ITEM 1. BUSINESS.
GENERAL
Unicom was incorporated in January 1994. ComEd, a regulated electric utility, is the principal subsidiary of Unicom. Unicom Enterprises is an unregulated subsidiary of Unicom and is engaged, through its subsidiaries, in energy service activities. Unicom's principal executive offices are located at 10 South Dearborn Street, Post Office Box A-3005, Chicago, Illinois 60690- 3005, and its telephone number is 312/394-7399.
ComEd represents substantially all of the assets, revenues and net income (loss) of Unicom; and Unicom's resources and results of operations are largely dependent on, and reflect, those of ComEd. Consequently, the following discussion focuses on ComEd's utility operations although information is also provided about Unicom's unregulated operations.
Utility Operations
ComEd is engaged principally in the production, purchase, transmission, distribution and sale of electricity to a diverse base of residential, commercial, industrial and wholesale customers. ComEd was organized in the state of Illinois on October 17, 1913 as a result of the merger of Cosmopolitan Electric Company into the original corporation named Commonwealth Edison Company. The latter had been incorporated on September 17, 1907. ComEd's electric service territory has an area of approximately 11,300 square miles and an estimated population of approximately 8 million as of December 31, 1997. It includes the city of Chicago, an area of about 225 square miles with an estimated population of approximately 3 million from which ComEd derived approximately one-third of its ultimate consumer revenues in 1997. ComEd had 3.4 million electric customers at December 31, 1997. ComEd's principal executive offices are located at 10 South Dearborn Street, Post Office Box 767, Chicago, Illinois 60690-0767, and its telephone number is 312/394-4321.
Unregulated Operations
Unicom Enterprises is engaged, through subsidiaries, in energy service activities which are not subject to utility regulation by state or federal agencies. One of these subsidiaries, UT Holdings, provides district cooling, heating and related services to offices and other buildings in the central business district of the city of Chicago under a non-exclusive use agreement with the city of Chicago for an initial term expiring in 2014. District cooling involves, in essence, the production of chilled water at one or more central locations and its circulation to customers' buildings through a closed circuit of supply and return piping. Such water is circulated through customers' premises primarily for air conditioning. This process is used by customers in lieu of self-generated cooling. As a result of the Clean Air Amendments, the manufacture of CFCs has been curtailed since January 1996, thereby creating a marketing opportunity for non-CFC based systems, such as UT Holdings' district cooling. UT Holdings is involved in energy projects in other cities, generally working with the local utilities in those cities.
Unicom Energy Services, another subsidiary of Unicom Enterprises, is engaged in providing energy services including gas services, performance contracting, distributed energy and active energy management systems. In 1997, Unicom Energy Services entered into a joint venture with Sonat Marketing Company L.P. to market natural gas and related services to large gas purchasers within ComEd's service area in Northern Illinois and other Midwestern areas. As an entry into the
distributed energy market, Unicom Energy Services also entered into an alliance with AlliedSignal Power Systems, Inc., a subsidiary of AlliedSignal Inc., to market, install and service an electric energy generator developed by AlliedSignal, known as a TurboGenerator, in a 12-state region and the province of Ontario, Canada. Unicom Energy Services entered into an exclusive national distributorship agreement with Engage Networks, Inc. to market active energy management software and related hardware and services.
CHANGES IN THE ELECTRIC UTILITY INDUSTRY
Unicom and its predominant business, electric energy generation, transmission and distribution, are in a period of fundamental change in the manner in which customers obtain, and energy suppliers provide, energy services. These changes are attributable to changes in technology, the relaxation of regulatory barriers to utilities' respective service territories as well as to efforts to change the manner in which electric utilities are regulated. Federal law and regulations have been amended to provide for open transmission system access, and various states, including Illinois, are considering, or have adopted, new regulatory structures to allow access by some or all customers to energy suppliers in addition to the local utility.
Electric Utility Industry. The electric utility industry has historically consisted of vertically integrated companies which combine generation, transmission and distribution assets; serve customers within relatively defined service territories; and operate under extensive regulation with respect to rates, operations and other matters. Utilities have operated under a regulatory compact with the state, with a statutory obligation to serve all of the electricity needs within their service territory in a nondiscriminatory manner. Historically, investment and operating decisions have been made based upon the utilities' respective assessment of the current and projected needs of their customers. In view of this obligation, regulation has focused on investment and operating costs, and rates have been based on a recovery of some or all of such prudently incurred costs plus a return on invested capital. Such rate regulation, and the ability of utilities to recover investment and other costs through rates, have provided the basis for recording certain costs as regulatory assets. These assets represent costs which are allocated over future periods reflecting related regulatory treatment, rather than expensed in the current period.
The 1997 Act. On December 16, 1997, the Governor of Illinois signed into law the 1997 Act, which established a phased-process to introduce competition into the electric industry in Illinois under a less regulated structure. The 1997 Act, as it applies to ComEd, provides for, among other things, a 15% residential base rate reduction commencing on August 1, 1998, an additional 5% residential base rate reduction commencing on May 1, 2002, and customer access to other electric suppliers in a phased-in process. Access for commercial and industrial customers will occur over a period from October 1999 to December 2000, and access for residential customers will occur after May 1, 2002. The 15% residential base rate reduction, commencing on August 1, 1998, is expected to reduce ComEd's operating revenues by approximately $160 million and $375 million in 1998 and 1999, respectively, compared to 1997 rate levels. ComEd is engaged in certain pricing experiments contemplated by the 1997 Act, which are expected to reduce ComEd's operating revenues by approximately $30 million and $60 million in 1998 and 1999, respectively, compared to 1997 rate levels, notwithstanding the effects of customer growth.
The 1997 Act also provides for the collection of a CTC from customers who choose another electric service provider during a transition period that extends through 2006, and can be extended through 2008 with ICC approval if certain factors are met. The CTC will be established in accordance with a formula defined in the 1997 Act. The CTC, which will be applied on a cents per kilowatthour basis, considers the revenue which would have been collected from a customer under tariffed rates, reduced by the revenue the utility will receive for providing delivery services to the customer, the market price for electricity and a defined mitigation factor which represents the utility's opportunity to develop new revenue sources and achieve cost savings.
Notwithstanding these rate reductions, and subject to certain earnings tests, a rate freeze will generally be in effect until at least January 1, 2005. During this period, utilities may reorganize, sell or assign assets, retire or remove plants from service, and accelerate depreciation or amortization of assets with limited ICC regulatory review. Under the earnings provision of the 1997 Act, if the earned return on common equity of a utility during this period exceeds an established threshold, a portion of the excess earnings must be refunded to customers. A utility may request a rate increase during the rate freeze period when necessary to ensure the utility's financial viability, but not before January 1, 2000.
Under the 1997 Act, utilities are required to continue to offer delivery services, including the transmission and distribution of electric energy, such that customers who select an alternative energy supplier can receive electric energy from that supplier using existing transmission and distribution facilities. Such services will continue to be offered under cost-based regulated rates. The 1997 Act also requires utilities to establish or join an ISO that will independently manage and control utility transmission systems. Additionally, the 1997 Act includes the option to eliminate the FAC, the leveling of certain regulatory requirements to permit operational flexibility, the leveling of certain regulatory and tax provisions as applied to various electric suppliers and a new more stringent liability standard applicable to ComEd in the event of a major outage.
The 1997 Act also allows ComEd to unbundle a portion of its future revenues, including tariffed rates and CTC revenues, and issue securities backed by these revenues. The proceeds from such security issuances must generally be used to refinance outstanding debt or equity or for certain other limited purposes. The total amount of such securities that ComEd may issue is approximately $6.8 billion; approximately one-half of that amount can be issued in the twelve-month period commencing on August 1, 1998.
As a result of the 1997 Act, prices for the supply of electric generation are expected to transition from cost-based, regulated rates to rates determined by competitive market forces. The CTC allows ComEd to recover a portion of any of its costs which might otherwise be unrecoverable under market-based rates. Nonetheless, ComEd will need to take steps to address the portion of such costs which are not recoverable through the CTC. Such steps include cost control efforts and developing new sources of revenue.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations," subcaption "Changes in the Electric Utility Industry-- Accounting Effects Related to the 1997 Act" and Note 2 of Notes to Financial Statements in the January 30, 1998 Form 8-K Reports, which are incorporated herein by reference, for the accounting effects related to the 1997 Act.
Federal Regulation. The Federal Energy Policy Act of 1992, among other things, empowered the FERC to introduce a greater level of competition into the wholesale marketplace for electric energy. In April 1996, the FERC Order was issued requiring utilities to file open access tariffs with regard to their transmission systems. These tariffs set forth the terms, including prices, under which other parties and the utility's wholesale marketing function may use the utility's transmission system. ComEd has an approved open access tariff with the FERC. The FERC Order requires the separation of the transmission operations and wholesale marketing functions so as to ensure that unaffiliated third parties have access to the same information as to system availability and other requirements. The FERC Order further requires utilities to operate an electronic bulletin board to make transmission price and access data available to all potential users. A key feature of the FERC Order is that it contemplates full recovery of a utility's costs "stranded" by competition. These costs are "stranded" or "strandable" to the extent market-based rates would be insufficient to allow for their full recovery. To recover stranded costs, the utility must show that it had a reasonable expectation that it would continue to serve the customer in question under its regulatory compact. In addition, some governmental entities, such as cities, may elect to "municipalize" a utility's distribution facilities
through condemnation proceedings. Such municipalities would then be able to purchase electric power on a wholesale basis and resell it to customers over the newly acquired facilities. The FERC Order provides for the recovery of a utility's investment stranded by municipalization.
ComEd's Response to Regulatory Changes. ComEd is responding, and is undertaking significant strategic planning efforts to respond further, to the developments within the utility industry and the 1997 Act and its potential for strandable investment. During the past several years, such efforts have focused on cost reductions, including personnel reductions, efficiencies in purchasing and inventory management, and an incentive compensation system keyed to cost control and improvement in shareholder value. Notwithstanding these efforts, ComEd's costs remain high in comparison to its neighboring utilities. Although ComEd's operating results and financial condition have historically been affected by various rate proceedings, ComEd expects that the changes in the national and Illinois electric energy marketplace, and ComEd's activities anticipating or responding to them, will directly impact its operating results and financial condition over the next several years.
ComEd anticipates that the 1997 Act, and the resultant increasing competition to supply energy in Illinois and elsewhere, will have significant effects upon its revenues and assets as it takes steps to adjust its operations and services to meet the changing market for electric energy. Both Unicom and ComEd have been examining methods of positioning themselves and their affiliates to deal with those effects and to address the developing opportunities and challenges. ComEd has been engaged in a broad-based examination of its assets and operations, particularly nuclear and fossil generation and generation-related (i.e., fuel and inventory) assets, with a view toward rationalizing their investment and operating costs against their ability to contribute to the revenues of ComEd under various market scenarios. Such an assessment involves the consideration of numerous factors, including revenue contribution, operating costs, impacts on ComEd's service obligations, purchase commitments and the impact of various options. Such options include continued operation with accelerated depreciation, indefinite suspension from operation, sale to a third party and retirement or closure. As discussed below, ComEd recently ceased nuclear generation operations and retired facilities at its Zion Station. If ComEd retired or closed one or more additional generating plants, particularly a nuclear plant, such retirement would have a material impact on Unicom and ComEd's financial position and results of operations. See "General--Unregulated Operations" above regarding Unicom Energy Services' energy services activities.
On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized the permanent cessation of nuclear generation operations and retirement of facilities at ComEd's 2,080 megawatt Zion nuclear generating station. Such retirement resulted in a charge for 1997 of $523 million (after-tax) or $2.42 per common share. The decision to close Zion Station was a result of an ongoing analysis, which ComEd performed regarding the economic value of its generating assets in light of the expected changes in the manner in which electric energy is marketed and sold. The passage of the 1997 Act provided a clearer basis for evaluating the costs and benefits of alternative courses of action. In reaching the decision to cease nuclear generation operations at Zion Station, the Boards also considered the significant uncertainty associated with continued operation of the station due to the degradation of the steam generators, and the expected operating costs associated with continued station operation.
Notwithstanding the closure of Zion Station as a nuclear generating facility, a portion of the station will continue to be used to provide voltage support in the transmission system that serves ComEd's northern region. Such support will require capital expenditures at the station as well as upgrades to the transmission system at various points, in order to improve the ability to import and transport power through the system. See Note 5 of Notes to Financial Statements in the January 30, 1998 Form 8-K Reports, which are incorporated herein by reference, for additional information.
In April 1996, ComEd announced that it had finalized agreements to sell two of its coal-fired generating stations, representing 1,598 megawatts of generating capacity, and to enter into exclusive 15-year purchased power agreements for the output of the stations. The sale of State Line Station was completed in December 1997 and the sale of Kincaid Station was completed in February 1998. The net proceeds of the sales, after income tax effects and closing costs, were approximately $190 million. The proceeds will be used to retire or redeem existing debt.
ComEd joined with eight Midwestern utilities to form a regional Midwest ISO in January 1998. The Midwest ISO is a key element in accommodating the restructuring of the electric industry and will promote enhanced reliability of the transmission system, equal access to the transmission system and increased competition. The Midwest ISO will establish an independent body that will ultimately direct the management of the transmission system for the utilities involved. ComEd will retain ownership of its transmission lines. The formation of the Midwest ISO is subject to FERC approval.
NET ELECTRIC GENERATING CAPABILITY
As described under "Item 2.
ITEM 2. PROPERTIES.
ComEd's electric properties are located in Illinois and the Indiana Company's electric facilities are located in Indiana. In management's opinion, ComEd and the Indiana Company's operating properties
are adequately maintained and are substantially in good operating condition. The electric generating, transmission, distribution and general facilities of ComEd and the Indiana Company represent approximately 64%, 10%, 22% and 4%, respectively, of their gross investment in electric plant and equipment in service (after reflecting the closure of Zion Station and the sale of State Line Station).
The electric generating stations, substations and a portion of the transmission rights of way of ComEd and the Indiana Company are owned in fee. A significant portion of the electric transmission and distribution facilities is located over or under highways, streets, other public places or property owned by others, for which permits, grants, easements or licenses, deemed satisfactory by ComEd, but without examination of underlying land titles, have been obtained. The principal plants and properties of ComEd are subject to the lien of ComEd's Mortgage dated July 1, 1923, as amended and supplemented, under which ComEd's first mortgage bonds are issued.
The net generating capability of ComEd, as of March 1, 1998, is derived from the following electric generating facilities:
- -------- (1) Reflects a re-rating of certain generating stations as of February 1, 1998. (2) On January 14, 1998, the Boards of Directors of Unicom and ComEd authorized the permanent cessation of nuclear generation operations at Zion Station. (3) Excludes the 25% undivided interest of MidAmerican Energy Company in the Quad Cities Station. (4) Such generating units are normally designed for use primarily during the maximum load periods of the year or during system operating emergencies. Such units are capable of starting and coming on-line quickly. (5) ComEd sold its Kincaid and State Line generating stations in February 1998 and December 1997, respectively. Under the terms of the sales, ComEd entered into exclusive 15-year purchase power agreements for the output of the plants.
Major electric transmission lines owned and in service are as follows:
ComEd's electric distribution system includes 38,630 pole line miles of overhead lines and 34,579 cable miles of underground lines. A total of approximately 1,334,930 poles are included in ComEd's distribution system, of which about 593,390 poles are owned jointly with telephone companies.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
During 1989 and 1991, actions were brought in federal and state courts in Colorado against ComEd and Cotter seeking unspecified damages and injunctive relief based on allegations that Cotter has permitted radioactive and other hazardous material to be released from its mill into areas owned or occupied by the plaintiffs resulting in property damage and potential adverse health effects. In 1994, a federal jury returned nominal dollar verdicts on eight bellwether plaintiffs' claims in the 1989 cases, which verdicts were upheld on appeal. The remaining claims in the 1989 actions have been settled and dismissed. Although the 1991 cases will necessarily involve the resolution of numerous contested issues of fact and law, Unicom and ComEd's determination is that these actions will not have a material impact on their financial position or results of operations. A case relating to 14 of the plaintiffs in the 1991 cases has been set for trial in June 1998.
In July 1995, the Chicago area experienced several consecutive days of unusually high temperatures coupled with high humidity. Between July 12 and 14, 1995, ComEd experienced record demand for electricity. On July 14, 1995, a fire in a substation caused a power outage to approximately 40,000 customers. Other equipment failures in the same general area caused certain of these customers to be without power for up to 48 hours. In the wake of these power outages, three class action lawsuits were filed against ComEd seeking recovery of damages for property losses allegedly suffered. One suit seeks at least $10 million in damages; the others seek unspecified damages. One individual suit was also filed seeking damages of less than $100,000 for property losses.
On March 11, 1998 the Illinois Supreme Court approved a settlement of ComEd's dispute regarding property tax assessments for its Byron nuclear generating station. Under the terms of the settlement agreement, the taxing bodies in Ogle County have agreed that taxes in future years will not exceed certain specified amounts. ComEd will receive $8.5 million in refunds and set aside additional credits which will be available to enforce the provisions regarding future levies. The settlement agreement continues in effect until 2004. Appeals are still pending for cases involving ComEd's Braidwood and LaSalle Stations, as well as other properties. These proceedings seek refunds and reduced valuations, resulting in lower property taxes for the challenged and subsequent years.
On November 1, 1996, the city of Chicago, Illinois filed a demand for the appointment of an Adjustment Board before the American Arbitration Association under the provisions of its franchise agreement with ComEd. In its demand, the city alleges, among other items, that ComEd has failed to carry out certain commitments related to system reliability under the franchise agreement, which requires ComEd to budget $1 billion in expenditures for transmission and distribution enhancements within or for the benefit of Chicago over a ten-year period that commenced in January 1992. ComEd is disputing the city's allegations. During the six years since January 1992, ComEd has expended approximately $499 million to enhance electric service reliability and energy supply for the city, and it continues to review, and budget appropriately, for needed projects.
On June 13, 1997, the IDR issued a Notice of Tax Liability to ComEd alleging deficiencies in Illinois invested capital tax for the years 1988 through 1994 of $22 million, plus interest of $11 million and a penalty of $2 million. On January 2, 1998, the IDR issued a second Notice of Tax Liability also alleging deficiencies in Illinois invested capital tax for the years 1995 through 1996 of $7 million, plus interest of $1 million. ComEd has protested the notices, and the matter is currently pending before the IDR's Office of Administrative Hearings. Interest will continue to accrue on the alleged tax deficiencies at 9% per annum.
In November and December of 1997, Unicom and its directors were served with several shareholder derivative lawsuits in state and federal court. All of the suits assert identical claims that the directors breached fiduciary duties to the shareholders by allegedly failing to properly supervise ComEd's nuclear program. Each plaintiff alleges that this caused ComEd to violate NRC rules, which has cost ComEd millions of dollars. Plaintiffs seek to have the directors reimburse ComEd for these costs, and they seek attorneys' fees. Unicom and ComEd's preliminary assessment of these claims is that they are without merit.
In October 1997, six ComEd employees who were formerly located at ComEd's nuclear station in Zion, Illinois brought state and federal claims against ComEd, alleging that they were relocated and demoted as the result of raising nuclear safety concerns. They claimed retaliatory demotion, retaliatory constructive discharge and intentional infliction of emotional distress. They requested reinstatement in their former positions, back pay, compensatory damages, attorneys' fees and punitive damages. The aggregate amount of punitive damages requested equals $18 million. They also filed a claim with the U.S. Department of Labor under the Energy Reorganization Act. Unicom and ComEd do not believe that their exposure with respect to these claims is material.
On April 28, 1997, Tower Leasing, Inc. ("Tower") and QST Energy, Inc. ("QST") filed a complaint with the ICC alleging that ComEd violated Illinois law and its own tariffs by preventing Tower and QST from installing a cogeneration facility at Sears Tower in Chicago, Illinois and interconnecting such facility with ComEd's system in that building. Tower and QST have asked the ICC to enter an order that would essentially require ComEd to assist in the implementation of the proposed facility. If Tower and QST are allowed to pursue the installation and interconnection of their proposed facility, ComEd could lose customer revenue. ComEd does not believe that it is obligated to allow Tower and QST to implement their proposed facility. ComEd also believes that the proposed facility would be inconsistent with Illinois law.
On November 14, 1997, the CHA filed an application with the FERC, seeking to require ComEd to provide transmission service to some of CHA's buildings so that those buildings may take electric service from an alternate electric supplier. ComEd maintains that the CHA is a retail customer ineligible for transmission service. Should this proceeding be resolved adversely to ComEd, ComEd could lose customer revenue. This revenue loss may be offset, however, by a stranded cost obligation the CHA would owe ComEd under FERC Order.
See "Item 1. Business," subcaptions "Rate Matters" and "Regulation" above for information concerning other legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
ComEd's securities and other securities guaranteed by ComEd are currently rated by three principal securities rating agencies as follows:
As of January 1998, Moody's rating outlook on ComEd's securities is "negative" and Duff & Phelps has classified ComEd's securities as "Rating Watch-Down." S&P changed its rating outlook on ComEd from "stable" to "positive" in November 1997.
The above ratings reflect only the views of such rating agencies and each rating should be evaluated independently of any other rating. Generally, rating agencies base their ratings on information furnished to them by the issuing company and on investigations, studies and assumptions by the rating agencies. There is no assurance that any particular rating will continue for any given period of time or that it will not be changed or withdrawn entirely if, in the judgment of the rating agency, circumstances so warrant. Such ratings are not a recommendation to buy, sell or hold securities.
The following is a brief summary of the meanings of the above ratings and the relative rank of the above ratings within each rating agency's classification system.
Moody's top four long-term debt ratings (Aaa, Aa, A and Baa) are generally considered "investment grade." Obligations rated Baa are considered as medium grade obligations, neither highly protected nor poorly secured. Such obligations lack outstanding investment characteristics and in fact have speculative characteristics. A numerical modifier in Moody's system shows relative standing within the principal rating category, with 1 indicating the high end of that category, 2 the mid-range and 3 the low end. S&P's top four bond ratings (AAA, AA, A and BBB) are generally considered to describe obligations in which investment characteristics predominate. Obligations rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Such obligations normally exhibit adequate protection parameters, but adverse economic conditions or changing circumstances are more likely to lead to weakened capacity to pay. A plus or minus sign in S&P's system shows relative standing within its rating categories.
Both Moody's and S&P's preferred stock ratings represent relative security of dividends. Moody's top four preferred stock ratings (aaa, aa, a and baa) are generally considered "investment grade." Moody's baa rating describes a medium grade preferred stock, neither highly protected nor poorly secured. S&P's top four preferred stock ratings (AAA, AA, A and BBB) are generally considered "investment grade." S&P's BBB rating applies to medium grade preferred stock which is below A ("sound") and above BB ("lower grade").
Duff & Phelps' credit rating scale has 17 alphabetical categories, of which ratings AAA through BBB (with AAA being the highest rating) represent investment grade securities. Ratings of BBB+, BBB and BBB- represent the lowest category of "investment grade" rating. This category describes securities with below average protection factors but which are considered sufficient for institutional investment. Considerable variability in risk occurs during economic cycles.
Moody's P-2 rating of commercial paper is the second highest of three possible ratings. P-2 describes a strong capacity for repayment of short-term promissory obligations. S&P rates commercial paper in four basic categories with A-2 being the second highest category. Duff & Phelps rates commercial paper in three basic categories, with D-2 indicating the middle category.
Further explanations of the significance of ratings may be obtained from the rating agencies.
Additional information required by Item 5 is incorporated herein by reference to the "Price Range and Cash Dividends Paid Per Share of Common Stock" on page 3 of Unicom's January 30, 1998 Form 8-K Report.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA. ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Items 6, 7 and 8 is incorporated herein by reference to the "Summary of Selected Consolidated Financial Data" on page 3, "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 4 through 20, and the audited consolidated financial statements and notes thereto on pages 22 through 54 of Unicom's January 30, 1998 Form 8-K Report. Reference is also made to "Item 1. Business," subcaptions "Changes in the Electric Utility Industry," "Construction Program" and "Regulation" for additional information.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by Item 10 relating to directors and nominees for election as directors at ComEd's Annual Meeting of shareholders to be held on May 28, 1998 is incorporated herein by reference to information under the heading "Security Ownership of Certain Beneficial Owners and Management" in ComEd's definitive Information Statement ("1998 Information Statement") to be filed with the SEC prior to April 30, 1998, pursuant to Regulation 14C under the Securities Exchange Act of 1934. The information required by Item 10 relating to executive officers is set forth in Part I of ComEd's Annual Report on Form 10-K under "Item 1. Business," subcaption "Executive Officers of the Registrant" and under the heading "Security Ownership of Certain Beneficial Owners and Management" in ComEd's 1998 Information Statement, which are incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated herein by reference to the paragraph labelled "Compensation of Directors" and the paragraphs under the heading "Executive Compensation" (other than the paragraphs under the heading "Corporate Governance and Compensation Committee Report on Executive Compensation") in ComEd's 1998 Information Statement.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 12 is incorporated herein by reference to the stock ownership information under the heading "Security Ownership of Certain Beneficial Owners and Management" in ComEd's 1998 Information Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ANNUAL REPORTS ON FORM 10-K FOR UNICOM CORPORATION AND COMMONWEALTH EDISON COMPANY
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND EXHIBITS:
The following schedules are omitted as not applicable or not required under rules of Regulation S-X: I, III, IV and V.
The individual financial statements and schedules of ComEd's nonconsolidated wholly owned subsidiaries have been omitted from Unicom and ComEd's Annual Reports on Form 10-K because the investments are not material in relation to ComEd's financial position or results of operations. As of December 31, 1997, the assets of the nonconsolidated subsidiaries, in the aggregate, were less than 1% of ComEd's consolidated assets. The 1997 revenues of the nonconsolidated subsidiaries, in the aggregate, were less than 1% of ComEd's consolidated annual revenues.
The following exhibits are filed with the indicated Annual Report on Form 10-K or incorporated therein by reference. Documents indicated by an asterisk (*) are incorporated by reference to the File No. indicated. Documents indicated by a plus sign (+) identify management contracts or compensatory plans or arrangements.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Unicom and ComEd hereby agree to furnish to the SEC, upon request, any instrument defining the rights of holders of long-term debt of ComEd not filed as an exhibit herein. No such instrument authorizes securities in excess of 10% of the total assets of ComEd.
(B) REPORTS ON FORM 8-K: A Current Report on Form 8-K dated October 9, 1997, was filed by Unicom and ComEd to announce that James J. O'Connor, Chairman and Chief Executive Officer of Unicom and ComEd intended to retire from the companies.
A Current Report on Form 8-K dated December 16, 1997, was filed by Unicom and ComEd to describe the 1997 Act and the related accounting effects.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To Unicom Corporation:
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Unicom Corporation and subsidiary companies incorporated by reference in this Annual Report on Form 10-K, and have issued our report thereon dated January 30, 1998.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14.(a), is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP Chicago, Illinois January 30, 1998
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To Commonwealth Edison Company:
We have audited, in accordance with generally accepted auditing standards, the consolidated financial statements of Commonwealth Edison Company and subsidiary companies incorporated by reference in this Annual Report on Form 10-K, and have issued our report thereon dated January 30, 1998.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in Item 14.(a), is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP Chicago, Illinois January 30, 1998
SCHEDULE II
UNICOM CORPORATION AND SUBSIDIARY COMPANIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (THOUSANDS OF DOLLARS) - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
Notes: (a) Bad debt losses, net of recoveries, and provisions for uncollectible accounts were charged to operating expense and amounted to $50,574,000, $41,846,000 and $26,278,000 in 1997, 1996 and 1995, respectively. (b) Write-off of obsolete materials. (c) Expenditures for site investigation and cleanup costs. (d) Payments of claims and related costs.
- -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO AND STATE OF ILLINOIS ON THE 27TH DAY OF MARCH, 1998. UNICOM CORPORATION John W. Rowe By -------------------------------- John W. Rowe, Chairman, President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON THE 27TH DAY OF MARCH, 1998. SIGNATURE - ---------------------------- TITLE ---------------------
John W. Rowe Chairman, President and - ---------------------------- Chief Executive Officer John W. Rowe and Director (principal executive officer) John C. Bukovski - ---------------------------- Senior Vice John C. Bukovski President(principal financial officer) Robert E. Berdelle Comptroller (principal - ---------------------------- accounting officer) Robert E. Berdelle
Edward A. Brennan* Director James W. Compton* Director Bruce DeMars* Director Sue L. Gin* Director Donald P. Jacobs* Director Edgar D. Jannotta* Director
David A. Scholz *By -------------------------------- David A. Scholz, Attorney-in- fact
[Signature page to Unicom Corporation Annual Report on Form 10-K]
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO AND STATE OF ILLINOIS ON THE 27TH DAY OF MARCH, 1998. COMMONWEALTH EDISON COMPANY John W. Rowe By -------------------------------- John W. Rowe, Chairman, President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON THE 27TH DAY OF MARCH, 1998. SIGNATURE - ---------------------------- TITLE ---------------------
John W. Rowe Chairman, President and - ---------------------------- Chief Executive Officer John W. Rowe and Director (principal executive officer) John C. Bukovski - ---------------------------- Senior Vice John C. Bukovski President(principal financial officer) Robert E. Berdelle Comptroller (principal - ---------------------------- accounting officer) Robert E. Berdelle
Edward A. Brennan* Director James W. Compton* Director Bruce DeMars* Director Sue L. Gin* Director Donald P. Jacobs* Director Edgar D. Jannotta* Director
David A. Scholz *By -------------------------------- David A. Scholz, Attorney-in- fact
[Signature page to Commonwealth Edison Company Annual Report on Form 10-K]
Unicom Corporation and Commonwealth Edison Company Form 10-K File Nos. 1-11375 and 1-1839
EXHIBIT INDEX
The following exhibits are filed with the indicated Annual Report on Form 10-K or incorporated therein by reference. Documents indicated by an asterisk (*) are incorporated by reference to the File No. indicated. Documents indicated by a plus sign (+) identify management contracts or compensatory plans or arrangements.
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, Unicom and ComEd hereby agree to furnish to the SEC, upon request, any instrument defining the rights of holders of long-term debt of ComEd not filed as an exhibit herein. No such instrument authorizes securities in excess of 10% of the total assets of ComEd.