ComEd 2001 Annual Report Download - page 68

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(05) Accounting Changes
On January 1, 2001, Exelon recognized a non-cash gain of $12 million, net of income taxes, in earnings and deferred a non-
cash gain of $44 million, net of income taxes, in Accumulated Other Comprehensive Income, a component of shareholders’
equity, to reflect the adoption of SFAS No. 133, as amended.
During the fourth quarter of 2000, as a result of the synchronization of accounting policies with Unicom in connection
with the Merger, PECO changed its method of accounting for nuclear outage costs to record such costs as incurred.
Previously, PECO accrued these costs over the operating unit cycle. As a result of the change in accounting method for
nuclear outage costs, PECO recorded income of $24 million, net of income taxes of $16 million. The change is reported as a
cumulative effect of a change in accounting principle on the Consolidated Statements of Income as of December 31, 2000,
representing the balance of the nuclear outage cost reserve at January 1, 2000.
(06) Regulatory Issues
ComEd
In 2001, the phased process to implement competition in the electric industry continued as mandated by the requirements
of the Illinois restructuring legislation.
Customer Choice As of December 31, 2001, all non-residential customers were eligible to choose a new electric supplier or elect
the power purchase option which allows the purchase of electric energy from ComEd at market-based prices. ComEd’s
residential customers become eligible to choose a new electric supplier in May 2002. As of December 31, 2001, approximately
18,700 non-residential customers, representing approximately 22% of ComEd’s annual retail kilowatt-hour sales, had elected
to purchase their electric energy from an alternate electric supplier or had chosen the power purchase option. Customers
who receive energy from an alternative supplier continue to pay a delivery charge. ComEd is unable to predict the long term
impact of customer choice on results of operations.
Rate Reductions and Return on Common Equity Threshold The Illinois restructuring legislation provided a 15% residential
base rate reduction effective August 1, 1998 with an additional 5% residential base rate reduction effective October 1, 2001.
ComEd’s operating revenues were reduced by approximately $24 million in 2001 due to the 5% residential rate reduction.
Notwithstanding the rate reductions and subject to certain earnings tests, a rate freeze is generally in effect until at least
January 1, 2005. A utility may request a rate increase during the rate freeze period only when necessary to ensure the
utility’s financial viability. Under the Illinois legislation, if the earned return on common equity of a utility during this period
exceeds an established threshold, one-half of the excess earnings must be refunded to customers. The threshold rate of
return on common equity is based on the 30-Year Treasury Bond rate plus 8.5% in the years 2000 through 2004. Earnings
for purposes of ComEd’s threshold include ComEd’s net income calculated in accordance with GAAP and reflect the
amortization of regulatory assets and goodwill. As a result of the Illinois legislation, at December 31, 2001, ComEd had a
regulatory asset with an unamortized balance of $277 million that it expects to fully recover and amortize by the end
of 2004. Consistent with the provisions of the Illinois legislation, regulatory assets may be recovered at amounts that
provide ComEd an earned return on common equity within the Illinois legislation earnings threshold.The earned return on
common equity and the threshold return on common equity for ComEd are each calculated on a two-year average basis.
ComEd did not trigger the earnings sharing provision in 2000 or 2001 and does not currently expect to trigger the earnings
sharing provisions in the years 2002 through 2004.