ComEd 2015 Annual Report Download - page 343

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
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 and Contingent-Related Features (Exelon, Generation, ComEd, PECO and BGE)
As part of the normal course of business, Generation routinely enters into physical or financially settled contracts for the purchase and sale
of electric capacity, energy, fuels, emissions allowances and other energy-related products. Certain of Generation’s derivative instruments contain
provisions that require Generation to post collateral. Generation also enters into commodity transactions on exchanges (i.e. NYMEX, ICE). The
exchanges act as the counterparty to each trade. Transactions on the exchanges must adhere to comprehensive collateral and margining
requirements. This collateral may be posted in the form of cash or credit support with thresholds contingent upon Generation’s credit rating from
each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit-risk-
related contingent features stipulate that if Generation were to be downgraded or lose its investment grade credit rating (based on its senior
unsecured debt rating), it would be required to provide additional collateral. This incremental collateral requirement allows for the offsetting of
derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master netting
agreements. 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.
The aggregate fair value of all derivative instruments with credit-risk-related contingent features in a liability position that are not fully
collateralized (excluding transactions on the exchanges that are fully collateralized) is detailed in the table below:
For the Years Ended December 31,
Credit-Risk Related Contingent Feature 2015 2014
Gross Fair Value of Derivative Contracts Containing this Feature $ (932) $ (1,433)
Offsetting Fair Value of In-the-Money Contracts Under Master Netting Arrangements 684 1,140
Net Fair Value of Derivative Contracts Containing This Feature $ (248) $ (293)
(a) Amount represents the gross fair value of out-of-the-money derivative contracts containing credit-risk-related contingent features ignoring the effects of master netting agreements.
(b) Amount represents the offsetting fair value of in-the-money derivative contracts under legally enforceable master netting agreements with the same counterparty, which reduces
the amount of any liability for which a Registrant could potentially be required to post collateral.
(c) Amount represents the net fair value of out-of-the-money derivative contracts containing credit-risk related contingent features after considering the mitigating effects of offsetting
positions under master netting arrangements and reflects the actual net liability upon which any potential contingent collateral obligations would be based.
336
(a)
(b)
(c)
Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.