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EXELON CORP 8-K Report, Material Impairment (Jun 9, 2016)

Filed June 9, 2016For Securities:EXC

Summary

This Form 8-K filing by Exelon Corporation (EXC) on June 9, 2016, primarily reports on a regulatory decision impacting its subsidiary, Baltimore Gas and Electricity Company (BGE). The Public Service Commission of Maryland (MDPSC) issued a final rate order in BGE's 2015 electric and gas distribution rate case. While the MDPSC acknowledged BGE's advanced metering infrastructure (AMI) system as overall cost-beneficial, it disallowed certain costs, preventing BGE from recovering the full investment made in its smart grid initiative. As a consequence of these cost disallowances and adjustments, BGE is expected to record a non-cash impairment charge to earnings in June 2016, estimated between $85 million and $95 million (pre-tax). This charge relates to specific regulatory assets and other long-lived assets tied to the AMI system. It's important to note that this impairment is a non-cash event and does not involve future cash expenditures. Additionally, the MDPSC did not approve the recovery of $30 million in annual conduit fees, a decision BGE is currently analyzing.

Key Highlights

  • 1BGE's smart meter (AMI) system, initially approved with significant investment, faced cost disallowances in its 2015 rate case.
  • 2The Public Service Commission of Maryland (MDPSC) found the AMI system generally cost-beneficial but disallowed recovery of certain incurred costs.
  • 3BGE will record a pre-tax, non-cash impairment charge of an estimated $85 million to $95 million due to these disallowances.
  • 4The impairment charge impacts regulatory assets and other long-lived assets related to the AMI system.
  • 5The impairment is a non-cash event and will not result in future cash expenditures.
  • 6MDPSC also disallowed recovery of $30 million in annual conduit fees for BGE.
  • 7BGE is reviewing the MDPSC decision and considering its options, including potential challenges or appeals.

Frequently Asked Questions

The main reason for the expected impairment charge is the decision by the Public Service Commission of Maryland (MDPSC) to disallow certain costs associated with BGE's advanced metering infrastructure (AMI) system. While the MDPSC deemed the AMI system overall cost-beneficial, it did not allow BGE to recover the full amount of its investment through future rates.

BGE expects to record a non-cash impairment charge to earnings ranging from $85 million to $95 million (pre-tax). This is a non-cash accounting event and does not involve any future cash expenditures.

In addition to the AMI cost disallowances, the MDPSC did not allow BGE to recover or defer $30 million in annual costs related to Baltimore City conduit fees. BGE is currently analyzing the impact of this decision.

Yes, the MDPSC issued a final rate order that granted BGE an $89.5 million rate increase. However, this increase is offset by the significant cost disallowances and the decision regarding conduit fees.