MW 4/8
INTEROFFICE REPORT
Exelon Corporation
March 9, 2005
Prepared for: Katherine Roarke
Prepared by: Debra Warner
Exelon Corporation is the parent company of several subsidiary utility companies, as illustrated on Attachment A, which operate in three distinct business segments: energy delivery, generation, and enterprises. Through their largest subsidiaries, Commonwealth Edison (ComEd) in Illinois and Peco Energy Company (PECO) in Pennsylvania, they currently rank 6th and 12th respectively in terms of electric utility revenue. (15) If their recently announced merger with Public Service Electric & Gas Company (PSEG) is successful, it will result in them becoming "the nation's largest power utility operator." (2)
Major Risks
The three major risk factors that Exelon must currently navigate include market fluctuations, correctly estimating competitive transitions charges, and conforming to environmental regulations imposed by the government. Each risk has the ability to affect their financial stability in detrimental ways. When we compare Exelon to the energy industry as a whole, though, we find that they are in a better position than most to handle the obstacles ahead.
Market Fluctuations
There are two key areas that can affect Exelon in terms of market fluctuations. The first area is interest rates. Exelon attempts to control costs by hedging both energy supplies and funds for future financing ventures. These contracts contain a combination of fixed- and variable-rates, which allows them to achieve a lower cost of capital. The negative aspect of having a variable-rate, though, is that "a hypothetical 10% increase in interest rates would resu ...