Exelon Corp. 8-K Summary: Material Impairments
Business Context and Reporting Period
This Form 8-K, dated December 13, 2017, reports on Exelon Corporation and its subsidiaries (including Commonwealth Edison, Baltimore Gas and Electric, and Pepco Holdings). The filing addresses a regulatory decision by the Federal Energy Regulatory Commission (FERC) regarding the recovery of transmission-related income tax regulatory assets.
Key Financial Metrics and Impairments
Following a FERC order on November 16, 2017, rejecting proposed rate revisions, management concluded that certain regulatory assets are no longer probable of recovery. Consequently, the registrants recorded after-tax impairment charges in December 2017. The filing does not provide revenue, profit, cash flow, or debt metrics for the period.
| Entity | After-Tax Impairment Charge (in millions) |
|---|---|
| Exelon Corporation (Consolidated) | $36 |
| Commonwealth Edison (ComEd) | $3 |
| Baltimore Gas and Electric (BGE) | $5 |
| Pepco Holdings (PHI) (Includes Pepco, DPL, ACE) | $28 |
| Potomac Electric Power (Pepco) | $14 |
| Delmarva Power & Light (DPL) | $7 |
| Atlantic City Electric (ACE) | $7 |
Material Changes and Contingencies
The primary material change is the recognition of the impairment charges detailed above. While the portion of assets related to prospective amortization remains recorded on balance sheets, there is a risk of additional impairment. If future recovery of prospective amounts is deemed improbable, additional after-tax charges could reach approximately $84 million for Exelon, $39 million for ComEd, $21 million for BGE, and $24 million for PHI (comprising $10 million for Pepco, $10 million for DPL, and $4 million for ACE).
Management Commentary and Outlook
Management of each subsidiary intends to pursue full recovery of the existing transmission-related income tax regulatory assets through clarification, rehearing, or appeal with FERC. If successful, the regulatory assets will be reestablished with corresponding decreases to income tax expense. The filing includes standard forward-looking statement disclaimers referencing risks detailed in the 2016 Form 10-K and Q3 2017 Form 10-Q.
Investor Verification Checklist
- Verify the status of BGE's request for clarification and rehearing filed with FERC on December 18, 2017.
- Monitor FERC rulings on similar transmission-related income tax regulatory asset recovery requests from ComEd, Pepco, DPL, and ACE.
- Assess the probability of recovering the "prospective amortization" amounts to determine if the potential additional impairment charges (up to $84 million consolidated) will materialize.
- Review the impact of the $36 million after-tax charge on Exelon's full-year 2017 earnings when the 10-K is filed.