ComEd 2015 Annual Report Download - page 98

Table of Contents
not developed. Exelon remains active in advocating for competitive markets, while opposing policies that require taxpayers and/ or consumers to
subsidize or give preferential treatment to generation providers or technologies that do not provide superior reliability or environmental benefits, or
that would threaten the reliability and value of the integrated electricity grid.
Energy Demand. Modest economic growth partially offset by energy efficiency initiatives is resulting in positive growth for electricity for
BGE and PECO; and a decrease in projected load for electricity for ComEd. BGE, PECO and ComEd are projecting load volumes to increase
(decrease) by 1.5%, 0.4% and (0.3)%, respectively, in 2016 compared 2015.
Retail Competition. Generation’s retail operations compete for customers in a competitive environment, which affect the margins that
Generation can earn and the volumes that it is able to serve. The market experienced high price volatility in the first quarter of 2014 which
contributed to bankruptcies and consolidations within the industry during the year. However, forward natural gas and power prices are expected to
remain low and thus we expect retail competitors to stay aggressive in their pursuit of market share, and that wholesale generators (including
Generation) will continue to use their retail operations to hedge generation output.
Strategic Policy Alignment
Exelon routinely reviews its hedging policy, dividend policy, operating and capital costs, capital spending plans, strength of its balance sheet
and credit metrics, and sufficiency of its liquidity position, by performing various stress tests with differing variables, such as commodity price
movements, increases in margin-related transactions, changes in hedging practices, and the impacts of hypothetical credit downgrades.
Exelon’s board of directors declared first, second, third and fourth quarter 2015 and first quarter 2016 dividends of $0.31 per share each on
Exelon’s common stock. The dividends for the first, second, third and fourth quarter 2015 were paid on March 10, 2015, June 10,
2015, September 10, 2015 and December 10, 2015. The first quarter 2016 dividend is payable on March 10, 2016.
All future quarterly dividends require approval by Exelon’s board of directors. Exelon’s Board of Directors approved a revised dividend policy.
The approved policy would raise our dividend 2.5% each year for the next three years, beginning with the June 2016 dividend. The Board will take
formal action to declare the next dividend in the second quarter.
Hedging Strategy
Exelon’s policy to hedge commodity risk on a ratable basis over three-year periods is intended to reduce the financial impact of market price
volatility. Generation is exposed to commodity price risk associated with the unhedged portion of its electricity portfolio. Generation enters into
non-derivative and derivative contracts, including financially-settled swaps, futures contracts and swap options, and physical options and physical
forward contracts, all with credit-approved counterparties, to hedge this anticipated exposure. Generation has hedges in place that significantly
mitigate this risk for 2015 and 2016. However, Generation is exposed to relatively greater commodity price risk in the subsequent years with
respect to which a larger portion of its electricity portfolio is currently unhedged. As of December 31, 2015, the percentage 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,
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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