ComEd 2015 Annual Report Download - page 185

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a transaction is executed, compared to the current forward price curve for energy. To the extent that the forward price curve for energy exceeds
the initial market price, the supplier is required to post collateral to the extent the credit exposure is greater than the supplier’s unsecured credit
limit. The seller’s credit exposure is calculated each business day. As of December 31, 2015, BGE had no net credit exposure with suppliers.
BGE’s regulated gas business is exposed to market-price risk. This market-price risk is mitigated by BGE’s recovery of its costs to procure
natural gas through a gas cost adjustment clause approved by the MDPSC. BGE does make off-system sales after BGE has satisfied its
customers’ demands, which are not covered by the gas cost adjustment clause. At December 31, 2015, BGE had credit exposure of $4 million
related to off-system sales which is mitigated by parental guarantees, letters of credit, or right to offset clauses within other contracts with those
third-party suppliers.
Collateral (Exelon, Generation, ComEd, PECO and BGE)
Generation
As part of the normal course of business, Generation routinely enters into physical or financial contracts for the sale and purchase of
electricity, natural gas and other commodities. These contracts either contain express provisions or otherwise permit Generation and its
counterparties to demand adequate assurance of future performance when there are reasonable grounds for doing so. In accordance with the
contracts and applicable law, if Generation is downgraded by a credit rating agency, especially if such downgrade is to a level below investment
grade, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of
future performance. Depending on Generation’s net position with a counterparty, the demand could be for the posting of collateral. In the absence
of expressly agreed-to provisions that specify the collateral that must be provided, collateral requested will be a function of the facts and
circumstances of the situation at the time of the demand. In this case, Generation believes an amount of several months of future payments (i.e.
capacity payments) rather than a calculation of fair value is the best estimate for the contingent collateral obligation, which has been factored into
the disclosure below. See Note 13—Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for information
regarding collateral requirements.
Generation transacts output through bilateral contracts. The bilateral contracts are subject to credit risk, which relates to the ability of
counterparties to meet their contractual payment obligations. Any failure to collect these payments from counterparties could have a material
impact on Exelon’s and Generation’s results of operations, cash flows and financial position. As market prices rise above or fall below contracted
price levels, Generation is required to post collateral with purchasers; as market prices fall below contracted price levels, counterparties are
required to post collateral with Generation. In order to post collateral, Generation depends on access to bank credit facilities, which serve as
liquidity sources to fund collateral requirements. See Note 14—Debt and Credit Agreements of the Combined Notes to Consolidated Financial
Statements for additional information.
As of December 31, 2015, Generation had cash collateral of $1,267 million posted and cash collateral held of $21 million for external
counterparties with derivative positions, of which $1,234 million and $9 million in net cash collateral deposits were offset against energy derivatives
and interest rate and foreign exchange derivatives related to underlying energy contracts, respectively. As of December 31, 2015, $3 million of
cash collateral deposits was not offset against net derivative positions because it was not associated with energy-related derivatives or as of the
balance sheet date there were no positions to offset. As of December 31, 2014, Generation had cash collateral posted of $1,497 million and cash
collateral held of $77 million for external counterparties with derivative positions, of which $1,406 million and $6 million in net cash collateral
deposits were offset against
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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