in Amendment No 3 to the Management Agreement) at the metering points and in accordance with the proposal sn forth in Amendment No. 3 to the Management Agreement, with one (1) estimate being the cost of acquiring and installing Revenue Grade Metering on the " low side" of the main power transformer located in the CPS switchyard (the " Low Side Estimate") and the other estimate being the cost of acquiring and installing Revenue Grade Metering on the "high side" of the main power transformer located in the CPS switchyard (the "High Side Estimate"). The Parties agree to share equally the fees and expenses of the Metering Consultant and to install Revenue Grade Metering on the "high side" of the main power transformer as proposed in the High Side Estimate. Buyer and Seller shall share equally all acquisition and installation costs equal to the Low Side Estimate; Seller agrees to pay the next of construction costs, and the Parties agree to share n equally any amount above such . V vw m us 79
p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD : V FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR ll 2.790,9.17(a)(4) 6.20- Riuht to Particioate in Electric Generatine Projects. (a) For a period of ten (10) years following the Closing Date (the " Restricted Period"), Buyer hereby grants to Seller (i) the first right and option to participate with Buyer equally in any non-CPS electric generating facilities or projects to be constructed or developed at the Site for the generation of electric energy to be transmitted to customers or users off-Site (each, a
" Generating Project") and (ii) a right of first refusal to provide any transmission services with respect to any Generating Project. For purposes of detennining what constitutes equal participation in a Generating Project, the value of any land, facilities or other property contributed by Buyer to the Generating Project which were included in the Purchased Assets shall be deemed to be zero. Buyer shall promptly notify Seller in writing if during the Restricted Period Buyer decides to proceed with a Generating Project or enters into discussions with a third party concerning a Generating Project (including, without limitation, financial costs and projections). Within ninety (90) days following receipt ofwritten notice from Buyer, Seller shall notify Buyer whether or not it desires to participate in the Generating Project; provided, however, if Seller requires more information concerning the Generating Project and such information is reasonably available to or can be reasonably generated by Buyer in order to evaluate participation in the Project, then Seller shall request such information Oi in writing, and Seller shall have until the later of(i) thirty (30) days following receipt of such additional information, or (ii) expiration of the original ninety (90) day period to notify Buyer whether it desires to participate in the Generating Project. Buyer shall notify Seller at least five (5)
Business Days in advance of any meetings with third parties concerning the Generating Project which are to be held either during any of Seller's evaluation periods or after Seller has notified Buyer ofits intent to participate in the Generating Project, and Seller shall have the right to participate in any such meetings. Following Seller's notification of Buyer that Seller intends to participate in a Generating Project, Seller and Buyer shall promptly document theirjoint participation, seek to obtain all necessary approvals by Governmental Authorities and agree on schedule, budget and management responsibilities for the Generating Project. Seller's participation in any Generating Project may be through Seller or any ofits Affiliates, and all instruments or agreements documenting the Generating Project (and the Parties' respective rights and obligations with respect to the Project) shall be reasonably acceptable to Buyer and Seller.
-(b) (i) Subject to the exceptions set forth in subsection (ii) of this Section 6.20(b), Buyer agrees that during the Restricted Period, it will not sell, transfer, lease or license to a third party any of the Real Property transferred to Buyer hereunder or enter into any discussions with respect thereto (a " Transfer") without first offering such Real Property to Seller. In the event Buyer decides to Transfer any such Real Property, Buyer will promptly notify Seller of such fact, and Seller shall have the exclusive right to negotiate with Buyer concerning the Transfer of such !
Real Property for a period of sixty (60) days (the " Exclusive Negotiation Period"). If Buyer and mumus 80 l
p 1 l p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR ff 2.790,9.17(a)(4) Seller are unable to agree on the terms of the Transfer of such Real Property to Seller during the Exclusive Negotiation Period, or in the event Seller notifies Buyer in writing that it does not desire
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to Transfer such Real Property prior to expiration of the Exclusive Negotiation Period, Buyer may i offer such Real Property to third parties. If Buyer thereafter receives an offer from a third party with l respect to such Real Propeny (a " Third Party Offer"), Buyer shall promptly notify Seller in writing (setting forth the terms and condition of the Third Party Offer) and Seller shall have the right and option (exercisable by delivery of written notice to Buyer witidn the third (30) day period following 1 Seller's receipt of written notice of the Third Party Offer) to buy or lease such Real Property on the same terms and conditions set forth in the Third Pany Offer. If Seller does not notify Buyer that it { desires to buy or lease such Real Propeny within such thirty (30) day period, Buyer may Transfer such Real Property to the third party (but only upon the terms and conditions set forth in the Third Party Offer) within one hundred eighty (180) days following the earlier of Seller's notification that it does not desire to buy or lease such Real Property or expiration of the thiny (30) day period. If Buyer fails to Transfer such Real Property to the third pany within such one hundred eighty (180) day period, such Real Property shall agrM be subject to the terms and condition of this Section 6.20. The covenants of Buyer set forth in thi.s Section 6.20(b) shall be covenants running with the land and q shall be included in and/or recorded with the special warranty deed with respect to the Real Property Q to be delivered to Buyer at Closing. (ii) The requirements of Section 6.20(b)(i) shall not apply to any of the following Transfers during the Restricted Period: (A) Any Transfer to an Affiliate of Buyer which agrees in the Transfer documents for the benefit of Seller to be bound in the same manner and degree as Buyer to the provisions of this Section 6.20; (B) Any lease respecting the Real Property existing at the time of Closing and constituting a portion of the Assumed Liabilities and Obligations, but no extensions or modificat.ons thereof unless such extensions or modifications specifically contain for the benefit of Seller restrictive covenants consistent with this Section 6.20; or (C) Any Transfer of the Real Property to a third party in an arms-length transaction in which the buyer or lessee agre:s not to use, directly or indirectly, such Real Property during the Restricted Period for the construction, operation, or use of any electric generating facility or equipment that produces, individually or in the aggregate, more than IMW of electricity for consumption by customers or users off-Site. O wa6ma 81 l
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 6 k . 6.22 Personal Property Insurance. Buyer (on behalf ofitself and its Affiliates) agrees to (i) request its insurers to include Seller's Transmission Assets, Excluded Other Assets, and other items of tangible personal property owned by Seller at the Site under Buyer's insurance policies after the Closing Date and to name Seller as an additional insured thereunder, and (ii) waive any right of recovery against Seller for" accidental property damage"(as defmed in the NEIL policies); provided, O however, that Buyer shall provide Seller with quotes from its insurers regarding any incremental premium or other costs related to including Seller's assets under such policies, including, without limitation, any deductible, retention or similar costs, and Buyer shall obtain Seller's approval before incurring any such incremental premiums or other costs on Seller's behalf. ARTICLE VII l CONDITIONS 7.1 Conditions to Oblications of Buyer. The obligations of Buyer to purchase the Purchased Assets and to consummate the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver in writing by Buyer) of the following conditions: (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated; (b) No preliminary or permanent injunction or other order or decree by any federal or state court or Governmental Authority which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to cooperate in all efforts to have any such injunction, order or decree lifted) and no statute, _ 82
r REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR ff 2.790,9.17(a)(4) rule or regulation shall have been enacted by any state or federal government or Governmental Authority which prohibits the consummation of the sale of the Purchased Assets; (c) Buyer shall have received all of Buyer's Required Regulatory Approvals, which approvals shall contain no condition which could reasonably be expected to have a material adverse effect on the Purchased Assets or Buyer, and such approvals shall be final and non-appealable; (d) Seller shall have performed and complied in all material respects with the covenants and agreements contained in this Agreement which are required to be performed and complied with by Seller on or prior to the Closing Date; (e) The representations and warranties of Seller set forth in this Agreement that are qualified by materiality shall be tme and correct as of the Closing Date and all other representations and warranties shall be true and correct in all material respects as of the Closing Date, in er.ch case as though made at and as of the Closing Date; O V (f) Buyer shall have received certificates from an authorized officer of Seller, dated the Closing Date, to the effect that, to such officer's Knowledge, the conditions set forth in Sections 7.1(d), (e), (j), (1), (m), (n), (p), (t) and (u) have been satisfied by Seller; (g) Buyer shall have received an opinion as to the matters contained in Exhibit J hereto from Seller's counsel (which, execpt as to regulatory matters, may be delivered by Seller's general counsel), dated the Closing Date and reasonably satisfactory in form and substance to Buyer and its counsel; (h) Seller shall have delivered, or caused to be delivered, to Buyer at the Closing, Seller's closing deliveries described in Section 3.6; (i) Buyer shall have received from a title insurance company reasonably acceptable to Buyer ALTA owner's title insurance policies on the Real Property, in form and substance reasonably satisfactory (including no materially adverse conditions) to Buyer and containing affirmative insurance as Buyer may reasonably request with respect to the Permitted Encumbrances and Real Property Agreements, insuring title as described in Section 4.7, subject only to the Permitted Encumbrances. Buyer shall provide Seller with a copy of a preliminary title report and an updated survey for the Real Property to the extent obtained by Buyer; O m e us 83 j l l 1
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4) (j) Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing; (k)- The IRS rulings or opinions of counsel applicable to Buyer as provided in Section 6.12 shall have been received; (1) Seller shall have filed, or cause to be filed, in the land records of Dewitt County, a restrictive covenant, in form and substance reasonably satisfactory to Buyer, prohibiting the use of the Excluded Parcels for a term ofnot less than 25 years for any purpose related to electric
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generation of more than 1 MW of electricity for consumption by customers or users off-Site; i (m) Seller shall have completed in accordance with Good Utility Practices and in conformity with all applicable legal requirements all material work required to be accomplished by the Closing Date under Seller's Y2K Plan; (n) All Low Level Waste that has been generated in the operations of the Facilities more than 60 days prior to the Closing Date shall have been shipped off-Site by Seller for permanent disposal in accordance with all applicable legal requirements, and all Low Level Waste generated in the operations of the Facilities prior to the Closing Date shall have been properly bagged, tagged, packaged and/or stored by Seller at the Facilities in accordance with Good Utility Practice for handling Low Level Waste; (o) The lien of the Mortgage Indenture on the Purchased Assets shall have been released and any documents necessary to evidence such release shall have been delivered to the title company; (p) All consents and approvals for the consummation of the sale of the Purchased Assets contemplated hereby required under the terms of any note, bond, mortgage, indenture, material agreement or other instrument or obligation to which Seller is a party or by which Seller, or any of the Purchased Assets, may be bound, shall have been obtained, other than those which if not obtained, would not, individually and in the aggregate, create a Material Adverse Effect; (q) Buyer and Seller shall have agreed to the terms and conditions of the Easement Agreement, the Environmental Laboratory Lease, the Emergency Off-Site Facilities Lease and the Electric Service Agreement; Buyer shall be reasonably satisfied with the scope and amounts to be charged by Seller under the IP Service Agreement (other than information technology charges described in Exhibit F)! Seller shall have entered into each of the Ancillary Agreements; and the Ancillary Agreements shall be in full force and effect; innnis 84
p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD d FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR ll 2.790,9.17(a)(4) (r) The Total FMV of the Decommissioning Funds shall be as set forth in Section 6.12; (s) Buyer shall not have become aware of any Environmental Condition at the Site (other than those described in Schedules 4.10 or 6.17) that is reasonably likely to give rise to an Environmental Claim or Remediation activity that would result in a liability or obligation in excess of $250,000, unless Seller has agreed to indemnify Buyer for any liability or obligation in , excess ofsuch amount; l l (t) Seller shall have completed all Remediation required under Section 6.17, or, attematively, shall indemnify Buyer for any and all such Remediation costs to be incurred after the Closing Date; and (u) Seller shall not be in default of any ofits material obligations under the ! Management Agreement. r 7.2 Conditions to Obligations of Seller. The obligations of Seller to sell the Purchased { ( Assets and to consummate the other transactions contemplated by this Agreement shall be subject to the fulfillment at or prior to the Closing Date (or the waiver in writing by Seller) of the following conditions: ' (a) The waiting period under the HSR Act applicable to the consummation of the sale of the Purchased Assets contemplated hereby shall have expired or been terminated; (b) No preliminary or permanent injunction or other order or decree by any l federal or state court or Governmental Authority which prevents the consummation of the sale of the Purchased Assets contemplated herein shall have been issued and remain in effect (each Party agreeing to use its best efforts to have any such injunction, order or decree lifted) and no statute, rde or regulation shall have been enacted by any state or federal government or Govemmental Authority in the United States which prohibits the consummation of the sale of the Purchased Assets; (c) Seller shall have received all of Seller's Required Regulatory Approvals, which approvals shall contain no condition which could reasonably be expected to have a material adverse effect on Seller, and such approvals shall be final and non-appealable; (d) Buyer shall have performed and complied with in all material respects the covenants and agreements contained in this Agreement which are required to be performed and complied with by Buyer on or prior to the Closing Date; Q,G smuwus 85
p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (e) The representations and warranties of Buyer set forth in this Agreement that are qualified by materiality shall be true and correct as of the Closing Date and all other representations and warranties shall be true and correct in all material respects as of the Closing Date, in each case as though made at and as of the Closing Date; (f) Seller shall have received a certificate from an authorized officer of Buyer, dated the Closing Date, to the effect that the conditions set forth in Sections 7.2(d) and (e) have been satisfied by Buyer; (g) Effective upon Closing, Buyer shall have assumed, as set forth in Section 6.10, all of the applicable obligations under the IBEW Collective Bargaining Agreements as they relate to Transferred Union Employees; (h) Seller shall have received an opinion as to the matters set forth on Exhibit K hereto from Buyer's counsel (which, except as to regulatory matters, may be delivered by Buyer's general counsel), dated the Closing Date and reasonably satisfactory to Seller and its counsel; (/ (i) Buyer shall have delivered, or caused to be delivered, to Seller at the Closing, Buyer's closing deliveries described in Section 3.7; (j) Buyer and Seller shall agreed to the terms and conditions of the Easement Agreement, the Environmental Laboratory Lease, the Emergency Off-Site Facilities Lease and the Electric Service Agreement; Seller shall be reasonably satisfied with the amounts to be paid by Buyer under the IP Service Agreement (other than information technology charges described in Exhibit F); Buyer shall have entered into each of the Ancillary Agreements, and the Ancillary Agreements shall be in full force and effect; (k) Since the date of this Agreement, no Material Adverse Effect shall have occurred and be continuing; (1) The IRS rulings or opinions of counsel applicable to Seller as provided in Section 6.12 shall have been received; (m) The lien of the Mortgage Indenture on the Purchased Assets shall have been released and any documents necessary to evidence such release shall have been delivered to the title company; and owxmus 86
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (n) Each of PECO and British Energy plc shall have executed and delivered the financial assurance letters set forth in Exhibits L and M, respectively; and (o) PECO shall not be in default of any ofits material obligations under the Management Agreement. ARTICLE VIII INDEMNIFICATION 8.1 Indemnification. (a) Buyer shall indemnify, defend and hold harmless Seller, its Affiliates, and their respective officers, directors, employees, shareholders, and agents (each, a " Seller Indemnitee") frorn and against any and all claims, demands, suits, losses, liabilities, damages, obligations, payments, costs and expenses (including, without limitation, the costs and expenses of any and all
; actions, suits, proceedings, assessments, judgments, settlements and compromises relating thereto l and reasonable attorneys' fees and reasonable disbursements in connection therewith) (each, an "Indemnifiable Loss"), asserted against or suffered by any Seller Indemnitee relating to, resulting from or arising out of(i) any breach by Buyer of any representations, warranties or covenants contained in this Agreement, (ii) the Assumed Liabilities and Obligations, (iii) any Inspection, or the use by Buyer of the non-exclusive license granted under Section 2.l(1), (iv) any Third Party Claims against a Seller Indemnitee arising out of or in connection with Buyer's ownership or operation of CPS and other Purchased Assets on or after the Closing Date, (b) Seller shall indemnify, defend and hold harmless Buyer, its officers, directors, members, employees, shareholders, Affiliates and agents (each, a " Buyer Indemnitee") from and 1 I
against any and all Indemnifiable Losses asserted against or suffered by any Buyer Indemnitee relating to, resulting from or arising out of(i) any breach by Seller of any representations, warranties or covenants contained in this Agreement, (ii) the Excluded Liabilities, (iii) noncompliance by Seller with any bulk sales or transfer laws as provided in Section 10.11, (iv) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Seller's ownership or operation of the j Purchased Assets on or prior to the Closing Date, except for Assumed Liabilities and Obligations, ! p (v) any Third Party Claims against a Buyer Indemnitee arising out of or in connection with Seller's j V ! i.-mus 87 1 l
1 REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR Q 2.790,9.17(a)(4) ownership or operation of the Excluded Assets, (vi) all Taxes incurred by reason of any act of Seller that either constitutes an act of"self-dealing" as defined in Treas. Reg. Q l.468A-5(b)(2) or results in the disqualification of the Qualified Decommissioning Fund under Treas. Reg. Q 1.468A-5 (except as otherwise contemplated icy Section 6.12), or (vii) any claims or attachments of Seller or any creditor of Seller against Ge Decommissioning Funds after the Closing Date. (c) Notwithstanding anything to the contrary contained herein: (i) Any Person entitled to receive indemnification under this Agreement (an " Indemnitee") shall use Commercially Reasonable Efforts to mitigate all losses, damages, and the like relating to a claim under these indemnification provisions, including availing itself of any defenses, limitations, rights of contribution, claims against third Persons and other rights at law or equity. The Indemnitee's Commercially Reasonable Efforts shall include the reasonable expenditure of money to mitigate or otherwise reduce or eliminate any loss or expenses for which indemnification would otherwise be due, and the Indemnitee shall advise Indemnitor promptly of such expenditure (or provide Indemnitor with the opportunity to pay such expenditures directly). The Indemnitor shall promptly reimburse Indemnitee for the Indemnitee's reasonable expenditures O in undertaking the mitigation (together with interest thereon from the date of payment thereof to the date of repayment at the " prime rate" as published in The Wall Street Journal). (ii) Any Indemnifiable Loss shall be net of(i) the dollar amount of any insurance or other proceeds actually received by the Indemnitee or any ofits Affiliates with respect to the Indemnifiable Loss, and (ii) Income Tax benefits to the Indemnitee to the extent realized by the Indemnitee, but such net amount shall be increased to give effect to the Income Taxes attributable to the receipt of any indemnification payment hereunder. Any Party seeking indemnification hereunder shall use best efforts to make claims (including both cost of defense and indemnity) under applicable insurance policies with respect to any such Indemnifiable Loss. l l s (d) The expiration or tennination ofany representation or warranty shall not affect the Parties' obligations under this Section 8.1 if the Indemnitee provided the Person required to vnumus 88
I o REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD U FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR Q 2.790,9.17(a)(4) provide indemnification under this Agreement (the " Indemnifying Party") with proper notice of the claim or event for which indemnification is sought prior to such expiration, termination or extinguishment. (e) Except to the extent otherwise provided in Anicle IX, the rights and remedies of Seller and Buyer under this Article VIII are exclusive and in lieu of any and all other rights and remedies which Seller and Buyer may have under this Agreement or otherwise for monetary relief, with respect to (i) any breach of or failure to perform any covenant, agreement, or representation or warranty set forth in this Agreement, after the occunence of the Closing, or (ii) the Assumed r.,iabilities and Obligations or the Excluded Liabilities, as the case may be. The indemnification obligations of the Parties set forth in this Article VIII apply only to matters arising out of this Agreement, excluding the Ancillary Agreements. Any Indemnifiable Loss arising under or pursuant to an Ancillary Agreement shall be govemed by the indemnification obligations, if any, contained in the Ancillary Agreement under which the Indemnifiable Loss arises. (f) Notwithstanding anythi?g to the contrary herein, no Party (including an (p) Indemnitee) shall be entitled to recover from the other Party (including an Indemnifying Party) for any liabilities, damages, obligations, payments, losses, costs or expenses under this Agreement any amount in excess of the actual compensatory damages, court costs and reasonable attomey's and other advisor fees suffered by such Party. Buyer and Seller waive any right to recover punitive, incidental, special, exemplary and consequential damages arising in connection with or with respect to this Agreement. The provisions of this Section 8.l(f) shall not apply to indemnification for a Third Party Claim. 8.2 Defense of Claims. I (a) If any Indemnitee receives notice of the assertion of any claim or of the commencement of any claim, action or proceeding made or brought by any Person who is not a Pany to this Agreement or any Affiliate of a Party to this Agreement (a " Third Party Claim") with respect to which indemnification is to be sought from an Indemnifying Party, the Indemnitee shall give such ' Indemnifying Pany reasonably prompt written notice thereof, but in any event such notice shall not l be given later than twenty (20) calendar days after the Indemnitee's receipt of notice of such Third Party Claim. Such notice shall describe the nature of the Third Party Claim in reasonable detail and shall indicate the estimated amount, ifpracticable, of the Indemnifiable Loss that has been or may be sustained by the Indemnitee. The Indemnifying Party will have the right to participate in or, by giving written notice to the Indemnitee, to elect to assume the defense of any Third Pany Claim at such Indemnifying Party's expense and by such Indemnifying Party's own counsel, provided that Q C/ the counsel for the Indemnifying Party who shall conduct the defense of such Third Party Claim l PH/363143.15 1 l
l m REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD U FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.I7(a)(4) l shall be reasonably satisfactory to the Indemnitee. The Indemnitee shall cooperate in good faith in such defense at such Indemnitee's own expense. If an Indemnifying Party elects not to assume the defense of any Third Party Claim, the Indemnitee may compromise or settle such Third Party Claim over the objection of the Indemnifying Party, which settlement or compromise shall conclusively establish the Indemnifying Party's liability pursuant to this Agreement. ! (b) (i) If, within twenty (20) calendar days after an Indemnitee provides written notice to the Indemnifying Party of any Third Party Claims, the Indemnitee receives written notice from the Indemnifying Party that such Indemnifying Party has elected to assume the defense of such Third Party Claim as provided in Section 8.2(a) , the Indemnifying Party will not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided, however, that if the Indemnifying Party shall fail to take reasonable steps necessary to defend diligently such Third Party Claim within twenty (20) calendar days after receiving notice from the Indemnitee that the Indemnitee believes the Indemnifying Party has failed to take such steps, the Indemnitee may assume its own defense and the Indemnifying Party shall be liable for all reasonable expenses thereof. A V (ii) Without the prior written consent of the Indemnitee, the Indemnifying Party shall not enter into any settlement of any Third Party Claim which would lead to liability or create any financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder. If a firm offer is made to settle a Third Party Claim without leading to liability or the creation of a financial or other obligation on the part of the Indemnitee for which the Indemnitee is not entitled to indemnification hereunder and the Indemnifying Party desires to accept and agree to such offer, the Indemnifying Party shall give written notice to the Indemnitee to that effect. If the Indemnitee fails to consent to such firm offer within twenty (20) calendar days after its receipt of such notice, the Indemnifying Party shall be relieved ofits obligations to defend such Third Party Claim and the Indemnitee may contest or defend such Third Party Claim. In such event, the maximum liability of the Indemnifying Party as to such Third Party Claim will be the amount of such settlement offer plus reasonable costs and expenses paid or incurred by Indemnitee up to the date of such notice. (c) Any claim by an Indemnitee on account of an Indemnifiable Loss which does not result from a Third Party Claim (a " Direct Claim") shall be asserted by giving the Indemnifying Party reasonably prompt written notice thereof, stating the nature of such claim in reasonable detail and indicating the estimated amount, if practicable, but in any event such notice shall not be given later than twenty (20) calendar days after the Indemnitee becomes aware of such Direct Claim, and the Indemnifying Party shall have a period of twenty (20) calendar days within which to respond to (l such Direct Claim. If the Indemnifying Party does not respond within such twenty (20) calendar day %.) owxmus 90
I f p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR { 2.790,9.17(a)(4) period, the Indemnifying Party shall be deemed to have accepted such claim. If the Indemnifying Party rejects such claim, the Indemnitee will be free to seek enforcement of its right to indemnification under this Agreement. (d) If the amount of any Indemnifiable Loss, at any time subsequent to the making of an indemnity payment in respect thereof, is reduced by recovery, settlement or otherwise under or pursuant to any insurance coverage, or pursuant to any claim, recovery, settlement or payment by, from or against any other entity, the amount of such reduction, less any costs, expenses or premiums incurred in connection therewith (together with interest thereon from the date of payment thereof to the date or repayment at the " prime rate" as published in The Wall Street Journal) shall promptly be repaid by the Indemnitee to the Indemnifying Party. (e) A failure to give timely notice as provided in this Section 8.2 shall not affect i the rights or obligations of any Party hereunder except if, and only to the extent that, as a result of such failure, the Party which was entitled to receive such notice was actually prejudiced as a result of such failure. O) ( 8.2 Waiver and Release. To the extent any right, cause of action, or claim hereunder 1 constitutes Assumed Liabilities and Obligations, and subject to any indemnification rights of Buyer under Section 8.l(b), the Buyer waives, relinquishes and forgives, effective as of the Closing Date, any statutory or common law rights that otherwise would relate to such right, cause of action or clairr, including, without limitation, CERLCA. I ARTICLE IX IERMINATION 9.1 Termination. (a) This Agreement may be terminated at any time prior to the Closing Date by mutual written consent of Seller and Buyer. (b) This Agreement may be terminated by Seller or Buyer, if(i) any federal or state court of competent jurisdiction shall have issued an order, judgment or decree permanently restraining, enjoining or otherwise prohibiting the Closing, and such order, judgment or decree shall have become final and nonappealable; or (ii) any statute, rule, order or regulation shall have been enacted or issued by any Governmental Authority which, directly or indirectly, prohibits the consummation of the Closing; or (iii) the Closing contemplated hereby shall have not occurred on O or before the day which is eighteen (18) months from the date of this Agreement (the " Termination V uwnwus 91
1 l REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 4 Date"); provided, however, that the right to terminate this Agreement under this Section 9.l(b) (iii) shall not be available to any Party whose failure to fulfill any obligation under this Agreement has
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been the cause of, or resulted in, the failure of the Closing to occur on or before such date. (c) Except as otherwise provided in this Agreement, this Agreement may be terminated by Buyer if(i) any of Buyer's Required Regulatory Approvals, the receipt of which is a condition to Closing as set forth in Section 7.1(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but such Approval contains conditions (other than the conditions accepted by Buyer in Section 6.18) that would have a material adverse effect on the operations or condition (financial or othenvise) of the Purchased Assets or a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Buyer or its members; or (ii) the receipt of the IRS rulings or opinions of counsel, which is a condition to Closing as set forth in Section 7.l(k), shall not have been satisfied or waived by Buyer on or before May 30,2000. (d) This Agreement may be tenninated by Seller, if(i) any of Seller's Required p3 Regulatory Approvals applicable to Seller, the receipt of which is a condition to the obligation of V Seller to consummate the Closing as set fonh in Section 7.2(c), shall have been denied (and a petition for rehearing or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted but such Approval contains conditions that would have a material adverse effect on the business, assets, operations or condition (financial or otherwise) of Seller or its Affiliates; or (ii) the receipt of the IRS rulings or opinions of counsel, which is a condition to Closing as set forth in Section 7.2(1), shall not have been satisfied or waived by Seller on or before May 30,2000. (e) This Agreement may be terminated by Buyer if there has been a violation or breach by Seller of any covenant, representation or warranty contained in this Agreement which has resulted in a Material Adverse Effect and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Seller of written notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer. (f) This Agreement may be terminated by Seller if there has been a material violation or breach by Buyer of any covenant, representation or wanranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of written notice specifying particularly such violation or breach, and such violation or breach has not been waived by Seller. O U mm3 92
! REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) (g) This Agreement may be terminated by Buyer or Seller in accordance with the provisions of Sections 6.11(b) or (c). 9.2 Procedure and Effect of No-Default Termination. In the event of termination of this Agreement by either or both of the Parties pursuant to this Article 9, written notice thereof shall forthwith be given by the terminating Party to the other Party, whereupon, if this Agreement is terminated pursuant to any of Sections 9.l(a) through (d) and 9.l(g), the liabilities of the Parties hereunder will f.erminate, except as otherwise expressly provided in this Agreement, and thereafter neither Party shall have any recourse against the other by reason of this Agreement. ! ARTICLE X MISCELLANEOUS PROVISIONS 10.1 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of Seller and Buyer. 10.2 Waiver of Comnliance: Consents. Except as othenvise provided in this Agreement, any failure of any of the Parties to comply with any obligation, covenant, agreement or condition ' herein may be waived by the Party entitled to the benefits thereof only by a written instrument signed by the Party granting such waiver, but such waiver of such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith. 10.3 Survival of Reoresentations. Warranties. Covenants and Obligations. T e O 93 iwouaus
REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITIIIIELD O FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) y
- l (b) The covenants and obligations ofSeller and Buyer set forth in this Agreement, including, without limitation, the indemnification obligations of the Parties under Article VIII hereof, shall survive the Closing indefinitely (unless a shorter period is specified herein), and the Parties shall be entitled to the full performance thereof by the other Parties hereto without limitation as to time or amount (except as otherwise specifically set forth herein).
10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by facsimile transmission, or mailed by overnight courier or registered or certified mail (return receipt requested), postage prepaid, to the recipient Party at its address (or at such other address or facsimile number for a Party as shall be specified by like notice; provided however, that notices of a change of address shall be effective only upon receipt thereof): (a) If to Sellet, to: Illinois Power Company l 500 South 27th Street Decatur,IL 62521 Fax No.: 217-362-7417 Attention: David W. Butts Senior Vice President with a copy to: Troutman Sanders LLP 1300 "I" Street, N.W. Suite 500 East Washington, D.C. 20004 Fax No.: 404-962-6731 Attention: Kevin C. Fitzgerald, Esquire i.wanu ts 94
n REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD b) FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 1 (b) if to Buyer, to: AmerGen Energy Company, LLC 2301 Market Street P.O. Box 8699 Philadelphia,PA 19101 j Fax No.: 610-640-7566 Attention: Dickinson M. Smith, Chief Executive Officer with a copy to: I Morgan, Lewis & Bockius LLP ) 1701 Market Street 1 Philadelphia,PA 19103 I Fax No.: 215-963-5299 l j S Attention: Howard L. Meyers, Esq. U 10.5 Assienment. This Agreement and all of the provisions hereofshall be binding upon ,md inure to the benefit of the Parties hereto and their respective successors and permitted assigra, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either Party hereto, including by operation oflaw, without the prior written consent of the other Party, such consent not to be unreasonably withheld, nor is this Agreement intended to confer upon any other Person except the Parties hereto any rights, interests, obligations or remedies hereunder. No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee of Seller (including any beneficiary or dependent thereof) in respect of continued employment or resumed employment, and no provision of this Agreement shall create any rights in any such Persons in respect of any benefits that may be provided, directly or indirectly, under any employee benefit plan or arrangement except as expressly provided for thereunder. Notwithstanding the foregoing, but subject to all applicable legal requirements, and provided it does not materially adversely affect any regulatory approvals required under this Agreement, (a) Buyer or its permitted assignee may assign, transfer, pledge or otherwise dispose of(absolutely or as security) its rights and interests hereunder to a trustee, lending institution or other party fbr the purposes ofleasing, financing or refinancing the Purchased Assets, including such an assignment, transfer or other disposition upon or pursuant to the exercise of remedies with respect to such leasing, financing or refinancing, or by way of assignments, transfers, pledges, or other dispositions in lieu thereof, (b) Buyer or its permitted assignee rr ay assign, transfer, pledge or othenvise dispose p of(absolutely or as security) its rights and interests hereunder to a wholly-owad subsidiary of Buyer O
. w u n u is 95
. REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR (( 2.790,9.17(a)(4)
(provided that the assignee agrees to be bound by the terms and conditions hereof), and (c) Buyer or its permitted assignee may assign, transfer, pledge or otherwise dispose ofits rights and interests to cause Seller to perform in accordance with the provisions of Section 6.12 hereofin connection with any subsequent disposition by Buyer of the Purchased Assets; provided, however, that no such assignment shall relieve or discharge Buyer from any ofits obligations hereunder. Seller agrees, at
~ Buyer's expense, M execute and deliver such documents as may be reasonably necessary to accomplish any suci? assignment, transfer, pledge or other disposition of rights and interests hereunder so long as Seller's rights under this Agreement are not thereby altered, amended, diminished or otherwise impaired.
10.6 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State ofIllinois (without giving effect to conflict oflaw principles) as to all matters, including, without limitation, matters of validity, construction, effect, performance and remedies. THE PARTIES HERETO AGREE THAT VENUE IN ANY AND ALL ACTIONS
~AND PROCEEDINGS RELATED TO THE SUBJECT MATTER OF THIS AGREEMENT SHA.LL BE IN THE STATE AND FEDERAL COURTS IN AND FOR COOK COUNTY, ILLINOIS,~ WHICH COURTS SHALL HAVE EXCLUSIVE JURISDICTION FOR SUCH O' PURPOSE, AND THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS AND IRREVOCABLY WAIVE THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH; ACTION OR PROCEEDING. SERVICE OF PROCESS MAY BE MADE IN ANY MANNER RECOGNIZED BY SUCH COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
10.7 Counterparts This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 10.8 Interpretation. The articles, section and schedule headings contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the Parties and shall not in any way affect the meaning or interpretation of this Agreement.
)
10.9 ScheAntes and Exhibits. Except as otherwise provided in this Agreement, all i Exhibits and Schedules referred to herein are intended to be and hereby are specifically made a part of this Agreement. q A ' V m3ma 96 m__
I p REDACTED AREAS CONTAIN CONFIDENTIAL MATERIAL WITHHELD 1.Q FROM PUBLIC DISCLOSURE PURSUANT TO 10 CFR 2.790,9.17(a)(4) 10.10 Entire Acreement. This Agreement, the Confidentiality Agreement and the Ancillary Agreements, including the Exhibits, Schedules, documents, certificates and instruments referred to herein or therein, embody the entire agreement and understanding of the Parties hereto in respect of the transactions contemplated by this Agreement and supersedes all prior agreements and understandings between the Parties (other than the Confidentiality Agreement, the Management Agreement and the Leased Employee Agreement) with respect to such transactions. There are no restrictions, promises, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein or therein. It is expressly acknowledged and agreed that there are no restrictions, promises, representations, warranties, covenants or undertakings contained in any material made available to Buyer pursuant to the terms of the Confidentiality Agreement, j This Agreement supersedes all prior agreements and understandings between the Parties (including, I without limitation, the Interim Agreement) other than the Confidentiality Agreement with respect i to such transactions, the Management Agreement and the Leased Employee Agreement. 10.11 Bulk Sales Laws. Buyer acknowledges that, notwithstanding anything in this Agreement to the contrary, Seller will not comply with the provision of the bulk sales laws of any p) ( jurisdiction in connection with the transactions contemplated by this Agreement. Buyer hereby waives compliance by Seller with the provisions of the bulk sales laws of all applicablejurisdictions. l O V onuxmus 97 l
i IN WITNESS WHEREOF, Seller and Buyer have, caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. ILLINOIS POWER COMPANY AMERGEN ENERGY COMPANY, L.L.C. By: des b By: Name: David v. anees ' ' Name:
Title:
Senior Vice President
Title:
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IN WITNESS WHEREOF, Seller and Buyer have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. ILLINOIS POWER COMPANY AMERGEN ENEROY COMPANY, L.L.C. By: Name: N a Tm h q . h c(ncA
Title:
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o i 1 D J i Enclosure 4 1998 Annual Report of PECO Energy and 1998/1999 Annual Report of British Energy I O
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O O Financial Highlights Comparison of 5 Year (Thousarids of Donar4 1998 1997 % Change Cumulative Total Return Operating Revenues $ 5,210,482 $ 4,617,901 12.8 % [fyd;][/ ](( * Operating Expenses, excluding taxes S 3,647,653 $ 3,302,179 10.5 % a,,m,o Taxes Charged to Operations S 599,169 $ 602,860 (0.6%) tax) Operating Income $ 1,283,314 $ 1,005,631 27.6 % Ext aordinary item $ (19,654) $(1,833,664) 98.9 % $24c (Net of taxes) Earnings Applicable to Common Stock $ 499,615 $ (1,513,910) - sien 4 (After extraordinary item) Earnmgs Applicable to Common Stock $ 519.269 5 319.754 62.4 % si ,y (Before extraordinary item) Earnings per Average Common Share (Dollars) $ 2.24 $ (6.80) - s so (After extraordinary item) Cash Dividends Paid per Common Share (Dollars) $ 1.00 $ 1.80 (44.4 %) Average Shares of Common Stock 94 95 96 97 98 Outstanding (Thousands) 223,219 ? 2.543 0.3%
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$ & P 500 Capital Expenditures S 415,331 $ 490.200 (15.3%)
S pow we utm.euverog, Common Shareholders' Equity $ 3,057,342 $ 2,726,731 12.1 % Book Value Per Average Common Share (Dollars) $ 13.6 d $ 12.25 11.1 % PlC O [De'gy C omf. dry 65 d ICMier tr gertr,p g god rn.e6 et g (dertr( N pr. (C*t[tt htbe fnits eti M F a t' G ll.1Nd 5t;ittN 9"Ce 1 N2 J t' Nec pra t:b d reta ' elect w ant 1 riatJrM gds 5erW e 10 C U5tOneT) ir 50UTIMteT" PenRykdNa, $er v:rg mOfe than 16 DHh t A 0.UN!amerS M l 98 M ' lM dM t O#delequJZn.We hade deVt4jped f4 Wde rd3ge Oi (OTUpetit'Ve bu$inFSNe5 that l'Udd UfKin d i '.wid d ,it ! bE3e, Our rnJH et b DOWied.je and Out (me { dWW % 5 O.F Od t ' D H h
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partiubo of more t%n 9.000 megaotts n among the most compet.t<ve in the Un cd States Ou power nu ketirg d'v w.in, N wr icaro ,ovt+ thei m rg restrne (haverers of WNdesd;e etectnc;ty operat:ng throufout the contineeti Unded StJk > E TUJ[ Our betUn d Wr AC prUvde d waheh LM unTjo!4
- er,et;'y and utitj tr'frastr a tare servr(es, mdad n<j eertot supply to tiumen and re der of (awn.e s m ress ter %sdrna 3 1cou,e ' ve Mek , dr d i bea O[Ill $-bshed (OmmdWCJtJOMS W VICe$ f
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O l 1 4 j 1 i O Financial Highlights Comparison of 5 Year (Thousands of Dollas) 1998 1997 % Changa
~ ~ ~ $5 310,482
~ ~~
Cumulative Total Return Operating Revenues ~~$ 4!617501~ ~ ~ ~12.8E I
~ ~ ~ ~ ~ ' ~~
Nu Yd N nrNr g g ""** peratirig Ex[enses[ excluding taIxe~s ~ S 3,647,653 $ 3,302,'179 10.5% m Taxes Charged to Operations $ 599,169 $ 602,860 (06%) l sr Operfting}ncome ~ ' $ 1,283,314 ~ $ 1.005.631 27.6 %
]
Extraordinary item $ (19,654) $(1,833,604) 98.9 % ' 82e (Net of taxes) _ - . . . . . Earnings Applicable to Common Stock _ - . . . . - - - - - - - - - _ - . . _ $ . .499,615 . . - - . . .$(1,513,910) - sw A (After extraordinary item) Earnings Applicable to Common Stock. ~ - . - - . - . . . _ . . . . - . . . - . . . . . - . _ . . _ . -519,269 . . .$ 319,154 62.4 % ; stae _ , (Before extraordinary item) [ - Earnings per Average Common Share (Dollars) $ 2.24 $ (6.80) - s so (After extraordinary item)
~ ~ ~ -
Cash Dividends Paid per Common Share (Dollars) $ 1.00 $ 1.80 (44.4 %)
~ ~ ~
Aserage Sh' ares 'of Commo'n Stock Outstanding (Thousands) 223,219 222,543 0.3%
- ~ ~ ~
g'g{pUtd $^ 415,331 $~ 490,200 (15.3%) l I PECo Energy Company 5 & P 500 Dow bes Utilit.es Average Cornmon Shareholders' Equity $ 3,057,342 $ 2,726,731 12.1 % Book Valuo Per Average Common Share (Dollars) $ 13.61 $ 12.25 11.1 % 1 { PECO Energy Company is a leader in generating and marketing electnoty in competitive markets across the United States 5:nce 1929, we nave provided retad electnc and natural gas service to customers in southeastern Pennsylvana serving more tnan 15 mdkon cusicamers in 1998 With the advent of deregulation, we have devek> ped a wide range of competitive bu9nesses that bulld upon a broad asset base. Our market k nowledge and our core Gipabikties Our generation portfoho of more than 9.000 megawatts is among the most compet;tive in the United States Our power marketing desion, Power Team, is one of the leading real-time deliverers of wholeule electnoty operating throughout the continenta! United States Through our Exelon dmsn.. we provide a vanety of unregulated energy and utility infrastructure services. including electnc supply to business and reudential customers across Pennsylvariia and competitive wreless and fiber optKs-based communicattor's services.
While our performance in 1998 was impressive, we are still poweringg/Me are only just O v beginning, tot $eff,he positive impact of our ey renewedxnganization, vision and strategy. We:$ building our leadership position in 47 Aderegulated f markets by continuing to increase gour powers of:
- f. ; '^
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. J Performance demonstrated by excellent financial and operating results in 1998 2 VISION becoming the world's leading provider of clean energy 5 i
Boldness aggressively growing a competitive generation portfolio e Experience leading the industry in power marketing 8 InnOVallOn growing and developing new ventures 10 Alignment linking our people and performance to shareholder interests 12 We will continue to tap these business powers to create value for our shareholders and customers that no other energy company can equal. O
Perfd Ta My Fellow Shareholders:
- PECO Energy was named " Energy number one spot in the rankings for What a difference a year makes! Company of the Year" by the total shareholder return among the When I wrote my letter to you a year Washington International 25 largest U.S. electric utilities. The ago, our company was in one of its Energy Group. catalysts to our dramatically greatest periods of uncertainty. We improved valuation were the favor-were facing what could have been a Strong Financial Results able completion of our long and dif-protracted legal challenge to an Earnings per share in 1998, before ficult regulatory restructuring pro-unfavorable regulatory order; Wall special items, were $2.66. That repre- ceeding and the progress we have Street's confidence in our competitive sents a 46% increase over 1997 earn- made in executing our competitive future was weakened, and our finan- ings from operations. After account- growth strategy.
cial results for 1997 were most disap- ing for an extraordinary charge relat-pointing. Today, that picture has dra- ed to the redemption of higher cost Favorable Restructuring Plan matically changed for the better, and debt and a year-end adjustment for in Place I am proud to report to you that the cost of our on-going workforce The most significant event of 1998 1998 was a year of powerful perfor- reduction program, earnings were was the successful completion of our mance for PECO Energy. $2.24 per share. Our power market- restructuring proceeding before the ing activities contributed significantly Pennsylvania Public Utility Among our most significant to our strong earnings performance, Commission (PUC). In May, the PUC CMomplishments in 1998: particularly in the third quarter when approved a fair and balanced plan
- Earnings per share were $2.66 we achieved the highest quarterly that on January 1,1999 opened our before special items, an increase earnings in our company's history. electric generation business to com-of 46% over 1997 performance. During 1998, we also benefited from petition. The plan provides our cus-
- PECO Energy's common stock deliv- lower operating and maintenance tomers with guaranteed savings ered a total annual return of 78%. expenses, significantly lower fuel and through across-the-board rate cuts
- We negotiated a fair and balanced replacement power costs following the for the next two years as well as the electric deregulation plan. Salem Nuclear Generating Station's full freedom to choose their energy sup-
- Our power marketing group, return to service in early 1998, and a plier. PECO Energy will continue to Power Team, increased sales vol- lower effective income tax rate. provide regulated distribution ser-ume 13%. vices to all customers in our tradition-
- Our unregulated energy supply PECO Energy Delivered al service territory, business, Exelon Energy, became Excellent Returns in 1998 For PECO Energy, the restructuring j the most successful player in the PECO Energy's shares of common plan provides a very reasonable tran-new Pennsylvania Electric stock closed 1998 at $41.75, a 74% sition to retail competition while Choice program. increase over the 1997 close of $24 maintaining a solid financial founda- j
- AmerGen, our joint venture with per share. The unprecedented tion upon which we're building new, (
j British Energy, successfully negoti- increase in our comrnon stock price, competitive businesses. A central ele- l l ated the first-ever U.S. purchase of combined with dividends paid, result- ment of the plan is the allowed a nuclear generating station, ed in a total return to our sharehold- recovery of almost $5.3 billion in scheduled for completion this year. ers of 78%, winning PECO Energy the l i
\
3 rmance stranded investments. On January 1, Pursuing ., ; 1999, we began recovering these Aggressive investments from our customers Growth through a special transition charge Objectives g.3 that will remain in place for 12 years, To mark our - ' ~ while earning a 10.75% return on the progress in </- ' , balance. The plan also gives us the achieving our gi ability to securitize the majority of our recoverable stranded costs through long-term vision for the Company, ( . the issuance of up to $4 billion of in 1998 we estab-
" transition bonds." The issuance of lished the follow-these highly rated bonds will enable us ing goals that we to significantly realign our capital struc- will work to meet .
ture, most notably through the retire- by the year 2003: . ment of debt and preferred stock, and
- To retain a
~
the repurchase of common stock. 75% market share in our -- - Our Vision for the Future traditional ser- Corbin A. McNeill, Jr., Our business and industry are clearly vice territory, PECo Energy Chairman, President and Chief Executive Offger moving into a vastly different and achieved exciting era. Given the speed of this bilities, and continuously work to through customer retention by our change, we think it is essential to optimize the cost efficiency of PECO local distribution company, PECO have a clear picture of where we're Energy Distribution Company. Energy Distribution, as well as going, and the kind of company we market share growth by Exelon want to be when we get there. In Energy. Building a Competitive Retail 1998, we developed a powerful new Market Share
- To nearly triple our electric gener-corporate vision - To become the Our long-term goal is to maintain a ation capabilities to 25 gigawatts world's leading prc,vider of clean very strong merket share in our tradi-through acquisitions and long-energy. (Our complete vision and mis- tional electric service area, plus estab-term supply agreements by the sion statements are presented on i sh a significant position in other year 2003.
page 5 of this report.) This mission electric retail markets across
- To achieve a 50% increase in our will guide and propel our progress Pennsylvania, and ultimately other earnings per share between 1998 for years to come, and we are contin- regions of the United States. As of and 2003.
uing to build the processes and struc- . January 2,1999, two-thirds of To achieve these aggressive earnings tures to make it a reality. Pennsylvania's electric customers and growth objectives, we will build gained the ability to choose their upon our strengths in power genera-energy suppliers, in anticipation of tion and power marketing. We will the opening of retail markets, Exelon also continue to develop ventures Energy conducted a marketing cam-that leverage our core business capa-
O I { paign in 1998 that has helped it gain The growth of our generating New Corporate Structure I more than 130,000 retail customers. capacity will go hand-in-hand with Proposed To date, Exelon Energy has estab- the growth of Power Team's whole- In 1999, we will be asking common lished the largest competitive market sale energy marketing operations. shareholders to vote on a proposal to share in the state and is one of the Power Team has developed the create a holding company structure few suppliers with customers in all of expertise, market knowledge and a for PECO Energy that, if approved, Pennsylvania's electric franchise areas. portfolio management strategy that will establish a new corporate holding Even with the new opportunities consistently produce superior value company named PECO Energy for choice that our customers have, I for PECO Energy. In 1998, Power Team Corporation. This will be the first step am pleased to note that a large num- delivered 100% of the power it con- in establishing separate subsidiaries ber of our customers have opted not tracted to provide. This deliverability organized around our three key lines to switch their energy supplier and record was particularly impressive of business: power generation and have remained with PECO Energy given the supply problems experi- marketing, gas & electric distribution Distribution. I believe this loyalty is a enced by other marketers during last and unregulated energy service-relat- ! l testament to our strong ties to the summer's shortages in the Midwest. ed businesses. We believe that this ' communities we serve as well as our proposed structure will give us the proud history of service excellence. Managing our Businesses to flexibility to compete in new markets Achieve Excellence and grow our businesses as new In:reasing PECO's Generation Now more than ever, we need a tal- opportunities arise. Orpabilities ented and motivated workforce to Before closing, I want to recognize We took the first important step in help us accomplish the goals we have and thank fellow board member expanding our generation portfolio set. We are fulfilling that need by Admiral Kinnaird R. McKee, who in July of 1998, when we entered building an employee team which is stepped down from our Board of into an agreement to purchase Unit 1 smart, ambitious and motivated to Directors in 1998 after completing 10 of Three Mile Island Nuclear succeed. Over the past year, we have years of service. I would also like to Generating Station (TMI) from GPU, added significantly to our talent base welcome Rosemarie Greco, who inc. We will purchase the unit and have recruited leaders from a joined our board in 1998. And finally, through AmerGen, our joint venture variety of competitive industries, such I want to thank you, our sharehold-with British Energy, and expect to as oil, gas and chemicals. ers, for your continued support and complete the transaction by mid- I believe in challenging our work- confidence. All of us who are a part 1999. TMI Unit 1 has one of the force, providing the right incentives of PECO Energy are excited about finest operational and safety records to achieve our goals and then building on our competitive strengths in the industry. We see real opportu- rewarding excellent results. In 1998 in the coming year and beyond. nities for even stronger performance we put in place a new incentive com-by applying the same spirit of innova- pensation system that includes stock tion and operational excellence that option grants for every employee, has earned our Peach Bottom and which vest only after our stock price Limerick nuclear stations world-class meets aggressive price targets. We status in performance, safety and also began offering quarterly cash Corbin A. McNeill, Jr. cost efficiency. Based on our latest bonuses to employees when their PE Energy Chai an, President and estimates, we believe the TMI Unit 1 respective business units meet value' February 5,1999 acquisition will make a positive con- driven business and operational tribution to earnings in its first year, objectives. Under this new system, employees and management will only enjoy financial rewards when we create value for our shareholders.
l V s on Becoming the world's leading provider of clean energy. In 1998, we developed a powerful vision staten ent - to become the # We are an energy company that world's leading provider of clean energy. This vision is guiding and pro- measures our success by our pelling our strategy, our actions and ultimately our success. impact on the lives of others.
# We will provide energy safely, reliably and affordably to
.g power the 21st century dreams
, J46.g, of families and businesses.
./ gg # We will create value for our t C ,
shareholders and our cus-tomers that no other energy company can equal.
,. # We will ensure that air and
; ;M water are cleaner for generations to come.
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;- $, # We will be a company respect-ed as much for what we value
, " g - s!]< il as for the value we create.
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I i ld \ 9 ', , Our key for j . success in f p ., L :k .'- : deregu- - - J"$, ' = er generation - ' markets will 4 be to own or '/>' control a significant amount of environmentally clean and efficient gen-erating we capacity make in targeted acquisi-regions of the tions, we United States, will work to As part of our develop region-vision to become the al groups of geo-world's leading provider graphically synergistic of clean energy, we set a plants that allow us to goal of increasing our generation leverage our resources capacity from just over 9,000 and expertise in specific geo-megawatts to 25,000 megawatts asset owners. graphic areas, in the next five years. Under our acquisition program, in 1998, we began expanding We are working to achieve this we are targeting attractively our Mid-Atlantic operating i goal through an aggressive yet priced, environmentally and oper- group, consisting of the four l disciplined acquisition program, ationally sound plants that have nuclear units we operate at ) and through securing long-term the potential for outstanding per- Limerick and Peach Bottom sta- l supply contracts with generation formance and strong returns. As tions. In October, we reached a
7 hess We are pursuing a bold national strategy designed to nearly triple our generating capacity within five years and strengthen our market presence throughout the United States. final agreement to purchase Building Our Portfolio of High Performers Unit 1 at GPU's Three Mile Island Nuclear Generating Station , through AmerGen, our joint ven- g ture with British Energy. TMI z ,g y Unit 1, with its strong operating ; . AcgsdsNilors was , record and 786 megawatts of
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.'S Q erating portfolio. This plant has twice set world records for con-tinuous days of operation. E AmerGen is obtaining all neces- CAPAC8TY FAC1OH sary governmental approvals and PECO is building its portfolio by targeting generating plants with potential for high expects to complete this transac. capacity f actors and low operating costs, and will use its operating strengths to tion by mid-1999.
i* P' "* Pf '** " # 9"id P'* "**' Leveraging Our Operational Excellence Good acquisitions are not tors and lowest production costs create a balanced portfolio of enough. It is what we do with in the nation. We are targeting generation assets, including j the plants after they are acquired additional plants with similar nuclear, hydroelectric and clean-that determines their true value, high performance potential. burning fossil fuel plants. This The second pillar of our genera- In 1999, we plan to continue to strategy positions us to be a tion strategy is our proven oper- expand our generation portfolio leader in power generation in ating expertise. Our Limerick and through a strategy that focuses North America and achieve our Peach Bottom nuclear stations first and foremost on building bold aspiration of becoming the are among the safest and best- earnings potential and strong world's leading provider of performing nuclear plants in the investment returns. We will seek clean energy. industry. These facilities have out the best possible plants at some of the highest capacity fac- competitive prices, working to
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ds] A pioneer in the industry, PECO's Power Team continues to demonstrate its leadership in marketing and delivering wholesale power throughout the United States. The expertise of our power mar- Power Team has nearly tripled its assets across the United States keting group, Power Team, was sales to become one of the that have become more valuable again proven in 1998 with a largest "real time" deliverers of as competition has increased. record of 100% delivery in highly wholesale electricity in the conti- These assets give Power Team the competitive and rapidly changing nental United States. Today, flexibility to move power quickly U.S. power markets. Power Team Power Team's customer base to areas where demand is strongest. continues to use its expertise to includes municipal utilities, expand its assets and markets in investor-owned utilities, rural Expanding Power Sources the United States and Canada cooperatives and marketers. and Markets in 1998, Power Team continued and increase its contributions to Power Team's most significant to diversify its power sources and our bottom line. At the same competitive advantage is a markets. Power Team expanded time, our strategy of growing our diverse portfolio of generation its supply portfolio by adding generation portfolio will provide assets, including both PECO-gen-generating sources outside of Power Team with additional erated power and a variety of PECO Energy's traditional service sources of low-cost power. long-term and short-term power territory. PECO-generated power purchase contracts with other The Value of Experience accounted for only about a suppliers. As an early player, Power Team's knowledge, supply Power Team also established posi-portfolio and marketing strategy tions in generation and have driven its rapid growth.
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'V opens in 2000. oped arrangements that allow us Power Team's Growing Drawing upon our broad sup- to support our hydro-based cus- Geographic Reach and ply portfolio, Power Team also tomers in periods of low hydro. Wholesale Customers expanded the size and scope of power generation. With a sales across the United States. For marketing operation that runs 24 100%
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Q 3 Dd ,y 7q j d d d bid dd i i Under the mnbrella brand of Exelon, we are developing diverse businesses that leverage our assets and skills in high-potential markets. in 1998, we increased our power lenge of competition, becom- and skilled staff have allowed of innovation by developing and ing the largest electric genera- us to build wireless cell sites expanding several new business- tion supplier in Pennsylvania's rapidly and efficiently, by uti-es, brought together under the Electric Choice program - lizing existing assets. We devel-l umbrella brand of Exelon.These building market share not only oped innovative approaches to ventures, which leverage our core in our traditional service area piggyback antennas and cell competencies into new areas, but also in every distribution sites on top of electrical trans-have high potential for future area of the state. The strong mission poles and towers. In growth. Among our early systems we developed in 1998 the first year, the joint venture achievements we have: estab- for customer acquisition, cus- built a base of over 100,000 lished ourselves as the most suc- tomer care, energy supply and subscribers, well above our l cessful electric generation suppli- billing ensure we are well posi- target, and established a sig-er in Pennsylvania's Electric tioned for the expanded choice nificant network in the Phila-Choice program; signed up over program in 1999. With the delphia area. We are well 100,000 wireless phone customers; unique experience we've prepared to pursue the esti-installed a telecommunications gained in Pennsylvania, we are mated two million new cus-network consisting of over 27,000 poised to move quickly into tomers expected to sign up for fiber miles; and began to prove any U.S. market where regula- wireless service in the region in the viability of a new infrastruc- tory conditions provide open the next five years. In partner-ture services business. retail competition. ship with Hyperion
- Communications: Communications, a leading Lcveraging Our Strengths Exelon Communications is provider of competitive com-This year, we leveraged our core working with experienced munications services, we also strengths in operations and utility partners to develop wireless installed 27,000 fiber miles in infrastructure to launch or phone networks and local fiber the PECO service territory as expand several new ventures: optics communications services well as Allentown, Bethlehem,
- Energy: in the Philadelphia region. In Easton and Reading. This ven-Exelon Energy provides com- its first full year, Exelon's joint ture redeploys our strengths in petitively priced electricity and venture with AT&T Wireless building and maintaining our natural gas to residential, com- has become a significant com- current power delivery net-mercial and industrial clients in petitor in the region's wireless work to establish a new com-deregulated retail energy mar" telecommunications business. munications platform.
kets. Exelon has been success- Our transmission infrastructure ful in meeting the initial chal-
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ative ways we are lever- Overall, aging our strengths in man- Exelon aging complex infrastructures ' ! offers a is a new service business we laboratory launched in 1998 to provide for rapidly infrastructure construction and C n' , g maintenance to other utilities. struction, in new residential construction, we began build-for example' electric
- gas, tele, ing a utility infrastructure maintenance bus.iness, includ-
. take advantage of fast-moving phone and cable companies _
traditionally use separate ser- ing contracts to maintain street ping wide range of other vice technicians to install their light'ng i 'n i PhiIadelphia, pro-lines. We are developing a ven. vide design services in southern ture to provide single-source New Jersey and assess utility service. By combining installa- maintenance operations at a tive pro ects . he p. midwestern utility. As utilities ie I tion of electric, gas, telephone and cable, Exelon Infrastructure face pressures to cut costs, they will find it increasingly attrac-Services reduced total costs by a third in installing service to tive to outsource many con-
- t. ion to our future progress and more than 8,000 homes in struction and maintenance shareholder value.
I 1998. In addition to new functions. We are well posi-tioned to continue to grow
e L :i s Ag We have refocused our performance measures and compensation systems to align our organization around aggressive goals designed to enhance shareholder value. Euilding Upon a Solid To achieve this goal, we Promoting a Performance F:undation restructured PED to focus on Ethic Our local distribution company, financial performance, market in 1998, we began to implement PECO Energy Distribution (PED), share, cost containment and one of the most rigorous perfor-provides a strong foundation of increasing service levels to opti. mance-based compensation and earnings, cash flow and core mize customer satisfaction and management systems in the expertise to support our other retention. By the end of 2000, we industry. It provides opportunities ! non-regulated growth initiatives. expect to reduce our 1998 PED for stock ownership at all levels in 1998, we reorganized PED to staff by more than 20%. of the organization through stock ensure we are positioned for These actions are part of an option grants that vest only when - competition and to increase overall corporate initiative to Performance goals are met. It is alignment with shareholder inter- increase performance and align- designed to promote a perfor-ests. The changes in PED were the ment. We conducted a Cost mance ethic throughout the centerpiece of a company-wide Competitiveness Review that organization and align employ-shift in performance measures, identified potential annual cost ees' interests directly with the management systems and incen- savings of $150 million across the interests of shareholders. tives to increase alignment and entire corporation, which We embedded our vision and l ownership. we are actively working to real- objectives in a coordinated system l With our rates for delivering ize. Our goal in making these of goals, organization, perfor-energy capped by regulators reductions is not only to decrease mance feedback and consequence l through mid-2005, our greatest operating costs, but to do so r,1anagement. In 1998, we began opportunity for optimizing the while continuing to improve cus. implementing a new system of earnings contribution of PED tomer-related performance incentives based upon corporate l comes from reducing our operat- through improved processes. and business unit performance ing costs while sustaining high per. that will be applied across all lev-formance and service. We began els of the organization. We shift-driving down our cost of delivery ed more compensation from base in 1998, with a goal of reducing pay to performance-based pay. A costs by nearly 20% by 2000. new incentive plan in our nuclear division, for example, has tied , compensation to safety and l
13 hment 1 . 3 operating goals for every employ- We have transformed a company ee. It has been very successful in that performed well in regional, boosting performance and shar- regulated markets into an organi- . M ing the rewards with employees. zation prepared to succeed in % As part of our plan to push per-formance incentives throughout world-class competition. I
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T MinigImsnt's Discussion and Analysis of Financial Condition and Results of Operations 15
, Management's Discussion and Analysis of Financial Condition and Results of Operations T
J General the Board of Directors authorized the implementation of a retirement incentive program and an enhanced severance The Electricity Generation Customer Choice and Competition benefit program to accompany targeted workforce reduc-Act (Competition Act), enacted in December 1996, provided tions. In the fourth quarter of 1998, the Company incurred an for the restructuring of the electric utility industry in after-tax charge to eamings of $74 million to recognize costs Pennsylvania, including the institution of retail competition for related to the CCR workforce reduction. generation supply beginning in 1999. Pursuant to the Competition Act, in April 1997, the Company filed with the Pennsylvania Public Utility Commission (PUC) a restructuring plan in which it idnntified $7.5 billion of retail electric genera-tion-related stranduct costs. Discussion of Operating Results At December 31,1997, the Company determined that its Earnings electric generation business no longer met the criteria of The Company recorded basic eamings per average common Statement of Financial Accounting Standards (SFAS) No. 71, share of $2.24 in 1998 as compared with a loss of $6.80 per
" Accounting for the Effects of Certain Types of Regulation."
share in 1997 and earnings per share of $2.24 in 1996. In connection with the discontinuance of SFAS No. 71, the Earnings per share in 1998 reflect higher revenues net of fuel Company performed a market value analysis of its generation of $0.14 per share primarily attributable to sales to other utili-assets and wrote-off $1.8 billion (net of income taxes) of ties and interchange sales; lower operating and maintenance unrecoverable electric plant costs and regulatory assets. See expenses of $0.10 per share and lower fuel expenses of Note 4 of Notes to Consolidated Financial Statements- $0.22 per share as a result of the full return to service of in May 1998, the PUC entered an Opinion and Order Salem Nuclear Generating Station (Salem); and lower operat-(Final Restructuring Order) approving a joint petition and set-ing and maintenance expenses of $0.21 per share. In tiement of the Company's restmcturing case. Under the Final addition, earnings include the effects of a lower effective Restructuring Order, the Company has received approval to income tax rate of $0.34 per share. These increases were recover stranded costs of $5.26 billbn over 12 years begin- partially offset by higher depreciation and amortization ning January 1,1999 with a return of 10.75%. The Final expense of $0.17 per share; a charge of $0.33 per share Restructuring Order provides fe ine phase-in of customer related to the CCR workforce reduction program initiated in choice of electric generation suppliers (EGS) for all cus-1998; and an extraordinary charge of $0.09 per share for pre-tomers: One-third of the peak load of each customer class on miums paid in connection with the redemption of higher cost January 1,1999; one-third on January 2,1999; and the long-term debt. remainder on January 2, 2000. The Final Restructuring Order The loss in 1997 of $6.80 per common share was pri-calls for an across the board retail electric rate reduction of marily due to an extraordinary charge of $8.24 per share 8% in 1999. This rate reduction will decrease to 6% in 2000. reflecting the effects of the PUC Restructuring Order and See Note 3 of Notes to Consolidated Financial Statements. deregulation of the Company's electric generation operations. Based on the estimated annual sales of the Company in 1997 earnings were also reduced by several one-time tt , ?inal Restructuring Order, the rate reductions are expect-charges totaling $0.56 per share for changes in employee ed to reduce the Company's revenues from retail electric benefits, wnte-offs of information systems development sales by $270 million in 1999 and $200 million in 2000. The charges reflecting clarification of accounting guidelines and Company believes that its revenues from retail electric sales additional reserves, including those for environmental site will be further reduced by competition for electric generation remediation; by $0.30 per share for higher depreciation services within its traditional service temtory. The Company expense resulting from a full year's increase in depreciation is actively participating in the competitive electric generation and amortization of assets associated with Limerick supply market throughout Pennsylvania. In addition, the Generating Station (Limerick) and other assets; by $0.12 per Company anticipates lower depreciation and amortization share for income tax adjustments; by $0.09 per share for expense in 1999 as a result of the amortization schedule for losses from new non-utility ventures; and by $0.05 per share the Company's stranded cost recovery. for increased depreciation expense due to plant additions. In light of the expected impact on future revenues of the These decreases were partially offset by a one-time $0.18 Final Restructuring Order and competition for electric genera-per share credit relating to the settlement of htigation arising tion services, the Company is continuing its cost management from the outage of Salem; $0.08 per share for operational efforts through a Cost Competitiveness Review (CCR). The efficiencies; and higher revenues net of fuel of $0.06 per goal of CCR is to achieve significant cost savings while main- share primarily due to increased sales to other utilities. taining high levels of service quality, reliabihty, safety and O overall performance. The cost-control targets of CCR include reducing annual operating and maintenance expense by at I least $150 million by 2001. The expense reductions will be l realized, in part, through the elimination of approximately 1,200 employee positions. As part of the CCR, in April 1996, l
16 PECO Enirgy Company and Subsidiary Companies Significant Operating iterns Rmnue and Expense iterns as a Percentage of Total Operatin,g Revenues Percentage Dollar Changes 1998 1997 1996 1998-1997 1997-1996 92 % 90 % 90 % Electric 15% 8% 8% 10 % 10% Gas (11%) 5% 100 % 100 % 100 % Total Operating Revenues 13 % 8% 34 % 28 % 23 % Fuel and Energy Interchange 36 % 33 % 24 % 31 % 30 % Operating and Maintenance '" (12%) 12 % j 12 % 12 % 11 % Deprec;ation and Amortization 11 % 19 % j 5% 7% 7% Taxes Other Than income (10%) 4% l 75 % 78% 71 % Total Operating Expenses 9% 19 % l 25 % 22 % 29 % Operating income 28% (19%) (7%) (9%) (10%) Interest Expense (10%) (2%) (9%) (8%) (9%) Total Other Income and Deductions (15%) 4% ' 16 % 14 % 20 % income Before Taxes and Extraordinary item 35% (27%) 6% 6% 8% Income Taxes 9% (14%) 10 % 8% 12 % income Before Extraordinary item 58 % (35%)
- Includes Early Retirement and Separaten Programs Expense in 1998.
\ Operating Revenues increases /(decreases) in electric sales and revenues by class of customer for 1998 compared to 1997 and 1997 com-Total operating revenues increased in 1998 by $593 million to
$5,210 million. This represented a $644 million increase in pared to 1996 are set forth as follows:
l l electric revenues and a $51 million decrease in gas revenues compared to 1997. Electric revenues increased es a result of o;;;,Nh si,rci,dC7i ,i, additional sales to other utikties and interchange sales, in _ s m . _ _n. - u _ _ s m ._ _ _n.v.nu __ addition to higher wholesale prices. The decrease in gas rev- N "* #"" R """ 2" R i enues was primarily attributable to lower sales to house Residential 356 $ 30 (48) $ (1) heating, small commercial and residential customers as a House Heating (140) (10) (217) (12) result of milder weather conditions in 1998, partially offset by small Commercial higher purchased gas clause revenues charged in 1998 com- and Industnal 203 5 194 30 pared to 1997. Large Commercial Total operating revenues increased in 1997 by $334 mil- and Industnal 644 (11) (174) (21) lion to $4,618 million. This represented a $312 million increase Other (38) 2 (61) 8 in electric revenues and a $22 million increase in gas revenues Unbilled 61 (18) 397 45 Service Territory 1,086 (2) 91 49 over 1996. The increase in electric revenues was primarily due I" to increased sales to other utshties. The increase in gas rav- ga s 20 her t lities 6 - 9 8. enues was prirnarily due to higher revenues from sales to Total 11,007 $ 644 9,733 $ 312 commercial, house heating and residential customers result-ing from higher purchased gas clause revenues charged in 1997 compared to 1996, partially offset by lower sales result-Fuel and Energy Interchange Expense ing from milder weather conditions in 1997. This increase was partially offset by reduced sales to interruptible customers Fuel and energy interchange expense increased in 1998 by switching to transportation service. $462 million to $1,752 million. The increase was pnmarily due to increased energy purchases associated with increased sales to other utikties and interchange sales partially offset by reduced replacement power expense related to Salem. Increases in purchases of non-utility generation also con- [ tributed to increased fuel expense in 1998. Fuel and energy interchange expense as a percentage of operating revenues, increased from 28% to 34% principally as a result of energy purchases associated with increased sales to other utilities and interchange sales. Fuel and energy interchange expense increased in 1997 by $318 milhon to $1,290 million. The increase was primarily due to purchases associated with increased sales to other
l Minigement's Discussion and Analysis of Financial Condition and Results of C perations 17 utikties and a one-time bilkng credit in 1996 from a non-utility Interest charges decreased in 1997 by $9 million to $380 [^ generator. Fuel and energy interchange expense as a percent- million. The decrease was primanly due to the Company's ( age of operating revenues increased from 23% to 28% program to reduce and/or refinance higher-cost, long-term principally due to purchases associated with increased sales debt. This decrease was partially offset by the replacement to other utikties. of $62 million of preferred stock with COMRPS in the third quarter of 1997. Operating and Maintenance Expense Operating and maintenance expense, inclusive of expenses Other income and Deductions associated with early retirement and separation programs, Excluding Interest Charges decreased in 1998 by $178 million to *1253 million. The Other income and deductions excluding interest charges decrease in 1998 was primarily attributule to the full return decreased in 1998 by $77 million to a deduction of $73 mil-to service of Salem which resulted in lower restart expenses, lion. The decrease was primarily due to the settlement of a credit to pension and benefits expense related to the per- litigation arising from the shutdown of Salem recognized in formance of pension plan investments and lower property 1997 and losses from the Company's non-utility ventures, insurance and workers compensation insurance. These which are accounted for under the equity method, partially decreases were partially offset by the charge associated with offset by interest income on a gross receipts tax refund. the CCR workforce reduction program and increased power Other income and deductions excluding interest charges j marketing expenses. increased in 1997 by $6 million to $4 million. The increase was Operating and maintenance expense increased in 1997 primarily due to the settlement of litigation arising from the shut-by $157 million to $1,431 million primarily due to several one- down of Salem, partially offset by losses from the Company's time charges totaling $187 million, including charges for non-utility ventures. Also offsetting the increase was the write-changes in employee benefits, write-offs of information sys- off of one of the Company's telecommunications investments as tems development charges reflecting clarification of a result of the auctioning of personal communications systems accounting guidelines and additional reserves, including "C-block" licenses by the Federal Communication Commission. reserves for environmental site remediation. These increases were partially offset by lower operating costs at Company . Income Taxes operated nuclear generating stations and lower administrativ and general expenses resulting from the Company s ongoing income taxes increased in 1998 by $27 million to $320 mil-cost-control ef forts. ,s effective income tax rate decreased, however, from 46.5% to 37.5% in 1998 primarily as a result of full normalization of deferred taxes associated with deregu-Depreciation and Amortizat. ion Expense lated generation plant. Depreciation and amortization expense increased in 1998 by Incomo taxes decreased in 1997 by $47 million to $293
$62 million to $643 million. The increase was primarily due to million. The Company's effective income tax rate increased, tha amortization of Deferred Generation Costs Recoverable in however, from 39.7% to 46.5% in 1997 pnmarily attributable Current Rates during 1993, preceding the Company's transi- to reduced tax depreciation benefits from plant and regulato-tion to market-based pricing of electric generation in 1999. ry assets which were not fully normalized for ratemaking included in this amortization were charges that were included purposes, in operating and maintenance expense and interest expense in 1997*
Depreciation and amortization expense increased in 1997 Preferred Stock Dividends by $92 million to $581 million. The increase was primarily due Preferred stock dividends decreased in 1998 by $4 million to to increased depreciation of assets associated with Limenck $13 million and decreased in 1997 by $1 milkon to $17 million. which became effective October 1,1996. Depreciation and The decreases were primarily a result of the replacement of amortization expense also increased due to additions to plant $62 million of preferred stock with COMRPS in the third in service. g gg7 Interest Charges Interest charges consist of interest expense, distnbutions on D SCUSSIOn of Liquidity and Capital Resources Company Obkgated Mandatonly Redeemable Preferred The Company's capital resources are primanly provided by Securities of a Partnership (COMRPS) and Allowance for internally generated cash flows from utility operations and, to Funds Used During Construction (AFUDC). Interest charges the extent necessary, external financing. Such capital decreasM ia 1998 by $22 milhon to $358 million. The resources are used to fund the Company's capital require-decrease was primanly due to the Company's program to ments, including investments in new and existing ventures, reduce and/or refinance higher cost, long-term debt, lower to repay matunng debt and to make preferred and common variable interest rates and the discontinuance of amortization stock dividend payments. of the loss on reacquired debt related to electric generation Cash flows from operations were $1,433 milhon in 1998 operations as of December 31,1997. These decreases were as compared to $1,038 million in 1997 and $1,172 million in partially offset by lower AFUDC and capitalized interest 1996. The increase in 1998 was principally attributable to resulting from fewer projects in the construction base in improved operating results and changes in working capital 1998 and the replacement of $62 million of preferred stock with COMRPS in the third quarter of 1997.
18 PECO Energy Cornpany and Subsidiary Companies Cash flows used in investing activities were $462 million in be included in the consolidated capitalization of the Company. 1998 as compared to $573 million in 1997 and $663 million in Because the Transition Bonds will be obhgations of the SPS, 1996. Expenditures under the Company's construction program payable from the ITP owned by the SPS, the Company does decreasad to $415 million in 1998. Net funds invested in diver- not expect the issuance of Transition Bonds to adversely sifiad activities in 1998 were $47 million, consisting of $17 affect the ratings on the Company's securities which remain millic n for telecommunications ventures, $21 million for nuclear outstanding after issuance of Transition Bonds. plant decommissioning trust funds and $9 million for other in anticipation of the issuance of Transition Bonds, the densits and ventures. In 1997 and 1996, funds used in similar Company's Board of Directors authonzed the repurchase of
%tivities were $83 milhon and $114 million, respectively. up to 25 milhon shares of the Company's common stock Cash flows used in financing activities were $956 million from time to time through open market, privately negotiated l
l in 1998 as compared to $461 milhon in 1997 and $501 milkon and/or other types of transactions The Company has entered in 1996. The increase in 1998 was primarily attributable to into forward purchase agreements to be settled from time to increased retirement of long-term debt partially offset by time, at the Company's election on either a physical, net lower dividends on common stock. During 1998, in anticipa- share or net cash basis. The amount at which th9se agree-tion of competition, which is expected to reduce cash flows, ments can be settled is dependent principally upor the the Company reduced its dividend payment requirements by market price of the Company's common stock as comoared reducing its common stock dividend to $1 per share. The to the forward purchase price per share and the number oi decrease in 1997 was primarily due to fewer retirements of shares to be settled. If these agreements had been settled higher-cost debt. on a net share basis at December 31,1998, based on the The Company's capital expenditures are currently esti- closing price of the Company's common stock on that date, mated to be $440 million in 1999. Certain facihties under the Company would have received approximately 4.6 million construction and to be constructed may require peimits and shares of the Company's common stock, licenses which the Company has no assurance will be grant- The Company has entered into treasury forwards and ed. Capital expenditures do not include investments in joint forward starting interest rate swaps to manage interest rate ventures including investments related to the Company's exposure associated with the anticipated issuance of strategy to expand its generation portfolio. See" Outlook- Transition Bonds. The fair value of ($4.7 million) was based Expansion of Generation Portfolio." The Company may use on the present value difference between the contracted rate internally generated funds or external financing or a combina- (i e., hedged rate) and the market rates at December 31, tion of both to finance any acquisition. 1998. The Company meets its short-term hquidity requirements The aggregate change in fair value of the Transition Bond primanly through the issuance of commercial paper and bor- derivative instruments that would have resulted from a hypo-rowings under bank credit facihties. The Cornpany has a 400 thetical 50 basis point decrease in the spot yield at milhon unsecured revolving credit facihty with a group of December 31,1998 is estimated to be $128 milhon. If the banks which consists of a $450 million 364-day crede. agree- derivative instruments had been terminated at December 31, ment and a $450 million three-year credit agreement. The 1998, this estimated fair value represents the amount to be Company uses the credit facility principally to support its po;d by the Company to the counterparties.
$600 milhon commercial paper program. There was no debt Tt.e aggregate change in fair value of the Transition Bond outstanding under this credit facihty at December 31,1998. derivative instruments that would have resulted from a hypo-The Company had $525 mi!! ion of short-term debt, consisting thetical 50 basis point increase in the spot yield at December of $125 milhon of commercial paper, and a $400 milhon term 31,1998 is estimated to be $113 milhon. If the derivative loan, outstanding at December 31,1998. instruments had been terminated at December 31,1998, this At December 31,1998, the Company's embedded cost estimated fair value represents the amount to be paid by the of debt was 6 65% with 29% of the Company's long-term counterparties to the Company.
debt having floating rates. At December 31,1948, the Company's capital structure consisted of 44.2% corr mon equity; 8.4% preferred stock OutlOok and COMRPS (which comprised 61% of the Company's total capitalization structure); and 47.4% long-term debt. The Company is entenng a period of financial uncertainty as a in the Final Restructunng Order, the PUC authorized the result of the deregulation of its electnc generation operations. Company to securitize up to $4 bilhon of its allowed $5.26 bil. Under the terms of the Final Restructuring Order, revenues hon stranded or recosery thiough the issuance of transition from regulated rates will decrease. In addition, the Company bonds (Tran tit on Bonos), ine proceeds of any securitization will sell an increasing portion of its energy at market-based are requireci to be used by the Company poncipally to reduce rates. The Company believes that the deregulation of its elec-its stranded c osts and re!sted capitalization. The Company tnc generation operatons and other regulatory initiatives currently prc >oses to secuntize its allowed stranded asset designed to encourage competition will increase the recovery, up to the maximum amount authorized by the PUC, Company's nsk profile by changing and increasing the num-through the issuance of Transition Bonds by a special pur- ber of factors upon which the Company's financial results are pose subsiciary (SPS). The Transition Bonds will be dependent. This may result in more volatikty in the obligations of the SPS secured by intangible transition proper. Company's future results of operations. The Company ty (ITP). ITP represents the irrevocable right of the Company believes that it has significant advantages that will strengthen or its assignee, to collect non-bypassable charges from cus- its position in the increasingly competitive electric generation tomers to recover stranded costs. The Transition Bonds will
Mm:gtmInt's Discussion and Analysis of Finzncial Condition and Results of Operations 19 4 environment. These advantages include the ability to produce supplier will be selected by a PUC-approved bidding process. A electricity at a low variable-cost and the demonstrated abikty The right to provide this competitive default service will be k to market power in the competitive wholesale markets. rebid annually, and if the number of residential customers The Company's future financial condition and results of served by this service falls below 17%, further random selec-operations are substantially dependent upon the effects of tion of customers will be assigned to achieve the 20% level. the Final Restructuring Order and retail and wholesale com- The Company's recovery of stranded costs is based on petition for generation services. Additional factors that affect the level of transition charges established in the Final the Company's financial condition and results of operations Restructunng Order and the projected annual retail sales in include operation of nuclear generating facihties, Year 2000 the Company's service territory. Recovery of transition issues, new accounting pronouncements, inflation, weather, charges for stranded costs will be included in operating rev-compliance with environmental regulations and the profitabili- enue and are expected to be $552 million in 1999, increasing ty of the Company's investments in new ventures. to $932 million by 2010, the final year of stranded cost recov-ery. Amortization of the Company's stranded cost recovery, Final Restructuring Order which is a regulatory asset, will be included in depreciation The Final Restructuring Order contains a number of provi- and amortization, beginning in 1999 at a level of ($14) million sions which the Company expects will significantly impact its and increasing by 2010 to $879 million. The Company is future results of operations and financial condition, including allowed a 10.75% retum on the unamortized balance. As a mandated rate reductions, extended rate caps, provisions result of this amortization schedule, the Company expects its designed to enhance competition for generation services, the eamings to be disproportionately benefited by the recovery of amortization of the Company's stranded cost recovery and stranded assets in the early years of the transition perioa the securitization of stranded cost recovery. declining over the life of the recovery as the balance of the The Final Restructuring Order mandates retail electric unamortized regulatory asset is reduced. rate reductions of 8% in 1999 and 6% in 2000 from rates in Under the Final Restructuring Order, the Company may existence on December 31,1996. Based on the estimated securitize up to $4 billion of its $5.26 billion of stranded cost annual sales of the Company in the Final Restructuring Order, recovery through the issuance of Transition Bonds. The rate these rate reductions will reduce the Company's revenue reductions and rate caps of the Final Restructuring Order from retail electric sales by $270 million and $200 milhon in anticipate tne benefits of securitization and no adjustment in 1999 and 2000, respectively. The Company's revenue from the Company s base rates will be made upon the issuance of retail electric sales will be further reduced to the extent that Transition Bonds. As a result of the 10.75% allowed return on customers purchase generation service from afternate EGS. the unamortized balance of stranded cost recovery and The Final Restructuring Order caps the Company's retail expected costs of securitization substantially below this transmission and distribution rates at their current levels allowed return, the Company anticipates that successful through June 30, 2005. The Final Restructuring Order also securitization, resulting in a reduction of its common equity, established rate caps for generation services, consisting of will improve the Company s future financial results. the charge for stranded cost recovery and a charge for energy and capacity, through 2010. The rate caps will limit the Competit,on i Company's ability to pass cost increases through to customers. The Company competes in both the retail electric generation The Final Restructuring Order contains a number of pro- market in Pennsylvania and the wholesale electric generation visions which are designed to encourage competition for market nationally. Competition for electric generation services generation services. The Final Restructuring Order establish- is expected to create new uncertainties in the utility industry. es an above-market shopping credit for generation services. These uncertainties include future pices of generation ser-equivalent to the Company's energy and capacity charge, in vices in both the wholesale and retail markets; potential order to provide an economic incentive for customers to changes in the Company's customer profiles, both at the choose an alternate EGS. If market prices of retail generation retail level where change is expected to be ongoing as a services remain below the shopping credits for generation result of customer choice, and between the retail and whole-established by the Final Restructuring Order, this economic sale markets; and supply and demand volatikty, incentive to choose an altemate EGS will continue. If, on the Retail competition for generation supply commenced in other hand, market prices of retail generation services January 1999, with two thirds of Pennsylvania electric utility exceed the shopping credits for generation, customers will consumers having the right to choose their suppliers of gen-have an economic incentive to purchase generation services eration service. The Company is actively competing for a from the Company as the provider of last resort (PLR) at share of the generation supply market in its traditional service below market rates. Additionally, if on January 1,2001 and territory through PECO Energy Distribution as the PLR for January 1,2003, less than 35% and 50%, respectively, of the customers who do not or cannot choose an alternate EGS Company's residential and commercial customers are obtain- and throughout Pennsylvania through Exelon Energy, the ing generation service from alternate EGS, the non-shopping Company's new competitive supplier. Generation services customers will be randomly assigned to EGS, including those provided by PECO Energy Distribution are at the energy and affiliated with the Company, to meet these thresholds. capacity charge mandated by the Final Restructuring Order. Further, on January 1,2001,20% of all the Company's resi- Generation services offered by Exelon Energy are at competi-dential customers, whether or not such customers are tive market prices. Customers who continue to take obtaining generation service from an alternate EGS, will be generation service from PECO Energy Distribution may assigned to a PLR other than the Company. Such altemate choose an alternate generation suppher at any time. As of
30 PECO Energy Company and Subsidiary Companies January 12,1999, approximately 12% of the Company's resi- During 1998, Company-operated nuclear plants operated dential and small commercial customers and approximately at an 86% weighted-avercge capacity factor and Company-50% of its large commercial and industrial customers had owned nuclear plants operated at an 83% weighted-average ) selected an alternate EGS. As of that date. Exelon Energy is capacity factor. Company-owned nuclear plants produced ' providing generation service to approximately 135,000 busi- 39% of the Company's electricity. Nuclear generation is cur-ness and residential customers throughout Pennsylvania. rently the most cost-effective way for the Company to meet Because the energy and capacity charge (shopping credit) customer needs and commitments for sales to other utilities. l established by the PUC in the Restructuring Order remains See " Expansion of Generation Portfolio" I above current retail market prices for generation services, including those offered by Exelon Energy, the Company's New Accounting Pronouncements retail revenues will be reduced to the extent customers In June 1998, the Financial Accounting Standards Board choose an alternate EGS, including Exelon Energy. To the (FASB) issued SFAS No.133, " Accounting for Derivative extent that the Company cannot replace lost retail sales Instruments and Hedging Activities," to estabhsh accounting through PECO Energy Distribution with retail sales by Exelon and reporting standards for derivatives. The new standard Energy, the Company will be required to sell a larger portion requires recognizing all derivatives as either assets or liabili-of its energy and capacity in the wholesale market. Since ties on the balance sheet at their fair value and specifies the prices in the wholesale market are currently lower on average accounting for changes in fair value depending upon the than those charged in the competitive retail market, this will intended use of the derivative. The new standard is effective adversely affect the Company's revenues and profit margins. for fiscal years beginning after June 15,1999. The Company The Company is a low variable-cost electricity producer, expects to adopt SFAS No.133 in the first quarter of 2000. which puts it in a favorable position to take advantage of The Company is in the process of evaluating the impact of opportunities in the electric retail and wholesale generation SFAS No.133 on its financial statements. markets. The Company's competitive position and its future In November 1998, the FASB's Emerging issues Task financial condition and results of operations are dependent on Force issued EITF 98-10. " Accounting for Contracts involved the Company's ability to successfully operate its low variable- n Energy Trading and Risk Management Activities." EITF 98-cost power plants and market its power effectively in 10 outlines attributes that may be indicative of an energy competitive wholesale markets. trading operation and gives further guidance on the account-The Company competes in the wholesale market by sell ~ ng for contracta entered into by an energy trading operation. ing the energy and capacity from the Company's inspri This accountiag guidance requires mark-to-market accounting capacity not utilized in the retail market and buying and sell- for contracts considered to be a trading activity. EITF 98-10 is ing energy from third parties. The Company enters into both applicable for fiscal years beginning after December 15,1998 long-term and short-term commitments to buy and sell with any impact recorded as a cumulative effect adjustment l power. Currently, the Company's long-term commitrnents, through retained earnings at the date of adoption. At together with the energy the Company expects to market December 31,1998, the Company has evaluated its wholesale from the Company's installed capacity, make the Company a marketing operation and related contracts under the guidance net power seller. This long position, however, exposes the rovided in EITF 98-10. For those contracts entered into in the Company to the risk of declining revenues in periods of low over-the-counter market and considered to be a trading activity, wholesale demand for generation services. See Note 5 of the Company beheves the impact to be immaterial. However, l Notes to Consolidated Financial Statements. with respect to the long-term commitments considered to be There is an initiative in the Pennsylvania legislature t trading activities, the Company is continuing to evaluate these deregulate the gas industry, which has the support of the commitments and the impact of adopting EITF 98-10. governor. The Company cannot predict whether the Pennsylvania legislature will enact legislatim that deregulates the gas industry or whether the governor will ultimately sign Other Factors into law any such legislation. The Company cannot predict Annual and quarterly operating results can be significantly i the ultimate effect of gas industry deregulation on its future affected by weather. Since the Company's peak demand is in financial condition or results of operations. the summer months, temperature vanations in summer i months are generally more significant than variations dunng winte nths. Regulation and Operation of Nuclear Generating Facilities ing costs and increased capital costs for utility plant. As a The Company's financial condition and results of operations result of the rate caps imposed under the Final Restructunng are in part dependent on the continued successful operation Order and expected price pressures due to competition, the of its nuclear generating facihties. The Company's nuclear Company may have a limited opportunity to pass the costs of generating facihties represent 44% of its installed generating inflation through to customers. r 7 icity. Because of the Company's reliance on its nuclear The Company's operations have in the past and may in rerating units, any changes in regulations by the Nuclear the future require substantial capital expenditures in order to Regulatory Commission (NRC) requiring additional invest- comply with environmental laws. Additionally, under federal ments or resulting in increased operating costs of nuclear and state environmental laws, the Company is generally liable , generating units could adversely affect the Company. for the costs of remediating environmental contamination of property now or formerly owned by the Company and of property contaminated by hazardous substances generated
MinzgtmJnt's Discussion and Anilysis of FinIncial Condition and Results of Operations 21 by the Company. The Company owns or leases a number of this potential impact are not presently quantifiable. g) real estate parcels, including parcels on which its operations (V or the operations of others may have resulted in contamina-tion by substances which are considered hazardous under The Company is utilizing both internal and extemal resources to reprogram, or replace and test software and computer systems for the Project. The Project is scheduled environmental laws. The Company is currently involved in a for completion by July 1,1999, except for a small number of number of proceedings relating to sites where hazardous modifications, conversions or replacements that are impacted . substances have been deposited and may be subject to addi- by vendor dates and/or are being incorporated into scheduled tional proceedings in the future. plant outages between July and October 1999. The Company has identified 28 sites where former man- The Project is divided into four major sections - ufactured gas plant (MGP) activities have or may have Information Technology Systems (IT Systems), Embedded resulted in actual site contamination. The Company is Technology (devices used to control, monitor or assist the presently engaged in performing various levels of activities at operation of equipment, machinery or plant), Supply Chain l these sites, including initial evaluation to determine the exis- (third-party suppliers and customers), and Contingency l tence and nature of the contamination, detailed evaluation to Planning. The general phases common to all sections are: (1) determine the extent of the contamination and the necessity inventorying Y2K items; (2) assigning priorities to identified and possible methods of remediation, and implementation of items; (3) assessing the Y2K readiness of items determined remediation. The Pennsylvania Department of Environmental to be material to the Company; (4) converug material iterns Protection has approved the Company's clean-up of three that are determined not to be Y2K ready; (5) testing material sites. Eight other sites are currently under some degree of items; and (6) designing and implementing contingency plans active study and/or remediation. for each critical Company process. Material items are those As of December 31,1998 and 1997, the Company had believed by the Company to have a risk involving the safety accrued $60 and $63 million, respectively, for environmental of individuals, may cause damage to property or the environ-investigation and remediation costs, including $33 and $35 ment, or affect revenues. million, respectively, for MGP investigation and remediation The IT Systems section includes both the conversion of that currently can be reasonably estimated. The Company applications software that is not Y2K ready and the replace-expects to expend $3 million for environmental remediation ment of software when available from the supplier. The activities in 1999. The Company cannot predict whether it will Company estimates that the sof tware conversion phase was incur other significant liabilities for any additional investigation approximately 66% complete at January 27,1999, and the and remediation costs at these or additional sites identified remaining conversions are expected to be completed by the
/f.\ by the Company, environmental agencies or others, or scheduled end date. The Company has been experiencing h whether such costs will be recoverable from third parties. slippage in delivery dates of vendor suppi;ed products which For a discussion of other contingencies, see Note 5 of may have a minor impact on the July 1,1999 target comple-Notes to Consolidated Financial Statements. tion date. Contingency planning for IT Sys' err a is scheduled to be completed by July 1,1999 with an i stor m date of Year 2000 Readiness Disclosure March 31,1999 that addresses PUC continency planning Due to the severity of the potential impact of the Year 2000 requirements. The Project has identified 380 ;r#al avstems issue (Y2K lssue) on the electric utility industry, the Cornpany of which 238 are IT Systems. The current readiness status o:
has adopted a comprehensive schedule to achieve Y2K readi- IT Systems is set forth below: ness by the time specified by the NRC. The Company has dedicated extensive resources to its Y2K Project (Project) and Mumber of Systems Progress Status believes the project is progressing on schedule, 79 Systems Y2K Ready The Project is addressing the issue resulting from com. 65 Systems in Testing puter programs using two digits rather than four to define the 87 Systems In Active Code Modification, applicable year and other programming techniques that con. Or Package Upgrading strain date calculations or assign special meanings to certain 7 Systems Not Started dates. Ariy of the Company's computer systems that have date-sensitive software or microprocessors may recognize a The Embedded Technology section consists of hardware date using "00" as the year 1900 rather than the year 2000. and systems software other 'han IT Systems. The Company This could result in a system failure or miscalculations caus. estimates that the Embedded Technology section was ing disruptions of operations, including, a temporary inability approximately 75% complete at January 27,1999. The to process transactions, send bills, operate generating sta- remaining conversions are on schedule to be tested and tions, or engage in similar normal business activities. ready by July 1,1999, except for a small number of systems The Com,any has determined that it will be required to which will be extended into the fall of 1999 because their modify, conve,t or replace significant portions of its software final tests will occur during a planned generating plant out-and a subset of its system hardware and embedded technol- age. Contingency planning for Embedded Technology is ogy so that its computer systems will properly utilize dates scheduled to be completed by July 1,1999 with an interim beyond December 31,1999. The Company presently believes date of March 31,1999 that addresses PUC contingency that with these modifications, conversions and replacements planning requirements. The Project has identified 142 cntical the effect of the Y2K lssue on the Company can be mitigat. Embedded Technology systems. The current readiness status ed. If such modifications, conversions and replacements are of those systems is set forth below: not made, or are not completed in a timely manner, the Y2K issue could have a material impact on the operations and financial condition of the Company. The costs associated with
22 PECO Entrgy Comptny and Subsidiary Companies l Number of Systems Progress Status of trained personnel, the ability to locate and correct all rele-31 Systems Y2K Ready vant computer programs and microprocessors. 29 Systems In Final Quality Review The Project is expected to significantly reduce the 76 Systems In Progress Company's level of uncertainty about the Y2K lssue. The j 6 Systems Not Started Company believes that the completion of the Project, as scheduled, minimizes the possibility of significant interrup-The Supply Chain section includes the process of identi- tions of normal operations. fying and prioritizing critical suppliers and communicating with them about their plans and progress in addressing the Expansion of Generation Portfolio Y2K lssue. The Company initiated formal communications The Company established specific goals to increase its gener-with all of its critical suppliers to determine the extent to ation capacity from 9 gigawatts to 25 gigawatts by 2003. The which the Company may be vulnerable to their Y2K issues. Company is targeting a balanced portfolio of nuclear, hydro The process of evaluating these critical suppliers has com- and c!ean burning fossil capacity through the acquisition of , menced and is scheduled to be completed by March 31, plants and long-term supply agreements. In order to meet I 1999. this strategic objective the Company may require significant The Compa7y, like other companies, is interconnected capital resources. with many businesses, including electric utilities, natural gas in October 1998, the Company through AmerGen Energy l pipelines and mur.icipalities. The Company is working with Company, LLC, a 50% owned joirt venture with British businesses where interconnections exist to determine and Energy, Inc., entered into a definitive asset purchase agree-monitor their Y2K re.adiness efforts. In addition, the Company ment with GPU, Inc. (GPU) to acquire GPU's 786 megawatt is currently developing contingency plans to address how to Three Mile Island Unit No.1 Nuclear Generating Facility for respond to events which may disrupt normal operations. approximately $23 million in cash, $77 million for nuclear fuel These plans address Y2K nsk scenanos that cross depart- payable over five years and certain contingent payments mental, business unit and industry lines as well as specific based upon future wholesale market prices. The Company risks from various internal and extemal sources, including currently expects the acquisition, which is subject to various supplier readiness. Emergency plans already exist that cover regulatory approvals, to close by mid-year 1999. Various aspects of the Cornpany's business. These plans are being reviewed and updated, as needed, to address the Y2K Corporate Restructuring issue. The Company is also participating in industry contin-In 1999, the Company's common shareholders will vote on a gency planning efforts. management proposal for the formation of a holding compa- l The estimated total cost of the Project is $75 million, the ny. The holding company will be formed through the majority of which will be incurred during testing. This esti-exchange of PECO Energy common stock for common stock mate includes the Company's share of Y2K costs for jointly of the holding company. As a result, the Company will owned facilities. The total amount expended on the Project become a wholly owned subsidiary of the holding company. through December 31,1998 was .321 million. The Company The formation of the holding company will not affect the expects to fund the Project from operating cash flows. Company's other securities. Management has proposed the The Company s failure to become Y2K ready could result in en interruption in or a failure of ceitain normal business formation of the holding company to facilitate the disaggrega-tion of the Company's transmission and distribution, activities or operations. In addition, there can be no assur-generation and unregulated ousinesses and corporate central ance that the systems of other companies on which the Company s systems rely or with which chey communicate services in order to create increased financial, management and organizational flexibility. wili be converted in a timely manner, or that a failure to con-vert by another company, or a conversion that is incompatible with the Company's systems, will not have, a material orward-Looking Staternents adverse effect on the Company. Such failuros could material- Except for the histoncal information containect herein, certain ly and adversely affect the Company's resulta of operations, of the matters discussed in this Report are forward-looking liquidity and financial condition. The Company is currently statements which are subject to risks and uncertainties. The developing contingency plans to address how 'o respond to factors that could cause actual results to differ materially events that may disrupt normal operations, including activities include those discussed herein as well as those listed in with PJM interconnection, LLC. Note 5 of Notes to Consolidated Financial Statements and The costs of the Project and the date on which the other factors discussed in the Company's filings with the l Company plans to complete the Y2K modifications are based Secunties and Exchange Commission. Readers are cautioned l on estimates, that were derived utilizing numerous assump- not to place undue reliance on these forward-looking state-tions of future events, including the continued availability of ments, which speak only as of the date of this Report. The l certain resources, third-party modification plans and cther fac- Company undertakes no obligation to publicly release any tors, such as regulatory requirements that impact key revision to these forward-looking statements to reflect events l systems. There can be no assurance that these estima:es or circumstances after the date of this Report, j will be achieved. Actual results could differ matenally frcm l the projections. Specific factors that might cause a matel ial l change include, but are not limited to, the availabikty and Lost
23 Report of Independent Accountants U To the Shareholders and Board of Directors of PECO Energy Company: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, cash flows and changes in common shareholders' equity and preferred stock present fairly, in all material respects, the financial position of PECO Energy Company and Subsidiary Companies at December 31,1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31,1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted audit-
- n ing standards which require that we plan and perform the audit to Q' i obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test i basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant esti-mates made by management and evaluating the overall financial i statement presentation. We believe that our audits provide a reasonable )
basis for the opinion expressed above. j mey
'O Philadelphia, Pennsylvania February 5,1999 O
O
24 PECO Energy Compiny and Subsidiary Companies Consolidated Statements of income O For the Years Ended December 31, 1998 1997 1996 Thousands of Dollars Operating Revenues Electric $ 4,810,840 $ 4,166,669 $ 3,854,836 Gas 399,642_ 451,232_ 428,814 Total Operating Revenues 5,210,482 4,617,901 4.283,650 Operating Expenses Fuel and Energy Interchange 1,751,819 1,290,164 972,380 Operating and Maintenance 1,128,792 1,431,420 1,274,222 Early Retirement and Separation Programs 124,200 - - Depreciation and Amortization 642,842 580,595 489,001 Taxes Other Than income 279,515 310,091 299,546 Total Operating Expenses 3,927,168_ 3,612,270 3,035,149 Operating income 1,283,314 1,005.631 1,248,501 Other income and Deductions Interest Expense (330,842) (372,857) (382,443) Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership, which holds Solely Subordinated Debentures of the Company (30,694) (28,990) (26,723) Allowance for Funds Used During Construction 3,522 21,771 19,947 Settlement of Salem Litigation - 69,800 - Other, net Q3,268)_ (66,02_8L (1,976)_ Total Other income and Deductions (431,282) (376,304) (391,195) income Before income Taxes and Extraordinary item 852,032 629,327 857,306 income Taxes 319,654 292,769 340,101 Income Bofore Extraordinary item 532,378 336,558 517,205 Extraordinary item (net of income taxes of
$13,757 and $1,290,961 for 1998 and 1997, respectively) (19,654) (1,833,664) -
Net income (Loss) 512,724 (1,497,106) 517,205 Preferred Stock Dividends 13,109 16,804 18.036 Ecrnings (Loss) Applicable to Common Stock $ 499,615 $ (1.513,910) $ 499,169 Average Shares of Common Stock Outstanding (Innusands) 223,219 222.543 222,490 Basic Earnings per Average Common Share Before Extraordinary item coolles) $ 2.33 $ 1.44 $ 2.24 Extraordinary item rooll4n) $ (0.09) $ (8.24)_$ - Bisic Earnings per Average Common Share (oonars) $ 2.24 $ (6.80) $ 2.24 Diluted Earnings per Average Common Share Before Extraordinary item (omn) $ 2,32 $ 1.44 $ 2.24 Extraordinary item (conan) _$ (0.09) $ (8.24) $ - Diluted Earnings per Average Common Share (conors) $ 2.23 $ (6.80) $ 2.24 Dividends per Common Share (covan) $ 1,00 $ 1.80 $ 1.755 9 See Notes to Consolidated Financial Statements.
PECO Energy Company and Subsidiary Companies 25 Consolidated Statements of Cash Flows For the Years Ended December 31, 1998 1997 1996 Thousands of Dollars Cash Flows from Operating Activities Not income (Loss) $ 512,724 $ (1,497,106) $ 517,205 Extraordinary item (net of income taxes) (19,654) (1,833,664) - Income Before Extraordinary item 532,378 336,558 517,205 Adjustments to reconcile Net income to Net Cash provided by Operating Activities: Depreciation and Amortization 704,718 664,294 566,412 Deferred income Taxes (115,640) (17,228) 166,770 Amortization of Investment Tax Credits (18,066) (18,201) (15,979) Early Retirement and Separation Charge 125,000 - -- Salem Litigation Settlement - 69,800 - Deferred Energy Costs 5,818 (5,652) (66,151) Arnortization of Leased Property 59,923 39,100 31,400 Changes in Working Capital: Accounts Receivable 15,590 (289,610) 53,681 Inventories 14,192 28,628 (2,729) Accounts Payable 8,971 93,881 (86.765) Other Current Assets and Liabilities 54,263 58,539 (25,040) Other Deferred Credits - Other 49,948 78,846 (4,609) Other items affecting Operations (4,190L (804) _ 38,050 Net Cash Flows from Operating Activities 1,432,905 1,038,151 1,172,245 Cash Flows from loesting Activities Investment in Plant (415,331) (490,200) (548,854) Increase in Other Investrnents (48,742) (83) 61) (114,126) Net Cash Flows from investing Activities (462,073) (573,461) (662,980) Cash Flows from Financing Activities Change in Short-Term Debt 123,500 114,000 287,500 Proceeds from Exercise of Stock Options 50,700 117 11,301 Retirement of Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership (80,794) (61,895) - Issuance of Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership 78,105 50,000 - Issuance of Long-Term Debt 13,486 161,813 43,700 Retirement of Long-Term Debt (841,755) (283,303) (427.463) Loss on Reacquired Debt 6,753 22,752 24,724 Dividends en Preferred and Common Stock (236,307) (417,383) (411,569) Capital Lea:e P;yments (59,923) (39,100) (31,400) Other Items Affecting Financing (9,918) (7,522) 2,575 Net Cash Flows from Financing Activities (956,153) (460,521) (500,632) Increase in Cash and Cash Equivalents 14,679 4,169 8,633 Cash and Cash Equivalents at beginning of period 33,404 29,235 20,602 Cash and Cash Equivalents at end of period S 48,083 $ 33.404 $ 29.235 See Notes to Consolidated Financial Statements.
26 PECO Ernrgy Compiny and Subsidiary Companies Censolidated Balance Sheets At December 31, 1998 1997 Thousands of Dollan Assets Utility Plant El:ctric-Transmission & Distribution S 3,833,780 $ 3,617,666 Electric-Generation 1,713,430 1,434,895 Gas 1,131,999 1,071,819 Common 407,320_ 302,672 7,086,529 6,427,052 Less Accumulated Provision for Depreciation 2,891,32_1_ 2,690,824 4,195,208 3,736,228 Nuclear Fuel, net 141,907 147,359 Construction Work in Progress 272,590 611,204 Ltased Property, net 154,308 175,933 Net Utility Plant 4,764,013 4,670,724 Current Assets Cash and Temporary Cash Investments 48,083 33,404 Accounts Receivable, net Customers 97,527 173,350 Other 213,229 139,996 Inventories, at average cost Fossil Fuel 79,488 84,858 Materials and Supplies 82,068 90.890 Deferred Energy Costs-Gas 29,847 35,665 Dzferred Generation Costs Recoverable in Current Rates - 424,497 Other 19813_ 20,115 Total Current Assets 569,255 1,002,775 D:ferred Debits and Other Assets Competstive Transition Charge 5,274,624 5,274,624 Recoverable Deferred income Taxes 614,445 590,267 Deferred Non-Pension Postratirement Benefits Costs 90,915 97,409 Investments 550,904 515,835 l Loss on Reacquired Debt 77,165 83,918 l Other 10h042 121,016 Total Deferred Debits and Other Assets 6,715,095 6,683,069 Total Assets S 12,048,363 $ 12.356.568 See Notes to Consolidated Financial Statements.
PECO Energy Company cnd Subsiditry Comp;nies 27 ps Consolidated Balance Sheets (continued)
/ )
At December 31, *998 1997 Thousarrds of Dollars i Capitalization and Liabilities Capitalization l Common Shareholders' Equity l Common Stock 8 3,589,031 $ 3,517,731 Other Paid-In Capital 1,236 1,239 l I Retained Earnings (Accumulated Deficit) (532,925) (792,239) 3,057,342 2,726,731 Preferred and Preference Stock Without Mandatory Redemption 137,472 137,472 l With Mandatory Redemption 92,700 92,700 l Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership, which holds Solely Subordinated Debentures of the Company 349,355 352.085 l Long-Term Debt 2,919,592 3,853,141 Total Capitalization 6,556,461 7,162,129 I l Current Liabilities b d Notes Payable Long-Term Debt Due Within One Year 525,000 361,523 401,500 247,087 Capital Lease Obhgations Due Within One Year 69,011 55,808 l. l Accounts Payable 316,292 323,816 Taxes Accrued 170,495 66,397 l Interest Accrued 61,515 77,911 Deferred Income Texes 14,168 185,696 Other 217,416 260,457 l Total Current Liabilities 1,735,42_0 1,618,672 l Deferred Credits and Other Liabilities Capital Lease Obligations 85,297 120,125 Deferred Income Taxes 2,376,792 2,297,042 Unamortized Investment Tax Credits 299,999 318.065 Pension Obligation 219,274 211,596 Non-Pension Postretirement Benefits Obligation 421,083 324,850 Other 354,037 304,089 Total Deferred Credits and Other Liabilities 3,756,482 3,575,767 Commitments and Contingencies (Note 5) (N Total Capitalization and Liabilities S 12,048,363 $ 12,356.568
\v)
$ee Notes to Consolidated Financial Statements.
l
28 PECO Energy Comptny and Subsidiary Companies Consolidated Statements of Changes in Common Shareholders' Equity and Preferred Stock 01 Retained Other Earnings Common Stock Paid-in (Accumulated Preferred Stock i A// Amounts in Thousands Shares mount Capital Deficit) Shares Amount i Bilance at January 1,1996 222,172 $ 3,506,313 $ 1,326 $ 1,023,708 2,921 $ 292,067 l Net income 517,205 Cash Dividenos Declared Preferred Stock l (at specified annual rates) (21.042) Common Stock ($1.755 per share) (390,527) Expenses of Capital Stock Activity (275) Capital Stock Activity Longterm Incentive Plan Issuances 370 11,301 (2,028) Balance at December 31,1996 222,542 3.517,614 1,326 1.127,041 2,921 292,067 Net Loss (1,497,106) Cash Dividends Declared Preferred Stock (at specified annual rates) (16,804) Common Stock ($1.80 per share) (400,578) Expenses of Capital Activity 97 Stock Repurchase Forward Contract (4,889) Capital Stock Activity , Long-Term Incentive Plan Issuances 5 117 l Preferred Stock Redemptions (87) (619) (61,895) Balance at December 31,1997 222,547 $ 3,517,731 S 1,239 $ (792,239) 2,302 S 230,172 Net income 512,724 l Cash Dividends Declared Preferred Stock (at specified annual rates) (13,109) Common Stock ($1.00 per share) (223,198) Expenses of Capital Stock Activity 2,731 Stock Repurchase Forward Contract (7,677) Capital Stock Activity Long Term incentive Plan issuances , 2,137 _ 71,300 _ __ _ _ _( 3) __ (12,15_7) _ _ _ _ _ _ _ _ _ Balance at December 31,1998 224,684 S 3,589,031 $ 1,236 S (532,925) 2,302 S 230,172 O See Notes to Consolidated Financial Statements.
.. q Not:s to ConsolidItzd Fininci:1 Stittmints 29 Notes to Consolidated Financial Statements s
v
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- 1. Significant Accounting Policies bass rates. Differences between the amounts billed to cus-General tomers and the actual costs recoverable are deferred and The consolidated financial statements of PECO Energy recovered or refunded in future periods by means of prospec-Company (the Company) include the accounts of its utility tive quarterly adjustments to rates.
! subsidiary companies, all of which are wholly owned. Prior to December 31,1996, the Company's retail elec-Accounting policies for all of the Company's operations are in tric rates were subject to an Energy Cost Adjustment (ECA) accordance with generally accepted accounting principles clause designed to recover or refund the difference between (GAAP). Accounting policies for regulated operations are also the actual cost of fuel, energy interchange or purchased in accordance with those prescribed by the regulatory author- power and the amount of such costs included in base rates. f Effective December 31,1996, the PUC approved the roll-in of l ities having jurisdiction, principally the Pennsylvania Public Utility Commission (PUC) and the Federal Energy Regulatory electric energy costs into the base rates charged to the l Commission (FERC). The Company has unconsolidated non- Company's retail electric customers and such rates are no utility subsidiaries which are not material The unconsolidated longer subject to the ECA. subsidiaries are accounted for under the equity method. Nuclear Fuel Use of Estimates The cost of nuclear fuel is capitalized and charged to fuel The preparation of financial statements in conformity with expense on the unit of production method. Estimated costs GAAP requires management to make estimates and assump- of nuclear fuel disposal are charged to fuel expense as the tions that affect the reported amounts of assets and liabilities related fuel is consumed. The Company's nuclear fuel at and disclosure of contingent assets and liabilities at the date Peach Bottom Atomic Power Station (Peach Bottom) and of the financial statements and the reported amounts of rev. Salem Generating Station (Salem) is accounted for as a capi-enues and expenses during the reporting period. Actual tallease. Nuclear fuel at Limerick Generating Station results could differ from those estimates. (Limerick) is owned. Estimates are used by the Company in accounting for ia unbilled revenue, the allowance for uncollectible accounts, Nuclear Outage Costs )( purchased gas adjustment clause, depreciation and arnortiza. Incremental nuclear maintenance and refueling outage costs lD) tion, taxes, reserves for contingencies, employee benefits, are accrued over the unit operating cycle. For each unit, an accrual for incremental nuclear maintenance and refueling certain fair value and recoverability determinations, and nuclear outage costs, among others. outage expense is estimated based upon the latest planned outage schedule and estimated costs for the outage. Accounting fc4 ths Efrects of Regulation Differences tsetween the accrued and actual expense for the The Cornpany accounts for all of its electric transmission and outage are recorded when such differences are known. d;stribution and gas operations in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, Depreciation, Amortization and Decommissioning
" Accounting for the Effects of Certain Types of Regulation," Depreciation is provided over the estimated service lives of requiring the Company to record the financial statement plant on the straight-line method. Annual depreciation provi-effects of the rate regulation to which such operations are sions for financial reporting purposes, expressed as a currently subject. If a separable portion of the Company's percentage of average depreciable utility plant in service, business no longer meets the provisions of SFAS Ne 71, the were approximately 2.8% in 1998,3.3% in 1997 and 2.9% in Company is required to eliminate the financial statement 1996. See note 3 for information conceming the change in effects of regulation for that portion. Effective December 31, 1996 to depreciation and amortization.
1997, the Company determined that the electric generation The Company's current estimate of the costs for decom-portion of its business no longer met the criteria of SFAS No. missioning its ownership share of its nuclear generating 71 and, accordingly, implemented SFAS No.101, " Regulated stations is currently included in regulated rates and is charged Enterprises - Accounting for the Discontinuation of FASB to operations over the expected service life of the related plant. Statement No. 71," for that portion of its business. The amounts recovered from customers are deposited in trust accounts and invested for funding of future costs. These Revenues amounts, and realized investment eamings thereon, are credit-Electric and gas revenues are recorded as service is rendered ed to accumulated depreciation. The Company believes that the or energy is delivered to customers. At the end of each month, amounts being recovered from customers through electric rates the Company accrues an estimate for the unbilled amount of Will be sufficient to fully fund the unrecorded portion of its energy delivered or services provided to customers. decommissioning obligation. A Purchased Gas and Energy Cost Adjustment Clauses Allowance for Funds Used During Construction (AFUDC) The Company's gas rates are subject to a fuel adjustment AFUDC is the cost, during the period of construction. of debt clause designed to recover or refund the difference between and equity funds used to finance construction projects for the actual cost of purchased gas and the amount included in regulated operations. AFUDC is recorded as a charge to Construction Work in Progress and as a credit to AFUDC
30 PECO Energy Comrany and Subsidiary Companies l l included in Other Income and Deductions. The rates used for New Accounting Pronouncements capitalizing AFUDC, which averaged 8.63% in 1998,8.88% in in 1998, the Company adopted SFAS No.131, " Disclosures 1997 and 9.38% in 1996, are computed under a method pre- about Segments of an Enterprise and Related Information" scribed by regulatory authorities. AFUDC is not included in (SFAS No.131). SFAS No.131 supersedes SFAS No.14, regular taxable income and the depreciation of capitalized " Financial Reporting for Segments of a Business Enterprise," AFUDC is not tax deductible. replacing the " industry segment" approach with the " man-Effective January 1,1998, the Company ceased accruing agement" approach. The management approach designates AFUDC for electric generation-related construction projects and the internal organization that is used by management for began using SFAS No. 34, " Capitalizing Interest Costs," to cal- making operating decisions and assessing performance as culate the costs during construction of debt funds used to the source of the Company's reportable segments. SFAS No. finance its electric generation-related construction projects. The 131 also requires disclosures about products and services, Company recorded capitalized interest of $7 million in 1998. geographic areas and major customers. The adoption of SFAS No.131 did not affect the Company's financial condition or Gains and Losses on Reacquired Debt results of operations (see note 2). Pnor to December 31,1997, gains and losses on reacquired in 1998, the Company adopted SFAS No.132, debt were deferred and amortized to interest expense over the " Employers' Disclosures about Pensions and Other panod approved for ratemaking purposes. Effective January 1 Postretirement Benefits," (SFAS No.132) which revises and 1998, gains and losses on reacquired debt associated with the standardizes employers' disclosures about pension and other electric generation portion of the Company's operations are postretirement benefit plans but does not change the mea-expensed as incurred. Gains and losses on reacquired debt surement or recognition of those plans. The adoption of SFAS associated with the Company's regulated operations continue No.132 did not affect the Company's financial condition or to be deferred and amortized to interest expense over the peri- results of operations (see note 6). od approved for ratemaking purposes based on management's in June 1998, the Financial Accounting Standards Board assessment of the likelihood of recovery. (FASB) issued SFAS No.133, " Accounting for Derivative Instruments and Hedging Activities," (SFAS No.133) to income Taxes establish accounting and reporting standards for derivatives. Deferred Federal and state income taxes are provided on all The new standard requires recognizing all derivatives as significant timing differences between book bases and tax either assets or liabilities on the balance sheet at their fair bases of assets and liabilities, transactians that reflect taxable value and specifies the accounting for changes in fair value income in a year different than book income and tax carry for- depending upon the intended use of the derivative. The new wards. Investment tax credits previously used for income tax standard will be effective for fiscal years beginning after June purposes have been deferred on the Consolidated Balance 15,1999. The Company expects to adopt SFAS No.133 in Sheet and are recognized in book income over the life of the the first quarter of 2000. The Company is in the process of related property. The Company and its subsidiaries file a evaluating the impact of SFAS No.133 on its financial state-Consolidated Federalincome tax retum. Income taxes are ments. allocated to each of the Company's subsidiaries within the in November 1998, the FASB's Emerging issues Task consolidated group based on the separate return method. Force issued EITF 98-10. " Accounting for Contracts involved in Energy Trading and Risk Management Activities." EITF 98-Derivative FinancialInstruments 10 outlines attributes that may be indicative of an energy Hedge accounting is applied only if the derivative reduces the trading operation and gives further guidance on the account-risk of the underlying hedged item and is designated at incep- ing for contracts entered into by an energy trading operation. tion as a hedge, with respect to the hedged item. If a This accounting guidance requires mark-to-market accounting derivative instrument ceased to meet the critoria for deferra!, for contracts considered to be a trading activity. EITF 98-10 is any gains or losses would be currently recognized in income. applicable for fiscal years beginning after December 15,1998 The Company does not hold or issue derivative financial with any impact recorded as a cumulative effect adjustment instruments for trading purposes. through retained earnings at the date of adoption. At December 31,1998, the Company has evaluated its whole-Utility Plant sale marketing operation and related contracts under the Effective December 31,1997, electric generation plant is GI- guidance provided in EITF 98-10. For those contracts entered ued at the lowei of original cost or market pursuant to SFAS into in the over-tha-counter market and considered to be a No.121, " Accounting for the impairment of Long-Lived trading activity, the Company believes the impact to be Assets and for Long-Lived Assets to Be Disposed Of"(SFAS immaterial. However, due to the duration, complexity, and No.121). All other utility plant continues to be valued at origi- uncertainties surrounding the long-term commitments consid-nal cost. ered to be trading activities, the Company is continuing to evaluate these commitments and the impact of adopting Capitalized Software Costs EITF 98-10. Software projects which exceed $5 million are capitalized. At December 31,1998 and 1997, capitalized software costs Reclassifications totaled $84 and $86 million (net of $37 and $29 mdlion accu- Certain poor-year amounts have been reclassified for compar-mulated amortization), respectively. Such capitalized amounts ative purposes. These reclassifications had no effect on net are amortized ratably over the expected lives of the projects income or common shareholders' equity. When they become operational, not to exceed ten years.
Notes to Consolidated Financial Statements 31
- 2. Nature of Operations and Inforrnation about Products and Services The Company is primarily a vertically integrated public utility that provides retail electric and natural gas service to the public in its traditional service temtory and retail electric generation service throughout Pennsylvania in conjunction with Pennsylvania's Customer Choice Program. The Company also engages in the wholesale marketing of electricity on a national basis. The Company participates in joint ventures which provide services such as telecommunications in the Philadelphia metropolitan area.
Revenues and expenses associated with these activities, the Customer Choice Program, joint ventures and other projects are reflected in Other Income and Deductions in the Company's Consolidated Statements of Income. For the Years Ended Decernber 31, 1998 1997 1996 Thousands of Dollars Operating Revenues from Electric Operations Residential $ 1,377,237 $ 1,357,449 $ 1,370,158 Small commercial and industrial 783,682 778,743 748,561 Large commercial and industrial 1,066,868 1,077,374 1,098,307 Other 149,424 147,523 140,133 Unbilled 1,409 19,130 (25,950) service territory 3,378,620 3,380.219 3,331,209 Interchange sales 210,965 58,614 25,991 Sales to other utilities 1,221,255_ 727,836 497.636 Total operating revenues S 4,810,840 $ 4,166,669 $ 3,854,836 Operating Revenues from Gn Operations Residential $ 15,968 $ 16,852 $ 15,716 House heating 236,430 265,299 249,507 Commercial and industrial 124,548 144,801 132,822 Other 2,037 3,228 11,462 Unbilled (2,960) (969) (4,250) Subtotal 376,023 429,211 405,257 Other revenues (including gas transported for customers) 23,619 22,021 23,557 Total operating revenues S 399,642 $ 451,232 $ 428,814
- 3. Rate Matters tomers choose an EGS. If less than 35% and 50% of residen-Final Restructuring Order tial and commercial customers have chosen an EGS by On May 14,1998, the PUC issued a final order (Final January 1,2001 and January 1,2003, respectively, the num-Restructuring Order) approving a Joint Petition for Settlement ber of customers sufficient to meet the necessary threshold (Global Settlement) filed by the Compaay and numerous par. levels shall be randomly selected and assigned to an EGS ties to the Company's restructuring proceeding mandated by through a PUC-determined process.
the Electocity Generation Competition and Customer Choice Beginning January 1,1999, electric rates will be unbun-Act (Competition Act). The Competition Act provides for the died into transmission and distobution components, a restructuring of the electnc utility industry in Pennsylvania, Competitive Transition Charge (CTC) for recovery of stranded including the deregulation of generation operations and the costs and an energy and capacity charge. Eligible customers institution of retail competition for generation supply begin- who choose an attemative EGS will not be charged the ener-ning in 1999. The Final Restructuring Order provided for the gy and capacity charge or the transmission charge and recovery of $5.26 billion of stranded costs through transition instead will purchase their electric energy supply and trans-charges to distribution customers over a 12 year period mission at market-based rates from their EGS. The Company beginning in 1999 with a 10.75% return on the balance and willin turn be reimbursed by the EGS, via the PJM supercedes all prior orders regarding recovery of generation- Interconnection, LLC, for the cost of the transmission related regulatory assets and liabilities. During the 12 year service at a rate approximately equivalent to the unbundied stranded cost recovery period, the Company will amortize the transmission rate. Also, beginning January 1,1999, the recoverable stranded costs in accordance with the rate Company will unbundle its retail electric rates for metering, schedules determined in the Final Restructuring Order. meter reading and billing and collection services to provide The Final Restructuring Order provided for the phase-in cred:ts to those customers who elect to have an alternative of customer choice of electric generation supplier (EGS) for supplier perform these services. all customers: one-third of the peak load of each customer in accordance with the Competition Act and the Final class on January 1,1999, one-third on January 2,1999, and Restructuring Order, the Company's retail electric rates are the remainder on January 2,2000. The Final Restructuring capped at the year end 1996 levels (system-wide average of Order also established market share thresholds to ensure 9.96 cents / kilowatt hour (kWh)) through June 2005. The Final that a minimum number of residential and commercial cus. Restructuring Order requires the Company to reduce its retail l
32 PECO Energy Cornpany and Subsidiary Companies l l electric rates by 8% from the 1996 system-wide average rate recorded as revenue net of fuel costs $82 million, as a result of on January 1,1999. The rate decrease will become 6% from the sale of the 399 MW of capacity and/or associated energy January 1,2000 until January 1,2001, when the system-wide and the Company's share of Limerick energy savings. I average rate cap will revert to 9.96 cents /kWh. The transmis-I sion and distribution rate component wil: remain capped at a Declaratory Accounting Order system-wide average rate of 2.98 cents /kWh through June Pursuant to a PUC Declaratory Order, effective October 1, 30,2005. Add:tionally, generation rate caps, defined as the 1996, the Company increased depreciation and amortization sum of the applicable transition charge and energy and capac- on assets associated with Umorick by $100 million per year ity charge, will remain in effect through 2010 and decreased depreciation and amortization on other The Final Restructuring Order requires that on January 1, Company assets by $10 million per year, for a net increase in 2001,20% of all of the Company's residential customers, depreciation and amortization of $90 million per year. At determined by random selection and without regard to December 31,1997, $90 million of depreciation and amort:za-whether such customers are obtaining generation service tion that would have been recognized in 1998 was deferred from an alternate EGS, shall be assigned to a provider of last as a regulatory asset since the Company's rates continued to resort default supplier other than the Company through a be cost-based until January 1,1999 During 1998 these PUC-approved bidding process. amounts were amortized and recovered. The Final Restructuring Order authorizes the issuance of up to $4 billion of transition bonds (Transition Bonds). In Energy Cost Adjustment (ECA) preparation for the issuance of Transition Bonds, the Through December 31,1996, the Company was subject to a Company formed a special purpose subsidiary (SPS). The pro- PUC-established electric ECA which, in addition to reconcihng ceed. of the Transition Bonds are required to be used fuel costs and revenues, incorporated a nuclear performance principally to reduce recoverable stranded costs and related standard which allowed for financial bonuses or penalties capitalization. The Transition Bonds will be obligations of the depending on whether the Company's system nuclear capaci-SPS, secured by intangible transition property (ITP). ITP repre- ty factor exceeded or fell below a specified range. For the sents the irrevocable right of the Company or its assignee, to year ended December 31,1996 the Company recorded a collect non-bypassable charges from customers to recover bonus of $22 million. stranded costs. The Company filed complaints in federal and state courts relating to the restructuring orders issued by the PUC in 4, Accounting Changes December 1997, January 1998 and February 1998. In add" The Company accounts for its electric transmission and distri-tion, numerous other parties filed appeals and cross appeals bution and gas operations in accordance with SFAS No. 71 of these orders. In accordance with the terms of the Final which requires the Company to record the financial state-Restructuring Order, all appeals and cross-appeals filed by the signatories to the Global Settlement have been placed in a ment effects of the rate regulation to which the Company is subject. Use of SFAS No. 71 is applicable to the utikty opera-pending but inactive status. Such appeals and cross appea!s will be permanently withdrawn at such time that the Final tions of the Company which meet the following criteria: (1) third-party regulation of rates: (2) cost-based rates; and (3) a Restructuring Order is no longer subject to administrative or judicial challenge. reasonable assumption that all costs will be recoverable from customers through rates. The Company believes that it is In an appeal of a PUC order issued in May 1997, an inter-probable that regulatory assets associated with these opera-venor brought an action asserting that the stranded cost recovery provisions of the Competition Act violated the tions will be recovered. Effective December 31,1997, the Company discontin-Commerce Clause of the United States Constitution. On May ued the application of SFAS No. 71 for its retail electric 7,1998, the Commonwealth Court of Pennsylvania unane generation operations and adopted the provisions of SFAS mously rejected the claim. The intervenor petitioned the Supreme Court of Pennsylvania for allowance of appeal. On No 101 " Regulated Enterprises - Accounting for the Discontinuation of Apphcation of FASB Statement No. 71. September 29,1998, the Pennsylvania Supreme Court denied e ,a c d er M , N , the petition. On December 28,1998, the intervenor filed a petition for certiorari with the United States Supreme Court. the Company performed an impairment test of its electric generation assets pursuant to SFAS No.121, on a plant spe-Limerkk dc basis and determt.ed that $6.1 billion of its $7.1 billion f @ctric genera %n assets would be impaired as of Through 1997, the Company was recovering certain deferred December o i,1998. The Company estimated the fair value Limerick costs. At December 31,1997, the unamortized por-tion of these regulatory assets of $321 million was included f r each of its electric generating units by determining its estimated future operating cash inflows and outflows. The as part of electric generation-related regulatory assets. Under its electric tanffs and ECA, the Company was net future cash flows for each electric generating plant were a!iowed to retain for shareholders any proceeds above the then compared to its net book value. For any electric generat-ing plant with future undiscounted cash flows less than its average energy cost for sales of 399 megawatts (MW) of near-term excess capacity and/or associated energy and to share in book value, net cash flows were discounted using a discount the benefits which resulted from the operation of both rate cornmensurate with the risk of each electric generating pl nt. Since the Company's retail electric rates continued to Limerick Units No.1 and No. 2. The Company's ECA was dis-be cost-based through January 1,1999,$333 million repre-continued at December 31,1996. During 1996, the Company senting depreciation expense on electric generation-related
Notts to Consolidztzd Financial Statemsnts 33 assets in 1998 and $91 million representing amortization of insurance proceeds to the Company for the Company's bond-Q other regulatory assets in 1998 were reclassified to a regula-
- Q tory asset and were amortized and recovered in 1998.
holders, and the amount of such proceeds which would be available. Under the terms of the various insurance agree-At December 31,1997, the Company had total electric ments, the Company could be assessed up to $30 million for generation-related stranded costs of $8.4 billion, representing losses incurred at any plant insured by the insurance compa-
$5.8 billion of net stranded electric generation plant and $2.6 nies. The Company is self-insured to the extent that any billion of electric generation-related regulatory assets. The losses may exceed the amount of insurance maintained.
original PUC restructuring order allowed the Company to Such losses could have a material adverse effect on the recover $5.3 billion of its generation-related stranded costs Company's financial condition and resu'ts of operations. from customers. This resulted in a net unrecoverable amount The Company is a member of an industry mutual insur-of $3.1 billion. Accordingly, the Company recorded an extraor- ance company which provides replacement power cost dinary charge at December 31,1997 of $3.1 billion ($1.8 o' illion insurance in the event of a major accidental outage at a net of taxes) of electric generation-related stranded costs that nuclear station. The premium for this coverage is subject to will not be recovered from customers. The Final Restructuring assessment for adverse loss experience. The Company's ) Order d;d not change the amount of allowable stranded costs. maximum share of any assessment is $10 mil lion per year. I Effective December 31,1997, the Company discontin- - ued the application of SFAS No. 71 for its wholesale energy Nuclear Decommissioning and Spent Fuel Storage sales operations. Based on projections of the Company's The Company's current estimate of its nuclear facilities' I retail load growth, the Company concluded all of its owned decommission ng rst is 31.5 billion in 1997 dollars. Through j generation capacity would be necessary to meet its electric 1998, this amount was being collected through electric rates retailload. As a result, the discontinuance of SFAS No. 71 for over the life of each generating unit. Beginning in 1999, its wholesale energy sales operations did not result in a decommissioning costs will be recoverable through regulated charge against income. rates. Under rates in effect through December 31,1998, the Company collected and expensed approximately $20 million annually from customers which was accounted for as a com-5, Commitments and Contingencies p nent of depreciation expense and accumulated depreciation. At December 31,1998 and 1997, $336 and $294 Capital Comm,tmentss
. million, respectively, were included in accumulated deprecia-The Company estimates $440 million of capital expenditures tion. In order to fund future decommissioning costs, at i in 1999. Certain facilities under construction and to be con-
.I December 31,1998 and 1997, the Company held $378 and structed may require permits and licenses which the
$320 million, respectively, in trust accounts which are includ-Cc.mpany has no assurance will be granted. Capital expendi-ed as Investments in the Company's Consolidated Balance sures do not include investments in joint ventures including Sheets and include both net unrealized and realized gains.
investments related to the Company's strategy to expand its Net unrealized gains of $60 and $43 million were recognized generation portfolio, as a Deferred Credit in the Company's Consolidated Balance Sheet at December 31,1998 and 1997, respectively. The Nuclear Insurance Company recognized net realized gains of $12, $11 and $10 As of December 31,1998, the Pn.ce-Anderson Act limited the million as Other income in the Company's Consolidated liability of nuclear reactor owners to $9.8 bilhon for claims Statement of income for the years ended December 31, that could arise from a single incident. The limit is subject to 1998,1997 and 1996, respectively. The Company believes change to account for the effects of inflation and changes in that the amounts being recovered from customers through the number of licensed reactors. The Company carries the regulated rates will be sufficient to fully fund the unrecorded maximum available commercialinsurance of $200 million and portion of its decommissioning obligation. the remaining $9 6 billion is provided through mandatory par- In an Exposure Draft issued in 1996, the FASB proposed ticipation in a financial protection pool. Under the changes in the accounting for closure and removal costs of Price' Anderson Act, all nuclear reactor licensees can be production facilities, including the recognition, measurement assessed up to $88 milhon per reactor per incident, payable and classification of decommissioning costs for nuclear gen-at no more than $10 milhon per reactor per incident per year. erating stations. The FASB has expanded the scope of the This assessment i,s subject to inflation and state premium Exposure Draft to include closure or removal liabilities that taxes. In addition, the U.S. Congress could impose revenue are incurred at any time during the operating hfe of the relat-raising measures on the nuclear industry to pay claims, ed long-lived asset. The FASB has decided that it should ' The Company carries property damage, decontamination proceed toward either a final Statement or a revised and premature decommissioning insurance in the amount of Exposure Draft. The timing of this project is still to be deter-its $2.75 billion proportionate share for each station loss mined. If current electnc utility industry accounting practices resulting from damage to its nuclear plants in the event of for decommissioning are changed, annual provisions for an accident, insurance proceeds must first be used for reac- decommissioning could increase and the estimated cost for tor stabilization and site decontamination. If the decision is decommissioning could be recorded as a liability rather than p made to decommission the facihty, a portion of the insurance as accumulated depreciation with recognition of an increase proceeds will be allocated to a fund which the Company is in the cost of a related regulatory asset. required by the Nuclear Regulatory Commission (NRC) t Under the Nuclear Waste Policy Act of 1982 (NWPA), the maintain to provide for decommissioning the facikty. The U S. Department of Energy (DOE) is required to begin taking Company is unable to predict the timing of the availability of possession of all spent nuclear fuel generated by the
34 PECO Energy Company and Subsidiary Companies Company's nuclear units for long-term storage by no later 1999, with 2,054 MW of capacity during the period 2000 than 1998. Based on recent public pronouncements, it is not through 2002 and with 2,431 MW of capacity thereafter. likely thm. d permanent disposal site wdl be available for the During 1998, purchases under long-term commitments i in6try before 2015. at the earliest. In reaction to state- resulted in expenditures of $170 million. As of December 31, ' ments from the DOE that it was not legally obligated to begin 1998, these purchase commitments result in obligations of to accept spent fuel in 1998, a group of utilities and state approximately $121 million for 1999, $526 million for 2000 government agencies filed a lawsuit against the DOE which through 2002 and $805 million thereafter. These purchases resulted in a decision by the U.S. Court of Appeals for the will be utilized through a combination of retail sales to cus-District of Columbia (D.C. Court of Appeals) in July 1996 that tomers, long-term sales to other utilities and open market the DOE had an unequivocal obligation to begin to accept sales. spent fuel in 1998. In accordance with the NWPA, the At December 31,1998, the Company had entered into Company pays the DOE one mill ($.001) per kilowatthour of long-term agreements with unaffiliated utilities to sell energy net nuclear generation for the cost of nuclear fuel long-term associated with 5.094 MW of capacity, of which 1,030 MW of storage and disposal. This fee may be adjusted prospectively these agreements are for 1999,2,202 MW are for 2000 through in order to ensure full cost recovery. Because of inaction by 2002 and the remaining 1,862 MW extend through 2009. the DOE following the D.C. Court of Appeals finding of the At December 31,1998, the Company had entered into long-DOE's obligation to begin receiving spent fuel in 1998, a term agreements with unaffikated utilities to purchase l group of forty-two utility companies, including the Company, transmission rights. These purchase commitments result in and forty-six state agencies, filed suit against the DOS seek- obligations of approximately $21 million in 1999, $19 million in ing authorization to suspend further payments to the U.S. 2000 and $9 million per year in 2001 through 2003. govemment under the NWPA and to deposit such payments into an escrow account until such time as the DOE takes Environmental Issues effactive action to meet its 1998 obligations. In November The Company's operations have in the past and may in the 1997, the D.C. Court of Appeals issued a decision in which it future require substantial capital expenditures in order to held that the DOE had not abided by its prior determination comply with environmental laws. Additionally, under federal that the DOE has an unconditional obligation to begin dispos- and state environmental laws, the Company is generally liable al of spent nuclear fuel by January 31,1998. The C.C. Court for tne costs of remediating environmental contamination of of Appeals also precluded the DOE from asserting that it was property now or formerly owned by the Company and of not required to begin receiving spent nuclear fuel because it property contaminated by hazardous substances generated had not yet prepared a permanent repository or an interim by the Company. The Company owns or leases a number of storage facility. The DOE and one of the utility companies real estate parcels, including parcels on which its operations filed Petitions for Reconsideration of the decision which were or the operations of others may have resulted in contamina-denied, as were petitions seeking U.S. Supreme Court tion by substances which are considered hazardous under review of the decision. In addition, the DOE is exploring other environmental laws. The Company is currently involved in a ('ptions to address delays in the waste acceptance schedule. number of proceedings relating to sites where hazardous Peach Bottom has on-site facilities with capacity to store substances have been deposited and may be subject to addi-spent nuclear fuel discharged from the units through 2000 for tional proceedings in the future. Unit No. 2 and 2001 for Unit No. 3. Ufe-of-plant storage The Company has identified 28 sites where former man- I capacity will be provided by on-site dry cask storage facilities, ufactured gas plant (MGP) activities have or may have the constraction of which began in 1998. Limerick has on-site resulted in actual site contamination. The Company is facilities with capacity to store spent nuclear fuel to 2007. presently engaged in performing various levels of activities at Salem has on-site facilities with spent fuel storage capacity these sites, including initial evaluation to determine the exis-through 2008 for Unit No.1 and 2012 for Unit No. 2. tence and nature of the contamination, detailed evaluation to determine the extent of the contamination and the necessity Energy Commitments and possible methods of remediation, and implementation nf The Company's electric utility operations include the whole- remediation. The Pennsylvania Department of Environmental ; sale marketing of electricity. The Company utilized certain Protection has approved the Company's clean up of three l types of fixed-price contracts and other risk management sites. Eight other sites are currently under some degree of instruments in connection with its wholesale marketing oper- active study and/or remediation. ; ations. These contracts include long-term contracts which As of December 31,1998 and 1997, the Company had I commit the Company to purchase or sell energy at fixed accrued $60 and $63 million, respectively, for environmental I prices in the future (i e. fixed-price forward purchase and investigation and remediation costs, including $33 and $35 i sales contracts), and short-term bilateral swaps and options million, respectively, for MGP investigation and remediation, contracted for in the over-the-counter market. Under some of that currently can be reasonably estimated. The Company these contracts, the Company may purchase at its option cannot reasonably estimate whether it will incur other signifi-additional power as needed. The use of the foregoing types cant liabilities for additional investigation and remediation of contracts is so that the Company may manage and hedge costs at these or additional sites identified by the Company, its retail and wholesale commitments in coordination with the environmental agencies or others, or whether such costs will economic dispatch of the Company's installed capacity. be recoverable from third parties. i At December 31,1998, the Company had long-term com-mitments relating to the purchase from unaffiliated utilities and others of energy associated with 632 MW of caperty in
Notes to Consolidated Finandal Staternents 35 Litigation filed a complaint against the Company alleging tortious inter-Grays Ferry Cogeneration Partnership ference by the Company in the credit agreements between On April 9,1998, Grays Ferry Cogeneration Partnership (Grays Grays Ferry and the banks and breach of contract of a letter Ferry), two of three partners of Grays Ferry and Trigen, agreement between the Company and the banks. The Philade!phia Energy Corporation, filed a complaint in Philadelphia Company cannot predict the outcome of these matters. County of Common Pleas against the Company for specific per-formance, breach of contract, fraud and breach of implied Cajun Electric Power Cooperative,Inc. covenant of good faith and fair dealing, conversion, unjust enrich On May 27,1998, the United States Department of Justice, on ment, breach of fiduciary duties and tortious interference with behalf of the Rural Utilities Service and the Chapter 11 Trustee respect to two power purchase agreements (PPAs) that the for the Cajun Electric Power Cooperative, Inc. (Cajun), filed an Company had entered into with Grays Ferry. The plaintiff seeks action claiming breach of contract against the Company in the specific performance, damages in excess of $200 million and United States District Court for the Middle District of Louisiana punitive damages. A preliminary injunction was entered against arising out of the Company's termination of the contract to pur-the Company on May 5,1998, enjoining the Company from ter- chase Cajun's interest in the River Bend nuclear power plant. minating the PPAs. On May 29,1998, Westinghouse Power This action seeks $67 million in damages. The Company cannot Generation filed a complaint in the Philadelphia Court of ptedict the outcome of this matter. Common Pleas against the Company for tortious interference with two alleged contracts that Westinghouse has with Grays The Company is involved in various other litigation matters. The Ferry. On September 4,1998, The Chase Manhattan Bank, as ultimate outcome of such matters, while uncertain, is not agent for a syndicate of banks that are lenders to Grays Ferry, expected to have a material adverse effect on the Company's financial condition or results of operations. 1
- 6. Retirernent Benefits
-The Company and its subsidiaries have a defined benefit pension plan and postretirement benefit plans applicable to essentially all employees. The following provides a reconciliation of benefit obligations, plan assets and funded status of the plans.
Other Postretmement TN>usands of. Dcears_ _ _ __. _ _ __ _ __ _ Pension _Benef f ts _ _ _ _ . _Benehts _ _ Change in Benefit Obligation Net benefit obligation at beginning of year S 2,141,040 $ 1,982,915 $ 779,231 $ 662,701 Service cost 30,167 25,368 18,375 14,401 Interest cost 153,644 150,057 53,924 54,149 Plan participants' contributions - - 397 - Plan amendments - (3,052) - - Actuarial (gain)/ loss 143,274 129,148 (8,260) 85,452 Curtailments (73,330) - 10,403 - Settlements (46,541) - - - Special termination benefits 114,182 - 29,712 - Gross benefits paid (152,8501 (143 196) (3610111 (37,472) Net benefit obligation at end of year S 2,309,586 $ 2.141.040 $ 847,771 $ 779.231 Change in Plan Assets Fair va:ue of plan assets at beginning of year S 2,538,039 $ 2,302,935 $ 178,045 $ 126,661 Actual return on plan assets 343,754 377,803 23,535 22,691 Employer contributions 16,404 697 57,319 66,165 Plan participants' contributions - - 397 - Gross benefits paid _ (152,850). (143,396) (36,011). (37m472L Fair value of plan assets at end of year S 2,745,347 $ 2.538.039 $ 223,285 $ 178,045 Funded status at end of year S 435,761 $ 396,999 $ (624,486) $ (601,186) Unrecognized net actuarial (gain)/ loss (659,480) (649,903) 37,617 53,110 Unrecognized prior service cost 65,419 83,188 - - Unrecognized net transition obligation (asset) (30,512{ 351713) 165,786 2231 226_ Net amount recognized at end of year S (188,812) $ (205.429) $ (421,083) $ (324 850) ~ Amounts recognized in the consolidated balance sheet consist of: Prepaid benefit cost S 30,462 $ 6,167 $ N/A $ N/A Accrued benefit cost _ (219,274) (2113 96) _ (421,083) (324,850L Net amount recognized at end of year S (188,812) $ (205.429) $ (421,083) $ (324.850)
36 PECO Energy Company and Subsidiary Companies 1 Pension Benefits Other Postretirement Benef tts 1998 1997 1996 1998 1997 1996 Weighted-average assumptions as of December 31 Discount rate 7,00 % 7.25 % 7.75 % 7.00 % 7.25 % 7.75 % Expected return on plan assets 9.50 % 9.50 % 9.50 % 8.00 % 8.00 % 8.00 % Rate of compensation increase 5.00 % 5.00 % 5 00 % 5.00 % 5.00 % 5.00 % Health care cost trend on covered charges N/A N/A N/A 6.5% 7.0 % 8.0% decreasing to decreasing to decreasing to ultimate trend ultimate trend ultimate trend of 5.0% in 2002 of 5 0% in 2002 5 0% in 2002 femprments of net periodic benefit cost Servico cost S 30,167 $ 25,368 $ 27,627 $ 18,375 $ 14,401 $ 11,855 Intert st cost 153,644 150,057 145,570 53,924 54,149 48,524 Expecid return on assets (209,976) (182.866) (171,207) (13,243) (9,984) (3,937) Amortization of: Transition obligation (asset) (4,538) (4,538) (4,538) 14,882 14,882 14,882 Prior service cost 6,441 6,441 5,114 - - - Actuanal (gain) loss (7,028) (3,898) 248 - - - Curtarlment charge (cred;t) (62,002) - - 52,961 - - Settlement charge (crediti (13,439) - - - - - Net periodic benefit cost S (106,731) $ (9,436) $ 2,814 $ 126,899 $ 73.448 $ 71,324 Special termination benefit charge (credit) $ 114,182 $ - $ - S 29,712 $ - $ - Sinsitivity of retiree welfare results Etfect of a one percentage point increase in assumed health care cost trend on total service and interest cost components $ 10.432 on postretirement benefit obligation $ 90,490 l Effect of a one percentage point decrease in assumed health care cost trend on total service and interest cost components $ (8,460) on postretirement benefit obligation $ (75.599) Prior service cost is arnortized on a straight line basis over lar benefits for active employees are provided by an insur-tho average remaining service period of employees expected ance company whose premiums are based upon the benefits to receive benefits under the plans. paid dunng the year. Dunng 1998, costs were recognized for special termina- The Company sponsors a qualtfying savings plan cover-tion benefits in connection with the retirement incentives and ing all employees. Contributions made by participating enharced severance benefits provided under the Company's employees are matched based on a specified percentage of Workforce Reduction Program. employee contribution up to 4% of the employees' pay base. The Company provides certain health care and life insur- The cost of the Company's matching contribution to the sav-ance benefits for retired employees. Company employees ings plan tota!ed $7 million, $7 million and $3 milhon in 1998, become eligible for these benefits if they retire from the 1997 and 1996, respectively. Company with ten years of service. These benefits and simi-O
Notas to Consoliditsd Financial Statsrnants p l b
.- 7. Accounts Receivable L r%,'
1- - Accounts receivable at December 31,1998 and 1997 includ- million interest in accounts receivable which the Company ed unbilled operating revenues of $142 and $135 million, accounts for as a sale and a $67 million interest in special I respectively. The allowance for uncollectible accounts at agreement accounts receivable which were accounted for as December 31,1998 and 1997 was $20 and $32 million, a long-term note payable (see note 12). The Company retains respectively. the servicing responsibility for these receivables. The agree-The Company is party to an agreement with a financial ment requires the Company to maintain the $425 million institution under which it can sell or finance with limited interest, which, if not met, requires the Company to deposit i recourse an undivided interest, adjusted daily, in up to $425 cash in order to satisfy such requirements. At December 31 million of designated accounts receivable until November 1998, the Company did not meet this requirement and was 2000. At December 31,1998, the Company had sold a $425 required to make a deposit of $7 million. million interest in accounts receivable, consisting of a $358
- 8. Common Stock l At December 31,1998 and 1997, common stock without par on a net share basis at December 31,1998, based on the value consisted of 500,000,000 shares authorized and closing price of the Company's common stock on that date, 224,684,306 and 222,546,562 shares outstanding, respective- the Company would have received approximately 4.6 million ly. At December 31,1998, there were 5,800,841 shares shares of Company common stock. I reserved for issuance under the Company's Dividend '
Reinvestment and Stock Purchase Plan. Stock Option Plans 'd The Company maintains a Long-Term Incentive Plan (LTIP) for Stock Repurchase certain full-time salaried employees of the Company. The During 1997, the Company's Board of Directors authorized types of long-term incentive awards which have been grant-the repurchase of up to 25 million shares of its common ed under the LTIP are non-qualified options to purchase j stock from time to time through open-market, privately nego- shares of the Company's common stock and shares of tiated and/or other types of transactions in conformity with restricted common stock. In 1998, the Company initiated a the rules of the Securities and Exchange Commission. Broad-based incentive Program and awarded non-qualified i Pursuant to these authorizations, the Company has options to all employees except those in electric transmission entered into '<orwe:d purchase agreements to be settled from and distribution system and gas operations. The Company time to time, at the Company's election, on either a physical, uses the disclosure-only provisions of SFAS No.123, net share or net cash basis. The amount at which these " Accounting for Stock Based Compensation."If the agreements can be settled is dependent principally upon the Company elected to account for the LTIP based on SFAS No. market price of the Company's common stock as compared 123, earnings applicable to common stock and earnings per l to the forward purchase price per share and the number of average common share would have been changed to the pro shares to be settled. If these agreements had been settled forma amounts as follows: 1998 1997 Thousands of Dollars b 1}, - Eamings (Loss) applicable to common stock As reported $ 499,615 $ (1,513,910) Pro forma $ 493,696 $ (1,515,895) Earnings (Loss) per average common share (Dottars) As reported S 2.24 $ (6.80) Pro forma $ 2.20 $ (6.81) Options granted under the LTIP and the Broad-based Incentive Program become exercisable upon attainment of a target share value and/or time. All optsns expire 10 years from the date of grant. Information with respect to the LTIP and the Broad-based I incentive Program at Demmber 31,1998 and changes for the three years then ended, is as follows: i l l
38 PECO Entrgy Company and Subsidiary Companies g Weighted Werghted Wetted .
'- O Average Exercise Aserage Exercise Average Exercise Pnce
[% g ' Price Pnce shares (per share) Shares (per share) Shares (per Share) 1998 1998 1997 1997 1996 1996 Balance at January 1 3,816,794 5 26.14 2,961,194 $ 26.68 2,591,765 $ 26.16 Options granted 2,933,540 27.74 1,139,000 22.49 786,500 28.12 Options exercisti (2,130,744) 23.86 - - (369,871) 25.07 Options cancellea (91,000) 24.82 (283.400) 24.96 (47,200) 29.36 a* Balance at December 31 4,528,590 27.71 3,816,794 26.14 2.961,194 26.68 Exercisable at December 31 3,462,550 23.91 2,800,794 26.65 2,192,694 26.17 Weighted average fair value of options granted during year S 3.43 S 2.97 , S 2.78 The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 1998,1997 and 1996, respectively: 1998 1997 1996 Dividend yield 6.8% 6.2 % 6.2%
+ 16.6 % 'O Expected VoTdtility 21.4 % 19.5 %
Risk-free interest rate 5.5% 6.4% 55% Expected life (years) 9.5 5 5 At December 31,1998, the option groups outstanding, based on ranges of exercise prices, were as follows: Cpions _02s'and r's ._ Options Exercisatie Wette$ Average Werghted Weighted- [. Remaining Nurnber Contractual Life Average Exercise Number Average Exercise "D Outstanding (Years) Pnce Exercisable Pnce Range of Exercise Pnces
$15.75 - $20.00 899,700 8.71 $ 19.60 899,700 $ 19.60
$20.01 - $25.00 1,019,750 8.41 22.15 1,004,750 22.18
$25.01 - $30.00 1,510,600 5.76 27.38 1,510,600 27.38
$30 01 - $35 00 78,500 9.43 32.97 47,500 31.98
$35.01 - $50.00 1,020,040 9.87 40.48 - -
Total 4.528.590 3 462.550 The Company issued 7,000 and 4,475 shares of restricted common stock dur:ng 1998 and 1997, respectively. Vest:ng in the restricted common stock awards is over a penod not to exceed 10 years from the grant date. The compensation cost UI associated with these awards is amortized to expense over the vesting penod. Compensation cost associated with these awards is immaterial.
- 9. Earnings Per Share Diluted earnings per average common share is calculated by dividing earnings applicable to common stock by the weighted average shares of common stock outstanding including stock options outstanding under the Company's stock option plans con-sidered to be common stock equivalents. The following table shows the effect of these stock options on the weighted average number of shares outstanding used in calculating diluted eamings per average common share:
1998 1997 1996 223,219,000 222,543,000 222,490,000 Average Common Shares Outstanding Assumed Conversion of Stock Options 685,000 - - Potential Average Dilutive Common Shares Outstanding 223,904,000 222.543.000 222.490.000
Notts to Consolidated Financial Statsmtnts 39 0
- 10. Preferred and Preference Stock l/J-, At December 31,1998 and 1997, Series Preference Stock consisted of 100,000,000 shares authorized, of which no shares
~*
were outstanding. At December 31,1998 and 1997, cumulative Preferred Stock, no par value, consisted of 15,000,000 shares authorized. Current shares Amount Redernpton Outstanding Thousands of Dollars Pnce(a) 1998 1997 1998 1997 Series of Preferred Stock Series (without mandatory redemption) 104.00 150,000 150,000 $ 15,000 $ 15,000 ;
$4.68 '
112.50 274,720 274,720 27,472 27,472
$4.40 -
112.00 150,000 150,000 15,000 15,000
$4.30 106.00 300,000 300,000 30,000 30,000
$3.80 (b) 500,000 500,000 50,000 50,000
$7.48 1,374,720 1,374,720 137,472 137,472 Series (with mandatory redemption)
(c) 927,000 927,000 92,700 92,700
$6.12 Total preferred stock 2,301,720 2.301,720 $ 230,172 $ 230.172 1
% (a) Redeemable, at the option of the Company, at the indicated dollar amounts par share, plus accrued dividends. (b) None of the shares of this series are subject to redemption prior to April 1,2003. 1 (c) Annuehmking fund requirements in 1999 - 2003 are $18,540,000. None of the shares of this series are subject to redemp-tion prior to August 1,1999.
- 11. Company Obligated Mandatorily Redeemable Preferred Securities of a Partnership (COMRPS)
At December 31,1998 and 1997, PECO Energy Capital, L P. (Partnership), a Delaware limited partnership of which a wholly 4 i owned subsidiary cf the Company is the sole general partner, had outstanding A C and D series of COMRPS with liquidation values of $25 (A and C) and $1,000 (D) per security. Each series is supported by the Company's deferrable interest subordinated debentures, held by the Partnership, which bear interest at rates equal to the distribution rates on the related series of COMRPS. The interest expense on the debentures is included in Other Income and Deductions in the Consolidated Statements of Income and is deductible for tax purposes. l Mandatory . Amount Redempton Distnbution Trust Receipts Outstanding Thousands of Dollars Date Rate 1998 1997 _1998 1997.. At December 31 Series 2043 9.00 % 8,850,000 8,850,000 $ 221,250 $ 221 5 A 80,835 2025 8.72 % - 3,124,183 - B(a) 50,000 50,000 2037 8,00 % 2,000,000 2,000,000 C (b) 2028 7.38 % 78,105 - 78,105 - D(c) 10,928,105 13.974.183 $ 349,355 $ 352.085 Total m (c) Ownership of this series is evidenced by Trust Receipts, p) (a) On May 15,1998. PECO Energy Capital Trust I each representing an 7 38% COMRPS, Series D, repre-redeemed all outstanding Trust Receipts, each represent-ing an 8.72% Cumulative Monthly income Preferred senting limited partnership interests. The Trust Receipts Security, Series B of PECO Energy Capital, L.P. were issued by PECO Energy Capital Trust 111, the sole (b) Ownership of this series is evidenced by Trust Receipts, assets of which are 7.38% COMRPS, Series D. Each each representing an 8.00% COMRPS, Series C, repre- holder of Trust Receipts is entitled to withdraw the corre-senting limited partnership interests. The Trust Receipts sponding number of 7.38% COMRPS, Series D from the were issued by PECO Energy Capital Trust 11, the sole Trust in exchange for the Trust Receipts so held. This assets of which are 8 00% COMRPS, Series C. Each Series was issued on April 6,1998. holder of Trust Receipts is entitled to withdraw the corre-sponding number of 8.00% COMRPS, Series C from the Trust in exchange for the Trust Receipts so held. k m__
40 *ECO Enirgy Compzny and Subsiditry Cornpanies . 12 Long Term Debt
. At December 31. senes Due 1996 1997 =
i Thousands of Dollars $? First and refunding mortgage bonds (a) 53/8 % 1998 5 - $ 225,000 71/2491/4% 1999 325,000 325,000 5 5/8W7 3/8% 2001 330,000 330,000 71/8%-8% 2002 000,000 500,000 61/2b6 5/S% 2003 450,000 450,000 63/8 10 1/4 % 2004-2008 111,562 115,625 i (b) 2009-2013 154,200 154,200 65/8%-83/4% 2019-2024 1,082,130 1,607,130 Total first and refunding mortgage bonds 2,952,892 3,706.955 Notes payable 15,930 15,574 Pollution control notes (c) 212,705 212,705 a Medium-term notes (d) 50,000 62.400 Note Payable - accounts receivable agreement (e) 66,837 128,999 Unamortized debt discount and premium, net (17,249) (26.405) Total long-term debt 3,281,115 4,100,228 Due within one year (f) 361,523 247,087 Long-term debt included in capitalization (g) $ 2,919,592 $ 3.853.141 34 4 (a) Utility plant is subject to the lien of the Company's mort- (g) The annualized interest on long-term debt at Decemoer gage. 31,1998, was $222 million, of which $210 milhon was (b) Floating rates, which were an average annual interest associated with mortgage bonds and $12 million was rate of 3.13% at December 31,1998. associated with other long-term debt, (c) Floating rates, which were an average annual interest rate of 3.32% at December 31,1998. In the fourth quarter of 1998, the Company redeemed $525 (d) Medium-term notes collateralized by mortgage bonds. million of its First Mortgage Bonds consisting of: $150 million - The average annual interest rate was 9.09% at December 31,1998. of its 8 3/4% series due 2022, $125 miilion of its 8 5/8% series due 2022 and $250 million of its 81/4% series duo (.
-(e) See note 7. 2022 at redemption prices of 105.75,105.20 and 104.85 plus (f) Long-term debt maturities, including mandatory sinking interest, respectively. As a result, the Company recognized fund requirements, in the period 1999-2003 are as fol- an extreordinary charge of $34 million ($20 million net of lows: 1999 - $361,523,000; 2000 - $74.255,500; 2001 - income taxes). The extraordinary charge consisted primarily
$337,431,500; 2002 - $507.436.500; 2003 - of p'emiurr3 and the write off of deferred charges.
$406,534,500.
- 13. Short-Term Debt 1968 1997 1996
{' Thousands of Dollars v ~~ E'9,2S1 S 248,111 $ 198,090 Average borrowings S Average interest rates, computed on daily basis, b.G3% 5.33 % 5.64 % Maximum borrowings outstanding S 525,@0 $ 464,500 $ 369,500 Average interest rates, at December 31 6.17 % 6.74 % 6.90 % The Company has a $400 million one-year term loan agree- credit facility principally to support its $600 million commer-ment with a group of banks, which expires on November 30, cial paper program. There was no debt outstanding under this 1999. At December 31,1998, $400 million of short-term debt credit facihty at December 31,1998. At December 31,1998, was outstanding under this term loan agreement. $12b dilion of commercial paper was outstanding. At The Company has a $900 million unsecured revolving December 3 6,1998, the Company had available formal and credit facihty with a group of banks. The credit facility con informallines of cred with banks aggregating $100 milhon. sists of a $450 million 364< lay credit agreement and a $450 milhon three-year credit agreement. The Company uses the
Notes to Consolidit:d Firancial St:t ments 41 I-L. = 14. Income Taxes F jtp income tax expense (benefit)is comprised of the following components
- I
'E, 9
For the Yews Ended December 31, 1998 1997 1996 Thoussnds of Dollars O. Included in operations:. Federal ,
' Current S 358,051 '$ 251,509 $ 126,471 Deferred (109,211) (11,378) 154,564 investment tax credit, net (18,066) (18,201) (15,979)
State. Current 95,309 76,689 62,839 Deferred (6,429) (5.850) 12.206
' 319,654 292,769 340,101 included in extraordinary item:
Federal Current (10,583) (123) - Deferred - (987,234) - 4 t ," State s- Curri'nT'~ ~ (3,174) (29) - Deferred - (303,575) - (13,757) (1,290,961) - 8 305,897 $ (998.192) $ 340,101 Total The total income tax provisions, excluding the extraordinary item, differed from amounts computed by applying the federal i statutory tax rate to pre-tax income as follows: 1998 1997 1996 Thousands of Dollars S 532,378 $ 336,558 $ 517,205
- Net income 319,654 292,769 340,101 Total income tax prc,,,sions S 852,032 $ 629,327 $ 857,306 Income before income taxes income taxes on above at federal statutory rate of 35% $ 298,211 $ 220,264 $ 300,057 increase (decrease) due to:
(10,262) 40,828 9,903 Property basis differences State income taxes, net of federal income tax benefit 57,582 46,046 48,779 .5 (18,201) (15,979) (18,066) O Amortization of inves'tment tax credit (12,951) (2,985) (1,707) P Prior period income taxes . Other, net 5,140 6,817 (952) Totalincome tax provisions * $ 319,654 $ 292,769 $ 340.101 37.5 % 46.5 % 39.7 % Effective income tax rate i, l l l* l
42 PECO Ensrgy Comp 2ny and Subsiditry Companies 4 - 4 Provisions for deferred income taxes consist of the tax effects of the following temporary differences: 1998 1997 1996 Thousands of Dollars Deferred generation charges recoverable . 5 (174,787) $ - Depreciation and amortization 140,448 57,530 42,385 Deferred energy costs (2,491) 2,256 ~27,374 g Retirement and separation programs' (51,146) (12,734) 19,746 incremental npclear outage costs (7,434) (981) 2,440 Uncollectible accounts 4,764 (1,710) (2,805) Reacquired debt (5,026) (8.607) (9,578) Unbilled revenue 3,579 (5,110) 3,910 Environmental clean-up costs (3,574) '(15,121) (714) Obsolete inventory 4,206 (7,074) 5,829 Limerick plant disallowances and phase-in plan - (747) (747) AMT credits - (42,067) - 83,010 Other nuclear operating costs 9,926 (9.892) - Other 7,962 (15.038) (4.080)
., Subtotal (115,640) (17,228) 166,770 (1,290.809) @ Extraordina@em Total S (115,640) $ (1,308.037) $ 166,770 K The tax effect of temporary differences giving rise to the Company's net deferred tax liability as of December 31,1998 and 1997 is as follows:
Liability or (Asset) 1998 1997 Thousands of Dollars ? y Nature of temporary difference: Plant basis difference $ 2,653,760 $ 2,620,254 Deferred investment tax credit 299,999 318.065
- j Deferred debt refinancing costs 37,575 111,651 Other, net . (300,375) (249,167)
De'ccred income taxes (net) on the balance sheet S 2,690,959 $ 2,800.803 The net deferred tax liability shown above as of December The Intemal Revenue Service (IRS) has completed and 31,1998 and 1997 was comprised of $3,123 and $3,153 mil- settled its examinations of the Company's federal income lion of deferred tax liabilities, and $432 and $352 million of tax returns through 1990 which resulted in a net increase of I "' deferred tax assets, respectively, $11 million in credits available for carry forward. The 1991 ^' through 1993 federalincome tax retums have been exam-In accordance with SFAS No. 71, the Company recorded
. a recoverable deferred income tax asset of $614 and $586 ined and the Company and the IRS are in the process of million at Dr cember 31,1998 and 1997, respectively. These settling the audit which will not have an adverse impact on balances e b @plicable only to regulated assets, due to the financial condition or results of operations of the Company.
discontinuance of SFAS No. 71 for the Company's electric The years 1994 through 1996 are currently being examined generation operations. These recoverable deferred income by the IRS. taxes include the deferred tax effects associated principally with liberalized depreciation accounted for in accordance with the ratemaking policies of the PUC, as well as the revenue impacts thereon, and assume recovery of these costs in future rates.
- Notes to Consolidsted Fintncisi Statsmants
. 43
/ 15. Taxes, Other Than income - Operating For the Years Ended December 31, 1998 1997 1996
[_ Thousands of Dollars Gross receipts S 155,663 $ 163,552 $ 160,246 Capital stock 43,754 48,085 41.972 Real estate 51,313 69,597 69,185 i Payroll 30,068 25,976 27,585-Other (1,283) 2,881 558 Total S 279,515 $ 310,091 $ 299,546 f
- 16. Leases Leased property included in utility plant was as follows:
1 At December 31, 1998 1997 l Thousands of Dollars l. Nuclear fuel S 523,325 $ 521,921 2,321 2,321 Electric plant 525,646 524,242
)
lC Gross leased property (371,338) (348,309) [6 Accumulated 4mortization - Net leased property S 154,308 $ 175.933 Nuclear fuel is amortized as the fuel is consumed. Amortization of leased property totaled $60, $39 and $31 million for the years ended December 31,1998,1997 and 1996, respectively. Other operating expenses included interest on capital lease obligations of $9 million in 1998,1997 and 1996, respectively. Minimum future lease payments as of December 31,1998 were: For the Years Ending Decernber 31, Capital Leases operating Leases Total Thousands of Dollars 1999 $ 69,026 $ 48,806 $ 117,832 i 2000 65,714 45,457 111,171 l 2001 32,439 42,850 75.289 l 2002 92 42,056 42,148 2003 92 49,386 49,478 Remaining years 721 511,164 511,885 Total minimum future lease payments $ 168,084 $ 739.719 $ 907,803 h imputed interest (rates ranging from 6.5% to 17.0%) (13,776) Present value of net minimum future lease payments $ 154,308 y.] Rental expense under operating leases totaled.$69 million in 1998 and $74 million in 1997 and 1996, respectively. l l ( l
44 PECO Energy Company and subsiary Companies
- 17. Jointly Owned Electric Utility Plant 3
The Company's ownership interests in jointly owned electric utility plant at December 31,1998, were as follows: . Transmiss,on d Producten P' ants and Other Plant ~~ Peach Bottom saiem Keystone Conemaugh Pubhc Serwce GPU GPU
" PECO Energy Electnc and Generating Generating Varous Operator Company Gas Company Corp Corp. Companies Participating interest 42.49 % 42.59 % 20.99 % 20.72 % 21% to 43%
Company's share (Thousands at oottars) Utility plant $ 347,001 $ 20.026 $ 118,256 $ 190,672 $ 82,078 Accumulated depreciation 183,383 12,929 73,644 91,052 32,638 Construction work in progress 22,586 1,632 1,770 3,865 1,300 The Company's participating interests are financed with Company funds and, when placed in service, all operations are account-ed for as if such participating interests were wholly owned facilities.
- 18. Cash and Cash Equivalents For purposes of the Statements of Cash Flows, the Company considers all highly hquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The following disclosures supplement the accompanying Statements
.,d of Cash Flows:
'h - _ _1998 1997 1996 Thousands of Dollare Cash paid dunng the year: Interest (net of amount capitalized) $ 384,932 $ 405.838 $ 415,063 income taxes (net of refunds) 346,539 345,232 251,554 Noncash investing and financing: Capitallease obligations incurred 38,307 32,909 33,063 - ( -
- 19. Investments At December 31, 1998 1997 Thousands of Dollars Trust accounts for decommissioning nuclear plants S 377,970 $ 320,442 48,391 85,601 Telecommunications ventures Energy services and other ventures 39,359 65,578 Nonutikty property 40,456 24,697 44,728 19,517 Other S 550,904 $ 515,835 h
Total .M t 20, Financial Instruments Fair values of financial instruments, including liabilaies, are estimated based on cuoted market prices for the same or similar issues. The carrying amounts and fair values of the Company's financial instruments as of December 31,1998 and 1997 were as follows: 1998 1991 Thousands of Dolists Carrying Fair Carrying Fair Amount Value Amount Value Non-derivatives: Assets Cash and temporary cash investments S 48,083 $ 48,083 $ 33,404 $ 33,404 Trust accounts for decommissioning nuclear plants 377,970 377,970 320.442 320,442 Liabilities Long-term debt (including amounts due within one year) 3,281,115 3,404,250 4,100,228 4,210,885 Derivatives: ' Treasure forwards - (300) - Forward interest rate swaps - (4,400) - -
Notts to Consoliditzd Fintnciti Stattmants 45 1 I Financial instruments which potentially subject the Company
,.;. starting interest rate swaps in the aggregate notional amount O - to concentrations of credit risk consist principally of tempo- of $713 milhon with an average interest rate of 5.72E The ;
rary cash investments and customer accounts receivable. The notional amount of denvatives do not represent amounts that l Company places its temporary cash investments with high- are exchanged by the parties and, thus, are not a measure of credit quahty financial institutions. At times, such the Company's exposure. The amounts exchanged are calcu- i investments may be in excess of the Federal Deposit lated on the basis of the notional or contract amounts, as l Insurance Corporation hmit. Concentrations of credit risk with well as on the other terms of the derivatives, which relate to j respect to customer accounts receivable are kmited due to interest rates and the volatikty of these rates. l the Company's large number of customers and their disper- The Company would be exposed to credit-related losses sion across many industnes, in the event of non-performance by the counterparties that The fair value of derivatives generally reflects the esti- issued the derivative instruments The Company does not mated amounts that the Company would receive or pay to expect that counterparties to the interest rate swaps and terminate the contracts at the reporting date, thereby taking treasury forwards will fail to meet these obligations, given j into account the current unrealized gains or losses of open their high credit ratings. The credit exposure of denvatives i contracts. Dealer quotes are available for all of the contracts is represented by the fair value of contracts at the Company's derivatives, reporting date. The Company's interest-rate swaps are docu-The anticipated issuance of Transition Bonds significantly mented under master agreements. Amorig other things, exposes the Company to market risks of changes in interest these agreements provide for a maximum credit exposure fnr rates. Derivative financial instruments are used by the both parties. Payments are required by the appropriate party Company to reduce these risks. when the maximum limit is reached. The same maximum ,,- The Company has entered into treasury forwards in an credit exposure apphes to the treasury forwards M- aggregate *otional amount of $4 billion with an average inter- - est rate of 4.71E The Company has entered into forward l
- 21. Early Retirement and Separation Program in Apnl 1998, the Board of Directors authonzed the implemen- attrition and the early retirement and severance program. The tation of a retirement incentive program and an enhanced Company expects an additional 735 positions to be ehminat-severance benefit program. The retirement incentive program ed dunng 1999 and 2000.
allowed employees age 50 and older, who have been desig- The Company recorded an early retirement and separa-nated as excess or who are in job classifications facing tion program charge to earnings of $125 millon ($74 milhon, reduction, to retire from the Company. The enhanced sever- net of income taxes) in the fourth quarter of 1998 to recog-ance benefit program provided non-retinng excess employees nize costs related to the CCR workforce reduction program. with fewer than ten years of service benefits equal to two This charge consisted of the following. $121 milkon for the ! weeks pay per year of service. Non-retinng excess employees actuanally determined pension and other postretirement ben-with more than ten years of service receive benefits equal to efits costs and $4 milhon for outplacement services costs three weeks pay per year of service. and the continuation of benefits for one year. Approximately Through its Cost Competitiveness Review (CCR), the $0.8 million of the $125 milhon charge was related to the Company identified 1,157 employees across the Company Company's non-utihty operations and accordingly was record-who were considered excess or were in job classifications ed in Other Income and Deductions. All cash payments facing reduction. Of the 1,157 employees,711 were eligible related to the early retirement and severance program are for and agreed to take the retirement incentive program. The expected to be funded through the assets of the Company's
! remaining employees are eligible for the enhanced severance Service Annuity Plan.
benefit program. The Company has ehminated approximately 422 positions as of December 31,1998 through both
- 22. Other income and Deductions Settlement of Salem Litigation Ventures On December 31,1997, the Company receiv3d $70 milhon The Company penodically reviews its investments to deter-pursuant to the May 1997 settlement agreement with Public mine that they are properly valued in its financial statements.
Service Electnc and Gas Company resolving a suit filed by Other Income and Deductions reflects wnte-offs of these the Company concerning the shutdown of Salem. Dunng the investments of $10 million and $20 milhon in 1998 and 1997, second quarter of 1997, the Company recorded $70 million respectively. ($41 milhon net of income taxes) as Other Income. (
46 PECO EnIrpy Compiny tnd Subsidirry Companies
- 23. Regulatory Assets and Liabilities
) At December 31,1998 and 1997, the Company had deferred the following regulatory assets on the Consolidated Balance Sheets: 1998 1997 .W Thousands of Dollars Competitive transition charge S 5,274,624 $ 5,274,624 Recoverable deferred income taxes (see note 14) 614,445 585,661 Deferred generation costs recoverable in current rates - 424,497 Loss on rsacquired debt 77,165 83,918 Compensated absences 4,289 3.881 Deferred er'ergy costs 29,847 35,665 Non-pension postretirement benefits 90,915 97,409 Total 5 6,091,285 $ 6,505.655
- 24. Quarterly Data (Unaudited)
The data shown below include all adjustments which the Company considers necessary for i fair presentation of such amounts: _ Operating Revenues OpeSting incorne Net incorne (Loss) Mditons of Dollars 1998 1997 1998 1997 1998 1997 7 Quarter endecL March 31 $ 1,173 $ 1,163 5 285 $ 302 s 114 $ 113 June 30 1,207 1,032 362 250 151 123 September 30 1,774 1,278 546 388 274 158 December 31 1,056 1,145 90 66 (26) (1.891) Earnings Applicable Average Shares Earnings to Comrnon Stock Outstanding Per Average Share 1998 1997 1998 1997 1998 1997 Mftons ot Doltars (evesprper share datal ' Quarter ended March 31 S 110 $ 109 222.5 222 5 $ 0.50 $ 0.49 June 30 148 118 222.7 222.5 0.66 0.53 , September 30 270 154 223.1 222.5 1.21 0.69 December 31 (28) (1,895) 224.5 222.5 (0.13) (8.51) i I J The increase in 1998 second quarter results was primarily The increase in the fourth quarter results was primarily ) due to increased operating revenues net of related fuel costs. due to the extraordinary charge of $8.24 per share recorded Revenues from wholesale sales increased significantly com- in 1997 resulting from deregulation of the Company's electric y, pared to 1997. Second quarter 1998 earnings also benefited generation operations; several one-time adjustments for changes in employee benefits; write-offs of information sys-4) from the full return to service of Salem which decreased the cost of fuel purchases and outage-related costs compared to tems development charges reflecting clarificc.: ion of l I 1997, from decreased operating and maintenance expense accounting guidelines and additional reserves to revise esti-and from reduced uncollectible expenses. , mates for accruals; higher income tax adjustments; and The increase in 1998 third quarter results was due pri- higher losses from the Company's non-utility ventures. The marily to increased operating revenues net of related fuel increase was partially offset by an Early Retirement and costs. Revenues from wholescle sales increased significantly Severance charge and an extraordinary charge for the premi-compared to 1997. Third quarter earnings also benefited from ums paio in connection with the redemption of higher-cost, the fu!l return to service of Salem, reduction of operating and long-term debt recorded in the fourth quarter of 1998. maintenance costs, reduction of uncollectible expenses and a one-time refund of gross receipts tax.
r i Notes to Consolidited Fintncial St:tsmtnts 47- } l Financial Statistics Summary of Earnings and Financial Condition for the Years Ended Decembv 'l, 1998 1997 1996 199s 1994 1993 Millions of Dottars, except per share data income Data Operating Revenues S 5,210 $ 4,618 5 4,284 5 4,186 $ 4,041 $ 3,988 1 Operating income 1,283 1,006 1,249 1,401 1,064 1,390 income before Extraordinary Item 532 337 517 610 427 591 Extraordinary item (net of income taxes) (20) (1,834) - - - - Net income (Loss) 513 (1,497) 517 610 427 591 Earnings Applicable to Common Stock 500 (1,514) 499 587 389 542 a- Eamings per Average Common Share Beforetxtraordinary item 2.33 1.44 2.24 2.64 1.76 2.45 Extraordinary item (0.09) (8.24) - - - - Earnings per Average Common Share 2.24 (6.80) 2.24 2.64 1.76 2.45 Dividends per Common Share 1.00 1.80 1.755 1.65 1.545 1.43 Common Stock Equity 13.61 12.25 20.88 20.40 19.41 19.25 Average Shares of Common Stock
. Outstanding (Millions) 223.2 222.5 222.5 221.9 221.6 221.1
( At December 31, Balance Sheet Data Net Utility Plant S 4,610 $ 4,495 $ 10,760 $ 10,758 5 10,829 $ 10,763 Leased Property, net 154 176 182 181 174 194 ! Total Current Assets 569 1,003 420 426 427 515 l Total Deferred Debits and i Other Assets 6,715 6.683 3.899 3,944 3,992 3,905 Total Assets 8 12,048 $ 12,357 $ 15.261 $ 15.309 $ 15.422 $ 15.377
> Common Shareholders' Equity 8 3,057 $ 2,727 $ 4.646 $ 4,531 $ 4,303 5 4,263 d Preferred and Preference Stock Without Mandatory Redemption 137 137 199 199 277 423 With Manda' tory Redemption
- 93 93 93 93 93 187 Company Obligated Mandatorily Redeemable Preferred l
Securities of a Partnership 349. 352 302 302 221 - Long-Term Debt 2,920 3,853 3.936 4,199 4,786 4,884 Total Capitalization 6,556 7,162 9,176 9.324 9.680 9,757 Total Current Liabilities 1,735 1,619 1,103 1,052 850 954 Total Deferred Credits and Other Liabilities 3,757 3,576 4,982 4,933 4,892 4.666 Total Capitalization and l Liabilities 8 12,048 $ 12.357 $ 15.261 $ 15,309 $ 15.422 $ 15.377 ( . 1 i L
48 PECO Energy Company and Subsidiary Cornptnirs Operating Statistics for the Nrs Enc'ed December 31, 1996 1997 1996 1995 1994 1993 Electric Operations , output (Millions of Kilowarthours) 10,262 9,659 10,856 10,792 11,239 10,352 Fossil 29,732 25,853 24,373 25,499 28,195 27,026 1 . Nuclear 1,715 1,558 2,404 1,425 1,970 1,699 Hydro 1,426 1,403 1,540 1,741 1,596 1,478 Pumped storage output (1,853) (1,924) (2,230) (2,507) (2,256) (2,192) Pumped storage input Purchase and interchange 34,075 29.615 19,539 13,945 6,164 6,447 1 56 176 144 179 175 106 Intemal combustion Total electric output 75,533 66,308 56,661 51,070 47,014 44,866 Sales (Millions of Kilowarthours)
' 10,623 10,407 10,671 10,636 10,859 10,609 Residential 6,888 6,685 6,491 6,200 6,150 5,769 Small commercial and industrial 15,678 15,034 15,208 15,763 15,968 15,956 Large commercial and industrial 803 841 902 860 791 771 Other Unbilled 131 70 (327) 535 (205) 31 1 Service territory 34,123 33,037 32,945 33,994 33,563 33,136 ! , Interchange sales 3,483 1,927 935 496 768 457 l 37,258 28,893 20,243 14,041 10,039 8,670 I Sales to ottrarctikties 74,864 63,857 54,123 48,531 44,370 42,263 Total electric sales ;
Number of Customers, oecernber sf, 1,343,791 1,333,861 1,324,448 1,321,379 1,350,210 1,341,873 Ressdential 145,055 144,142 142,431 141,653 143,605 142,363 Small commercial and industrial 3,248 3,308 3,299 3,394 3,603 3,742 Large commercial and industrial 1,150 1,094 1,051 959 944 888 Other 1,493,244 1,482,405 1,471,229 1,467,385 1,498,362 1,488,866 Total electric customers 0perating Revenues (Millions of oollars) 1,377 $ 1,357 $ 1,370 $ 1,379 $ 1,371 $ 1,351 Residential S 784 779 749 730 710 679 Small commercial and industrial 1,168 1,067 1,077 1,098 1,135 1,149 Large commercial and industrial 150 148 140 137 136 161 Other 1 19 (26) 43 (11) (1) Unbilled 3,358 3,379 3,380 3,331 3.424 3,355 Service territory 211 59 26 17 23 14 Interchange sales 1,221 728 498 334 247 233 Sales to other utihties l 4,811 $ 4,167 $ 3,855 $ 3,775 $ 3.625 $ 3,605 Total electne revenues S l ) Operating Expenses Operating expenses, excluding 2,026 $ 2,209 $ 1,894 depreciation and amortization S 2,993 $ 2.698 $ 2,244 $ h11 553 462 416 401 Depreciation and amortization 4'31_ 3,604 3,251 2,706 2,457 2,625 2,295 Total operating expenses 1,207 $ 916 $ 1,149 $ 1,318 $ 1,000 $ 1,310 Electric Operating income $ Average Use per Pesidential Customer (Kilowarthours) 6,948 6,695 6,771 6,908 6,736 6,727 Without electric heating 15,398 16,400 17,946 17,189 17,527 D,096 With electric heating 7,935 7,830 8.074 8,130 8,041 7,970 All customers Electric Peak Load, Demand 7,390 6,509 7,244 7,227 7,100 (Thousands or raowarts> 7,108 Net Electric Generating Capacity-Year-end Summer Rating
- 9,204 9,201 9,078 8,956 8,877 (thousands or riiowarts) 9,262 Cost of Fuel per Million BTU $ 0.82 $ 0.84 $ 0.93 $ 0.87 $ 0.89 $ 0.90 ,
10,682 10,705 11,617 10,675 l BTU per Net Kilowatthour Generated 10,496 10,737
Notts to Consolidated Financial Statemsnts 49 [ Operating Statistics (ceneinuno For tne Years Ended December 31, 1998' 1997 1996 1995 1994 1993 [; f% ' Gas Operations ' , i ;,4 Sales tuitrions at cubic reet) - Residential 1,496 1,614 1,681 1,516 1,636 1,637 l_ l House heating 28,402 32,666 35,471 30,698 32,246 30,242 Commercial and industrial 16,757 19,830 20,9 2 18,464 19,762 18,635 Other 554 673 z,571 1,582 7.039 9,733 Unbilled (440) .t12 (1,306) 1,710 (474) 676 Total gas sales 46,769 54,995 59,416 53,970 60.209 60,923 Gas transported for customers 28,204 30,412 27,891 48,531 29,801 22,946 Total gas sales and gas transported 74,973 85,407 87,307 102,501 90,010 83.869 Number of Customers Residential 55,417 55,592 56,003 56,533 57,122 59.573 House heating 324,081 314,335 303,996 295.481 287.481 277,500 Commercial and industrial 35,931 35.215 34,182 33.308 32.292 31,573 Total gas customers 415,429 405,142 394,181 385,322 376.895 368,646 Operating Revenues (Millions of Dollars)
+ Residential $ 16 $ 17 $ 16 $ 15 $ 16 $ 15 h House heatmg 236 265 -249 236 238 202 Commercial and industrial 125 145 133 126 128 110 Other 2 3 11 5 20 28 Unbilled (3) (1) (4) 7 (3) 5 Subtotal 376 429 405 389 399 360 Other revenues (including gas transported for customers) 24 22 24 22 17 23 Total gas revenues S 400 $ 451 $ 429 $ 411 $ 416 5 383 i
Operating Expenses Operating expenses, excluding depreciation and amortization S 291 $ 333 $ 302 $ 302 $ 326 $ 279 Depreciation and amortization 32 28 27 26 26 24 Total operating expenses 323 361 329_ 328 352 303 Gas Operating income S 77 $ 90 $ 100 $ 83 $ 64 $ 80 Securities Statistics Ratings on PECO Energy Company's securities Mortgage Bonds Preferred stock Date Cate
..' Rating Estabhshed Agency Rating Estabhshed Duff and Phelps, Inc. . A- 10/98 BBB 10/98 Fitch investors Service, Inc. A- 9/92 BBB+ 9/92 Moody's investors Service Baal .4/92 baa2 4/92 Standard & Poor's Corporation BBB+ 4/92 BBB- 2/99 NYSE-Composite Common Stock Prices, Earnings and Dividends by Quarter (pershare) 1998 1997 Fourth Third Second First Fourth Third second First Quader Quaner Quaner Qi_crer Quaner Quaner Quader Quaner High price $42 3/16 $ 36-3/4 $ 30-5/8 52411/16 $ 25-1/8 $24-5/16 $ 21-1/8 $ 26-3/8
. Low price $ 36-1/2 S 28 1/2 $213/16 $ 18-7/8 $21-7/16 $ 20-3/4 $ 18-3/4 $ 20
( Close S 41-3/4 5 36-3/4 $29 3/16 $ 22-1/8 $ 24-1/4 $23-7/16 $ 21 $ 20-3/8 Earnings S (0.13) $ 1.21 $ 0.66 5 0.50 $ (8.51) $ 0.69 $ 0.53 $ 0.49 Dividends S 0.25 5 0,25 5 0.25 $ 0.25 $ 0.45 $ 0.45 $ 0.45 $ 0.45
PECO Energy Company and Subsidiary Companies 50
? Board of Directors Officers Susan W. Catherwood (%) Corbin A. McNeill, Jr. (SM John B. Cotton iS37" Cassandra A. Matthews (43)
Vice Prescent, informaton h Spec.al Projects, PECO NJclear Chairman, Trustee Board, Chairman of the Board of Directors
* "N* # ###
The University of Pennsylvania President and Chief Executtve John Doering, Jr. (558 C#' Medecal Center and Health System Officer Vice Presso nt, Peach Bottom Atomic Power 5;ation John P. McElwain (48ms) Daniel L Cooper (63) Gerald R, Rainey (49P President and Cnief Nuclear Officer, # ' Former Vice Pre,ident and General Gregory P. Dudkin (41r e Manager, Nuclear Services Desion PECO Nuclear Vice President, Operatiors, Gilbert / Commonwealth, Inc. PECO Energy Datnbution J. Barry Mitchell (51) Nancy J. Bessey (45PM Vice President, Treasury and President, Power Team M. Walter D'Alessio (65) 7 Evaiuaton, ana Treasurer President and Chief Executive g gg p Oh. Sen or Vice President, Nuclear Developme,t, James A. Muntz (41Po Legg Mason Real Estate Services PECO Nuclear Vice President, Fossil Operations Corporate and President. (Commercal mortgage banking Jean H. Gibson (42P James D. von Suskil (52P and pension fund adwsors) Vice President, James W. Durham (61) Vice President and Con *ro!Ier G. Fred DiBona, Jr. (477 6 # U**"# 0*"#9 8 "' joseph J. Hagan (48eu " President and Chief Executive aM &nd hel # Senior Vice President, Off<er, Nuclear Operatens. Richard G, White (40PD independence Blue Cross Michael J. Egan i45)
"# ** * ' " "' "" 9 R. Keith Elliott (56) and Chief Finanaal Officer Paul E. Haviland A 5 Katherine K. Combs (48) j< Chairman, CtM&cutive f Officer.
Kenneth G. Lawrence (51pm Vice President. Corporate Secretary Hercules, Inc. Senior Vice President. Corporate Development Edward J. Cullen, Jr. (51) Richard H. Gianton (52P" Corporate and President. Assistant Corporate Secretary Thomas P. Hill, Jr. (50F Partner of the law firm Reed Smith P O on Vice President. Regulatory and Snaw and McClay Todd D. Cutler (38) William H. Smith, ll1 (50) External Aff airs, PECO Energy Assistant Corporate Secretary l Rosemarie B. Greco (52rb , p i Business Servmes Group Diana Moy Kelly (44 _ Ch ef nec tve f er, Christine A. Jacobs (46PD Wam haw David W. Woods (41PS Vice President, Support Services Pnvate industry Counal Senor Wce Mde% * '9 " '" Corbin A. McNeill, Jr. (59F Suzanne L Keenan (34r6< Assistant Treasurer and U
- Vice President. Customer &
Chairman of the Boyd # '"'9" Mameting Serwces. President and Chief Executive Officer of the Company PECO Energy Distnbution John M. Palms, PhD. (63) m Member of the Executive f Committee of the Board of ) President. OlfeCIOrs University of South Carchna m Eiected February 23.1938 Joseph F. Paquette, Jr. > 64P m EHective January 26,1998 Former Chairrnan of the Board of a EHective March 2.1993 Directors of the Company s, Effective March 4.1998 is. Effectwe Apnl 8.1998
.t Ronald Rubin (67)
[. ; Chief Executive OffKer, m Effectwe Apnl 9,1998
- Pennsylvania Real Estate investment ,s; EHective May 31.1993 Trust + EHective lune 1,1998 Robert Subin (60)
- o<a ENect.ve June 22.1998 Forme, Senior Vice President, on EHective August 14,1998 CamPuell Soup Company m Effectwe September 28.1998 nr Effective November 9,1998 n E+fectwe December 1.1998 no Effective January 6.1999, no longer an officer of PECO Energy os E+fecnve January 25.1999 q
Shareholder Information Stock Exchange Listings Annual Meeting Most Company securities are listed on the New York Stock The Annual Meeting of the Shareholders of the Company will Exchange and the Philadelphia Stock Exchange under PE. be held at the Sunnybrook Ballroom and Conference Center in Pottstown, Pennsylvania on April 27,1999, at 9:30 AM. Dividends The record date for voting at the shareholders' meeting is The Company has paid dividends on its common stock con- March 5,1999. Prompt return of proxies will be appreciated. tinually since 1902. The Board of Directors normally considers common stock dividends for payment in March, em M June, September and December. The Company expects that http://www. vote-by-net.com the $1.00 per share dividend paid to common shareholders in 1998 is fully taxable as dividend income for federal income To receive future Annual Reports and proxy statements tax purposes. electronically, sign-up at: M o ebnemhip/m Shareholders may use their dividends to purchase additional shares of common stock through the Company's Dividend Form 10-K Reinvestment and Stock Purchase Plan (Plan). The Company Form 10-K, the annual report filed with the Secunties and pays all brokerage and service fees for Plan purchases. All Exchange Commission, is available without charge to share-shareholders hee the opportunity to invest additional funds holders by calling 1-888-340-7326 or by obtaining a copy from in common st~9 of the Company, whether or not they have our internet site http://www/peco.com/ investor, p their dividr~ s reinvested, with all purchasing fees paid by the Compa% Shareholders in 1998, over 57 percent of the Company's common share-ny , a&Ws d mcd d cm n stod as of Decenhr 31, 28. holders were participants in the Plan. Information concerning the Plan may be obtained from: EquiServe, PECO Energy Company Plan, P.O. Box 2598, Jersey City, NJ 07303-2598. Transfer Agents and Reg,istrars Preferred and Common Stock Registrar and Transfer Agent: Comments Welcomed First Chicago Trust, Division of EquiServe, (1-800-626-8729) P.O. Box 2500, Jersey City, NJ 07303-2500 The Company is always pleased to answer questions and provide information. Please address your comments t First and Refunding Mortgage Bond Trustee: Katherine K. Combs, Corporate Secretary, PECO Energy F rst Union National Bank, (1-800-665-9343) Company,2301 Market Street, P.O. Box 8699, Philadelphia, Corporate Trust Operations Customer Information Center PA 19101-8699. Redemption Bldg 3C3 inquiries relating to shareholder accounting records, stock transfer and change of address should be directed to: EquiServe, P.O. Box 2500, Jersey City, NJ 07303-2500. Internet Site Visit our internet site at http://www.peco com Toll Free Telephone Lines Toll-free telephone lines are available to the Company's share. General Office holders for inquiries concerning their stock ownership. Calls 2301 Market Street should be directed to 1-800-626-8729. Philadelphia, Pennsylvania 19103 (215) 841-4000 For current Company news call 1-888-340-7326 O
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