Exelon 2015 Annual Report Download - page 52

Table of Contents
Similarly, there is risk that financial market regulations could increase the Registrants’ compliance costs and limit their ability to engage in certain
transactions. In the planning and management of operations, the Registrants must address the effects of regulation on their businesses and
changes in the regulatory framework, including initiatives by Federal and state legislatures, RTOs, exchanges, ratemaking agencies and taxing
authorities. Additionally, the Registrants need to be cognizant and understand rule changes or Registrant actions that could result in potential
violation of tariffs, market rules and anti-manipulation laws. Fundamental changes in regulations or other adverse legislative actions affecting the
Registrants’ businesses would require changes in their business planning models and operations and could negatively impact their results of
operations, cash flows or financial positions.
Regulatory and legislative developments related to climate change and RPS could also significantly affect Exelon’s and Generation’s results
of operations, cash flows or financial positions. Various legislative and regulatory proposals to address climate change through GHG emission
reductions, if enacted, could result in increased costs to entities that generate electricity through carbon-emitting fossil fuels, which could increase
the market price at which all generators in a region, including Generation, may sell their output, thereby increasing the revenue Generation could
realize from its low-carbon nuclear assets. However, national regulation or legislation addressing climate change through an RPS could also
increase the pace of development of wind energy facilities in the Midwest, which could put downward pressure on wholesale market prices for
electricity from Generation’s Midwest nuclear assets, partially offsetting any additional value Exelon and Generation might derive from
Generation’s nuclear assets under a carbon constrained regulatory regime that might exist in the future. Similarly, final regulations under
Section 111(d) of the Clean Air Act may not provide sufficient incentives for states to utilize carbon-free nuclear power as a means of meeting
greenhouse gas emission reduction requirements, while continuing a policy of favoring renewable energy sources. Current state level climate
change and renewable regulation is already providing incentives for regional wind development. The Registrants cannot predict when or whether
any of these various legislative and regulatory proposals may become law or what their effect will be on the Registrants.
Generation could be negatively affected by possible Federal or state legislative or regulatory actions that could affect the scope and
functioning of the wholesale markets. (Exelon and Generation)
Federal and state legislative and regulatory bodies are facing pressures to address consumer concerns, or are themselves raising concerns,
that energy prices in wholesale markets are too high or insufficient generation is being built because the competitive model is not working, and,
therefore, are considering some form of re-regulation or some other means of reducing wholesale market prices or subsidizing new generation.
Generation is dependent on robust and competitive wholesale energy markets to achieve its business objectives.
Approximately 65% of Generation’s generating resources, which include directly owned assets and capacity obtained through long-term
contracts, are located in the area encompassed by PJM. Generation’s future results of operations will depend on (1) FERC’s continued adherence
to and support for, policies that favor the preservation of competitive wholesale power markets, such as PJM’s, and (2) the absence of material
changes to market structures that would limit or otherwise negatively affect market competitiveness. Generation could also be adversely affected
by state laws, regulations or initiatives designed to reduce wholesale prices artificially below competitive levels or to subsidize new generation,
such as the subsequently dismissed New Jersey Capacity Legislation and the MDPSC’s RFP for new gas-fired generation in Maryland. See Note
3—Regulatory Matters of the Combined Notes to Consolidated Financial Statements for further details related to the New Jersey Capacity
Legislation and the Maryland new electric generation requirements.
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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