Exelon 2014 Annual Report Download - page 163

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
Demand Response Resource Order. On May 23, 2014, the D.C. Circuit Court issued an opinion vacating the FERC Order No. 745
(“D.C. Circuit Decision”). Order No. 745 established uniform compensation levels for demand response resources that participate in
the day ahead and real-time wholesale energy markets. Under Order No. 745, buyers in ISO and RTO markets were required to pay
demand response resources the full Locational Marginal Price when the demand response replaced a generation resource and was
cost-effective.
In addition to invalidating the compensation structure established by Order No. 745, the D.C. Circuit Court, in broad language,
explained that demand response is part of the retail market and FERC is restricted from regulating retail markets. The full implication
of the D.C. Circuit Decision for both energy and capacity markets regulated by FERC is not yet known and will depend on how FERC
and the RTOs and ISOs implement the decision. FERC and several other parties sought rehearing of the D.C. Circuit Decision,
which was denied in September 2014. In addition, on September 22, 2014, FERC and another party sought to stay the issuance of
the D.C. Circuit Court’s mandate so that FERC may appeal the decision to the U.S. Supreme Court. The stay was granted with
respect to the FERC’s request only. In January 2015, the FERC sought to appeal the decision to the U.S. Supreme Court. Thus, the
stay will be extended at least until the U.S. Supreme Court determines whether to allow the appeal. In addition, contemporaneously
with the D.C. Circuit Court’s decision on May 23, 2014, First Energy filed a complaint at FERC asking FERC to direct PJM to remove
all PJM Tariff provisions that allow or require PJM to compensate demand response providers as a form of supply in the PJM
capacity market effective May 23, 2014. FirstEnergy also asked FERC to declare the results of PJM’s May 2014 Base Residual
Auction for the 2017/2018 Delivery Year, void and illegal to the extent that demand response resources cleared that auction. On
November 14, 2014, the New England Power Generators Association, Inc. (“NEPGA”) filed a similar complaint at FERC asking
FERC to disqualify demand response from the upcoming capacity auction in New England and to revise the New England tariff to
remove demand response from participation in the capacity market. FERC’s response to the FirstEnergy complaint and the NEPGA
complaint and its response to address the D.C. Circuit Court’s decision in all markets could preclude demand response resources
from receiving any future capacity market revenues and also subject such resources to refund obligations. In addition, there is
uncertainty as to how FERC might treat already settled capacity market auctions as well as future auctions, both for demand
response resources and generation resources. FERC could grant all or a portion of the relief requested by FirstEnergy and may
grant relief retroactively or only prospectively. FERC could also pursue alternative means for allowing demand response to
effectively participate in capacity markets it regulates. Due to these uncertainties, the Registrants are unable to predict the outcome
of these proceedings, and the final outcome is not expected for several months. Nonetheless, the final decision and its
implementation by FERC and the RTOs and ISOs, could be material to Exelon, Generation, ComEd, PECO and BGE’s results of
operations and cash flows.
Market-Based Rates. Generation, ComEd, PECO and BGE are public utilities for purposes of the Federal Power Act and are required
to obtain FERC’s acceptance of rate schedules for wholesale electricity sales. Currently, Generation, ComEd, PECO and BGE have
authority to execute wholesale electricity sales at market-based rates. As is customary with market-based rate schedules, FERC has
reserved the right to suspend market-based rate authority on a retroactive basis if it subsequently determines that Generation,
ComEd, PECO or BGE has violated the terms and conditions of its tariff or the Federal Power Act. FERC is also authorized to order
refunds in certain instances if it finds that the market-based rates are not just and reasonable under the Federal Power Act.
As required by FERC’s regulations, as promulgated in the Order No. 697 series, Generation, ComEd, PECO and BGE file market
power analyses using the prescribed market share screens to demonstrate that Generation, ComEd, PECO and BGE qualify for
market-based rates in the regions where they are selling energy, capacity, and ancillary services under market-based rate tariffs. On
June 29, 2012, Generation, ComEd, PECO and BGE filed their updated market power analysis for the Central Region which the
FERC accepted on November 13, 2012. On December 21, 2012, Generation, ComEd, PECO, and BGE filed their updated market
power analysis for the SPP region, which the FERC accepted on October 8, 2013. On December 30, 2013, Generation, ComEd,
PECO and BGE filed its updated analysis for the Northeast Region, based on 2012 historic test period data which the FERC
accepted on August 5, 2014. On December 23, 2014, Generation filed its updated market power analysis for the Southeast Region
and the FERC has not yet acted on the filing.
Reliability Pricing Model. PJM’s RPM Base Residual Auctions take place approximately 36 months ahead of the scheduled
delivery year. The most recent auction for the delivery year ending May 31, 2018 occurred in May 2014.
New England Capacity Market Results. Each year, ISO New England, Inc. (ISO-NE) files the results of its annual capacity auction
at the FERC which is required to include documentation regarding the competitiveness of the auction. Consistent with this
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