Exelon 2014 Annual Report Download - page 132

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
Generation owns 100% of all of its significant consolidated subsidiaries, either directly or indirectly, except for certain Exelon Wind
projects, of which Generation holds a majority interest of 99% for certain periods of time, and CENG, of which Generation holds a
50.01% interest. The remaining interests are included in noncontrolling interest on Exelon’s Consolidated Balance Sheets. See Note
2—Variable Interest Entities for further discussion of Exelon’s and Generation’s VIEs and the reversionary interests of the
noncontrolling members for these certain subsidiaries.
ComEd owns 100% of all of its significant consolidated subsidiaries, either directly or indirectly, except for RITELine Illinois, LLC, of
which ComEd owns 75% and an additional 12.5% is indirectly owned by Exelon. Exelon and ComEd have reflected the third-party
interests of 12.5% and 25%, respectively, in RITELine Illinois, LLC, which both totaled less than $1 million at December 31, 2014
and December 31, 2013, as equity.
Exelon consolidates the accounts of entities in which Exelon has a controlling financial interest, after the elimination of intercompany
transactions. A controlling financial interest is evidenced by either a voting interest greater than 50% in which Exelon can exercise
control over the operations and policies of the investee, or the results of a model that identifies Exelon or one of its subsidiaries as
the primary beneficiary of a VIE. Where Exelon does not have a controlling financial interest in an entity, it applies proportional
consolidation, equity method accounting or cost method accounting. Exelon applies proportionate consolidation when it has an
undivided interest in an asset and is proportionately liable for its share of each liability associated with the asset. Exelon
proportionately consolidates its undivided ownership interests in jointly owned electric plants and transmission facilities, as well as its
undivided ownership interests in Upstream natural gas exploration and production activities. Under proportionate consolidation,
Exelon separately records its proportionate share of the assets, liabilities, revenues and expenses related to the undivided interest in
the asset. Exelon applies equity method accounting when it has significant influence over an investee through an ownership in
common stock, which generally approximates a 20% to 50% voting interest. Exelon applies equity method accounting to certain
investments and joint ventures, including certain financing trusts of ComEd, PECO, and BGE. Under the equity method, Exelon
reports its interest in the entity as an investment and Exelon’s percentage share of the earnings from the entity as single line items in
its financial statements. Exelon uses the cost method if it holds less than 20% of the common stock of an entity. Under the cost
method, Exelon reports its investment at cost and recognizes income only to the extent Exelon receives dividends or distributions.
The accompanying consolidated financial statements have been prepared in accordance with GAAP for annual financial statements
and in accordance with the instructions to Form 10-K and Regulation S-X promulgated by the SEC.
Each of the Registrant’s Consolidated Financial Statements includes the accounts of its subsidiaries. All intercompany transactions
have been eliminated.
Use of Estimates
The preparation of financial statements of each of the Registrants in conformity with GAAP requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes. Areas in which significant
estimates have been made include, but are not limited to, the accounting for nuclear decommissioning costs and other AROs,
pension and other postretirement benefits, the application of purchase accounting, inventory reserves, allowance for uncollectible
accounts, goodwill and asset impairments, derivative instruments, unamortized energy contracts, fixed asset depreciation,
environmental costs and other loss contingencies, taxes and unbilled energy revenues. Actual results could differ from those
estimates.
Reclassifications
Certain prior year amounts in the registrants’ Consolidated Statements of Operations and Comprehensive Income, Consolidated
Balance Sheets and Consolidated Statements of Cash Flows have been reclassified between line items for comparative purposes.
The reclassifications did not affect any of the Registrants’ net income, financial positions, or cash flows from operating activities.
Accounting for the Effects of Regulation
Exelon, ComEd, PECO and BGE apply the authoritative guidance for accounting for certain types of regulation, which requires
ComEd, PECO and BGE to record in their consolidated financial statements the effects of cost-based rate regulation for entities with
regulated operations that meet the following criteria: 1) rates are established or approved by a third-party regulator; (2) rates are
designed to recover the entities’ cost of providing services or products; and (3) there is a reasonable expectation
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