ComEd 2013 Annual Report Download - page 144

ComEd’s updatedformula transmission rate currentlyprovidesfor a weightedaveragedebtandequityreturn on transmission rate
baseof 8.70%, adecreasefromthe8.91%return previouslyauthorized. Thedecreasein return wasprimarilydue to lower interest
rateson ComEd’s long-termdebt outstanding. Aspart oftheFERC-approvedsettlement ofComEd’s 2007transmission rate case,
the rate ofreturn on common equityis11.5% andthecommon equitycomponent ofthe ratiousedto calculate theweightedaverage
debtandequityreturn for theformula transmission rate is currentlycappedat 55%.
BGE’s mostrecent annual formula rate update filedin April 2013 reflectsactual 2012 expensesandinvestmentsplusforecasted
2013 capital additions. Theupdate resultedinarevenue requirement of$158 million offset by a$1million reduction relatedto the
reconciliation of2012 actual costsfor a net revenue requirement of$157 million. This comparesto the April 2012 updatedrevenue
requirement of$156 million increasedby$2million relatedto thereconciliation of2011 actual costsfor a net revenue requirement of
$158 million.Thedecreaseintherevenue requirement wasprimarilydriven by alower allowedrate ofreturn associatedwitha
reducedequityratioandreducedrate base,offset partially by higher depreciation andoperatingandmaintenancecosts. The 2013
net revenue requirement becameeffectiveJune 1,2013,andisbeingrecoveredover the periodextendingthrough May31,
2014. Theregulatoryliabilityassociatedwiththe true-up is beingamortizedastheassociatedamountsare recoveredthrough rates.
BGE’s updatedformula transmission rate currentlyprovidesfor a weightedaveragedebtandequityreturn on transmission rate base
of8.35%, adecreasefromthe8.43%includedintheprior year formula update.Thedecreasein return wasprimarilydue to a debt
issuancein 2012 andlower interest rateson BGE’s debt outstanding. Aspart oftheFERC-approvedsettlement in 2006of BGE’s
2005transmission rate case,thebase rate ofreturn on common equityfor BGE’s electric transmission business for new
transmission projectsplacedinserviceonandafter January1,2006is11.3%, inclusiveofa50basis point incentivefor participating
inPJM.
FERC Transmission Complaint OnFebruary27, 2013,consumer advocatesandregulatorsfromtheDistrictofColumbia,New
Jersey, Delaware andMaryland, andtheDelaware Electric Municipal Cooperatives(the parties), filedacomplaint at FERCagainst
BGE andthePepcoHoldings, Inc. companiesrelatingto theirrespective transmission formula rates. BGE’s formula rate includesa
10.8% base rate ofreturn on common equity(ROE) for mostinvestmentsincludedinitsrate baseand11.3%for theremaining
transmission investment (the latter of which is conditionedupon creditingthefirst50basis pointsofanyincentiveROE adders). The
partiesseekareduction inthebase return on equityto 8.7% andchangesto theformula rate process. FERCdocketedthematter
andset April3,2013 asthedeadline for interventions, protestsandanswers. Under FERCrules, the earliestdate from which the
base return on equitycouldbeadjustedandrefunds requiredisthedate ofthecomplaint.OnMarch 19, 2013, BGE filedamotion to
dismiss or sever thecomplaint.AsofDecember 31,2013, BGE cannot predictthelikelihoodor a reasonable estimate oftheamount
ofachange,ifany, inthe allowedbase return on equity, or a reasonable estimate oftherefundperiodstart date. While BGE cannot
predictthe outcomeofthis matter,ifFERCordersareduction of BGE’s base return on equityto 8.7% (while retainingthe50basis
pointsofanyincentivesthat were creditedto thebase return on equityfor certainnewtransmission investment), theestimated
annual impactwouldbeareduction inrevenuesofapproximately$10 million.
PJM Transmission Rate Design and Operating Agreements PJM Transmission Rate Designspecifiesthe ratesfor transmission
servicechargedto customerswithinPJM. Currently, ComEd, PECO and BGE incur costsbasedon theexistingrate design, which
chargescustomersbasedon thecostoftheexistingtransmission facilitieswithintheir loadzone andthecostofnewtransmission
facilitiesbasedon thosewhobenefitfromthosefacilities. In April 2007, FERC issuedan order concludingthat PJM’s current rate
designfor existingfacilitiesisjustandreasonable andshouldnot bechanged. Inthesameorder,FERCheldthat thecostsofnew
facilities500 kV andaboveshouldbesocializedacross the entire PJM footprint andthat thecostsofnewfacilitiesless than 500 kV
shouldbe allocatedto thecustomersofthenewfacilitieswhocausedthe needfor thosefacilities. After FERCultimatelydeniedall
requestsfor rehearingon all issues, several partiesfiledpetitionsintheU.S. Court ofAppealsfor theSeventhCircuitfor reviewof
thedecision.OnAugust6, 2009, that court issueditsdecision affirmingFERC’s order withregardto thecostsofexistingfacilitiesbut
reversingandremandingto FERCfor further consideration itsdecision withregardto thecostsofnewfacilities500 kV andabove.
OnMarch 30,2012,FERC issuedan order on remandaffirmingthecost allocation initsApril 2007order.OnMarch 22,2013,FERC
issuedan order denyingrehearingofitsMarch 30,2012 Order andmadeitclear that thecost allocation at issue concernsonly
projectsapprovedprior to February1,2013.Anumber ofentitieshavefiledappealsoftheFERCorders. ComEd, and BGE
anticipate that all impactsofanyrate designchangeseffectiveafter December 31,2006andJune 30,2006, respectively, shouldbe
recoverable through retail ratesand, thus, the rate designchangesare not expectedto haveamaterial impactontheirrespective
resultsofoperations, cash flows or financial position. PECO anticipatesthat all impactsofanyrate designchangesshouldbe
recoverable through the transmission servicechargerider approvedinPECO’s 2010 electric distribution rate casesettlement and,
thus, the rate designchangesare not expectedto haveamaterial impactonPECO’s resultsofoperations, cash flows or financial
position.Totheextent that anyrate designchangesare retroactive to periods prior to January1,2011,however,there maybean
impactonPECO’s resultsofoperations.
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