Exelon 2015 Annual Report Download - page 95

Table of Contents
minimum funding test, then Generation would be required to take steps, such as providing financial guarantees through letters of credit or parent
company guarantees or making additional cash contributions to the NDTF to ensure sufficient funds are available.
As of December 31, 2015, all three of Generation’s plants at the highest risk of early retirement (Quad Cities, Clinton, and Ginna) pass the
NRC minimum funding test based on their current license lives. See Note 16—Asset Retirement Obligations for additional information on NRC
minimum funding requirements. However, in the event of an early retirement just before their next individual refueling outages, it is estimated that
Clinton and Ginna would no longer meet the NRC minimum funding requirements due to the earlier commencement of decommissioning activities
and a shorter time period over which the NDTF investments could appreciate in value. Quad Cities would also be at risk. However, the size of the
guarantees are ultimately dependent on the decommissioning approach adopted at each site (i.e., DECON, Delayed DECON and SAFSTOR), the
associated level of costs, and the decommissioning trust fund investment performance going forward. Considering the three alternative
decommissioning approaches available to Generation for each site, parental guarantees of up to $315 million, $260 million, and $65 million for
Clinton, Ginna, and Quad Cities, respectively, could be required in order for each site to access its NDTF for radiological decommissioning costs.
In addition, upon issuance of any required financial guarantees, while all three sites would be able to utilize their respective decommissioning
trust funds for radiological decommissioning costs, the NRC must approve an additional exemption in order for Generation to utilize the NDTF
funds to pay for non-radiological decommissioning costs (i.e. spent fuel management and site restoration costs). If a unit does not receive this
exemption, the costs would be borne by Generation. Accordingly, based on current projections, it is expected that some portion of the spent fuel
management and/or site restoration costs would need to be funded through supplemental cash from Generation. While the ultimate amounts may
vary greatly and could be reduced by alternate decommissioning scenarios and/or reimbursement of certain costs under DOE reimbursement
agreements or future litigation, across the three alternative decommissioning approaches available to Generation, for the next 10 years, Clinton
and Ginna could incur spent fuel management and site restoration costs of up to $165 million and $115 million, net of taxes, respectively. The
costs associated with Ginna would be shared by the plant co-owners at their respective ownership percentages. If Quad Cities fails the exemption
test, at its ownership percentage Generation could be required to pay for spent fuel management costs of up to $180 million, net of taxes, but
Quad Cities is better positioned to pass the test than the other two plants.
Power Markets
Price of Fuels. The use of new technologies to recover natural gas from shale deposits is increasing natural gas supply and reserves, which
places downward pressure on natural gas prices and, therefore, on wholesale and retail power prices, which results in a reduction in Exelon’s
revenues. Forward natural gas prices have declined significantly over the last several years; in part reflecting an increase in supply due to strong
natural gas production (due to shale gas development).
Capacity Market Changes in PJM. In the wake of the January 2014 Polar Vortex that blanketed much of the Eastern and Midwestern
United States, it became clear that while a major outage event was narrowly avoided, resources in PJM were not providing the level of reliability
expected by customers. As a result, on December 12, 2014, PJM filed at FERC a proposal to make significant changes to its current capacity
market construct, the Reliability Pricing Model (RPM). PJM’s proposed changes generally sought to improve resource performance and reliability
largely by limiting the excuses for non-performance and by increasing the penalties for performance failures. The proposal permits suppliers to
include in capacity market offers additional costs and risk so they can meet these higher performance requirements. While offers are expected to
put upward pressure on capacity clearing prices, operational improvements made as a result of PJM’s proposal are expected to improve
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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