ComEd 2006 Annual Report Download - page 220

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)
In the ICC’s December 20, 2006 order approving ComEd’s residential rate stabilization program,
the ICC also strongly encouraged, but did not require, ComEd to make contributions totaling $30
million to environmental and customer assistance programs. ComEd is currently evaluating this
request. ComEd has 60 days from the date of this order to file a proposal for the programs it plans to
fund or implement. The ICC has 150 days to approve or modify the proposal. ComEd is currently
evaluating the manner in which it may offer renewable energy programs at the ICC’s encouragement.
ComEd has included energy efficiency and demand response programs as a part of its ComEd CARE
initiative, sponsored to assist customers with mitigating impacts of higher prices beginning in 2007 and
may undertake additional demand response, energy efficiency and renewable energy related initiatives
in the future; however, such initiatives will likely be dependent on the resolution of other regulatory and
legislative issues mentioned previously.
Post-2006 Summary (Exelon and ComEd). ComEd cannot predict the results of any rehearings
or appeals in the Rate Case or the Procurement Case or whether the Illinois General Assembly might
pass rate roll back and freeze legislation or take other action that could have a material effect on the
outcome of the regulatory process. If the price which ComEd is ultimately allowed to bill to customers
for electricity is below ComEd’s cost to procure and deliver electricity, ComEd expects that it will suffer
adverse consequences, which could be material. Exelon and ComEd believe that these potential
material adverse consequences could include, but may not be limited to, reduced earnings for Exelon
and ComEd, further reduction of ComEd’s credit ratings, limited or lost access for ComEd to credit
markets to finance operations and capital investment, and loss of ComEd’s capacity to enter into
bilateral long-term energy procurement contracts, which may force ComEd to procure electricity at
more volatile spot market prices, all of which could lead ComEd to seek protection through a
bankruptcy filing. Moreover, to the extent ComEd is not permitted to recover its costs, ComEd’s ability
to maintain and improve service may be diminished and its ability to maintain reliability may be
impaired. In the nearer term, these prospects could have adverse effects on ComEd’s liquidity if
vendors reduce credit or shorten payment terms or if ComEd’s financing alternatives become more
limited and significantly less flexible. Additionally, if ComEd’s ability to recover its costs from customers
through rates is significantly affected, all or a portion of ComEd’s business could be required to cease
applying SFAS No. 71, which covers the accounting for the effects of rate regulation and which would
require Exelon and ComEd to eliminate the financial statement effects of regulation for the portion of
ComEd’s business that ceases to meet the criteria. This would result in the elimination of all associated
regulatory assets and liabilities that ComEd had recorded on its Consolidated Balance Sheets through
the recording of a one-time extraordinary gain on its Consolidated Statements of Operations and
Comprehensive Income (Loss). At December 31, 2006, the income statement gain could have been as
much as $1.0 billion and $2.3 billion (before taxes) at Exelon and ComEd, respectively. Finally, the
impacts and resolution of the above items could lead to an additional impairment of ComEd’s goodwill,
which would be significant and at least partially offset the extraordinary gain discussed above. See
Note 8—Intangible Assets for further information related to ComEd’s goodwill.
Return on Common Equity Threshold (Exelon and ComEd). Under Illinois legislation, if the
two-year average of the earned return on common equity of a utility through December 31, 2006
exceeded an established threshold, one-half of the excess earnings must be refunded to customers.
The threshold rate of return on common equity is based on a two-year average of the Monthly Treasury
Bond Long-Term Average Rates (20 years and above) plus 8.5% in the years 2000 through 2006.
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