ComEd 2006 Annual Report Download - page 218

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)
January 9, 2007 expired. A new session is underway and legislation similar to previously proposed
legislation has been reintroduced. ComEd is unable to predict the final disposition of any legislation
that may be presented during 2007 to rollback rates, change the end of the mandated transition and
rate freeze period in Illinois, or otherwise. ComEd believes a rate rollback and freeze, if enacted into
law, would have serious detrimental effects on Illinois, ComEd and consumers of electricity. If
legislation similar to the “compromise” bill previously passed by the Senate to phase-in the rate
increases is enacted, there would be material adverse effects on Exelon’s and ComEd’s results of
operations and cash flows as the “compromise” bill did not provide for the recovery of carrying charges.
See “Post-2006 Summary” below for further detail. ComEd believes such legislation, if enacted into
law, will violate Federal law and the U.S. Constitution, and ComEd is prepared to vigorously challenge
any such legislation in court.
Residential Rate Stabilization Program (Exelon and ComEd). In a December 20, 2006 order,
the ICC approved a program, proposed by ComEd, to mitigate the impact on ComEd’s residential
customers of ComEd’s transition from almost a decade of reduced and frozen rates to rates that reflect
the current cost of providing service. The program includes an “opt-in” feature to give residential
customers the choice to participate in the program. Average annual residential electric rate increases
would be capped at 10% in each of 2007, 2008 and 2009 for customers choosing to participate in the
program. For those customers, costs that exceed the caps would be deferred and recovered over three
years from 2010 to 2012. Deferred balances will be assessed an annual carrying charge of 3.25%. If
ComEd’s rate increases are less than the caps in 2008 and 2009, ComEd would begin to recover
deferred amounts up to the caps with carrying costs. The program would terminate upon a force
majeure event, upon a ComEd bankruptcy, or if ComEd’s senior unsecured credit ratings from the
three major credit rating agencies fall below investment grade. This order also strongly encouraged,
but did not require, ComEd to make contributions to environmental and customer assistance
programs—see “Renewable Energy Filings” below. This order is subject to rehearing and appeal.
Illinois Rate Case (Exelon and ComEd). On August 31, 2005, ComEd filed a rate case with the
ICC to comprehensively review its tariff and to adjust ComEd’s rates for delivering electricity effective
January 2007 (Rate Case). ComEd proposed a revenue increase of $317 million. The ICC staff and
several intervenors in the Rate Case, including the Illinois Attorney General, suggested and provided
testimony that ComEd’s rates for delivery services should be reduced. The commodity component of
ComEd’s rates will be established by the reverse-auction process in accordance with the ICC rate
order in the Procurement Case. On June 8, 2006, the administrative law judges (ALJs) issued a
proposed order recommending a revenue increase of $164 million which included ComEd’s request for
recovery of several items that previously were recorded as expense. On July 26, 2006, the ICC issued
its order in the Rate Case which approved a delivery services revenue increase of approximately
$8 million of the $317 million proposed revenue increase requested by ComEd. The ICC order
approved ComEd’s requested recovery of several items which previously were recorded as expense.
However, the ICC disallowed rate base treatment (return) for ComEd’s prepaid pension asset and
disallowed the recovery of certain administrative and general expenses. These disallowances did not
result in an immediate write-off because the prepaid pension asset should be recovered as pension
cost is recognized and recovered from customers in the future. The ICC rate order also provided for
lower returns on rate base than ComEd had requested. See Note 18—Commitments and
Contingencies for further information. The ICC subsequently granted in part requests for rehearing of
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