ComEd 2015 Annual Report Download - page 330

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
 The Registrants are exposed to commodity price risk primarily relating to changes in the market price of electricity,
fossil fuels, and other commodities associated with price movements resulting from changes in supply and demand, fuel costs, market liquidity,
weather conditions, governmental regulatory and environmental policies, and other factors. Within Exelon, Generation has the most exposure to
commodity price risk. As such, Generation uses a variety of derivative and non-derivative instruments to manage the commodity price risk of its
electric generation facilities, including power and gas sales, fuel and energy purchases, natural gas transportation and pipeline capacity
agreements and other energy-related products marketed and purchased. In order to manage these risks, Generation may enter into fixed-price
derivative or non-derivative contracts to hedge the variability in future cash flows from forecasted sales of energy and gas and purchases of fuel
and energy. The objectives for entering into such hedges include fixing the price for a portion of anticipated future electricity sales at a level that
provides an acceptable return on electric generation operations, fixing the price of a portion of anticipated fuel purchases for the operation of power
plants, and fixingthe price for a portion of anticipated energy purchases to supply load-serving customers. The portion of forecasted transactions
hedged may vary based upon management’s policies and hedging objectives, the market, weather conditions, operational and other factors.
Generation is also exposed to differences between the locational settlement prices of certain economic hedges and the hedged generating units.
This price difference is actively managed through other instruments which include derivative congestion products, whose changes in fair value are
recognized in earnings each period, and auction revenue rights, which are accounted for on an accrual basis.
In general, increases and decreases in forward market prices have a positive and negative impact, respectively, on Generation’s owned and
contracted generation positions that have not been hedged. Generation hedges commodity price risk on a ratable basis over three-year periods. As
of December 31, 2015, the proportion of expected generation hedged for the major reportable segments was 90%-93%, 60%-63% and 28%-31%
for 2016, 2017, and 2018, respectively. The percentage of expected generation hedged is the amount of equivalent sales divided by the expected
generation. Expected generation is the volume of energy that best represents our commodity position in energy markets from owned or contracted
for capacity based upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market
quotes for power, fuel, load following products, and options. Equivalent sales represent all hedging products, which include economic hedges and
certain non-derivative contracts, including Generation’s sales to ComEd, PECO and BGE to serve their retail load.
On December 17, 2010, ComEd entered into several 20-year floating-to-fixed energy swap contracts with unaffiliated suppliers for the
procurement of long-term renewable energy and associated RECs. Delivery under the contracts began in June 2012. Pursuant to the ICC’s Order
on December 19, 2012, ComEd’s commitments under the existing long-term contracts for energy and associated RECs were reduced for the June
2013 through May 2014 procurement period. In addition, the ICC’s December 18, 2013 Order approved the reduction of ComEd’s commitments
under those contracts for the June 2014 through May 2015 procurement period, and the amount of the reductions was approved in March 2014.
These contracts are designed to lock in a portion of the long-term commodity price risk resulting from the renewable energy resource procurement
requirements in the Illinois Settlement Legislation. ComEd has not elected hedge accounting for these derivative financial instruments. ComEd
records the fair value of the swap contracts on its balance sheet. Because ComEd receives full cost recovery for energy procurement and related
costs from retail customers, the change in fair value each period is recorded by ComEd as a regulatory asset or liability. See Note 3—Regulatory
Matters for additional information.
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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