Exelon 2014 Annual Report Download - page 206

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
for the years ended December 31, 2014, 2013 and 2012, are a complement to Generation’s energy marketing portfolio but represent
a small portion of Generation’s revenue from energy marketing activities. ComEd, PECO and BGE do not enter into derivatives for
proprietary trading purposes.
Interest Rate and Foreign Exchange Risk
The Registrants use a combination of fixed-rate and variable-rate debt to manage interest rate exposure. The Registrants may also
utilize fixed-to-floating interest rate swaps, which are typically designated as fair value hedges, as a means to manage their interest
rate exposure. In addition, the Registrants may utilize interest rate derivatives to lock in rate levels in anticipation of future financings,
which are typically designated as cash flow hedges. These strategies are employed to manage interest rate risks. At December 31,
2014, Exelon and Generation had $1,450 million and $550 million of notional amounts of fixed-to-floating hedges outstanding,
respectively, and $3,070 million and $770 million of notional amounts of floating-to-fixed hedges outstanding, respectively. Assuming
the fair value and cash flow interest rate hedges are 100% effective, a hypothetical 50 bps increase in the interest rates associated
with unhedged variable-rate debt (excluding Commercial Paper) and fixed-to-floating swaps would result in an approximate $8
million decrease in Exelon Consolidated pre-tax income for the year ended December 31, 2014. To manage foreign exchange rate
exposure associated with international energy purchases in currencies other than U.S. dollars, Generation utilizes foreign currency
derivatives, which are typically designated as economic hedges. Below is a summary of the interest rate and foreign exchange
hedges as of December 31, 2014:
Generation Other Exelon
Description
Derivatives
Designated as
Hedging
Instruments
Economic
Hedges
Proprietary
Trading (a)
Collateral
and Netting (b) Subtotal
Derivatives
Designated as
Hedging
Instruments
Economic
Hedges
Collateral
and
Netting (b) Subtotal Total
Mark-to-market derivative assets
(current assets) .............. $ 7 $ 7 $20 $(22) $12 $ 3 $ — $— $ 3 $ 15
Mark-to-market derivative assets
(noncurrent assets) ........... 1 5 7 (7) 6 20 1 (19) 2 8
Total mark-to-market derivative
assets ...................... 8 12 27 (29) 18 23 1 (19) 5 23
Mark-to-market derivative liabilities
(current liabilities) ............ (8) (2) (14) 25 1 — — — — 1
Mark-to-market derivative liabilities
(noncurrent liabilities) ......... (4) — (9) 10 (3) (29) (101) 19 (111) (114)
Total mark-to-market derivative
liabilities .................... (12) (2) (23) 35 (2) (29) (101) 19 (111) (113)
Total mark-to-market derivative net
assets (liabilities) ............. $ (4) $ 10 $ 4 $ 6 $16 $ (6) $(100) $— $(106) $ (90)
(a) Generation enters into interest rate derivative contracts to economically hedge risk associated with the interest rate component of commodity positions. The
characterization of the interest rate derivative contracts between the proprietary trading activity in the above table is driven by the corresponding characterization of
the underlying commodity position that gives rise to the interest rate exposure. Generation does not utilize proprietary trading interest rate derivatives with the
objective of benefiting from shifts or changes in market interest rates.
(b) Represents the netting of fair value balances with the same counterparty and any associated cash collateral.
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