ComEd 2013 Annual Report Download - page 52

ComEd, PECO and BGE couldalsobesubjecttovariousDodd-FrankActrequirementsto theextent theyenter into Swap
transactions. However,at this time,management ofComEd, PECO and BGE do not expecttobemateriallyaffectedbythis
legislation.
Energy Infrastructure Modernization Act. Since 2011,ComEd’s distribution ratesare establishedthrough a performance-based
rate formula,pursuant to EIMA. EIMAalso providesastructure for substantial capital investment by utilitiesover a ten-year periodto
modernizeIllinois’ electric utilityinfrastructure.Participatingutilitiesare requiredto file an annual update to the performance-based
formula 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 differences
between therevenue requirement(s) ineffectandComEd’s bestestimate oftherevenue requirement expectedto be approvedby
theICC for that year’s reconciliation.
Formula Rate Tariff
InMarch 2013,theIllinois legislature passedSenate Bill 9to clarify theintent of EIMAonthethree issuesdecidedintheRehearing
Order:an allowedreturn on ComEd’s pension asset;theuseofyear-endrather than average rate baseandcapital structure inthe
annual reconciliation;andtheuseofComEd’s weightedaveragecostofcapital interest rate rather than a short-termdebt rate to
applyto the annual reconciliation.OnMay22,2013,Senate Bill 9becameeffectiveafter theIllinois legislature overrodethe
Governor’s veto ofthat Bill.OnJune 5, 2013,theICC approvedComEd’s updated distribution formula rate structure to reflectthe
impactsofSenate Bill 9.
InOctober 2013,theICC openedan investigation (theInvestigation), inresponsetoacomplaint filedbytheIllinois AttorneyGeneral,
to changetheformula rate structure by requestingthree changes: theelimination oftheincometaxgross-up on theweighted
averagecostofcapital usedto calculate interestonthe annual reconciliation balance,the nettingofassociatedaccumulated
deferredincometaxesagainstthe annual reconciliation balanceincalculatinginterest,andtheuseofaverage rather than year-end
rate basefor determininganyROE collar adjustment.OnNovember 26, 2013,theICC issueditsfinal order intheInvestigation,
rejectingtwoofthe proposedchangesbut acceptingthe proposedchangetoeliminate theincometaxgross-up on theweighted
averagecostofcapital usedto calculate interestonthe annual reconciliation balance.Theacceptedchangebecameeffectivein
January2014, andisestimatedto reduceComEd’s 2014revenue by approximately$8million.ComEd andintervenorsrequested
rehearing, however all rehearingrequestswere deniedbytheICC. ComEd andintervenorshavefiledappealswiththeIllinois
Appellate Court.ComEd cannot predicttheresultsofanysuch appeals. See 3—RegulatoryMattersoftheCombinedNotesto
ConsolidatedFinancial Statementsfor additional information.
Annual Reconciliation
OnMay30,2013,ComEd updateditsrevenue requirement allowedintheDecember 2012 Order to reflecttheimpactsofSenate Bill
9, which resultedinareduction to thecurrent revenue requirement ineffectof$14million.The ratestookeffectinJuly2013.
2013 Filing. On April29, 2013,ComEd fileditsannual distribution formula rate, which wasupdatedon May30,2013 to reflectthe
impactsofSenate Bill 9. TheICC’s final order, issuedon December 19, 2013,increasedtherevenue requirement by $341million,
reflectingan increaseof$160million for theinitial revenue requirement for 2013 andan increaseof$181million for the annual
reconciliation for 2012.The rate increasewasset usingan allowedreturn on capital of 6.94% (inclusiveofan allowedreturn on
common equityof 8.72%). The ratestookeffectinJanuary2014. ComEd requestedarehearingon specific issues, which was
deniedbytheICC. ComEd andintervenorsalsofiledappeals. ComEd cannot predicttheresultsofanysuch
appeals. See 3—RegulatoryMattersoftheCombinedNotesto ConsolidatedFinancial Statementsfor additional information.
FERC Ameren Order. InJuly2012,FERC issuedan order to Ameren Corporation (Ameren)findingthat Ameren hadimproperly
includedacquisition premiums/ goodwill initstransmission formula rate,particularlyinitscapital structure andinthe application of
AFUDC. FERCalsodirectedAmeren to makerefunds for theimpliedincreasein ratesinprior years. Ameren hasfiledfor rehearing
regardingtheJuly2012 FERCorder.ComEd believesthat theFERCorder authorizingitstransmission formula rate is
distinguishable fromthecircumstancesthat ledto theJuly2012 FERCorder intheAmeren case.However,ifComEd were required
to excludeacquisition premiums/ goodwill fromitstransmission formula rate,theimpactcouldbematerial to ComEd’s resultsof
operationsandcash flows.
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