ComEd 2006 Annual Report Download - page 237

Exelon Corporation and Subsidiary Companies
Exelon Generation Company, LLC and Subsidiary Companies
Commonwealth Edison Company and Subsidiary Companies
PECO Energy Company and Subsidiary Companies
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
For the Year Ended December 31, 2005 Generation Other (a) Exelon
Unrealized mark-to-market gains ................................. $86 $ 24 $110
Realized mark-to-market losses .................................. (98) — (98)
Total net mark-to-market gains (losses) ............................ $(12) $ 24 $ 12
(a) Other includes corporate operations, shared services entities, including BSC, Enterprises and investments in synthetic fuel-
producing facilities.
For the Year Ended December 31, 2004
Exelon and
Generation
Unrealized mark-to-market gains ................................................ $181
Realized mark-to-market losses ................................................. (183)
Total net mark-to-market losses ................................................. $ (2)
Proprietary Trading Activities (Generation). Proprietary trading includes all contracts entered into
purely to profit from market price changes as opposed to hedging an exposure and is subject to limits
established by Exelon’s Risk Management Committee. These contracts are recognized on the
Consolidated Balance Sheets at fair value and changes in the fair value of these derivative financial
instruments are recognized in earnings. The proprietary trading activities, which included trading
volumes of 31,692 GWhs, 26,924 GWhs and 24,001 GWhs for 2006, 2005 and 2004, respectively, are
a complement to Generation’s energy marketing portfolio but represent a very small portion of
Generation’s overall energy marketing activities. For 2006, 2005 and 2004, Exelon and Generation
recognized the following net unrealized mark-to-market gains, realized mark-to-market (losses) and
total mark-to-market gains (before income taxes) relating to mark-to-market activity on derivative
instruments entered into for trading purposes. Gains and losses associated with financial trading are
reported as revenue in Exelon’s and Generation’s Consolidated Statements of Operations.
For the Year Ended December 31,
2006 2005 2004
Unrealized mark-to-market gains ................................ $14 $18 $ 3
Realized mark-to-market losses ................................. (10) (3) (3)
Total net mark-to-market gains .................................. $ 4 $15 $—
Credit Risk Associated with Derivative Instruments. The Registrants would be exposed to credit-
related losses in the event of non-performance by counterparties that enter into derivative instruments.
The credit exposure of derivatives contracts is represented by the fair value of contracts at the
reporting date. For energy-related derivative instruments, Generation attempts to enter into enabling
agreements that allow for payment netting with its counterparties, which reduces Generation’s
exposure to counterparty risk by providing for the offset of amounts payable to the counterparty against
amounts receivable from the counterparty. Typically, each enabling agreement is for a specific
commodity and so, with respect to each individual counterparty, netting is limited to transactions
involving that specific commodity product, except where master netting agreements exist with a
counterparty that allows for cross product netting. In addition to payment netting language in the
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