ComEd 2013 Annual Report Download - page 46

Exelon’s boardofdirectorsdeclaredthefirstquarter 2013 dividendof$0.525per share,andinresponsetolowforwardenergy
pricesandweaker financial expectations, amongother factors, approvedarevised dividendpolicy goingforward. Thefirstquarter
dividendwaspaid on March 8, 2013 to shareholdersofrecordon February19, 2013 andwasbasedon Exelon’s previous dividend
of$2.10 per share on an annualizedbasis. Thesecond, thirdandfourthquarter dividends were basedon Exelon’s new dividend
policy of$0.31 per share quarterly dividend($1.24per share on an annualizedbasis). All future quarterly dividends require approval
by Exelon’s boardofdirectors.
Exelon andGeneration evaluate theeconomic viabilityofeach oftheirgeneratingunitson an ongoingbasis. Decisionsregardingthe
future ofeconomicallychallengedgeneratingassetswill bebasedprimarilyon theeconomics ofcontinuedoperation oftheindividual
plants. If Exelon andGeneration do not see a pathto sustainable profitabilityinanyoftheir plants, Exelon andGeneration will take
stepsto retire those plantsto avoid sustainedlosses. Retirement ofplantscouldmateriallyaffectExelon’s andGeneration’s results
ofoperations, financial position,andcash flows through amongother things, potential impairment charges, accelerateddepreciation
anddecommissioningexpensesover the plantsremaininguseful lives, andongoingreductionsto operatingrevenues, operatingand
maintenanceexpenses, andcapital expenditures.
Hedging Strategy
Exelon’s policy to hedgecommodityrisk on a ratable basis over three-year periods is intendedto reducethefinancial impactof
market pricevolatility. Generation is exposedto commoditypricerisk associatedwiththeunhedgedportion ofitselectricityportfolio.
Generation entersinto non-derivativeandderivativecontracts, includingfinancially-settledswaps, futurescontractsandswap
options, andphysical optionsandphysical forwardcontracts, all withcredit-approvedcounterparties, to hedgethis anticipated
exposure.Generation hashedgesin placethat significantlymitigate this risk for 2014and2015. However,Generation is exposedto
relativelygreater commoditypricerisk inthesubsequent yearswithrespecttowhich a larger portion ofitselectricityportfoliois
currentlyunhedged. AsofDecember 31,2013,the percentageofexpectedgeneration hedgedfor themajor reportable segments
was92%-95%, 62%-65% and30%-33%for 2014, 2015, and2016, respectively. The percentageofexpectedgeneration hedgedis
theamount ofequivalent sales dividedbytheexpectedgeneration.Expectedgeneration representstheamount ofenergy estimated
to begeneratedor purchasedthrough ownedor contractedcapacity. Equivalent salesrepresent all hedgingproducts, which include
economic hedgesandcertain non-derivativecontractsincludingGeneration’s salesofenergy to ComEd, PECO and BGE relatingto
theirrespective retail loadobligations. Generation hasbeen andwill continue to be proactiveinusinghedgingstrategiesto mitigate
commoditypricerisk insubsequent yearsaswell.
Generation procurescoal,oilandnatural gasthrough long-termandshort-termcontractsandspot-market purchases. Nuclear fuel is
obtainedpredominantlythrough long-termuraniumconcentrate supplycontracts, contractedconversion services, contracted
enrichment servicesandcontractedfuel fabrication services. Thesupplymarketsfor uraniumconcentratesandcertainnuclear fuel
services, coal,oilandnatural gasare subjecttopricefluctuationsandavailabilityrestrictions. Supplymarket conditionsmaymake
Generation’s procurement contractssubjecttocreditrisk relatedto the potential non-performanceofcounterpartiesto deliver the
contractedcommodityor serviceatthecontractedprices. Approximately60%ofGeneration’s uraniumconcentrate requirements
from2014through 2018are suppliedbythree producers. Intheevent ofnon-performanceby theseorother suppliers, Generation
believesthat replacement uraniumconcentratescan beobtained, although at pricesthat maybeunfavorable when comparedto the
pricesunder thecurrent supplyagreements. Non-performanceby thesecounterpartiescouldhaveamaterial adverseimpacton
Exelon’s andGeneration’s resultsofoperations, cash flows andfinancial position.ComEd, PECO and BGE mitigate such exposure
through regulatorymechanisms that allowthemto recover procurement costsfromretailcustomers.
Growth Opportunities
Exelon is currentlypursuinggrowthinboththeutilityandgeneration businessesfocusedprimarilyon smart meter andsmart grid
initiativesat theutilitiesandon renewablesdevelopment andthenuclear uprate programat Generation.Theutilitiesalso anticipate
making significant future investmentsininfrastructure modernization andimprovement initiatives. Management continuallyevaluates
growthopportunitiesalignedwithExelon’s existingbusinessesin electric andgas distribution,electric transmission,generation,
customer supplyofelectric andnatural gasproductsandservices, andnatural gasexploration andproduction activities, leveraging
Exelon’s expertiseinthose areas.
Transmission Development Project. Exelon andAEP Transmission HoldingCompany, LLC (AEP) are workingcollaborativelyto
develop an extra high-voltage transmission projectfromthewestern Ohioborder through Indiana to the northern portion ofIllinois.
Referredto asthe ReliabilityInterregional Transmission Extension (RITE) Line project,the projectis expectedto strengthen the
high-voltage transmission systemandimproveoverall systemreliability. RITELine Illinois, LLC (RITELine Illinois) andRITELine
40