Exelon 2015 Annual Report Download - page 285

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
2010, the MDPSC approved a comprehensive smart grid initiative for BGE, authorizing BGE to establish a separate regulatory asset for
incremental costs incurred to implement the initiative, including the net depreciation and amortization costs associated with the meters, and an
appropriate rate of return on these costs, a portion of which is not recognized under GAAP until cost recovery begins. Additionally, the MDPSC
requires that BGE prove the cost-effectiveness of the entire smart grid initiative prior to seeking recovery of the costs deferred in these regulatory
assets. As part of the 2015 electric and gas distribution rate case filed on November 6, 2015 and amended on January 5, 2016, BGE is seeking
recovery of its smart grid initiative costs. Of BGE’s requested $200 million, $140 million relates to the smart grid initiative. In support of its
recovery of smart grid initiative costs, BGE provided evidence demonstrating that the benefits exceed the costs by a ratio of 2.3 to 1.0, on a
nominal basis. If approved by the MDPSC, the amortization of these deferred costs would begin in June 2016. BGE’s AMI regulatory asset
excludes costs for non-AMI meters being replaced by AMI meters, as recovery of those costs commenced with the new rates approved and
implemented with the MDPSC order in BGE’s 2014 electric and gas distribution case.
Under-recovered distribution services costs. These amounts represent under (over) recoveries related to electric distribution services
costs recoverable (refundable) through EIMA’s performance based formula rate tariff. Under (over) recoveries for the annual reconciliations are
recoverable (refundable) over a one-year period and costs for certain one-time events, such as large storms, are recoverable over a five-year
period. ComEd earns and pays a return on under and over recovered costs, respectively. As of December 31, 2015, the regulatory asset was
comprised of $142 million for the 2014 and 2015 annual reconciliations and $47 million related to significant one-time events, including $36 million
in deferred storm costs and $11 million of Constellation merger and integration related costs. As of December 31, 2014, the regulatory asset was
comprised of $286 million for the 2013 and 2014 annual reconciliations and $85 million related to significant one-time events, including $66 million
in deferred storm costs and $19 million of Constellation merger and integration related costs. See  above
for further details.
Debt costs. Consistent with rate recovery for ratemaking purposes, ComEd’s, PECO’s and BGE’s recoverable losses on reacquired long-
term debt related to regulated operations are deferred and amortized to interest expense over the life of the new debt issued to finance the debt
redemption or over the life of the original debt issuance if the debt is not refinanced. Interest-rate swap settlements are deferred and amortized
over the period that the related debt is outstanding or the life of the original issuance retired. These debt costs are used in the determination of the
weighted cost of capital applied to rate base in the rate-making process. ComEd and BGE are not earning a return on the recovery of these costs,
while PECO is earning a return on the premium of the cost of the reacquired debt through base rates.
Fair value of BGE long-term debt. These amounts represent the regulatory asset recorded at Exelon for the difference in the fair value of
the long-term debt of BGE as of the Constellation merger date based on the MDPSC practice to allow BGE to recover its debt costs through rates.
Exelon is amortizing the regulatory asset and the associated fair value over the life of the underlying debt and is not earning a return on the
recovery of these costs.
Severance. For BGE, these costs represent deferred severance costs associated with a 2010 workforce reduction that were deferred as a
regulatory asset and are being amortized over a 5-year period that began in March 2011 in accordance with the MDPSC’s March 2011 rate order.
Additionally, costs associated with the 2012 BGE voluntary workforce reduction were deferred in 2012 as a regulatory asset in accordance with the
MDPSC’s orders in prior rate cases and are being amortized over a 5-year period that began in July 2012. BGE is earning a regulated return on the
regulatory asset included in base rates.
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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