ComEd 2006 Annual Report Download - page 266

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)
Non-Nuclear AROs (Exelon, Generation, ComEd, and PECO)
As of December 31, 2005, the Registrants adopted FIN 47, which clarified that a legal obligation
associated with the retirement of a long-lived asset whose timing and/or method of settlement are
conditional on a future event is within the scope of SFAS No. 143. Under FIN 47, Exelon is required to
record liabilities associated with its conditional AROs at their estimated fair values if those fair values
can be reasonably estimated.
The following table presents the activity of the non-nuclear AROs reflected on the Registrants’
Consolidated Balance Sheets from January 1, 2006 to December 31, 2006:
Exelon Generation ComEd PECO
Non-nuclear AROs at January 1, 2006 ........................ $236 $ 65 $151 $ 20
Accretion (a) .............................................. 13 4 7 1
Settlements .............................................. (2) — (2) —
Non-nuclear AROs at December 31, 2006 .................... $247 $ 69 $156 $ 21
(a) For ComEd and PECO, the majority of the accretion is recorded as an increase to a regulatory asset due to the associated
regulations.
Determination of Conditional AROs
The adoption of FIN 47 required the Registrants to update their existing inventories, originally
created for the adoption of SFAS No. 143, and to determine which, if any, of the conditional AROs
could be reasonably estimated. The significant conditional AROs identified by ComEd and PECO
included abatement and disposal of equipment and buildings contaminated with asbestos and
Polychlorinated Biphenyls (PCBs). The significant conditional AROs identified by Generation included
plant closure costs associated with its fossil and hydroelectric generating stations, including asbestos
abatement, removal of certain storage tanks and other decommissioning-related activities.
The ability to reasonably estimate a conditional ARO was a matter of management judgment,
based upon management’s ability to estimate a settlement date or range of settlement dates, a method
or potential method of settlement and probabilities associated with the potential dates and methods of
settlement of its conditional AROs. In determining whether their conditional AROs could be reasonably
estimated, management considered the Registrant’s past practices, industry practices, management’s
intent and the estimated economic lives of the assets. The management of the Registrants concluded
that all significant conditional AROs could be reasonably estimated.
The Registrants were required to measure the conditional AROs at fair value using the
methodology prescribed by FIN 47. The transition provisions of FIN 47 required the Registrants to
apply this measurement back to the historical periods in which the conditional AROs were incurred,
resulting in a remeasurement of these obligations at the latter of the date that the related assets were
placed into service or acquired or the date that the applicable law or environmental regulation became
effective. The fair values of the conditional AROs were then estimated using a probability-weighted,
discounted cash flow model with multiple scenarios, if applicable. The present value of future estimated
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