ComEd 2006 Annual Report Download - page 197

Exelon Corporation and Subsidiary Companies
Exelon Generation Company, LLC and Subsidiary Companies
Commonwealth Edison Company and Subsidiary Companies
PECO Energy Company and Subsidiary Companies
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
ineffectiveness is recognized in earnings immediately. On an ongoing basis, the Registrants assess
the hedge effectiveness of all derivatives that are designated as hedges for accounting purposes in
order to determine that each derivative continues to be highly effective in offsetting changes in fair
values or cash flows of hedged items. If it is determined that the derivative is not highly effective as a
hedge, hedge accounting will be discontinued prospectively.
Generation enters into contracts to buy and sell energy for trading purposes subject to Exelon’s
Risk Management Policy. These contracts are recognized on the balance sheet at fair value and
changes in the fair value of these derivative financial instruments are recognized in earnings.
Severance Benefits (Exelon, Generation, ComEd and PECO)
The Registrants account for their ongoing severance plans in accordance with SFAS No. 112,
“Employer’s Accounting for Postemployment Benefits, an amendment of FASB Statements No. 5 and
43” (SFAS No. 112) and SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits.” Generation, ComEd and PECO
participate in Exelon’s ongoing severance plans. Amounts associated with severance benefits that are
considered probable and can be reasonably estimated are accrued. See Note 10—Severance
Accounting for further discussion of Exelon’s accounting for severance benefits.
Retirement Benefits (Exelon, Generation, ComEd and PECO)
Exelon’s defined benefit pension plans and postretirement benefit plans are accounted for in
accordance with SFAS No. 87, “Employer’s Accounting for Pensions” (SFAS No. 87), SFAS No. 88,
“Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits”, SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than
Pensions” (SFAS No. 106), FASB Staff Position (FSP) FAS 106-2, “Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of
2003” (FSP FAS 106-2) and SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”
(SFAS No. 158), and are disclosed in accordance with SFAS No. 132-R, “Employers’ Disclosures
about Pensions and Other Postretirement Benefits—an Amendment of FASB Statements No. 87, 88,
and 106” (revised 2003) (SFAS No. 132-R) and SFAS No. 158. Generation, ComEd and PECO
participate in Exelon’s defined benefit pension plans and postretirement plans. See Note 14—
Retirement Benefits for further discussion of Exelon’s and Generation’s accounting for retirement
benefits.
FSP FAS 106-2. Through Exelon’s postretirement benefit plans, the Registrants provide retirees
with prescription drug coverage. The Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (Prescription Drug Act) was enacted on December 8, 2003. The Prescription Drug Act
introduced a prescription drug benefit under Medicare as well as a Federal subsidy to sponsors of
retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the
Medicare prescription drug benefit. Management believes the prescription drug benefit provided under
Exelon’s postretirement benefit plans is at least actuarially equivalent to the Medicare prescription drug
benefit. In response to the enactment of the Prescription Drug Act, in May 2004, the FASB issued FSP
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