Exelon 2014 Annual Report Download - page 59

FERC Transmission Complaint. On February 27, 2013, consumer advocates and regulators from the District of Columbia, New
Jersey, Delaware and Maryland, and the Delaware Electric Municipal Cooperatives (the parties), filed a complaint at FERC against
BGE and the Pepco Holdings, Inc. companies relating to their respective transmission formula rates. BGE’s formula rate includes a
10.8% base rate of return on common equity (ROE) and a 50 basis point incentive for participating in PJM (the latter of which is
conditioned upon crediting the first 50 basis points of any incentive ROE adders). The parties seek a reduction in the base return on
equity to 8.7% and changes to the formula rate process. FERC docketed the matter and set April 3, 2013 as the deadline for
interventions, protests and answers. Under FERC rules, the revenues subject to refund are limited to a fifteen month period, the
earliest date from which the base ROE could be adjusted and refunds required is the date of the complaint. On March 19, 2013,
BGE filed a motion to dismiss or sever the complaint.
On August 21, 2014, FERC issued an order in the BGE and PHI companies’ proceeding, which established hearing and settlement
judge procedures for the complaint, and set a refund effective date of February 27, 2013. BGE, the PHI companies and the parties
began settlement discussions under the guidance of a FERC administrative law judge on September 23, 2014. On November 24,
2014, the Settlement Judge informed FERC and the Chief Judge that the parties had reached an impasse and determined that a
settlement was not possible. The Settlement Judge recommended termination of settlement proceedings. On November 26, 2014,
the Chief Judge issued an order terminating the settlement proceeding, designating a presiding judge at the hearings and directing
that an initial decision be issued by November 25, 2015.
On December 8, 2014, various state agencies in Delaware, Maryland, New Jersey, and D.C. filed a second complaint against BGE
regarding the base ROE of the transmission business seeking a reduction from 10.8% to 8.8%. The filing of the second complaint
creates a second refund window. By order issued on February 9, 2015, FERC established a hearing on the second complaint with
the complainants’ requested refund effective date of December 8, 2014.
Based on the current status of the complaint filings, BGE believes it is probable that BGE’s base ROE rate will be adjusted, and that
a refund to customers of transmission revenue for the two maximum fifteen month periods will be required. However, BGE is unable
to estimate the most likely refund amount for either complaint at this time, and has therefore established a reserve, which is not
material, representing the low end of a reasonably possible estimated range of loss. Additionally, management is unable to estimate
the maximum exposure of a potential refund at this time, which may have a material impact on BGE’s results of operations and cash
flows. The estimated annual ongoing reduction in revenues if FERC approved the ROEs requested by the parties in their filings is
approximately $11 million. If FERC were to order a reduction of BGE’s base ROE to 8.7% as sought in the first complaint (while
retaining the 50 basis points of any incentives that were credited to the base return on equity for certain new transmission
investment), the result of the first fifteen month refund window would be a refund to customers of approximately $13 million. If FERC
were to order a reduction in BGE’s base ROE to 8.8% as sought in the second complaint (while retaining 50 basis points of any
incentives that were credited to the base return on equity for certain new transmission investment) and the refund period extended
for a full fifteen months, the result would be a refund to customers of approximately $14 million. See Note 3—Regulatory Matters of
the Combined Notes to Consolidated Financial Statements for additional information.
The Maryland Strategic Infrastructure Development and Enhancement Program. In February 2013, the Maryland General
Assembly passed legislation intended to accelerate gas infrastructure replacements in Maryland by establishing a mechanism for
gas companies to promptly recover reasonable and prudent costs of eligible infrastructure replacement projects separate from base
rate proceedings. On May 2, 2013, the Governor of Maryland signed the legislation into law; which took effect June 1, 2013. Under
the new law, following a proceeding before the MDPSC and with the MDPSC’s approval of the eligible infrastructure replacement
projects along with a corresponding surcharge, BGE could begin charging gas customers a monthly surcharge for infrastructure
costs incurred after June 1, 2013. The legislation includes caps on the monthly surcharges to residential and non-residential
customers, and would require an annual true-up of the surcharge revenues against actual expenditures. Investment levels in excess
of the cap would be recoverable in a subsequent gas base rate proceeding at which time all costs for the infrastructure replacement
projects would be rolled into gas distribution rates. Irrespective of the cap, BGE is required to file a gas rate case every five years
under this legislation. On August 2, 2013, BGE filed its infrastructure replacement plan and associated surcharge. On January 29,
2014, the MDPSC issued a decision conditionally approving the first five years of BGE’s plan and surcharge. On March 26, 2014, the
MDPSC approved as filed BGE’s proposed 2014 project list, tariff and associated surcharge amounts, with a surcharge that became
effective April 1, 2014. On November 17, 2014, BGE filed a surcharge update including a true-up of costs estimates included in the
2014 surcharge, along with its 2015 project list and cost estimates to be included in the 2015 surcharge. The filing was approved
with a revised surcharge effective January 1, 2015. At its December 17, 2014 weekly Administrative Meeting, the MDPSC approved
BGE’s 2015 project list and the proposed surcharge for 2015. BGE will defer the difference between the surcharge revenues and
program costs as a regulated asset or liability, which was immaterial to Exelon and BGE as of December 31, 2014.
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