8-KOther Events

EXELON CORP 8-K Report, Corporate Update (Oct 4, 2010)

Filed October 4, 2010For Securities:EXC

Summary

This 8-K filing from Exelon Corporation (EXC) on October 4, 2010, primarily concerns a significant adverse ruling by the Illinois Appellate Court regarding Commonwealth Edison Company (ComEd), a subsidiary of Exelon. The court's decision impacts how ComEd can recover costs related to its electric distribution services and a smart meter pilot program. Specifically, the court remanded a previous ICC order, mandating a reduction in ComEd's rate base to account for additional accumulated depreciation. Furthermore, the court reversed the ICC's approval of a rider (Rider SMP) for the recovery of advanced metering infrastructure (AMI) costs, deeming it illegal single-issue ratemaking and establishing a stricter standard for future cost-recovery riders. These rulings could necessitate refunds to customers dating back to September 30, 2010, and are expected to negatively impact ComEd's pre-tax earnings.

Key Highlights

  • 1Illinois Appellate Court ruled against Commonwealth Edison Company (ComEd) on key aspects of its 2007 rate case order.
  • 2The court mandated a reduction in ComEd's rate base due to additional accumulated depreciation, impacting revenue recovery.
  • 3Approval of Rider SMP, which covered costs for a smart meter pilot program (131,000 meters), was reversed by the court.
  • 4The court established a new, stricter standard for utility cost-recovery riders, requiring them to be for unexpected, volatile costs imposed by external circumstances and not alter other expenses or income.
  • 5The ruling could trigger a refund obligation to customers as early as September 30, 2010, pending further proceedings.
  • 6ComEd estimates a negative pre-tax revenue impact of approximately $77 million annually from the rate base/depreciation issue.
  • 7The loss of Rider SMP is expected to reduce ComEd's pre-tax earnings by approximately $5 million in 2010, including a $4 million write-off of a related regulatory asset.

Frequently Asked Questions

The primary issue is the adverse ruling by the Illinois Appellate Court on September 30, 2010, concerning Commonwealth Edison Company's (ComEd) 2007 electric distribution rate case order. The court's decision impacts how ComEd can recover costs through its rates, specifically regarding rate base calculations and the recovery of smart meter program expenses.

The court's decision is expected to negatively impact ComEd's pre-tax earnings. ComEd estimates an annual pre-tax revenue reduction of approximately $77 million due to adjustments in its rate base and depreciation. Additionally, the loss of the Rider SMP for smart meter costs will reduce pre-tax earnings by an estimated $5 million in 2010, including a $4 million write-off. The company may also be obligated to issue refunds to customers dating back to September 30, 2010.

The court reversed the Illinois Commerce Commission's (ICC) approval of Rider SMP, which allowed ComEd to recover costs for its advanced metering infrastructure (AMI) pilot program involving 131,000 smart meters. The court deemed this 'illegal single-issue ratemaking' and set a new, more stringent standard for such cost-recovery riders, which may affect future utility recovery of similar program costs.

ComEd, the ICC, or other parties may seek rehearing of the court's decision or appeal it to the Illinois Supreme Court. If no further judicial proceedings occur, the case will be remanded to the ICC for rate recalculations, expected around November 10, 2010. ComEd anticipates new rates will be established in its 2010 rate case by May 31, 2011, at which point the financial impacts should be fully incorporated into its rates.