Exelon 2014 Annual Report Download - page 62

The following table illustrates the effects of changing certain ARO assumptions, discussed above, while holding all other
assumptions constant (dollars in millions):
Change in ARO Assumption
Increase (Decrease) to
ARO at
December 31, 2014
Cost escalation studies
Uniform increase in escalation rates of 25 basis points ............................................. $ 810
Probabilistic cash flow models
Increase the likelihood of the high-cost scenario by 10 percentage points and decrease the likelihood of the
low-cost scenario by 10 percentage points ..................................................... $ 290
Increase the likelihood of the DECON scenario by 10 percentage points and decrease the likelihood of the
SAFSTOR scenario by 10 percentage points ................................................... $ 420
Increase the likelihood of operating through current license lives by 10 percentage points and decrease the
likelihood of operating through anticipated license renewals by 10 percentage points .................. $ 630
Extend the estimated date for DOE acceptance of SNF to 2030 ...................................... $ 230
Extend the estimated date for DOE acceptance of SNF to 2030 coupled with an increase in discount rates of
100 basis points ........................................................................... $ (270)
Extend the estimated date for DOE acceptance of SNF to 2030 coupled with a decrease in discount rates of
100 basis points ........................................................................... $1,100
For more information regarding accounting for nuclear decommissioning obligations, see Note 1—Significant Accounting Policies
and Note 15—Asset Retirement Obligations of the Combined Notes to Consolidated Financial Statements.
Goodwill
As of December 31, 2014, Exelon’s and ComEd’s carrying amount of goodwill was approximately $2.7 billion, relating to the
acquisition of ComEd in 2000 as part of the PECO/Unicom Merger. Under the provisions of the authoritative guidance for goodwill,
ComEd is required to perform an assessment for possible impairment of its goodwill at least annually or more frequently if an event
occurs or circumstances change that would more likely than not reduce the fair value of the ComEd reporting unit below its carrying
amount. Under the authoritative guidance, a reporting unit is an operating segment or one level below an operating segment (known
as a component) and is the level at which goodwill is tested for impairment. A component of an operating segment is a reporting unit
if the component constitutes a business for which discrete financial information is available and its operating results are regularly
reviewed by segment management. ComEd has a single operating segment for its combined business. There is no level below this
operating segment for which operating results are regularly reviewed by segment management. Therefore, ComEd’s operating
segment is considered its only reporting unit.
Entities assessing goodwill for impairment have the option of first performing a qualitative assessment to determine whether a
quantitative assessment is necessary. In performing a qualitative assessment, entities should assess, among other things,
macroeconomic conditions, industry and market considerations, overall financial performance, cost factors, and entity-specific
events. If an entity determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not
greater than the carrying amount, no further testing is required. If an entity bypasses the qualitative assessment or performs the
qualitative assessment, but determines that it is more likely than not that its fair value is less than its carrying amount, a quantitative
two-step, fair value-based test is performed. The first step compares the fair value of the reporting unit to its carrying amount,
including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step is performed. The second step
requires an allocation of fair value to the individual assets and liabilities using purchase price allocation accounting guidance in order
to determine the implied fair value of goodwill. If the implied fair value of goodwill is less than the carrying amount, an impairment
loss is recorded as a reduction to goodwill and a charge to operating expense. Application of the goodwill impairment test requires
management judgment, including the identification of reporting units and determining the fair value of the reporting unit, which
management estimates using a weighted combination of a discounted cash flow analysis and a market multiples analysis. Significant
assumptions used in these fair value analyses include discount and growth rates, utility sector market performance and transactions,
projected operating and capital cash flows for ComEd’s business and the fair value of debt. In applying the second step (if needed),
management must estimate the fair value of specific assets and liabilities of the reporting unit. See Note 1—Significant Accounting
Policies, Note 10—Intangible Assets and Note 14—Income Taxes of the Combined Notes to Consolidated Financial Statements for
additional information.
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