Exelon 2015 Annual Report Download - page 113

Table of Contents
The review of long-lived assets and asset groups for impairment utilizes significant assumptions about operating strategies and estimates of
future cash flows, which require assessments of current and projected market conditions. For the generation business, forecasting future cash
flows requires assumptions regarding forecasted commodity prices for the sale of power, costs of fuel and the expected operations of assets. A
variation in the assumptions used could lead to a different conclusion regarding the recoverability of an asset or asset group and, thus, could have
a significant effect on the consolidated financial statements. An impairment evaluation is based on an undiscounted cash flow analysis at the
lowest level at which cash flows of the long-lived assets or asset groups are largely independent of the cash flows of other assets and liabilities.
For the generation business, the lowest level of independent cash flows is determined by the evaluation of several factors, including the
geographic dispatch of the generation units and the hedging strategies related to those units as well as the associated intangible assets or
liabilities recorded on the balance sheet. The cash flows from the generating units are generally evaluated at a regional portfolio level with cash
flows generated from the customer supply and risk management activities, including cash flows from related intangible assets and liabilities on the
balance sheet. In certain cases, generating assets may be evaluated on an individual basis where those assets are contracted on a long-term
basis with a third party and operations are independent of other generating assets (typically contracted renewables).
On a quarterly basis, Generation assesses its asset groups for indicators of impairment. If indicators are present for a long-lived asset or
asset group, a comparison of the undiscounted expected future cash flows to the carrying value is performed. When the undiscounted cash flow
analysis indicates a long-lived asset or asset group is not recoverable, the amount of the impairment loss is determined by measuring the excess
of the carrying amount of the long-lived asset or asset group over its fair value less costs to sell. The fair value of the long-lived asset or asset
group is dependent upon a market participant’s view of the exit price of the assets. This includes significant assumptions of the estimated future
cash flows generated by the assets and market discount rates. Events and circumstances often do not occur as expected and there will usually
be differences between prospective financial information and actual results, and those differences may be material. Accordingly, to the extent that
any of the information used in the fair value analysis requires judgment, the resulting fair market value would be different. As such, the
determination of fair value is driven by both internal assumptions that include significant unobservable inputs (Level 3) such as revenue and
generation forecasts, projected capital, and maintenance expenditures and discount rates, as well as information from various public, financial and
industry sources. An impairment determination would require the affected Registrant to reduce the value of either the long-lived asset or asset
group, including any associated intangible assets or liabilities, as well as reduce the current period earnings by the amount of the impairment.
Generation evaluates natural gas and oil upstream properties on a quarterly basis to determine if they are impaired. Impairment indicators for
natural gas and oil upstream properties are present if there are no firm plans to continue drilling, lease expiration is at risk, historical experience
indicates a decline in carrying value below fair value or the price of the underlying commodity significantly declines.
Generation evaluates its equity method investments and other investments in debt and equity securities to determine whether or not they are
impaired based on whether the investment has experienced a decline in value that is not temporary in nature.
Exelon holds investments in coal-fired plants in Georgia subject to long-term leases. The investments are accounted for as direct financing
lease investments. The investments represent the estimated residual values of the leased assets at the end of the respective lease terms. On an
annual basis, Exelon reviews the estimated residual values of its direct financing lease investments and records an impairment charge if the
review indicates an other than temporary decline in the fair value of the residual values below their carrying values. Exelon estimates the fair value
of the residual values
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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