ComEd 2015 Annual Report Download - page 53

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In addition, FERC’s application of its Order 697 and its subsequent revisions could pose a risk that Generation will have difficulty satisfying
FERC’s tests for market-based rates. Since Order 697 became final in June 2007, Generation has obtained orders affirming Generation’s authority
to sell at market-based rates and none denying that authority.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) was enacted in July 2010. The part of the Act that applies to
Exelon is Title VII, which is known as the Dodd-Frank Wall Street Transparency and Accountability Act (Dodd-Frank). Dodd-Frank requires the
creation of a new regulatory regime for over-the-counter swaps (swaps), including mandatory clearing for certain categories of Swaps, incentives to
shift swap activity to exchange trading, margin and capital requirements, and other obligations designed to promote transparency. For non
security-based swaps including commodity swaps, Dodd-Frank empowers the Commodity Futures Trading Commission (CFTC) to promulgate
regulations implementing the law’s objectives. The primary aim of Dodd-Frank is to regulate the key intermediaries in the swaps market, which
entities are either swap dealers (SDs), major swap participants (MSPs), and certain other financial entities, but the law also applies to a lesser
degree to end-users of swaps. On January 12, 2015, President Obama signed into law a bill that exempts from margin requirements swaps used
by end-users to hedge or mitigate commercial risk. Moreover, the CFTC’s Dodd-Frank regulations preserve the ability of end users in the energy
industry to hedge their risks using swaps without being subject to mandatory clearing, and accepts or exempts end-users from many of the other
substantive regulations. Accordingly, as an end-user, Generation is conducting its commercial business in a manner that does not require
registration with the CFTC as an SD or MSP. Generation does not anticipate transacting in the future in a manner in which it would become a SD
or MSP.
There are, however, some rulemakings that have not yet been finalized, including the capital and margin rules for (non-cleared) swaps.
Generation does not expect these rules to directly impact its collateral requirements. However, depending on the substance of these final rules in
addition to certain international regulatory requirements still under development and that are similar to Dodd-Frank, Generation’s swap
counterparties could be subject to additional and potentially significant capitalization requirements. These regulations could motivate the SDs and
MSPs to increase collateral requirements or cash postings from their counterparties, including Generation.
Generation continues to monitor the rulemaking proceedings with respect to the capital and margin rules, but cannot predict to what extent, if
any, further refinements to Dodd-Frank requirements may impact its cash flows or financial position, but such impacts could be material.
ComEd, PECO and BGE could also be subject to some Dodd-Frank requirements to the extent they were to enter into swaps. However, at
this time, management of ComEd, PECO and BGE continue to expect that their companies will not be materially affected by Dodd-Frank.
Generation’s affiliation with ComEd, PECO and BGE, together with the presence of a substantial percentage of Generation’s physical
asset base within the ComEd, PECO and BGE service territories, could increase Generation’s cost of doing business to the extent future
complaints or challenges regarding ComEd, PECO and/or BGE retail rates result in settlements or legislative or regulatory requirements
funded in part by Generation. (Exelon and Generation)
Generation has significant generating resources within the service areas of ComEd, PECO and BGE and makes significant sales to each of
them. Those facts tend to cause Generation to be directly affected by developments in those markets. Government officials, legislators and
advocacy groups are aware of Generation’s affiliation with ComEd, PECO and BGE and its sales to each of them. In periods of rising utility rates,
particularly when driven by increased costs of energy production and supply, those officials and advocacy groups may question or challenge costs
and transactions incurred by
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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