Exelon 2015 Annual Report Download - page 268

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
Although the actual arrearage balance is not defined until program inception, PECO believes that it can reasonably estimate certain CAP
customer accounts receivable balances as of December 31, 2015 that will remain outstanding at program inception. Management determined its
best estimate based on historical collectability information. As a result, a regulatory asset of $7 million, representing the previously incurred bad
debt expense associated with the estimated eligible accounts receivable balances, was recorded on Exelon’s and PECO’s Consolidated Balance
Sheets as of December 31, 2015. This estimate will be revisited on a quarterly basis through program inception.
2010 Pennsylvania Electric and Natural Gas Distribution Rate Cases (Exelon and PECO). On December 16, 2010, the PAPUC approved
the settlement of PECO’s electric and natural gas distribution rate cases, which were filed in March 2010, providing increases in annual service
revenue of $225 million and $20 million, respectively.
The settlements included a stipulation regarding how tax benefits related to the application of any new IRS guidance on repairs deduction
methodology are to be handled from a rate-making perspective. The settlements required that the expected cash benefit from the application of
any new guidance to tax years prior to 2011 be refunded to customers over a seven-year period. On August 19, 2011, the IRS issued Revenue
Procedure 2011-43 providing a safe harbor method of tax accounting for electric transmission and distribution property. PECO adopted the safe
harbor and elected a method change for the 2010 tax year. The total refund to customers for the tax cash benefit from the application of the safe
harbor to costs incurred prior to 2010 was $171 million. On October 4, 2011, PECO filed a supplement to its electric distribution tariff to execute
the refund to customers of the tax cash benefit related to the IRC Section 481(a) “catch-up” adjustment claimed on the 2010 income tax return,
which is subject to adjustment based on the outcome of IRS examinations. Credits have been reflected in customer bills since January 1, 2012.
In September 2012, PECO filed an application with the IRS to change its method of accounting for gas distribution repairs for the 2011 tax
year. The expected total refund to customers for the tax cash benefit from the application of the new method to costs incurred prior to 2011 is $54
million. This amount is subject to adjustment based on the outcome of IRS examinations. Credits have been reflected in customer bills since
January 1, 2013. PECO is awaiting IRS guidance that will provide a safe harbor method of accounting for gas transmission and distribution
property.
The prospective tax benefits claimed as a result of the new methodology will be reflected in tax expense in the year in which they are
claimed on the tax return. As agreed to in the 2010 distribution rate case settlements, these benefits were reflected in the determination of revenue
requirements in the 2015 electric distribution rate case discussed above and will be reflected in the next natural gas distribution rate case. See
Note 15—Income Taxes for additional information.
The 2010 electric and natural gas distribution rate case settlements did not specify the rate of return upon which the settlement rates are
based, but rather provided for an increase in annual revenue. PECO has not filed a transmission rate case since rates have been unbundled.
Pennsylvania Procurement Proceedings (Exelon and PECO). Through PECO’s first two PAPUC approved DSP Programs, PECO
procured electric supply for its default electric customers through PAPUC approved competitive procurements. DSP I and DSP II expired on
May 31, 2013 and May 31, 2015, respectively.
The second DSP Program included a number of retail market enhancements recommended by the PAPUC in its previously issued Retail
Markets Intermediate Work Plan Order. PECO was also directed
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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