Exelon 2014 Annual Report Download - page 116

December 19, 2012, ComEd’s commitments under the existing long-term contracts were reduced for the June 2013 through May
2014 procurement period. In addition, the ICC’s December 18, 2013 Order approved the reduction of ComEd’s commitments under
those contracts for the June 2014 through May 2015 procurement period, and the amount of the reduction was approved by the ICC
in March 2014. See Note 3—Regulatory Matters and Note 12—Derivative Financial Instruments of the Combined Notes to
Consolidated Financial Statements for additional information regarding energy procurement and derivatives.
PECO
PECO has contracts to procure electric supply that were executed through the competitive procurement process outlined in its
PAPUC-approved DSP Programs, which are further discussed in Note 3—Regulatory Matters of the Combined Notes to the
Consolidated Financial Statements. PECO has certain full requirements contracts and block contracts, which are considered
derivatives and qualify for the normal purchases and normal sales scope exception under current derivative authoritative guidance,
and as a result are accounted for on an accrual basis of accounting. Under the DSP Programs, PECO is permitted to recover its
electric supply procurement costs from retail customers with no mark-up.
PECO has also entered into derivative natural gas contracts, which either qualify for the normal purchases and normal sales
exception or have no mark-to-market balances because the derivatives are index priced, to hedge its long-term price risk in the
natural gas market. PECO’s hedging program for natural gas procurement has no direct impact on its financial position or results of
operations as natural gas costs are fully recovered from customers under the PGC.
PECO does not enter into derivatives for speculative or proprietary trading purposes. For additional information on these contracts,
see Note 12—Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements.
BGE
BGE procures electric supply for default service customers through full requirements contracts pursuant to BGE’s MDPSC-approved
SOS program. BGE’s full requirements contracts that are considered derivatives qualify for the normal purchases and normal sales
scope exception under current derivative authoritative guidance and as a result, are accounted for on an accrual basis of accounting.
Under the SOS program, BGE is permitted to recover its electricity procurement costs from retail customers, plus an administrative
fee which includes a shareholder return component and an incremental cost component. However, through December 2016, BGE
provides all residential electric customers a credit for the residential shareholder return component of the administrative charge.
BGE has also entered into derivative natural gas contracts, which qualify for the normal purchases and normal sales scope
exception, to hedge its price risk in the natural gas market. The hedging program for natural gas procurement has no direct impact
on BGE’s financial position. However, under BGE’s market-based rates incentive mechanism, BGE’s actual cost of gas is compared
to a market index (a measure of the market price of gas in a given period). The difference between BGE’s actual cost and the market
index is shared equally between shareholders and customers.
BGE does not enter into derivatives for speculative or proprietary trading purposes. For additional information on these contracts,
see Note 12—Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements.
Trading and Non-Trading Marketing Activities
The following detailed presentation of Exelon’s, Generation’s, ComEd’s and PECO’s trading and non-trading marketing activities is
included to address the recommended disclosures by the energy industry’s Committee of Chief Risk Officers (CCRO).
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