Exelon 2014 Annual Report Download - page 214

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
payment netting language in the enabling agreement, Generation’s credit department establishes credit limits, margining thresholds
and collateral requirements for each counterparty, which are defined in the derivative contracts. Counterparty credit limits are based
on an internal credit review process that considers a variety of factors, including the results of a scoring model, leverage, liquidity,
profitability, credit ratings by credit rating agencies, and risk management capabilities. To the extent that a counterparty’s margining
thresholds are exceeded, the counterparty is required to post collateral with Generation as specified in each enabling agreement.
Generation’s credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an
individual and an aggregate basis.
The following tables provide information on Generation’s credit exposure for all derivative instruments, NPNS, and applicable
payables and receivables, net of collateral and instruments that are subject to master netting agreements, as of December 31, 2014.
The tables further delineate that exposure by credit rating of the counterparties and provide guidance on the concentration of credit
risk to individual counterparties. The figures in the tables below exclude credit risk exposure from individual retail counterparties,
Nuclear fuel procurement contracts and exposure through RTOs, ISOs, NYMEX, ICE and Nodal commodity exchanges, further
discussed in QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Additionally, the figures in the tables
below exclude exposures with affiliates, including net receivables with ComEd, PECO and BGE of $43 million, $29 million and $40
million, respectively.
Rating as of December 31, 2014
Total
Exposure
Before Credit
Collateral
Credit
Collateral (a)
Net
Exposure
Number of
Counterparties
Greater than 10%
of Net Exposure
Net Exposure of
Counterparties
Greater than 10%
of Net Exposure
Investment grade .................................... $1,629 $ 62 $1,567 1 $452
Non-investment grade ................................ 49 19 30 — —
No external ratings
Internally rated—investment grade .................. 479 — 479 — —
Internally rated—non-investment grade .............. 60 4 56 — —
Total ............................................... $2,217 $ 85 $2,132 1 $452
Net Credit Exposure by Type of Counterparty December 31, 2014
Financial institutions ............................................................................ $ 295
Investor-owned utilities, marketers, power producers .................................................. 958
Energy cooperatives and municipalities ............................................................. 862
Other ......................................................................................... 17
Total ......................................................................................... $2,132
(a) As of December 31, 2014, credit collateral held from counterparties where Generation had credit exposure included $69 million of cash and $16 million of letters of
credit.
ComEd’s power procurement contracts provide suppliers with a certain amount of unsecured credit. The credit position is based on
forward market prices compared to the benchmark prices. The benchmark prices are the forward prices of energy projected through
the contract term and are set at the point of supplier bid submittals. If the forward market price of energy exceeds the benchmark
price, the suppliers are required to post collateral for the secured credit portion after adjusting for any unpaid deliveries and
unsecured credit allowed under the contract. The unsecured credit used by the suppliers represents ComEd’s net credit exposure.
As of December 31, 2014, ComEd’s net credit exposure to suppliers was immaterial.
ComEd is permitted to recover its costs of procuring energy through the Illinois Settlement Legislation. ComEd’s counterparty credit
risk is mitigated by its ability to recover realized energy costs through customer rates. See Note 3—Regulatory Matters for additional
information.
PECO’s supplier master agreements that govern the terms of its electric supply procurement contracts, which define a supplier’s
performance assurance requirements, allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The
amount of unsecured credit is determined based on the supplier’s lowest credit rating from the major credit rating agencies and the
supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day a
transaction is executed, compared to the current forward price curve for energy. To the extent that the forward price curve for energy
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