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Intangible Assets (Exelon, Generation, ComEd and PECO)
9 Months Ended
Sep. 30, 2012
Intangible Assets [Abstract]  
Intangible Assets (Exelon, Generation, ComEd and PECO)

6.    Goodwill (Exelon and ComEd)

 

Goodwill

 

Under the authoritative guidance for the accounting for goodwill, ComEd is required to perform an assessment for possible impairment of its goodwill at least annually or more frequently if an event occurs, such as a significant negative regulatory outcome, that would more likely than not reduce the fair value of the ComEd reporting unit below its carrying amount. In May 2012, the ICC issued a final Order (Order) in ComEd's 2011 formula rate proceeding under the EIMA that reduced ComEd's annual revenue requirement being recovered in current rates by $168 million. Management concluded that the Order represents an event that required an interim goodwill impairment assessment and, as a result, ComEd tested its goodwill for impairment as of May 31, 2012.

 

The first step of the interim impairment assessment comparing the estimated fair value of ComEd to its carrying value, including goodwill, indicated no impairment of goodwill; therefore, the second step was not required. Consistent with the annual impairment test, the estimated fair value of ComEd was determined using a weighted combination of a discounted cash flow analysis and a market multiples analysis. The discounted cash flow analysis relies on a single scenario reflecting “base case” or management's best estimate of projected cash flows for ComEd's business. In performing the discounted cash flow analysis for the interim goodwill test, management assumed that ComEd would ultimately prevail in appealing certain aspects of the Order, specifically the return on ComEd's pension asset and the use of year-end rate base in determining ComEd's annual revenue requirement being recovered in current rates. The disallowances related to the pension asset return and year-end rate base are estimated to reduce ComEd's revenue requirement recovered in rates by approximately $75 - $130 million annually. The assessment also reflects several favorable changes in certain market assumptions since the annual impairment assessment in 2011, including the weighted average cost of capital and market multiples.

 

Based on the results of the interim goodwill test, the estimated fair value of ComEd would have needed to decrease by more than 10 percent for ComEd to fail the first step of the impairment test.

 

On October 3, 2012, the ICC issued its Rehearing Order in response to ComEd's expedited rehearing request. The Rehearing Order adopted ComEd's position on the return on its pension asset resulting in an increase in ComEd's annual revenue requirement. See Note 4 – Regulatory Matters for further detail.