Exelon 2015 Annual Report Download - page 241

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
Option Contracts, Swaps and Commodity Derivatives. Certain option contracts and swap arrangements that meet the definition of
derivative instruments are recorded at fair value with subsequent changes in fair value recognized as revenue or expense. The classification of
revenue or expense is based on the intent of the transaction. For example, gas transactions may be used to hedge the sale of power. This will
result in the change in fair value recorded through revenue. As ComEd receives full cost recovery for energy procurement and related costs from
retail customers, ComEd records the fair value of its energy swap contracts with unaffiliated suppliers as well as an offsetting regulatory asset or
liability on its Consolidated Balance Sheets. Refer to Note 3—Regulatory Matters and Note 13—Derivative Financial Instruments for further
information.
Proprietary Trading Activities. Exelon and Generation account for Generation’s trading activities under the provisions of the authoritative
guidance for accounting for contracts involved in energy trading and risk management activities, which require energy revenues and costs related
to energy trading contracts to be presented on a net basis in the income statement. Commodity derivatives used for trading purposes are
accounted for using the mark-to-market method with unrealized gains and losses recognized in operating revenues. Refer to Note 13—Derivative
Financial Instruments for further information.
Income Taxes (Exelon, Generation, ComEd, PECO and BGE)
Deferred Federal and state income taxes are provided on all significant temporary differences between the book basis and the tax basis of
assets and liabilities and for tax benefits carried forward. Investment tax credits have been deferred on the Registrants’ Consolidated Balance
Sheets and are recognized in book income over the life of the related property. In accordance with applicable authoritative guidance, the
Registrants account for uncertain income tax positions using a benefit recognition model with a two-step approach; a more-likely-than-not
recognition criterion; and a measurement approach that measures the position as the largest amount of tax benefit that is greater than 50% likely
of being realized upon ultimate settlement. If it is not more-likely-than-not that the benefit of the tax position will be sustained on its technical
merits, no benefit is recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have
met the recognition threshold. The Registrants recognize accrued interest related to unrecognized tax benefits in Interest expense or Other income
and deductions (interest income) on their Consolidated Statements of Operations and Comprehensive Income.
Pursuant to the IRC and relevant state taxing authorities, Exelon and its subsidiaries file consolidated or combined income tax returns for
Federal and certain state jurisdictions where allowed or required. See Note 15—Income Taxes for further information.
Taxes Directly Imposed on Revenue-Producing Transactions (Exelon, Generation, ComEd, PECO and BGE)
Exelon, Generation, ComEd, PECO and BGE collect certain taxes from customers such as sales and gross receipts taxes, along with other
taxes, surcharges, and fees that are levied by state or local governments on the sale or distribution of gas and electricity. Some of these taxes are
imposed on the customer, but paid by the Registrants, while others are imposed on the Registrants. Where these taxes are imposed on the
customer, such as sales taxes, they are reported on a net basis with no impact to the Consolidated Statements of Operations and Comprehensive
Income. However, where these taxes are imposed on the Registrants, such as gross receipts taxes or other surcharges or fees, they are
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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