Exelon 2014 Annual Report Download - page 138

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
See Note 7—Property, Plant and Equipment for further information regarding depreciation.
Depletion of oil and gas exploration and production activities is recorded using the units-of-production method over the remaining life
of the estimated proved reserves at the field level for acquisition costs and over the remaining life of proved developed reserves at
the field level for development costs. The estimates for oil and gas reserves are based on internal calculations.
Amortization of regulatory assets and liabilities are recorded over the recovery or refund period specified in the related legislation or
regulatory agreement. When the recovery or refund period is less than one year, amortization is recorded to the line item in which
the deferred cost or income would have originally been recorded in the Registrants’ Consolidated Statements of Operations and
Comprehensive Income. With exception of income tax-related regulatory assets, generally, when the recovery period is more than
one year, the amortization is recorded to Depreciation and amortization in the Registrants’ Consolidated Statements of Operations
and Comprehensive Income. Amortization of ComEd’s distribution formula rate regulatory asset and ComEd’s and BGE’s
transmission formula rate regulatory assets is recorded to Operating revenues. Amortization of income tax related regulatory assets
and liabilities is generally recorded to Income tax expense. With the exception of the regulatory assets and liabilities discussed
above, when the recovery period is more than one year, the amortization is recorded to Depreciation and amortization in the
Registrants’ Consolidated Statements of Operations and Comprehensive Income.
See Note 3—Regulatory Matters and Note 23—Supplemental Financial Information for additional information regarding Generation’s
nuclear fuel, Generation’s ARC and the amortization of ComEd’s, PECO’s and BGE’s regulatory assets.
Asset Retirement Obligations
The authoritative guidance for accounting for AROs requires the recognition of a liability for a legal obligation to perform an asset
retirement activity even though the timing and/or method of settlement may be conditional on a future event. To estimate its
decommissioning obligation related to its nuclear generating stations, Generation uses a probability-weighted, discounted cash flow
model which, on a unit-by-unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and
are based on decommissioning cost studies, cost escalation rates, probabilistic cash flow models and discount rates. Generation
generally updates its ARO annually during the third quarter, unless circumstances warrant more frequent updates, based on its
review of updated cost studies and its annual evaluation of cost escalation factors and probabilities assigned to various scenarios.
Decommissioning cost studies are updated, on a rotational basis, for each of Generation’s nuclear units at least every five years.
The liabilities associated with Exelon’s non-nuclear AROs are adjusted on an ongoing rotational basis, at least once every five years.
Changes to the recorded value of an ARO result from the passage of new laws and regulations, revisions to either the timing or
amount of estimates of undiscounted cash flows, and estimates of cost escalation factors. AROs are accreted throughout each year
to reflect the time value of money for these present value obligations through a charge to operating and maintenance expense in the
Consolidated Statements of Operations and Comprehensive Income or, in the case of the majority of ComEd’s, PECO’s, and BGE’s
accretion, through an increase to regulatory assets. See Note 15—Asset Retirement Obligations for additional information.
Capitalized Interest and AFUDC
During construction, Exelon and Generation capitalize the costs of debt funds used to finance non-regulated construction projects.
Capitalization of debt funds is recorded as a charge to construction work in progress and as a non-cash credit to interest expense.
Exelon, ComEd, PECO and BGE apply the authoritative guidance for accounting for certain types of regulation to calculate AFUDC,
which is the cost, during the period of construction, of debt and equity funds used to finance construction projects for regulated
operations. AFUDC is recorded to construction work in progress and as a non-cash credit to AFUDC that is included in interest
expense for debt-related funds and other income and deductions for equity-related funds. The rates used for capitalizing AFUDC are
computed under a method prescribed by regulatory authorities.
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