Exelon 2015 Annual Report Download - page 47

Table of Contents
ComEd, PECO and BGE conduct their respective businesses and operate under governance models and other arrangements and
procedures intended to assure that ComEd, PECO and BGE are treated as separate, independent companies, distinct from Exelon and other
Exelon subsidiaries in order to isolate ComEd, PECO and BGE from Exelon and other Exelon subsidiaries in the event of financial difficulty at
Exelon or another Exelon subsidiary. These measures (commonly referred to as “ring-fencing”) may help avoid or limit a downgrade in the credit
ratings of ComEd, PECO and BGE in the event of a reduction in the credit rating of Exelon. Despite these ring-fencing measures, the credit ratings
of ComEd, PECO or BGE could remain linked, to some degree, to the credit ratings of Exelon. Consequently, a reduction in the credit rating of
Exelon could result in a reduction of the credit rating of ComEd, PECO or BGE, or all three. A reduction in the credit rating of ComEd, PECO or
BGE could have a material adverse effect on ComEd, PECO or BGE, respectively.
See Liquidity and Capital Resources—Recent Market Conditions and Security Ratings for further information regarding the potential impacts
of credit downgrades on the Registrants’ cash flows.
Generation’s financial performance could be negatively affected by price volatility, availability and other risk factors associated with the
procurement of nuclear and fossil fuel. (Exelon and Generation)
Generation depends on nuclear fuel and fossil fuels to operate its generating facilities. Nuclear fuel is obtained predominantly through long-
term uranium supply contracts, contracted conversion services, contracted enrichment services, or a combination thereof, and contracted fuel
fabrication services. Natural gas and oil are procured for generating plants through annual, short-term and spot-market purchases. The supply
markets for nuclear fuel, natural gas and oil are subject to price fluctuations, availability restrictions and counterparty default that could negatively
affect the results of operations or cash flows for Generation.
Generation’s risk management policies cannot fully eliminate the risk associated with its commodity trading activities. (Exelon and
Generation)
Generation’s asset-based power position as well as its power marketing, fuel procurement and other commodity trading activities expose
Generation to risks of commodity price movements. Generation attempts to manage this exposure through enforcement of established risk limits
and risk management procedures. These risk limits and risk management procedures may not work as planned and cannot eliminate all risks
associated with these activities. Even when its policies and procedures are followed, and decisions are made based on projections and estimates
of future performance, results of operations could be diminished if the judgments and assumptions underlying those decisions prove to be
incorrect. Factors, such as future prices and demand for power and other energy-related commodities, become more difficult to predict and the
calculations become less reliable the further into the future estimates are made. As a result, Generation cannot predict the impact that its
commodity trading activities and risk management decisions could have on its business, operating results, cash flows or financial positions.
Generation buys and sells energy and other products and enters into financial contracts to manage risk and hedge various positions in
Generation’s power generation portfolio. The proportion of hedged positions in its power generation portfolio could expose Generation to volatility in
future results of operations.
Financial performance and load requirements could be adversely affected if Generation is unable to effectively manage its power
portfolio. (Exelon and Generation)
A significant portion of Generation’s power portfolio is used to provide power under procurement contracts with ComEd, PECO, BGE and
other customers. To the extent portions of the power portfolio
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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