ComEd 2013 Annual Report Download - page 45

Exelon andothersfiledacomplaint infederal districtcourt challengingtheconstitutionalityandother aspectsoftheNewJersey
legislation. Similarly, Exelon andothersare alsochallengingtheselection ofthethree generation developersinNewJerseystate
court proceedings andtheMDPSC actionsinMarylandstate court.OnOctober 25, 2013,theU.S. DistrictCourt inNewJersey
issuedajudgment order findingthat theNewJerseylegislation violatestheSupremacy ClauseoftheUnitedStatesConstitution and
theNewJersey SOCAcontractis unenforceable. Similarly, on October 24, 2013,theU.S. DistrictCourt inMaryland issueda
judgment order findingthat theMDPSC’s Order directing BGE andtwoother Marylandelectric distribution companiesto enter into a
CfD violatestheSupremacy ClauseoftheUnitedStatesConstitution,asdescribedinNote 3—RegulatoryMattersoftheCombined
Notesto ConsolidatedFinancial Statements. Inaddition,on October 1,2013,aMarylandState CircuitCourt upheldtheMDPSC
OrdersasbeingwithintheMDPSC’s statutoryauthorityunder Marylandstate law. This decision is separate fromthejudgment inthe
federal litigation that theMDPSC Order is unconstitutional andtheCfD unenforceable under federal law. Thefederal judgment,if
upheld, wouldprevent enforcement oftheCfD even if theCircuitCourt decision stands. The non-prevailingpartieshavesought
appealsinfederal appellate court inboththeNewJerseyandMarylandfederal litigation.Finally, on October 23,2013,theNew
Jerseystate court dismissedtheNewJerseystate proceedingwithout prejudice,subjecttothefinal outcomeoftheNewJersey
federal litigation.
Asrequiredunder theircontracts, twooftheNewJerseygenerator developersandone inMarylandofferedandclearedinPJM’s
capacitymarket auctionsheldinMay2012 and2013.Inaddition, CPV hasannounceditsintention to moveforwardwith
construction ofitsNewJerseyplant,withor without thechallengedstate subsidy. Nonetheless to theextent that thestate-required
customer subsidiesare includedunder theirrespectivecontracts, Exelon believesthat these projectsmayhave artificially
suppressedcapacitypricesinPJM intheseauctionsandmaycontinue to dosoinfuture auctionsto thedetriment ofExelon’s
market driven position. While theU.S. DistrictCourt decisionsinMarylandandNewJerseyare positivedevelopments, continuation
ofthesestate efforts, if successful andunabatedbyan effectiveminimumoffer price rule (MOPR), couldcontinue to result in
artificiallydepressedwholesale capacityand/or energy prices. Other statescouldseekto establish programs, which could
substantiallyimpactExelon’s market driven position andcouldhaveasignificant effectonExelon’s financial resultsofoperations,
financial position andcash flows.
PJM’s capacitymarket rulesincludeaMOPR, which is intendedto precludesellersfromartificiallysuppressingthecompetitiveprice
signalsfor generation capacity. However,asdescribedabove,Exelon doesnot believethat theexisting MOPRwill workeffectively
withrespecttogenerator developerswhohaveastate-sponsoredsubsidy andhasconcernswithcertainother aspectsof PJM’s
rulesrelatedto thecapacityauction.Accordingly, Exelon is workingwithother market stakeholderson several proposedchangesto
thePJM tariff aimedat ensuringthat capacityresources(includingthosewithstate-sponsoredsubsidy contracts, excessiveimported
capacityresourcesandcertainlimitedavailabilitydemandresponseresources) cannot inappropriatelyaffectcapacityauction prices
inPJM.
See Note 3—RegulatoryMattersoftheCombinedNotesto ConsolidatedFinancial Statementsfor additional information on the
MarylandOrder.
Exelon remainsactiveinadvocatingfor competitivemarkets, opposingpoliciesthat ask either taxpayersor consumersto subsidize
or give preferential treatment to specific generation providersor technologies, or that wouldthreaten the reliabilityandvalue ofthe
integratedelectricitygrid.
Energy Demand. Thecontinuedtepid economic environment andgrowingenergy efficiency initiativeshavelimitedthedemandfor
electricityacross each oftheExelon utilitycompanies. ComEd is projectingloadvolumesto decreaseby 0.2%in 2014comparedto
2013, while PECO and BGE are projectingan increaseof0.3%and0.6%, respectively, in 2014comparedto 2013.
Retail Competition. Generation’s retail operationscompete for customersinacompetitiveenvironment, which affectthemargins
that Generation can earn andthevolumesthat itis able to serve.Recently, sustainedlowforwardnatural gasandpower pricesand
lowmarket volatilityhavecausedretailcompetitorsto aggressivelypursue market share,andwholesale generators(including
Generation)to usetheir retail operationsto hedgegeneration output.Thesefactorshaveadverselyaffectedoverall gross margins
andprofitabilityinGeneration’s retail operations.
Strategic Policy Alignment
Exelon routinelyreviews itshedgingpolicy, dividendpolicy, operatingandcapital costs, capital spendingplans, strengthofits
balancesheet andcreditmetrics, andsufficiency ofitsliquidityposition,byperformingvariousstress testswith differingvariables,
such ascommoditypricemovements, increasesinmargin-relatedtransactions, changesinhedgingpractices, andtheimpactsof
hypothetical creditdowngrades.
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