ComEd 2015 Annual Report Download - page 48

Table of Contents
are not needed for that purpose, Generation’s output is sold in the wholesale power markets. To the extent its power portfolio is not sufficient to
meet the requirements of its customers under the related agreements, Generation must purchase power in the wholesale power markets.
Generation’s financial results could be negatively affected if it is unable to cost-effectively meet the load requirements of its customers, manage
its power portfolio and effectively address the changes in the wholesale power markets.
Challenges to tax positions taken by the Registrants as well as tax law changes and the inherent difficulty in quantifying potential tax
effects of business decisions, could negatively impact the Registrants’ results of operations or cash flows. (Exelon, Generation, ComEd,
PECO and BGE)
Corporate Tax Reform. There exists the potential for comprehensive tax reform in the United States that may significantly change the tax
rules applicable to U.S. domiciled corporations. Exelon cannot assess what the overall effect of such potential legislation could be on its results of
operations or cash flows.
1999 sale of fossil generating assets. The IRS has challenged Exelon’s 1999 tax position on its like-kind exchange transaction. Exelon
and the IRS failed to reach a settlement on the like-kind exchange position and Exelon filed a petition on December 13, 2013 to initiate litigation in
the United States Tax Court and the trial took place in August 2015. Exelon was not required to remit any part of the asserted tax or penalty in
order to litigate the like-kind exchange position. The litigation could take three to five years including appeals, if necessary.
As of December 31, 2015, if the IRS is successful in its challenge to the like-kind exchange position, Exelon’s potential cash outflow,
including tax and after-tax interest, exclusive of penalties, that could become currently payable may be as much as $760 million, of which
approximately $280 million would be attributable to ComEd after consideration of Exelon’s agreement to hold ComEd harmless. In addition to
attempting to impose tax on the like-kind exchange position, the IRS has asserted approximately $90 million of penalties for a substantial
understatement of tax. The timing effects of the final resolution of the like-kind exchange matter are unknown. See Note 15—Income Taxes of the
Combined Notes to Consolidated Financial Statements for additional information.
Tax reserves. The Registrants are required to make judgments in order to estimate their obligations to taxing authorities. These tax
obligations include income, real estate, sales and use and employment-related taxes and ongoing appeals issues related to these tax matters.
These judgments include reserves for potential adverse outcomes regarding tax positions that have been taken that could be subject to challenge
by the tax authorities. See Notes 1—Significant Accounting Policies and Note 15—Income Taxes of the Combined Notes to Consolidated
Financial Statements for additional information.
Increases in customer rates and the impact of economic downturns could lead to greater expense for uncollectible customer balances.
Additionally, increased rates could lead to decreased volumes delivered. Both of these factors could decrease Generation’s, ComEd’s,
PECO’s and BGE’s results from operations or cash flows. (Exelon, Generation, ComEd, PECO and BGE)
ComEd’s, PECO’s and BGE’s current procurement plans include purchasing power through contracted suppliers and in the spot market.
ComEd’s and PECO’s costs of purchased power are charged to customers without a return or profit component. BGE’s SOS rates charged to
customers recover BGE’s wholesale power supply costs and include a return component. For PECO, purchased natural gas costs are charged to
customers with no return or profit component. For BGE, purchased natural gas costs are charged to customers using a MBR mechanism that
compares the actual cost of gas to a market index. The difference between the actual cost and the market index is shared equally
41
Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.