ComEd 2015 Annual Report Download - page 44

Table of Contents
In addition to price fluctuations, Generation is exposed to other risks in the power markets that are beyond its control and could
negatively affect its results of operations. (Exelon and Generation)
Credit Risk. In the bilateral markets, Generation is exposed to the risk that counterparties that owe Generation money, or are obligated to
purchase energy or fuel from Generation, will not perform under their obligations for operational or financial reasons. In the event the counterparties
to these arrangements fail to perform, Generation could be forced to purchase or sell energy or fuel in the wholesale markets at less favorable
prices and incur additional losses, to the extent of amounts, if any, already paid to the counterparties. In the spot markets, Generation is exposed
to risk as a result of default sharing mechanisms that exist within certain markets, primarily RTOs and ISOs, the purpose of which is to spread
such risk across all market participants. Generation is also a party to agreements with entities in the energy sector that have experienced rating
downgrades or other financial difficulties. In addition, Generation’s retail sales subject it to credit risk through competitive electricity and natural
gas supply activities to serve commercial and industrial companies, governmental entities and residential customers. Retail credit risk results
when customers default on their contractual obligations. This risk represents the loss that could be incurred due to the nonpayment of a
customer’s account balance, as well as the loss from the resale of energy previously committed to serve the customer.
Market Designs. The wholesale markets remain evolving markets that vary from region to region and are still developing rules, practices and
procedures. Changes in these market rules, problems with rule implementation, or failure of any of these markets could adversely affect
Generation’s business. In addition, a significant decrease in market participation could affect market liquidity and have a detrimental effect on
market stability.
The Registrants are potentially affected by emerging technologies that could over time affect or transform the energy industry, including
technologies related to energy generation, distribution and consumption. (Exelon, Generation, ComEd, PECO and BGE)
Some of these technologies include, but are not limited to further shale gas development or sources, cost-effective renewable energy
technologies, broad consumer adoption of electric vehicles, distributed generation and energy storage devices. Such developments could affect
the price of energy, could affect energy deliveries as customer-owned generation becomes more cost-effective, could require further improvements
to our distribution systems to address changing load demands and could make portions of our electric system power supply and transmission
and/or distribution facilities obsolete prior to the end of their useful lives. Such technologies could also result in further declines in commodity
prices or demand for delivered energy. Each of these factors could materially affect the Registrants’ results of operations, cash flows or financial
positions through, among other things, reduced operating revenues, increased operating and maintenance expenses, and increased capital
expenditures, as well as potential asset impairment charges or accelerated depreciation and decommissioning expenses over shortened remaining
asset useful lives.
Market performance and other factors could decrease the value of NDT funds and employee benefit plan assets and could increase the
related employee benefit plan obligations, which then could require significant additional funding. (Exelon, Generation, ComEd, PECO
and BGE)
Disruptions in the capital markets and their actual or perceived effects on particular businesses and the greater economy could adversely
affect the value of the investments held within Generation’s NDTs and Exelon’s employee benefit plan trusts. The Registrants have significant
obligations in these areas and Exelon and Generation hold substantial assets in these trusts to meet those obligations. The asset values are
subject to market fluctuations and will yield uncertain returns, which could fall below the Registrants’ projected return rates. A decline in the market
value of the NDT fund investments could increase Generation’s funding requirements to decommission its nuclear plants. A decline in the
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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