ComEd 2006 Annual Report Download - page 71

• Select northeast and mid-Atlantic states have developed a model rule, via the RGGI, to
regulate carbon emissions from fossil-fired generation in participating states starting in 2009.
Federal and/or state legislation to regulate carbon emissions could occur in the future. If these
plans become effective, Exelon may incur costs in further limiting the emissions from certain of
its fossil-fuel fired facilities or in procuring emission allowance credits issued by various
governing bodies. However, Exelon may benefit from stricter emission standards due to its
significant nuclear capacity, which is not anticipated to be affected by the proposed emission
standards.
• Exelon anticipates that it will be subject to the ongoing pressures of rising operating expenses
due to increases in costs such as medical benefits and rising payroll costs due to inflation.
Also, Exelon will continue to incur significant capital costs associated with its commitment to
produce and deliver energy reliably to its customers. Increasing capital costs may include the
price of uranium which fuels the nuclear facilities and continued capital investment in Exelon’s
aging distribution infrastructure and generating facilities. Exelon is determined to operate its
businesses responsibly and to appropriately manage its operating and capital costs while
serving its customers and producing value for its shareholders.
• Exelon pursues growth opportunities that are consistent with its disciplined approach to
investing to maximize earnings and cash flows. On September 29, 2006, Generation notified
the NRC that Generation will begin the application process for a combined construction and
operating license that would allow for the possible construction of a new nuclear plant at an
as-yet unnamed location in Texas. The filing of the letter with the NRC launches a process that
“preserves for Exelon the option” to develop a new nuclear plant in Texas without immediately
committing to the full project. Exelon has not decided to build a new nuclear plant. Among the
various conditions that must be resolved before any formal decision to build is made are a
permanent solution to spent nuclear fuel disposal, broad public acceptance of a new nuclear
plant and assurances that a new plant using new technology can be financially successful.
Exelon expects to submit the application to the NRC for the combined construction and
operating license in 2008.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires that management apply
accounting policies and make estimates and assumptions that affect results of operations and the
amounts of assets and liabilities reported in the financial statements. Management discusses these
policies, estimates and assumptions within its Accounting and Disclosure Governance Committee on a
regular basis and provides periodic updates on management decisions to the Audit Committee of the
Exelon Board of Directors. Management believes that the areas described below require significant
judgment in the application of accounting policy or in making estimates and assumptions in matters
that are inherently uncertain and that may change in subsequent periods. Further discussion of the
application of these accounting policies can be found in the Combined Notes to Consolidated Financial
Statements.
Asset Retirement Obligations (ARO) (Exelon, Generation, ComEd and PECO)
Nuclear Decommissioning (Exelon and Generation)
Generation must make significant estimates and assumptions in accounting for its obligation to
decommission its nuclear generating plants in accordance with SFAS No. 143, “Accounting for Asset
Retirement Obligations” (SFAS No. 143).
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