Exelon 2014 Annual Report Download - page 121

BGE’s regulated gas business is exposed to market-price risk. This market-price risk is mitigated by BGE’s recovery of its costs to
procure natural gas through a gas cost adjustment clause approved by the MDPSC. BGE does make off-system sales after BGE has
satisfied its customers’ demands, which are not covered by the gas cost adjustment clause. At December 31, 2014, BGE had credit
exposure of $8 million related to off-system sales which is mitigated by parental guarantees, letters of credit, or right to offset clauses
within other contracts with those third-party suppliers.
Collateral
Generation
As part of the normal course of business, Generation routinely enters into physical or financial contracts for the sale and purchase of
electricity, fossil fuel and other commodities. These contracts either contain express provisions or otherwise permit Generation and
its counterparties to demand adequate assurance of future performance when there are reasonable grounds for doing so. In
accordance with the contracts and applicable law, if Generation is downgraded by a credit rating agency, especially if such
downgrade is to a level below investment grade, it is possible that a counterparty would attempt to rely on such a downgrade as a
basis for making a demand for adequate assurance of future performance. Depending on Generation’s net position with a
counterparty, the demand could be for the posting of collateral. In the absence of expressly agreed-to provisions that specify the
collateral that must be provided, collateral requested will be a function of the facts and circumstances of the situation at the time of
the demand. In this case, Generation believes an amount of several months of future payments (i.e. capacity payments) rather than
a calculation of fair value is the best estimate for the contingent collateral obligation, which has been factored into the disclosure
below. See Note 12—Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for information
regarding collateral requirements.
Generation transacts output through bilateral contracts. The bilateral contracts are subject to credit risk, which relates to the ability of
counterparties to meet their contractual payment obligations. Any failure to collect these payments from counterparties could have a
material impact on Exelon’s and Generation’s results of operations, cash flows and financial position. As market prices rise above or
fall below contracted price levels, Generation or its counterparties may be required to post collateral with one another. In order to
post collateral, Generation depends on access to bank credit facilities which serve as liquidity sources to fund collateral
requirements. See Note 13—Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements for
additional information.
As of December 31, 2014, Generation had cash collateral of $1,497 million posted and cash collateral held of $77 million for
counterparties with derivative positions, of which $1,406 million and $6 million in net cash collateral deposits were offset against
energy mark-to-market and interest rate and foreign exchange derivative assets and liabilities related to underlying energy contracts,
respectively. As of December 31, 2014, $8 million of cash collateral posted was not offset against net derivative positions because it
was not associated with energy-related derivatives or as of the balance sheet date there were no positions to offset. As of
December 31, 2013, Generation had cash collateral posted of $72 million and cash collateral held of $206 million for counterparties
with derivative positions, of which $144 million in net cash collateral deposits were offset against mark-to-market assets and
liabilities. As of December 31, 2013, $10 million of cash collateral posted was not offset against net mark-to-market assets and
liabilities because it was not associated with energy-related derivatives or at the balance sheet date there were no positions to offset.
See Note 22—Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements for information
regarding the letters of credit supporting the cash collateral.
ComEd
As of December 31, 2014, ComEd held approximately $2 million of collateral from suppliers in association with energy procurement
contracts and held approximately $19 million in the form of cash for both annual and long-term renewable energy contracts. See
Note 3—Regulatory Matters and Note 12—Derivative Financial Instruments of the Combined Notes to Consolidated Financial
Statements for additional information.
PECO
As of December 31, 2014, PECO was not required to post collateral under its energy and natural gas procurement contracts. See
Note 12—Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.
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