Exelon 2014 Annual Report Download - page 158

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
On December 13, 2013, the MDPSC issued an order in BGE’s 2013 electric and natural gas distribution rate case for increases in
annual distribution service revenue of $34 million and $12 million, respectively, and an allowed return on equity of 9.75% and 9.60%,
respectively. Rates became effective for services rendered on or after December 13, 2013. The MDPSC also authorized BGE to
recover through a surcharge mechanism costs associated with five ERI initiative programs designed to accelerate electric reliability
improvements premised upon the condition that the MDPSC approve specific projects in advance of cost recovery. On March 31,
2014, after reviewing comments filed by the parties and conducting a hearing on the matter, the MDPSC approved all but one project
proposed for completion in 2014 as part of the ERI initiative. The ERI initiative surcharge became effective June 1, 2014. On
November 3, 2014, BGE filed a surcharge update including a true-up of cost estimates included in the 2014 surcharge, along with its
work plan and cost estimates for 2015, to be included in the 2015 surcharge. At its December 17, 2014 weekly Administrative
Meeting, the MDPSC approved BGE’s 2014 annual report, 2015 work plan and the 2015 surcharge.
In January 2014, the residential consumer advocate in Maryland filed an appeal to the order issued by the MDPSC on December 13,
2013 in BGE’s 2013 electric and gas distribution rate cases. The residential consumer advocate filed its related legal memorandum
on August 22, 2014, challenging the MDPSC’s approval of the ERI initiative surcharge. BGE submitted a response to the appeal on
October 15, 2014, and a hearing was held on November 17, 2014. BGE cannot predict the outcome of this appeal. If the residential
consumer advocate’s appeal is successful, BGE could recover ERI expenditures through other regulatory mechanisms.
2012 Maryland Electric and Gas Distribution Rate Case. On July 27, 2012, BGE filed an application for increases to its electric
and gas base rates with the MDPSC. On February 22, 2013, the MDPSC issued an order for increases in annual distribution service
revenue of $81 million and $32 million, respectively, and an allowed return on equity of 9.75% and 9.60%, respectively. The rates
became effective for services rendered on or after February 23, 2013. As part of the rate order, the MDPSC approved both recovery
of and return on the merger integration costs, including severance, incurred during the test year for the Exelon and Constellation
merger. As a result, the order affirmed the treatment of $20 million of severance-related costs that BGE had recorded as a regulatory
asset in 2012, consistent with prior MDPSC decisions. Additionally, BGE established a new regulatory asset of $8 million related to
non-severance merger integration costs, which includes $6 million of costs incurred during 2012. Current MDPSC treatment of these
merger integration regulatory assets is to provide recovery over a five year period.
2011 Maryland Electric and Gas Distribution Rate Case. In March 2011, the MDPSC issued a comprehensive rate order setting
forth the details of the decision contained in its abbreviated electric and gas distribution rate order issued in December 2010. As part
of the March 2011 comprehensive rate order, BGE was authorized to defer $19 million of costs as regulatory assets. These costs
are being recovered over a 5-year period that began in December 2010 and include the deferral of $16 million of storm costs
incurred in February 2010. The regulatory asset for the storm costs earns a regulated rate of return.
Smart Meter and Smart Grid Investments. In August 2010, the MDPSC approved a comprehensive smart grid initiative for BGE
that included the planned installation of 2 million residential and commercial electric and gas smart meters at an expected total cost
of $480 million of which $200 million was recovered through a grant from the DOE. The MDPSC’s approval ordered BGE to defer the
associated incremental costs, depreciation and amortization, and an appropriate return, in a regulatory asset until such time as a
cost-effective advanced metering system is implemented. As of December 31, 2014 and December 31, 2013, BGE recorded a
regulatory asset of $128 million and $66 million, respectively, representing incremental costs, depreciation and amortization, and a
debt return on fixed assets related to its AMI program. As part of the settlement in BGE’s 2014 electric and gas distribution rate case
discussed above, the cost of the retired non-AMI meters will be amortized over 10 years.
On February 26, 2014, the MDPSC issued an order authorizing BGE to impose a $75 upfront fee and an $11 recurring fee to
customers electing to opt-out of BGE’s smart meter installation program, effective the later of the first full billing cycle following
July 1, 2014, or the AMI installation date in a customer’s community. The fees authorized by the order will be reviewed after an initial
12 to 18 month period. On November 25, 2014, the MDPSC issued a decision approving BGE’s proposal to automatically enroll
unresponsive customers into the opt-out program and to charge those customers opt-out fees after BGE has exhausted attempts to
schedule a meter installation. The ultimate impact of opt-out could affect BGE’s ability to demonstrate cost-effectiveness of the
advanced metering system.
Overall, BGE continues to believe the recovery of smart grid initiative costs in future rates is probable as BGE expects to be able to
demonstrate that the program benefits exceed costs.
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