ComEd 2013 Annual Report Download - page 155

acquiringgeneratingassets, makingsubsidy or compliancepayments, or incircumstancesinwhich thegeneration buildisdelayed,
makingliquidateddamagespayments. Exelon andGeneration expectthat themajorityofthesecommitmentswill besatisfiedby
buildingor acquiringgeneratingassetsand, therefore,will beprimarilycapital in nature andrecognizedasincurred. If inthefuture
Exelon determinesthat itis probable that itwill makesubsidy, complianceorliquidateddamagespaymentsrelatedto thenew
generation development commitments, Exelon will recordaliabilityat that time.AsofDecember 31,2013,itis reasonablypossible
that Exelon will berequiredto makesubsidy or liquidateddamagespaymentsofapproximately$40million rather than buildone of
thegeneration projectscontemplatedbythecommitments, given that thegeneration buildisdependent upon thepassageof
legislation andother conditionsthat Exelon doesnot control.
OnJuly26, 2013,Generation executedan engineeringprocurement andconstruction contracttoexpanditsPerryman,Marylandsite
with120MW ofnewnatural gas-firedgeneration to satisfy certainofthesecommitmentsandachievement ofcommercial operation is
expectedin 2015. InDecember 2013,Generation acquiredtheFourmile RidgeProjectinwestern Marylandandexecutedawind
turbine supplyagreement for construction ofa32.5 MW project targetedfor commercial operation inNovember 2014. This project
will satisfy a portion ofthe125MWTier Iland-basedrenewablescommitment.See Note 22—CommitmentsandContingenciesfor
additional information.AsofDecember 31,2013,amountsreflectedintheExelon andGeneration consolidatedfinancial statements
include$24million ofcapital expendituresand$6million ofdevelopment costsincludedwithin operatingandmaintenanceexpense
associatedwithpursuitofthesecommitmentsfor newgeneration intheState ofMaryland.
Associatedwithcertainoftheregulatoryapprovalsrequiredfor themerger,on November 30,2012,asubsidiaryofGeneration sold
three Marylandgeneratingstationsandassociatedassets, Brandon ShoresandH.A.Wagner in Anne Arundel County, Maryland,
and C.P. Crane inBaltimore County, Maryland, to Raven Power Holdings LLC (Raven Power), asubsidiaryofRiverstone Holdings
LLC. Thesale agreement includedabasepricewithpurchasepriceadjustmentsbasedon fuel inventory, workingcapital,capital
expenditures, andtimingoftheclosing, resultingin net proceeds fromthesale ofapproximately$371million.Decisionsbycertain
market participantsto removethemselvesfromthebiddingprocess, combinedwiththedeadlinesandlimitationson the pool of
potential buyersimposedbythemerger approval orders, resultedin realizedsalesproceeds belowGeneration’s estimatedfairvalue
oftheMarylandgeneratingstations. Consequently, Exelon andGeneration recordeda pre-taxloss of$272million in 2012 to reflect
thedifferencebetween thesalespriceandthecarryingvalue ofthegeneratingstationsandassociatedassets. Inthefirstquarter of
2013,Exelon andGeneration recordeda pre-taxgainof$8million to reflectthefinal settlement ofthesalespricewithRaven Power.
Inconnection withthesale oftheMarylandgeneratingstations, Exelon agreedto indemnify Raven Power for certaincosts
associatedwiththe treatment ofhazardoussubstancesat off-site disposal facilitiesandanyclaims arisingasaresult of, or in
connection with, anytoxic tort,natural resourcedamages, loss oflifeorinjuryto personsdue to releasesof, or exposure to
hazardoussubstancesinconnection withRaven Power’s remediation ofenvironmental contamination or Exelon’s non-compliance
withenvironmental laws or permitsprior to theclosingdate ofthesale.
Pursuant to theMDPSC merger approval conditions, BGE is restrictedfrompayingany dividendon itscommon sharesthrough the
endof2014, wasrequiredto maintainspecifiedminimumcapital and O&M expenditure levelsin 2012 and2013,andisnot permitted
to reduceemployment levelsdue to involuntaryattrition associatedwiththemerger integration process for twoyearsfollowingthe
closingofthemerger.Additionally, BGE is subjecttoother merger approval conditionsto enhanceBGE’s ring-fencingmeasures
establishedbyorder oftheMDPSC.
Subsequent to themerger,Generation discoveredthat,for thefirsttwoweeks followingthemerger,due to a software error,
Generation inadvertently bid certaingeneratingunitsinto thePJM energy market at pricesthat slightlyexceededthecost-based
capsto which ithadagreed. This error wasaviolation ofthecommitmentsmadeinconnection withmerger approvals by DOJ,
FERCandtheMDPSC. Generation reportedthe error to theDOJ, FERCandtheMDPSC andcommittedto remedy theimpactsof
itserror.TheMDPSC heldahearingto reviewthe error,andacceptedGeneration’s proposedremediation.Subsequent close
examination by Generation ofitscost-based bids alsorevealedthe needfor someminor adjustmentsto thecostbuildup for certain
ofits PJM units. Generation hascoordinatedwith PJM to determine theimpactonGeneration’s revenuesandthemarket fromthis
error andtheseadjustments, andGeneration hasworkedwith PJM to reversethefinancial impacts. InNovember 2012,Generation
reachedasettlement withtheDOJ regardingthis matter.Thefinal resolution did not haveamaterial impactonExelon’s or
Generation’s resultsofoperations, cash flows or financial position.
Exelon wasnamedinsuitsfiledintheCircuitCourt ofBaltimore City, Marylandallegingthat individual directorsofConstellation
breachedtheirfiduciarydutiesbyenteringinto the proposedmerger transaction andExelon aidedandabettedtheindividual
directors’ breaches. Similar suitswere alsofiledintheUnitedStates DistrictCourt for theDistrictofMaryland. Thesuitssoughtto
enjoinaConstellation shareholder vote on the proposedmerger until all material information was disclosedandsoughtrescission of
149