Exelon 2015 Annual Report Download - page 115

Table of Contents
PECO is required to file a depreciation rate study at least every five years with the PAPUC. In March 2015, PECO filed a depreciation rate
study with the PAPUC for both its electric and gas assets, which resulted in the implementation of new depreciation rates effective January 1,
2015 for electric transmission assets, July 1, 2015 for gas distribution assets and January 1, 2016 for electric distribution assets.
The MDPSC does not mandate the frequency or timing of BGE’s depreciation studies. In July 2014, BGE filed revised depreciation rates
with the MDPSC for both its electric distribution and gas assets. Revisions to depreciation rates from this filing were finalized and effective
December 15, 2014.
Defined Benefit Pension and Other Postretirement Employee Benefits (Exelon, Generation, ComEd, PECO and BGE)
Exelon sponsors defined benefit pension plans and other postretirement employee benefit plans for substantially all Generation, ComEd,
PECO, BGE and BSC employees. See Note 17—Retirement Benefits of the Combined Notes to Consolidated Financial Statements for additional
information regarding the accounting for the defined benefit pension plans and other postretirement benefit plans.
The measurement of the plan obligations and costs of providing benefits under Exelon’s defined benefit pension and other postretirement
benefit plans involves various factors, including the development of valuation assumptions and accounting policy elections. When developing the
required assumptions, Exelon considers historical information as well as future expectations. The measurement of benefit obligations and costs is
affected by several assumptions including the discount rate applied to benefit obligations, the long-term expected rate of return on plan assets, the
anticipated rate of increase of health care costs, Exelon’s expected level of contributions to the plans, the incidence of participant mortality, the
expected remaining service period of plan participants, the level of compensation and rate of compensation increases, employee age, length of
service, and the long-term expected investment rate credited to employees of certain plans, among others. The assumptions are updated annually
and upon any interim remeasurement of the plan obligations. The impact of assumption changes or experience different from that assumed on
pension and other postretirement benefit obligations is recognized over time rather than immediately recognized in the income statement. Gains or
losses in excess of the greater of ten percent of the projected benefit obligation or the MRV of plan assets are amortized over the expected
average remaining service period of plan participants. Pension and other postretirement benefit costs attributed to the operating companies are
labor costs and are ultimately allocated to projects within the operating companies, some of which are capitalized.
Pension and other postretirement benefit plan assets include equity securities, including U.S. and international securities, and fixed income
securities, as well as certain alternative investment classes such as real estate, private equity and hedge funds. See Note 17—Retirement
Benefits of the Combined Notes to Consolidated Financial Statements for information on fair value measurements of pension and other
postretirement plan assets, including valuation techniques and classification under the fair value hierarchy in accordance with authoritative
guidance.
Expected Rate of Return on Plan Assets. The long-term EROA assumption used in calculating pension costs was 7.00%, 7.00% and
7.50% for 2015, 2014 and 2013, respectively. The weighted average EROA assumption used in calculating other postretirement benefit costs was
6.46%, 6.59% and 6.45% in 2015, 2014 and 2013, respectively. The pension trust activity is non-taxable, while other postretirement benefit trust
activity is partially taxable. The current year EROA is based on asset allocations from the prior year end. In 2010, Exelon began implementation of
a liability-driven investment strategy in order to reduce the volatility of its pension assets relative to its pension liabilities. Over time, Exelon has
decreased its equity investments and increased its investments in
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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