ComEd 2013 Annual Report Download - page 104

not segregatedproprietarytradingactivitywithinthefollowing discussion becauseofthe relativesizeofthe proprietarytrading
portfolioincomparison to Generation’s total gross marginfromcontinuingoperationsfor theyear endedDecember 31,2013 of
$7,433 million.
Fuel Procurement.Generation procurescoal andnatural gasthrough long-termandshort-termcontracts, andspot-market
purchases. Nuclear fuel assembliesare obtainedprimarilythrough long-termcontractsfor uraniumconcentrates, andlong-term
contractsfor conversion services, enrichment servicesandfuel fabrication services. Thesupplymarketsfor coal,natural gas,
uraniumconcentratesandcertainnuclear fuel servicesare subjecttopricefluctuationsandavailabilityrestrictions. Supplymarket
conditionsmaymakeGeneration’s procurement contractssubjecttocreditrisk relatedto the potential non-performanceof
counterpartiesto deliver thecontractedcommodityor serviceatthecontractedprices. Approximately60%ofGeneration’s uranium
concentrate requirementsfrom2014through 2018are suppliedbythree producers. Intheevent ofnon-performanceby theseor
other suppliers, Generation believesthat replacement uraniumconcentratescan beobtained, although at pricesthat maybe
unfavorable when comparedto thepricesunder thecurrent supplyagreements. Non-performanceby thesecounterpartiescould
haveamaterial impactonExelon’s andGeneration’s resultsofoperations, cash flows andfinancial positions. See Note 22 ofthe
CombinedNotesto ConsolidatedFinancial Statementsfor additional information regardinguraniumandcoal supplyagreement
matters.
ComEd
Thefinancial swap contractbetween Generation andComEd wasdeemedprudent by theIllinois Settlement Legislation,thereby
ensuringthat ComEd wouldbe entitledto receivefull costrecoveryin rates. Thechangeinfairvalue each periodwasrecordedby
ComEd withan offset to a regulatoryasset or liability. This financial swap contractbetween Generation andComEd expiredon
May31,2013.All realizedimpactshavebeen includedinGeneration’s andComEd’s resultsofoperations.
ComEd enteredinto 20-year contractsfor renewable energy andRECs beginninginJune 2012.ComEd is permittedto recover its
renewable energy andREC costsfromretailcustomerswithno mark-up.The annual commitmentsrepresent themaximum
settlementswithsuppliersfor renewable energy andRECs under theexistingcontract terms. Pursuant to theICC’s Order on
December 19, 2012,ComEd’s commitmentsunder theexistinglong-termcontractswere reducedfor theJune 2013 through May
2014procurement period. TheICC’s December 18, 2013 order approvedthereduction ofComEd’s commitmentsunder the long-
termcontractsfor theJune 2014through May2015procurement period, however theamount ofthereduction will not befinalized
andapprovedbytheICC untilMarch 2014. See Notes3and12 oftheCombinedNotesto ConsolidatedFinancial Statementsfor
additional information regardingenergy procurement andderivatives.
PECO
PECO hascontractsto procure electric supplythat were executedthrough thecompetitive procurement process outlinedinits
PAPUC-approved DSP Programs, which are further discussedinNote 3 oftheCombinedNotesto theConsolidatedFinancial
Statements. PECO’s full requirementscontractsandblock contracts, which are consideredderivatives, qualify for the normal
purchasesandnormal salesscope exception under current derivative authoritativeguidanceandasaresult,are accountedfor on
an accrual basis ofaccounting. Under theDSP Programs, PECO is permittedto recover itselectric supplyprocurement costsfrom
retailcustomerswithno mark-up.
PECO hasalso enteredinto derivative natural gascontracts, which either qualify for the normal purchasesandnormal sales
exception or havenomark-to-market balancesbecausethederivativesare indexpriced, to hedgeitslong-termpricerisk inthe
natural gasmarket. PECO’s hedgingprogramfor natural gasprocurement hasno directimpactonitsfinancial position or resultsof
operationsasnatural gascostsare fullyrecoveredfromcustomersunder thePGC.
PECO doesnot enter into derivativesfor speculative or proprietarytradingpurposes. For additional information on thesecontracts,
see Note 12 oftheCombinedNotesto ConsolidatedFinancial Statements.
BGE
BGE procureselectric supplyfor default servicecustomersthrough full requirementsc
ontractspursuant to BGE’s MDPSC-approved
SOS program. BGE’s full requirementscontractsthat are consideredderivativesqualify for the normal purchasesandnormal sales
scope exception under current derivative authoritativeguidanceandasaresult,are accountedfor on an accrual basis ofaccounting.
Under theSOS program, BGE is permittedto recover itselectricityprocurement costsfromretailcustomers, plusan administrative
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