Summary
This 8-K filing by Exelon Corporation (EXC) on June 1, 2012, reports on a significant decision by the Illinois Commerce Commission (ICC) concerning Commonwealth Edison Company's (ComEd) 2011 formula rate proceeding under the Electric Infrastructure Modernization Act (EIMA). The ICC's final order established new rate calculation formulas and initial rates, but resulted in a larger reduction to ComEd's annual revenue requirement than initially proposed by the company. This reduction, amounting to $168 million, impacts how ComEd recovers costs, including a disallowance of return on its pension asset, and is expected to reduce Exelon's 2012 operating earnings by approximately $0.16 per share. Investors should note that Exelon is still assessing other potential financial implications, including a possible goodwill impairment for ComEd, and will provide updated consolidated earnings guidance at its Analyst Day on June 7, 2012. The company believes the ICC's order, particularly the prohibition of return on pension assets, is contrary to the EIMA and is reviewing its options. This development is crucial for investors as it directly impacts ComEd's revenue recovery and profitability, consequently affecting Exelon's consolidated financial performance. The reduced earnings per share guidance and the potential for a goodwill impairment signal potential headwinds. Investors should pay close attention to the upcoming Analyst Day for a comprehensive view of the financial outlook and any strategic responses Exelon might undertake.
Key Highlights
- 1Illinois Commerce Commission (ICC) issued a final order on ComEd's 2011 formula rate proceeding under the Electric Infrastructure Modernization Act (EIMA).
- 2The ICC order reduces ComEd's annual revenue requirement by $168 million, exceeding ComEd's proposed $59 million reduction.
- 3Key elements of the reduction include disallowance of return on ComEd's pension asset and various other adjustments to operating expenses and working capital.
- 4ComEd believes the ICC's prohibition of return on its pension asset contradicts the EIMA and is reviewing its options.
- 5The order is expected to reduce Exelon's 2012 GAAP and adjusted (non-GAAP) operating earnings by approximately $0.16 per share, including a regulatory asset adjustment.
- 6Exelon is assessing potential further financial implications, including a possible impairment of ComEd's goodwill, which would be a non-cash charge.
- 7Exelon will provide updated consolidated earnings guidance, incorporating the impacts of this order, at its Analyst Day on June 7, 2012.