ComEd 2013 Annual Report Download - page 121

regulatedoperationsthat meet thefollowingcriteria:1)ratesare establishedor approvedbyathird-partyregulator;(2)ratesare
designedto recover the entities’ costofprovidingservicesor products; and(3)there is a reasonable expectation that ratesare set at
levelsthat will recover the entities’ costsfromcustomers. Exelon,ComEd, PECO and BGE account for theirregulatedoperationsin
accordancewithregulatoryandlegislativeguidancefromtheregulatoryauthoritieshavingjurisdiction,principallytheICC, the
PAPUC, andtheMDPSC, inthecasesofComEd, PECO and BGE, respectively, under state public utilitylaws andtheFERCunder
variousFederal laws. Regulatoryassetsandliabilitiesare amortizedandthe relatedexpenseis recognizedintheConsolidated
StatementsofOperationsconsistent withtherecoveryor refundincludedincustomer rates. Exelon believesthat itis probable that
itscurrentlyrecordedregulatoryassetsandliabilitieswill berecoveredandsettled, respectively, infuture rates. However,Exelon,
ComEd, PECO and BGE continue to evaluate theirrespectiveabilitiesto applythe authoritativeguidancefor accountingfor certain
typesofregulation,includingconsideration ofcurrent eventsintheirrespectiveregulatoryandpolitical environments. If aseparable
portion ofComEd’s, PECO’s or BGE’s business wasno longer able to meet thecriteriadiscussedabove,theaffectedentitieswould
berequiredto eliminate fromtheirconsolidatedfinancial statementstheeffectsofregulation for that portion, which couldhavea
material impactontheirresultsofoperationsandfinancial positions. See Note 3—RegulatoryMattersfor additional information.
TheRegistrantstreat theimpactsofafinal rate order receivedafter thebalancesheet date but prior to theissuanceofthefinancial
statementsasa non-recognizedsubsequent event,asthereceipt ofafinal rate order is aseparate and distinctevent that hasfuture
impactson the partiesaffectedbytheorder.
Revenues
Operating Revenues. Operatingrevenuesare recordedasserviceis renderedor energy is deliveredto customers. At theendof
each month, theRegistrantsaccrue an estimate for theunbilledamount ofenergy deliveredor servicesprovidedto customers.
ComEd records itsbestestimatesofthedistribution andtransmission revenue impactsresultingfromchangesin ratesthat ComEd
believesare probable ofapproval by theICC andFERCinaccordancewithitsformula rate mechanisms. BGE records itsbest
estimate ofthe transmission revenue impactresultingfromchangesin ratesthat BGE believesare probable ofapproval by FERCin
accordancewithitsformula rate mechanism. See Note 3—RegulatoryMattersandNote 6—AccountsReceivable for further
information.
RTOs and ISOs. InRTO and ISO marketsthat facilitate thedispatch ofenergy andenergy-relatedproducts, theRegistrants
generallyreport salesandpurchasesconductedon a net hourlybasis ineither revenuesor purchasedpower on theirConsolidated
StatementsofOperations, theclassification of which depends on the net hourlyactivity. Inaddition,capacityrevenue andexpense
classification is basedon the net sale or purchaseposition oftheCompanyinthedifferent RTOs and ISOs.
Option Contracts, Swaps and Commodity Derivatives. Certain option contractsandswap arrangementsthat meet thedefinition
ofderivativeinstrumentsare recordedat fairvalue withsubsequent changesinfairvalue recognizedasrevenue or expense.The
classification ofrevenue or expenseis basedon theintent ofthe transaction.For example,gastransactionsmaybeusedto hedge
thesale ofpower. This will result inthechangeinfairvalue recordedthrough revenue.Asofthemerger date,Exelon and
Generation havecurrentlyelectedto de-designate all oftheircommoditycash flowhedgepositions. AsComEd receivesfull cost
recoveryfor energy procurement andrelatedcostsfromretailcustomers, ComEd records thefairvalue ofitsenergy swap contracts
withunaffiliatedsuppliersaswell asan offsettingregulatoryasset or liabilityon itsConsolidatedBalanceSheets. Refer to Note 3—
RegulatoryMattersandNote 12—DerivativeFinancial Instrumentsfor further information.
Proprietary Trading Activities. Exelon andGeneration account for Generation’s tradingactivitiesunder the provisionsofthe
authoritativeguidancefor accountingfor contractsinvolvedin energy tradingandrisk management activities, which require energy
revenuesandcostsrelatedto energy tradingcontractsto be presentedon a net basis intheincomestatement.Commodity
derivativesusedfor tradingpurposesare accountedfor usingthemark-to-market methodwithunrealizedgainsandlosses
recognizedin operatingrevenues. Refer to Note 12—DerivativeFinancial Instrumentsfor further information.
Income Taxes
DeferredFederal andstate incometaxesare providedon all significant temporary differencesbetween thebookbasis andthetax
basis ofassetsandliabilitiesandfor taxbenefitscarriedforward. Investment taxcreditshavebeen deferredon theRegistrants’
ConsolidatedBalanceSheetsandare recognizedinbookincomeover thelifeofthe relatedproperty. Inaccordancewithapplicable
authoritativeguidance,theRegistrantsaccount for uncertainincometaxpositionsusingabenefitrecognition model withatwo-step
approach; amore-likely-than-not recognition criterion;andameasurement approach that measurestheposition asthe largest
amount oftaxbenefitthat is greater than 50%likelyofbeingrealizedupon ultimate settlement.Ifitis not more-likely-than-not that
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