Exelon 2015 Annual Report Download - page 257

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
interests of John Deere Renewables, LLC (now known as Exelon Wind). Generation has evaluated the significant agreements and ownership
structures and the risks of each of its wind projects and underlying entities, and determined that certain of the entities are VIEs because either the
projects have noncontrolling equity interest holders that absorb variability from the wind projects, or the customers absorb price variability from the
entities through the fixed price power and/or REC purchase agreements. Generation is the primary beneficiary of the wind project entities that
qualify as VIEs because Generation controls the design, construction, and operation of the wind generation facilities. While Generation owns 100%
of the majority of the wind project entities, nine of the projects have noncontrolling equity interests of 1% held by third parties. Generation’s current
economic interests in eight of these projects is significantly greater than its stated contractual governance rights and all of these projects have
reversionary interest provisions that provide the noncontrolling interest holder with a purchase option, certain of which are considered bargain
purchase prices, which, if exercised, transfers ownership of the projects to the noncontrolling interest holder upon either the passage of time or the
achievement of targeted financial returns. The ownership agreements with the noncontrolling interests state that Generation is to provide financial
support to the projects in proportion to its current 99% economic interests in the projects. However, no additional support to these projects beyond
what was contractually required has been provided during 2015. As of December 31, 2015, the carrying amount of the assets and liabilities that are
consolidated as a result of Generation being the primary beneficiary of the wind VIE entities primarily relates to the wind generating assets, PPA
intangible assets and working capital amounts.
Other Generating Facilities. During the second quarter of 2015, Generation formed a limited liability company to build, own, and operate a
backup generator. While Generation owns 100% of the backup generator company, it was determined that the entity is a VIE because the
customer absorbs price variability from the entity through the fixed price backup generator agreement. Generation provides operating and capital
funding to the backup generator company. Generation also owns 90% of a biomass fueled, combined heat and power company. In the second
quarter of 2015, the entity was deemed to be a VIE because the entity requires additional subordinated financial support in the form of a parental
guarantee provided by Generation for up to $275 million in support of the payment obligations related to the Engineering, Procurement and
Construction contract for the facility (see Note 14—Debt and Credit Agreements for additional details on Albany Green Energy, LLC). In addition to
the parental guarantee, Generation provides operating and capital funding to the biomass fueled, combined heat and power company. Generation is
the primary beneficiary of both entities since Generation has the power to direct the activities that most significantly affect the economic
performance of the entities.
CENG. Through March 31, 2014, CENG was operated as a joint venture with EDF and was governed by a board of ten directors, five of
which were appointed by Generation and five by EDF. CENG was designed to operate under joint and equal control of Generation and EDF through
the Board of Directors, subject to the Chairman of the Board’s final decision making authority on certain special matters; therefore, CENG was not
subject to VIE guidance. Accordingly, Generation’s 50.01% interest in CENG was accounted for as an equity method investment. On April 1,
2014, Generation, CENG, and subsidiaries of CENG executed the Nuclear Operating Services Agreement (NOSA) pursuant to which Generation
now conducts all activities associated with the operations of the CENG fleet and provides corporate and administrative services to CENG and the
CENG fleet for the remaining life of the CENG nuclear plants as if they were a part of the Generation nuclear fleet, subject to the CENG member
rights of EDF. As a result of executing the NOSA, CENG now qualifies as a VIE due to the disproportionate relationship between Generation’s
50.01% equity ownership interest and its role in conducting the operational activities of CENG and the CENG fleet conveyed through the NOSA.
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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