ComEd 2006 Annual Report Download - page 23

and industrial loads and 10% of its small commercial and industrial load were purchasing generation
service from competitive electric generation suppliers. Customers who purchase electricity from a
competitive electric generation supplier continue to pay a delivery charge to PECO.
In addition to retail competition for generation services, PECO’s 1998 settlement of its
restructuring case mandated by the Competition Act established caps on generation, transmission and
distribution rates. The 1998 settlement also authorized PECO to recover $5.3 billion of stranded costs
and to securitize up to $4.0 billion of its stranded cost recovery, which was subsequently increased to
$5.0 billion.
Under the 1998 settlement, PECO’s distribution and transmission rates were capped through
June 30, 2005 at the level in effect on December 31, 1996. Generation rates, consisting of the charge
for stranded cost recovery and a shopping credit or capacity and energy charge, were capped through
December 31, 2010. For 2006, the generation rate cap was $0.0751 per kWh, increasing to $0.0801
per kWh in 2007. The rate caps are subject to limited exceptions, including significant increases in
Federal or state taxes or other significant changes in law or regulations that would not allow PECO to
earn a fair rate of return. Under the settlement agreement entered into by PECO in 2000 relating to the
PAPUC’s approval of the merger between PECO, Unicom Corporation (Unicom), the former parent
company of ComEd, and Exelon (PECO/Unicom Merger), PECO agreed to $200 million in aggregate
rate reductions for all customers over the period January 1, 2002 through December 31, 2005 and
extended the rate cap on distribution and transmission rates through December 31, 2006. PECO’s
capped transmission and distribution rates continue in effect until PECO files a rate case or there is
some other specific regulatory action to adjust the rates. There are no current proceedings to do so.
As a mechanism for utilities to recover allowed stranded costs, the Competition Act provides for
the imposition and collection of non-bypassable transition charges on customers’ bills. Transition
charges are assessed to and collected from all retail customers who have been assigned stranded cost
responsibility and access the utility’s transmission and distribution systems. As the transition charges
are based on access to the utility’s transmission and distribution system, they are assessed regardless
of whether the customer purchases electricity from the utility or a competitive electric generation
supplier. The Competition Act provides, however, that the utility’s right to collect transition charges is
contingent on the continued operation, at reasonable availability levels, of the assets for which the
stranded costs were awarded, except where continued operation is no longer cost efficient because of
the transition to a competitive market.
As mentioned above, PECO has been authorized by the PAPUC to recover stranded costs of $5.3
billion over a twelve-year period ending December 31, 2010, with a return on the unamortized balance
of 10.75%. At December 31, 2006, the unamortized balance of PECO’s stranded costs, or CTC
regulatory asset, was $3.0 billion. The following table shows PECO’s allowed recovery of stranded
costs, and amortization of the associated regulatory asset, for the years 2007 through 2010 as
authorized by the PAPUC based on the level of transition charges established in the settlement of
PECO’s restructuring case and the projected annual retail sales in PECO’s service territory. Recovery
of transition charges for stranded costs and PECO’s allowed return on its recovery of stranded costs
are included in revenues. To the extent the actual recoveries of transition charges in any one year
differ from the authorized amount set forth below, an annual reconciliation adjustment to the transition
charge rates is made to increase or decrease the subsequent year’s collections accordingly, except
during 2010, in which the reconciling adjustments are made quarterly or monthly as needed.
Year (in millions)
Estimated
CTC Revenue
Estimated Stranded
Cost Amortization
2007 ............................................ $910 $619
2008 ............................................ 917 697
2009 ............................................ 924 783
2010 ............................................ 932 883
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