Exelon 2014 Annual Report Download - page 52

Strategic Policy Alignment
Exelon routinely reviews its hedging policy, dividend policy, operating and capital costs, capital spending plans, strength of its
balance sheet and credit metrics, and sufficiency of its liquidity position, by performing various stress tests with differing variables,
such as commodity price movements, increases in margin-related transactions, changes in hedging practices, and the impacts of
hypothetical credit downgrades.
Exelon’s board of directors declared the second quarter 2014 dividend of $0.31 per share on Exelon’s common stock. The second
quarter dividend was paid on June 10, 2014 to shareholders of record on May 16, 2014. All future quarterly dividends require
approval by Exelon’s board of directors.
Exelon’s board of directors declared the third quarter 2014 dividend of $0.31 per share on Exelon’s common stock. The third quarter
dividend was paid on September 10, 2014 to shareholders of record on August 15, 2014.
Exelon’s board of directors declared the fourth quarter 2014 dividend of $0.31 per share on Exelon’s common stock. The fourth
quarter dividend was paid on December 10, 2014 to shareholders of record on November 14, 2014.
Exelon’s board of directors declared the first quarter 2015 dividend of $0.31 per share on Exelon’s common stock. The first quarter
dividend will be paid on March 10, 2015, to shareholders of record on February 13, 2015.
Exelon and Generation evaluate the economic viability of each of their generating units on an ongoing basis. Decisions regarding the
future of economically challenged generating assets will be based primarily on the economics of continued operation of the individual
plants. If Exelon and Generation do not see a path to sustainable profitability in any of their plants, Exelon and Generation will take
steps to retire those plants to avoid sustained losses. Retirement of plants could materially affect Exelon’s and Generation’s results
of operations, financial position, and cash flows through, among other things, potential impairment charges, accelerated depreciation
and decommissioning expenses over the plants remaining useful lives, and ongoing reductions to operating revenues, operating and
maintenance expenses, and capital expenditures.
Hedging Strategy
Exelon’s policy to hedge commodity risk on a ratable basis over three-year periods is intended to reduce the financial impact of
market price volatility. Generation is exposed to commodity price risk associated with the unhedged portion of its electricity portfolio.
Generation enters into non-derivative and derivative contracts, including financially-settled swaps, futures contracts and swap
options, and physical options and physical forward contracts, all with credit-approved counterparties, to hedge this anticipated
exposure. Generation has hedges in place that significantly mitigate this risk for 2014 and 2015. This strategy has not changed as a
result of recent and pending asset divestitures. However, Generation is exposed to relatively greater commodity price risk in the
subsequent years with respect to which a larger portion of its electricity portfolio is currently unhedged. As of December 31, 2014,
the percentage of expected generation hedged for the major reportable segments was 93%-96%, 61%-64% and 31%-34% for 2015,
2016, and 2017 respectively. The percentage of expected generation hedged is the amount of equivalent sales divided by the
expected generation (which reflects the divestiture impact of Quail Run). Expected generation is the volume of energy that best
represents our commodity position in energy markets from owned or contracted for capacity based upon a simulated dispatch model
that makes assumptions regarding future market conditions, which are calibrated to market quotes for power, fuel, load following
products, and options. Equivalent sales represent all hedging products, such as wholesale and retail sales of power, options and
swaps. Generation has been and will continue to be proactive in using hedging strategies to mitigate commodity price risk in
subsequent years as well. See Note 4—Mergers, Acquisition and Dispositions for more detail regarding the divestitures.
Generation procures oil and natural gas through long-term and short-term contracts and spot-market purchases. Nuclear fuel is
obtained predominantly through long-term uranium concentrate supply contracts, contracted conversion services, contracted
enrichment services and contracted fuel fabrication services. The supply markets for uranium concentrates and certain nuclear fuel
services, coal, oil and natural gas are subject to price fluctuations and availability restrictions. Supply market conditions may make
Generation’s procurement contracts subject to credit risk related to the potential non-performance of counterparties to deliver the
contracted commodity or service at the contracted prices. Approximately 50% of Generation’s uranium concentrate requirements
from 2015 through 2019 are supplied by three producers. In the event of non-performance by these or other suppliers, Generation
believes that replacement uranium concentrates can be obtained, although at prices that may be unfavorable when compared to the
prices under the current supply agreements. Non-performance by these counterparties could have a material adverse impact on
Exelon’s and Generation’s results of operations, cash flows and financial position.
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