ComEd 2006 Annual Report Download - page 238

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)
enabling agreement, the credit department establishes credit limits and letter of credit requirements for
each counterparty, which are defined in the derivatives contracts. Counterparty credit limits are based
on an internal credit review that considers a variety of factors, including the results of a scoring model,
leverage, liquidity, profitability, credit ratings and risk management capabilities. To the extent that a
counterparty’s credit limit and letter of credit thresholds are exceeded, the counterparty is required to
post collateral with Generation as specified in each enabling agreement. Generation’s credit
department monitors current and forward credit exposure to counterparties and their affiliates, both on
an individual and an aggregate basis.
Under the Illinois auction rules and the supplier forward contracts that Generation entered into with
ComEd and Ameren, beginning in 2007, collateral postings will be one-sided from Generation only.
That is, if market prices fall below ComEd’s or Ameren’s contracted price levels, ComEd or Ameren are
not required to post collateral; however, if market prices rise above contracted price levels with ComEd
or Ameren, Generation may be required to post collateral.
The notional amount of derivatives does not represent amounts that are exchanged by the parties
and, thus, is not a measure of the Registrants’ exposure. The amounts exchanged are calculated on
the basis of the notional or contract amounts, as well as on the other terms of the derivatives, which
relate to interest rates and the volatility of these rates. Exelon’s and Generation’s credit exposure, net
of collateral, as of December 31, 2006 and 2005 were $791 million and $547 million, respectively.
Non-Derivative Financial Assets and Liabilities
Fair Value. As of December 31, 2006 and 2005, the Registrants’ carrying amounts of cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities are representative of
fair value because of the short-term nature of these instruments. Fair values for long-term debt and
preferred securities of subsidiaries are determined by an external valuation model which is based on
conventional discounted cash flow methodology and utilizes assumptions of current market pricing
curves.
Exelon
The carrying amounts and fair values of Exelon’s financial liabilities as of December 31, 2006 and
2005 were as follows:
2006 2005
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Long-term debt ......................................... $9,144 $9,122 $8,166 $8,231
Long-term debt to ComEd Transitional Funding Trust and PETT
(including amounts due within one year) ................... 3,051 3,149 3,963 4,132
Long-term debt to other financing trusts ..................... 545 517 545 539
Preferred securities of subsidiaries ......................... 87 73 87 70
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