ComEd 2013 Annual Report Download - page 20

Thecycle ofproduction andutilization ofnuclear fuel includestheminingandmillingofuraniumore into uraniumconcentrates, the
conversion ofuraniumconcentratesto uraniumhexafluoride,the enrichment ofthe uraniumhexafluorideandthefabrication offuel
assemblies. Generation hasuraniumconcentrate inventoryandsupplycontractssufficient to meet all ofitsuraniumconcentrate
requirementsthrough 2016. Generation’s contractedconversion servicesare sufficient to meet all ofitsuraniumconversion
requirementsthrough 2020.All ofGeneration’s enrichment requirementshavebeen contractedthrough 2018. Contractsfor fuel
fabrication havebeen obtainedthrough 2018. Generation doesnot anticipate difficultyinobtainingthenecessaryuranium
concentratesor conversion,enrichment or fabrication servicesto meet thenuclear fuel requirementsofitsnuclear units.
Natural gasisprocuredthrough long-termandshort-termcontracts, aswell asspot-market purchases. Fuel oilinventoriesare
managedsothat inthewinter months sufficient volumesoffuel are available intheevent ofextremeweather conditionsandduring
theremainingmonths to takeadvantageoffavorable market pricing.
Generation usesfinancial instrumentsto mitigate pricerisk associatedwithcertaincommoditypriceexposures. Generation also
hedgesforwardpricer
isk, usingbothover-the-counter andexchange-tradedinstruments. See ITEM 1A.RISK FACTORSof
Exelon’s 2013 Form10-K, Management’s Discussion andAnalysis ofFinancial Condition andResultsofOperations, Critical
AccountingPoliciesandEstimatesandNote 12 oftheCombinedNotesto ConsolidatedFinancial Statementsfor additional
information regardingderivativefinancial instruments.
Power Marketing
Generation’s integratedbusiness operationsincludethephysical deliveryandmarketingofpower obtainedthrough itsgeneration
capacityandthrough long-term, intermediate-termandshort-termcontracts. Generation maintainsan effectivesupplystrategy
through ownershipofgeneration assetsandpower purchaseandleaseagreements. Generation hasalsocontractedfor access to
additional generation through bilateral long-termPPAs. PPAsare commitmentsrelatedto power generation ofspecific generation
plantsand/or are dispatchable in nature similar to asset ownershipdependingon thetype ofunderlyingasset.Generation secures
contractedgeneration aspart ofitsoverall strategic plan,withobjectivessuch asobtaininglow-cost energy supplysourcesto meet
itsphysical deliveryobligationsto bothwholesale andretailcustomersandassistingcustomersto meet renewable portfolio
standards. Generation maybuypower to meet the energy demandofitscustomers, includingComEd, PECO and BGE. Generation
sellselectricity, natural gas, andrelatedproductsandsolutionsto variouscustomers, including distribution utilities, municipalities,
cooperatives, andcommercial,industrial,governmental,andresidential customersincompetitivemarkets. Generation’s customer
facingoperationscombine a unifiedsalesforcewithacustomer-centric model that leveragestechnology to broaden the rangeof
productsandsolutionsoffered, which Generation believespromotesstronger customer relationships. This model focuseson
efficiency andcostreduction, which providesa platformthat is scalable andable to capitalize on opportunitiesfor future growth.
Generation’s purchasesm
aybefor more than the energy demandedbyGeneration’s customers. Generation then sellsthis open
position,alongwithcapacitynot usedto meet customer demand, inthewholesale electricitymarkets. Where necessary, Generation
also purchasestransmission servicetoensure that ithasreliable transmission capacityto physicallymoveitspower suppliesto
meet customer deliveryneeds inmarketswithout an organizedRTO. Generation alsoincorporatescontingenciesinto itsplanningfor
extremeweather conditions, includingpotentiallyreservingcapacityto meet summer loads at levelsrepresentativeofwarmer-than-
normal weather conditions. Generation activelymanagesthesephysical andcontractual assetsinorder to deriveincremental value.
Additionally, Generation is involvedinthedevelopment,exploration,andharvestingofoil,natural gasandnatural gasliquids
properties.
Price Supply Risk Management
Generation alsomanagesthepriceandsupplyrisks for energy andfuel associatedwithgeneration assetsandtherisks ofpower
marketingactivities. Generation implementsathree-year ratable salesplan to alignitshedgingstrategy withitsfinancial objectives.
Generation also entersinto transactionsthat are outsideofthis ratable salesplan.Generation is exposedto relativelygreater
commoditypricerisk in 2014andbeyondfor which a larger portion ofitselectricityportfoliomaybeunhedged. Generation hasbeen
andwill continue to be proactiveinusinghedgingstrategiesto mitigate this risk insubsequent years. AsofDecember 31,2013,the
percentageofexpectedgeneration hedgedfor themajor reportable segmentswas92%-95%, 62%-65% and30%-33%for 2014,
2015, and2016, respectively. The percentageofexpectedgeneration hedgedistheamount ofequivalent sales dividedbythe
expectedgeneration.Expectedgeneration representstheamount ofenergy estimatedto begeneratedor purchasedthrough owned
or contractedcapacity, includingpurchasedpower from CENG. Equivalent salesrepresent all hedgingproducts, which include
economic hedgesandcertain non-derivativecontracts, includingsalesto ComEd, PECO and BGE to servetheir retail load. A
portion ofGeneration’s hedgingstrategy maybeimplementedthrough theuseoffuel productsbasedon assumedcorrelations
between power andfuel prices, which routinelychangeinthemarket.Generation alsousesfinancial andcommoditycontractsfor
14