Exelon 2014 Annual Report Download - page 162

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
to estimate the most likely refund amount for either complaint at this time, and has therefore established a reserve, which is not
material, representing the low end of a reasonably possible estimated range of loss. Additionally, management is unable to estimate
the maximum exposure of a potential refund at this time, which may have a material impact on BGE’s results of operations and cash
flows. The estimated annual ongoing reduction in revenues if FERC approved the ROEs requested by the parties in their filings is
approximately $11 million. If FERC were to order a reduction of BGE’s base ROE to 8.7% as sought in the first complaint (while
retaining the 50 basis points of any incentives that were credited to the base return on equity for certain new transmission
investment), the result of the first fifteen month refund window would be a refund to customers of approximately $13 million. If FERC
were to order a reduction in BGE’s base ROE to 8.8% as sought in the second complaint (while retaining 50 basis points of any
incentives that were credited to the base return on equity for certain new transmission investment) and the refund period extended
for a full fifteen months, the result would be a refund to customers of approximately $14 million.
PJM Transmission Rate Design and Operating Agreements. PJM Transmission Rate Design specifies the rates for transmission
service charged to customers within PJM. Currently, ComEd, PECO and BGE incur costs based on the existing rate design, which
charges customers based on the cost of the existing transmission facilities within their load zone and the cost of new transmission
facilities based on those who benefit from those facilities. In April 2007, FERC issued an order concluding that PJM’s current rate
design for existing facilities is just and reasonable and should not be changed. In the same order, FERC held that the costs of new
facilities 500 kV and above should be socialized across the entire PJM footprint and that the costs of new facilities less than 500 kV
should be allocated to the customers of the new facilities who caused the need for those facilities. After FERC ultimately denied all
requests for rehearing on all issues, several parties filed petitions in the U.S. Court of Appeals for the Seventh Circuit for review of
the decision. On August 6, 2009, that court issued its decision affirming FERC’s order with regard to the costs of existing facilities but
reversing and remanding to FERC for further consideration its decision with regard to the costs of new facilities 500 kV and
above. On March 30, 2012, FERC issued an order on remand affirming the cost allocation in its April 2007 order. On March 22,
2013, FERC issued an order denying rehearing and made it clear that the cost allocation at issue concerns only projects approved
prior to February 1, 2013. A number of entities have filed appeals of the FERC orders. On June 25, 2014, the U.S. Court of Appeals
for the Seventh Circuit issued a decision once again remanding to FERC the cost allocation of new facilities 500 kV and above. On
December 18, 2014, FERC issued an order setting an evidentiary hearing and settlement proceeding regarding the issue of the cost
allocation for facilities 500 kV and above. The hearing only concerns new facilities approved by the PJM Board prior to February 1,
2013. ComEd anticipates that all impacts of any rate design changes effective after December 31, 2006, should be recoverable
through retail rates and, thus, the rate design changes are not expected to have a material impact on ComEd’s results of operations,
cash flows or financial position. PECO anticipates that all impacts of any rate design changes should be recoverable through the
transmission service charge rider approved in PECO’s 2010 electric distribution rate case settlement and, thus, the rate design
changes are not expected to have a material impact on PECO’s results of operations, cash flows or financial position. To the extent
any rate design changes are retroactive to periods prior to January 1, 2011, there may be an impact on PECO’s results of
operations. BGE anticipates that all impacts of any rate design changes effective after the implementation of its standard offer
service programs in Maryland should be recoverable through retail rates and, thus, the rate design changes are not expected to
have a material impact on BGE’s results of operations, cash flows or financial position.
ComEd, PECO and BGE are committed to the construction of transmission facilities under their operating agreements with PJM to
maintain system reliability. ComEd, PECO and BGE will work with PJM to continue to evaluate the scope and timing of any required
construction projects. ComEd, PECO and BGE’s estimated commitments are as follows:
Total 2015 2016 2017 2018 2019
ComEd .................................................................... $335 $150 $172 $ 5 $ 4 $ 4
PECO ..................................................................... 100 32 31 25 8 4
BGE ...................................................................... 351 77 104 77 57 36
PJM Minimum Offer Price Rule. PJM’s capacity market rules include a Minimum Offer Price Rule (MOPR) that is intended to
preclude sellers from artificially suppressing the competitive price signals for generation capacity. The FERC orders approving the
MOPR were upheld by the United States Court of Appeals for the Third Circuit in February 2014.
Exelon continues to work with PJM stakeholders and through the FERC process to implement several proposed changes to the PJM
tariff aimed at ensuring that capacity resources (including those with state-sanctioned subsidy contracts and capacity market
speculators) cannot inappropriately affect capacity auction prices in PJM.
158