Exelon 2014 Annual Report Download - page 71

local governmental authorities. Periodic studies are conducted at ComEd, PECO and BGE to determine future remediation
requirements and estimates are adjusted accordingly. In addition, periodic reviews are performed at Generation to assess the
adequacy of its environmental reserves. These matters, if resolved in a manner different from the estimate, could have a significant
effect on the Registrants’ results of operations, financial position and cash flows. See Note 22—Commitments and Contingencies of
the Combined Notes to Consolidated Financial Statements for further information.
Other, Including Personal Injury Claims. The Registrants are self-insured for general liability, automotive liability, workers’
compensation, and personal injury claims to the extent that losses are within policy deductibles or exceed the amount of insurance
maintained. The Registrants have reserves for both open claims asserted and an estimate of claims incurred but not reported
(IBNR). The IBNR reserve is estimated based on actuarial assumptions and analysis and is updated annually. Future events, such
as the number of new claims to be filed each year, the average cost of disposing of claims, as well as the numerous uncertainties
surrounding litigation and possible state and national legislative measures could cause the actual costs to be higher or lower than
estimated. Accordingly, these claims, if resolved in a manner different from the estimate, could have a material effect on the
Registrants’ results of operations, financial position and cash flows.
Revenue Recognition
Sources of Revenue and Selection of Accounting Treatment. The Registrants earn revenues from various business activities
including: the sale of energy and energy-related products, such as natural gas, capacity, and other commodities in non-regulated
markets (wholesale and retail);the sale and delivery of electricity and natural gas in regulated markets; and the provision of other
energy-related non-regulated products and services.
The appropriate accounting treatment for revenue recognition is based on the nature of the underlying transaction and applicable
accounting standards. The Registrants primarily use accrual and mark-to-market accounting as discussed in more detail below.
Accrual Accounting. Under accrual accounting, the Registrants record revenues in the period when services are rendered or
energy is delivered to customers. The Registrants generally use accrual accounting to recognize revenues for sales of electricity,
natural gas, and other commodities as part of their physical delivery activities. The Registrants enter into these sales transactions
using a variety of instruments, including non-derivative agreements, derivatives that qualify for and are designated as normal
purchases and normal sales (NPNS) of commodities that will be physically delivered, sales to utility customers under regulated
service tariffs, and spot-market sales, including settlements with independent system operators.
Mark-to-Market Accounting. The Registrants record revenues and expenses using the mark-to-market method of accounting for
transactions that meet the definition of a derivative for which they are not permitted, or have not elected, the NPNS exception. These
mark-to-market transactions primarily relate to risk management activities and economic hedges of other accrual activities.
Mark-to-market revenues and expenses include: inception gains or losses on new transactions where the fair value is observable
and realized; and unrealized gains and losses from changes in the fair value of open contracts.
Use of Estimates. Estimates are based upon actual costs incurred and investments in rate base for the period and the rates of
return on common equity and associated regulatory capital structure allowed under the applicable tariff. The estimated
reconciliations can be affected by, among other things, variances in costs incurred and investments made and actions by regulators
or courts.
Unbilled Revenues.The determination of Generation’s, ComEd’s, PECO’s and BGE’s retail energy sales to individual customers is
based on systematic readings of customer meters generally on a monthly basis. At the end of each month, amounts of energy
delivered to customers since the date of the last meter reading are estimated, and corresponding unbilled revenue is recorded. The
measurement of unbilled revenue is affected by the following factors: daily customer usage measured by generation or gas
throughput volume, customer usage by class, losses of energy during delivery to customers and applicable customer rates.
Increases or decreases in volumes delivered to the utilities’ customers and favorable or unfavorable rate mix due to changes in
usage patterns in customer classes in the period could be significant to the calculation of unbilled revenue. In addition, volumes may
fluctuate monthly as a result of customers electing to use an alternate supplier, which could be significant to the calculation of
unbilled revenue since unbilled commodity receivables are not recorded for these customers. Changes in the timing of meter reading
schedules and the number and type of customers scheduled for each meter reading date would also have an effect on the
measurement of unbilled revenue; however, total operating revenues would remain materially unchanged.
See Note 6—Accounts Receivable of the Combined Notes to Consolidated Financial Statements for additional information.
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