Exelon 2014 Annual Report Download - page 216

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
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 2014 2013
Gross Fair Value of Derivative Contracts Containing this Feature (a) ......................... $(1,433) $(1,056)
Offsetting Fair Value of In-the-Money Contracts Under Master Netting Arrangements (b) ........ 1,140 846
Net Fair Value of Derivative Contracts Containing This Feature (c) ...................... $ (293) $ (210)
(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.
Generation had cash collateral posted of $1,497 million and letters of credit posted of $672 million, and cash collateral held of $77
million and letters of credit held of $24 million as of December 31, 2014 for counterparties with derivative positions. Generation had
cash collateral posted of $72 million and letters of credit posted of $364 million and cash collateral held of $206 million and letters of
credit held of $34 million at December 31, 2013 for counterparties with derivative positions. In the event of a credit downgrade below
investment grade (i.e. to BB+ by S&P or Ba1 by Moody’s), Generation would have been required to post additional collateral of $2.4
billion and $2.0 billion as of December 31, 2014 and 2013, respectively. These amounts represent the potential additional collateral
required after giving consideration to offsetting derivative and non-derivative positions under master netting agreements.
Generation’s and Exelon’s interest rate swaps contain provisions that, in the event of a merger, if Generation’s debt ratings were to
materially weaken, it would be in violation of these provisions, resulting in the ability of the counterparty to terminate the agreement
prior to maturity. Collateralization would not be required under any circumstance. Termination of the agreement could result in a
settlement payment by Exelon or the counterparty on any interest rate swap in a net liability position. The settlement amount would
be equal to the fair value of the swap on the termination date. As of December 31, 2014, Generation’s and Exelon’s swaps were in a
liability position, with a fair value of $16 million and $90 million, respectively.
See Note 24—Segment Information for further information regarding the letters of credit supporting the cash collateral.
Generation entered into supply forward contracts with certain utilities, including PECO and BGE, with one-sided collateral postings
only from Generation. If market prices fall below the benchmark price levels in these contracts, the utilities are not required to post
collateral. However, when market prices rise above the benchmark price levels, counterparty suppliers, including Generation, are
required to post collateral once certain unsecured credit limits are exceeded. Under the terms of ComEd’s standard block energy
contracts, collateral postings are one-sided from suppliers, including Generation, should exposures between market prices and
benchmark prices exceed established unsecured credit limits outlined in the contracts. As of December 31, 2014, ComEd held
approximately $2 million collateral from suppliers in association with energy procurement contracts. Under the terms of ComEd’s
annual renewable energy contracts, collateral postings are required to cover a fixed value for RECs only. In addition, under the terms
of ComEd’s long-term renewable energy contracts, collateral postings are required from suppliers for both RECs and energy. The
REC portion is a fixed value and the energy portion is one-sided from suppliers should the forward market prices exceed contract
prices. As of December 31, 2014, ComEd held approximately $19 million in the form of cash and letters of credit as margin for both
the annual and long-term REC obligations. See Note 3—Regulatory Matters for additional information.
PECO’s natural gas procurement contracts contain provisions that could require PECO to post collateral. This collateral may be
posted in the form of cash or credit support with thresholds contingent upon PECO’s credit rating from the major credit rating
agencies. The collateral and credit support requirements vary by contract and by counterparty. As of December 31, 2014, PECO
was not required to post collateral for any of these agreements. If PECO lost its investment grade credit rating as of December 31,
2014, PECO could have been required to post approximately $36 million of collateral to its counterparties.
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