Exelon 2014 Annual Report Download - page 168

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
amount represents accelerated depreciation and filing and implementation costs relating to the PAPUC-approved Smart Meter
Procurement and Installation Plan as well as the return on the un-depreciated investment, taxes, and operating and maintenance
expenses. The approved plan allows for recovery of filing and implementation costs incurred through December 31, 2012. In
addition, the approved plan provides for recovery of program costs, which includes depreciation on new equipment placed in service,
beginning in January 2011 on full and current basis, which includes interest income or expense on the under or over recovery. The
approved plan also provides for recovery of accelerated depreciation on PECO’s non-AMI meter assets over a 10-year period ending
December 31, 2020. For BGE, this amount represents smart grid pilot program costs as well as the incremental costs associated
with implementing full deployment of a smart grid program. Pursuant to a MDPSC order, pilot program costs of $11 million were
deferred in a regulatory asset, and, beginning with the MDPSC’s March 2011 rate order, is earning BGE’s most current authorized
rate of return. In August 2010, the MDPSC approved a comprehensive smart grid initiative for BGE, authorizing BGE to establish a
separate regulatory asset for incremental costs incurred to implement the initiative, including the net depreciation and amortization
costs associated with the meters, and an authorized rate of return on these costs, a portion of which is not recognized under GAAP
until cost recovery begins. Additionally, the MDPSC order requires that BGE prove the cost-effectiveness of the entire smart grid
initiative prior to seeking recovery of the costs deferred in these regulatory assets. Therefore, the commencement and timing of the
amortization of these deferred costs is currently unknown. BGE’s AMI regulatory asset excludes costs for non-AMI meters being
replaced by AMI meters, as recovery of those costs commenced with the new rates approved and implemented with the MDPSC
order in BGE’s 2014 electric and gas distribution case.
AMI Meter Events. This amount represents the remaining cost value of the original smart meters, net of accumulated depreciation,
DOE reimbursements and amounts recovered from the vendor, of smart meter deployment that will no longer be used, including
installation and removal costs. PECO intended to seek through regulatory rate recovery in a future filing with the PAPUC, any
amounts not recovered from the vendor. PECO believed the amounts incurred for the original meters and related installation and
removal costs were probable of recovery based on applicable case law and past precedent on reasonably and prudently incurred
costs. As such, PECO deferred these costs on Exelon’s Consolidated Balance Sheet, beginning in 2012. PECO did not earn a return
on the recovery of these costs. Pursuant to the January 23, 2014, vendor agreement, PECO reclassified the regulatory asset
balance as a receivable, which has been fully collected, with no gain or loss impacts on future results of operations.
Under-recovered distribution services costs. Under EIMA, ComEd is allowed recovery of distribution services costs through a formula
rate tariff. The legislation provides for an annual reconciliation of the revenue requirement in effect to reflect the actual costs that the ICC
determines are prudently and reasonably incurred in a given year. The over recovery associated with the 2011 reconciliation was
recovered through rates over a one-year period, that began in January 2013. The under recovery associated with the 2012 reconciliation
was recovered through rates over a one-year period that began in January 2014. The under recovery associated with the 2013
reconciliation will be recovered through rates over a one-year period beginning in January 2015. ComEd is earning a return on these
costs. The regulatory asset also includes costs associated with certain one-time events, such as large storms, which will be recovered
over a five-year period. As of December 31, 2014, the regulatory asset was comprised of $286 million for the applicable annual
reconciliations and $85 million related to significant one-time events. In addition to $66 million in deferred storm costs, net of
amortization, the December 31, 2014 balance related to significant one-time events contains $19 million of Constellation merger and
integration related costs, net of amortization, incurred as a result of the Constellation merger. As of December 31, 2013, the regulatory
asset was comprised of $377 million for the applicable annual reconciliations and $86 million related to significant one-time events. In
addition to $58 million in deferred storm costs, net of amortization, the December 31, 2013 balance related to significant one-time events
contains $28 million of Constellation merger and integration related costs, net of amortization, incurred as a result of the Constellation
merger. See Note 4—Mergers, Acquisitions, and Dispositions for additional information.
Debt costs. Consistent with rate recovery for ratemaking purposes, ComEd’s, PECO’s and BGE’s recoverable losses on reacquired
long-term debt related to regulated operations are deferred and amortized to interest expense over the life of the new debt issued to
finance the debt redemption or over the life of the original debt issuance if the debt is not refinanced. Interest-rate swap settlements
are deferred and amortized over the period that the related debt is outstanding or the life of the original issuance retired. These debt
costs are used in the determination of the weighted cost of capital applied to rate base in the rate-making process. ComEd and BGE
are not earning a return on the recovery of these costs, while PECO is earning a return on the premium of the cost of the reacquired
debt through base rates.
164