Exelon 2015 Annual Report Download - page 332

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
proprietary trading activities, which included settled physical sales volumes of 7,310 GWh, 10,571 GWh and 8,762 GWh for the years ended
December 31, 2015, 2014 and 2013, 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 (Exelon, Generation, ComEd, PECO and BGE)
The Registrants use a combination of fixed-rate and variable-rate debt to manage interest rate exposure. The Registrants 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, 2015, Exelon had $800 million of notional amounts of
fixed-to-floating hedges outstanding and Exelon and Generation had $738 million of notional amounts of floating-to-fixed hedges outstanding.
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 approximately $6 million decrease in
Exelon Consolidated pre-tax income for the year ended December 31, 2015. 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 hedge balances as of December 31, 2015:
Generation Other Exelon
Description
Derivatives
Designated
as Hedging
Instruments
Economic
Hedges
Proprietary
Trading
Collateral
and
Netting Subtotal
Derivatives
Designated
as Hedging
Instruments
Economic
Hedges
Collateral
and
Netting Subtotal Total
Mark-to-market derivative
assets (current assets) $ — $ 10 $ 10 $ (5) $ 15 $ — $ — $ — $ — $ 15
Mark-to-market derivative
assets (noncurrent assets) — 10 5 (1) 14 25 — — 25 39
Total mark-to-market derivative
assets — 20 15 (6) 29 25 — — 25 54
Mark-to-market derivative
liabilities (current liabilities) (8) (2) (9) 11 (8) — — — — (8)
Mark-to-market derivative
liabilities (noncurrent
liabilities) (8) (1) (3) 4 (8) — — — — (8)
Total mark-to-market derivative
liabilities (16) (3) (12) 15 (16) — — — — (16)
Total mark-to-market derivative
net assets (liabilities) $ (16) $ 17 $ 3 $ 9 $ 13 $ 25 $ — $ — $ 25 $ 38
(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) Exelon and Generation net all available amounts allowed under the derivative accounting guidance on the balance sheet. These amounts include unrealized derivative
transactions with the same counterparty under legally enforceable master netting agreements and cash collateral. In some cases Exelon and Generation may have other
offsetting exposures subject to a master netting or similar agreement, such as accrued interest, transactions that do not qualify as derivatives, letters of credit and other forms of
non-cash collateral. These are not reflected in the table above.
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(a) (b) (b)
Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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