ComEd 2013 Annual Report Download - page 134

under thecontracts. AsofDecember 31,2013,the total amount ofaccountspayable owedbytheutilitiesunder agreementswith
theseVIEs wasnot material.Inaddition,variabilityfromthesecontractsismitigatedbythefactthat theutilitiesare able to recover
costsincurredunder purchaseagreementsthrough customer rates. Furthermore,ComEd, PECO and BGE do not haveanydebtor
equityinvestmentsintheseVIEs anddo not provideanyother financial support through liquidityarrangements, guaranteesor other
commitmentsother than purchasecommitmentsdescribedinNote 22—CommitmentsandContingencies. Accordingly, none of
ComEd, PECO or BGE considersitselfto betheprimarybeneficiaryofany VIEs asaresult ofcommercial arrangements.
ThefinancingtrustofComEd, ComEd Financing III, thefinancingtrustsof PECO, PECO TrustIII and PECO TrustIV, andthe
financingtrustof BGE, BGE Capital TrustII are not consolidatedinExelon’s, ComEd’s, PECO’s or BGE’s financial statements.
Thesefinancingtrustswere createdto issue mandatorilyredeemable trust preferredsecurities. ComEd, PECO, and BGE have
concludedthat theydo not haveasignificant variable interestinComEd Financing III, PECO TrustIII, PECO TrustIV or BGE Capital
TrustII aseach Registrant financeditsequityinterestinthefinancingtruststhrough theissuanceofsubordinateddebtand,
therefore,hasno equityat risk. See Note 13—DebtandCreditAgreementsfor additional information.
3. Regulatory Matters
Thefollowingmattersbelow discuss thecurrent statusofExelon’s material regulatoryandlegislative proceedings.
Illinois Regulatory Matters
Energy Infrastructure Modernization Act
Background
Since 2011,ComEd’s distribution ratesare establishedthrough a performance-basedrate formula,pursuant to EIMA. EIMAalso
providesastructure for substantial capital investment by utilitiesover a ten-year periodto modernizeIllinois’ electric utility
infrastructure.Participatingutilitiesare requiredto file an annual update to the performance-basedformula rate tariff on or before
May1,withresultingrateseffectiveinJanuaryofthefollowingyear. This annual formula rate update is basedon prior year actual
costsandcurrent year projectedcapital additions. Theupdate alsoreconcilesany differencesbetween therevenue requirement(s)
ineffectfor theprior year andactual costsincurredfor that year.Throughout each year,ComEd records regulatoryassetsor
regulatoryliabilitiesandcorrespondingincreasesor decreasesto operatingrevenuesfor any differencesbetween therevenue
requirement(s) ineffectandComEd’s bestestimate oftherevenue requirement expectedto be approvedbytheICC for that year’s
reconciliation.AsofDecember 31,2013,andDecember 31,2012,ComEd hada net regulatoryasset associatedwiththedistribution
formula rate of $463million and$209million,respectively.
Formula Rate Tariff
OnNovember 8, 2011,ComEd fileditsinitial formula rate tariff andassociatedtestimonybasedon 2010 costsand2011 plant
additions. Theprimarypurposeofthat proceedingwasto establish theformula rate under which rateswill becalculatedgoing-
forward, andtheinitial rates, which went into effectin late June 2012.OnMay29, 2012,theICC issuedan Order (MayOrder)inthat
proceeding. TheMayOrder reducedthe annual revenue requirement by $168 million,or approximately$110 million more than the
proposedreduction by ComEd. Of this incremental revenue requirement reduction,approximately$50million reflectedtheICC’s
determination that certaincostsshouldberecoveredthrough alternative rate recoverytariffs available to ComEd or will bereflected
inasubsequent annual reconciliation,thereby primarilydelayingthetimingofcash flows. Theincremental revenue reduction also
reflecteda$35million reduction for thedisallowanceofreturn on ComEd’s pension asset,a$10 million reduction for incentive
compensation relatedadjustments, and$15million ofreductionsfor variousadjustmentsfor cash workingcapital,operating
reserves, andother technical items. Inthesecondquarter of2012,ComEd recordedadecreaseinrevenue ofapproximately$100
million pre-taxto decreasetheregulatoryasset for 2011 andfor thefirstthree months of2012 consistent withthe terms oftheMay
Order.
OnJune 22,2012,theICC grantedan expeditedrehearingon three oftheissuesdecidedintheMayOrder.OnOctober 3,2012,the
ICC issueditsfinal order (RehearingOrder)inthat rehearing, adoptingComEd’s position on the return on itspension asset,resulting
inanincreaseinthe annual revenue requirement.For thetwoother issues, theICC ruledagainstComEd by reaffirminguseofan
average rather than year-endrate baseinthe annual reconciliation andamendingitsprior order to provideashort-termdebt rate to
applyto the annual reconciliation.Inthefourthquarter of2012,ComEd recordedan increaseinrevenue ofapproximately$135
million pre-taxconsistent withthe terms oftheRehearingOrder,of which $75 million pre-taxreflectsthereinstatement ofthe return
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