Exelon 2014 Annual Report Download - page 60

In February 2014, the residential consumer advocate in Maryland filed an appeal with the Baltimore City Circuit Court to the decision
issued by the MDPSC on BGE’s infrastructure replacement plan. On September 5, 2014, the Baltimore City Circuit Court affirmed
the MDPSC decision on BGE’s infrastructure replacement plan and associated surcharge. On October 10, 2014, the residential
consumer advocate noticed its appeal to the Maryland Court of Special Appeals from the judgment entered by the Baltimore City
Circuit Court, however, a procedural schedule for the matter has not yet been set.
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 with 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 accounting policies described below require significant judgment in their application, or
estimates and assumptions that are inherently uncertain and that may change in subsequent periods. Additional discussion of the
application of these accounting policies can be found in the Combined Notes to Consolidated Financial Statements.
Nuclear Decommissioning Asset Retirement Obligations
Generation’s ARO associated with decommissioning its nuclear units was $7.0 billion at December 31, 2014. The authoritative
guidance requires that Generation estimate its obligation for the future decommissioning of its nuclear generating plants. To estimate
that liability, Generation uses an internally-developed, probability-weighted, discounted cash flow model which, on a unit-by-unit
basis, considers multiple outcome scenarios. The nuclear decommissioning obligation is adjusted on a regular basis due to the
passage of time and revisions to the key assumptions for the expected timing or estimated amounts of the future undiscounted cash
flows required to decommission the nuclear plants, based upon the methodologies and significant estimates and assumptions
described as follows:
Decommissioning Cost Studies. Generation uses unit-by-unit decommissioning cost studies to provide a marketplace assessment
of the costs and timing of decommissioning activities, which are validated by comparison to current decommissioning projects within
its industry and other estimates. Decommissioning cost studies are updated, on a rotational basis, for each of Generation’s nuclear
units at least every five years.
Cost Escalation Factors. Generation uses cost escalation factors to escalate the decommissioning costs from the
decommissioning cost studies discussed above through the assumed decommissioning period for each of the units. Cost escalation
studies, updated on an annual basis, are used to determine escalation factors, and are based on inflation indices for labor,
equipment and materials, energy, LLRW disposal and other costs.
Probabilistic Cash Flow Models. Generation’s probabilistic cash flow models include the assignment of probabilities to various
scenarios for decommissioning costs, approaches and timing on a unit-by-unit basis. Probabilities assigned to cost levels include an
assessment of the likelihood of costs 20% higher (high-cost scenario) or 15% lower (low-cost scenario) than the base cost scenario.
Probabilities are assigned to alternative decommissioning approaches which assess the likelihood of performing DECON (a method
of decommissioning shortly after the cessation of operation in which the equipment, structures, and portions of a facility and site
containing radioactive contaminants are removed and safely buried in a LLRW landfill or decontaminated to a level that permits
property to be released for unrestricted use), Delayed DECON (similar to the DECON scenario but with a delay to allow for spent
fuel to be removed from the site prior to onset of decommissioning activities) or SAFSTOR (a method of decommissioning in which
the nuclear facility is placed and maintained in such condition that the nuclear facility can be safely stored and subsequently
decontaminated to levels that permit release for unrestricted use generally within 60 years after cessation of operations)
decommissioning. Probabilities assigned to the timing scenarios incorporate the likelihood of continued operation through current
license lives or through anticipated license renewals. Generation’s probabilistic cash flow models also include an assessment of the
timing of DOE acceptance of SNF for disposal. Generation assumes DOE will begin accepting SNF in 2025. The SNF acceptance
date was based on management’s estimates of the amount of time required for DOE to select a site location and develop the
necessary infrastructure. For more information regarding the estimated date that DOE will begin accepting SNF, see
Note 22—Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements.
License Renewals. Generation assumes a successful 20-year renewal for each of its nuclear generating station licenses, except for
Oyster Creek, in determining its nuclear decommissioning ARO. The current NRC license for Oyster Creek expires in 2029. On
December 8, 2010, Exelon announced that Generation will permanently cease generation operations at Oyster Creek by
December 31, 2019. As a result of this decision the expected economic life of Oyster Creek was reduced by 10 years to correspond
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