ComEd 2015 Annual Report Download - page 331

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
PECO has contracts to procure electric supply that were executed through the competitive procurement process outlined in its PAPUC-
approved DSP Programs, which are further discussed in Note 3—Regulatory Matters. Based on Pennsylvania legislation and the DSP Programs
permitting PECO to recover its electric supply procurement costs from retail customers with no mark-up, PECO’s price risk related to electric
supply procurement is limited. PECO locked in fixed prices for a significant portion of its commodity price risk through full requirements contracts
and block contracts. PECO has certain full requirements contracts and block contracts that are considered derivatives and qualify for the NPNS
scope exception under current derivative authoritative guidance.
PECO’s natural gas procurement policy is designed to achieve a reasonable balance of long-term and short-term gas purchases under
different pricing approaches in order to achieve system supply reliability at the least cost. PECO’s reliability strategy is two-fold. First, PECO must
assure that there is sufficient transportation capacity to satisfy delivery requirements. Second, PECO must ensure that a firm source of supply
exists to utilize the capacity resources. All of PECO’s natural gas supply and asset management agreements that are derivatives either qualify for
the NPNS scope exception and have been designated as such, or have no mark-to-market balances because the derivatives are index priced.
Additionally, in accordance with the 2015 PAPUC PGC settlement and to reduce the exposure of PECO and its customers to natural gas price
volatility, PECO has continued its program to purchase natural gas for both winter and summer supplies using a layered approach of locking-in
prices ahead of each season with long-term gas purchase agreements (those with primary terms of at least twelve months). Under the terms of the
2015 PGC settlement, PECO is required to lock in (i.e., economically hedge) the price of a minimum volume of its long-term gas commodity
purchases. PECO’s gas-hedging program is designed to cover about 30% of planned natural gas purchases in support of projected firm sales. The
hedging program for natural gas procurement has no direct impact on PECO’s financial position or results of operations as natural gas costs are
fully recovered from customers under the PGC.
BGE has contracts to procure SOS electric supply that are executed through a competitive procurement process approved by the MDPSC.
The SOS rates charged recover BGE’s wholesale power supply costs and include an administrative fee. The administrative fee includes an
incremental cost component and a shareholder return component for commercial and industrial rate classes. BGE’s price risk related to electric
supply procurement is limited. BGE locks in fixed prices for all of its SOS requirements through full requirements contracts. Certain of BGE’s full
requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance.
Other BGE full requirements contracts are not derivatives.
BGE provides natural gas to its customers under a MBR mechanism approved by the MDPSC. Under this mechanism, BGE’s actual cost of
gas is compared to a market index (a measure of the market price of gas in a given period). The difference between BGE’s actual cost and the
market index is shared equally between shareholders and customers. BGE must also secure fixed price contracts for at least 10%, but not more
than 20%, of forecasted system supply requirements for flowing (i.e., non-storage) gas for the November through March period. These fixed-price
contracts are not subject to sharing under the MBR mechanism. BGE also ensures it has sufficient pipeline transportation capacity to meet
customer requirements. All of BGE’s natural gas supply and asset management agreements qualify for the NPNS scope exception and result in
physical delivery.
 Generation also enters into certain energy-related derivatives for proprietary trading purposes. Proprietary trading
includes all contracts entered into with the intent of benefiting from shifts or changes in market prices as opposed to those entered into with the
intent of hedging or managing risk. Proprietary trading activities are subject to limits established by Exelon’s RMC. The
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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