ComEd 2013 Annual Report Download - page 109

Collateral
Generation
Aspart ofthe normal courseofbusiness, Generation routinelyentersinto physical or financial contractsfor thesale andpurchaseof
electricity, fossilfuel andother commodities. Thesecontractseither containexpress provisionsor otherwise permitGeneration and
itscounterpartiesto demandadequate assuranceoffuture performancewhen there are reasonable grounds for doingso.In
accordancewiththecontractsandapplicable law, if Generation is downgradedbyacredit ratingagency, especiallyifsuch
downgradeis to a level belowinvestment grade,itis possible that a counterpartywouldattempt to relyon such adowngradeasa
basis for makingademandfor adequate assuranceoffuture performance.Dependingon Generation’s net position witha
counterparty, thedemandcouldbefor thepostingofcollateral.Intheabsenceofexpresslyagreed-to provisionsthat specify the
collateral that mustbe provided, collateral requestedwill beafunction ofthefactsandcircumstancesofthesituation at thetimeof
thedemand. Inthis case,Generation believesan amount ofseveral months offuture payments (i.e.capacitypayments) rather than
acalculation offairvalue is thebestestimate for thecontingent collateral obligation, which hasbeen factoredinto thedisclosure
below. See Note 12 oftheCombinedNotesto ConsolidatedFinancial Statementsfor information regardingcollateral requirements.
Generation sellsoutput through bilateral contracts. Thebilateral contractsare subjecttocreditrisk, which relatesto theabilityof
counterpartiesto meet theircontractual payment obligations. Anyfailure to collectthesepaymentsfromcounterpartiescouldhavea
material impactonExelon’s andGeneration’s resultsofoperations, cash flows andfinancial position.Asmarket pricesriseabove
contractedpricelevels, Generation is requiredto postcollateral withpurchasers; asmarket pricesfall belowcontractedpricelevels,
counterpartiesare requiredto postcollateral withGeneration.Inorder to postcollateral,Generation depends on access to bank
creditfacilities which serveasliquiditysourcesto fundcollateral requirements. See Note 13 oftheCombinedNotesto Consolidated
Financial Statementsfor additional information.
AsofDecember 31,2013,Generation hadcash collateral of$72million postedandcash collateral heldof$206million for
counterpartieswithderivativepositions, of which $144 million in net cash collateral depositswere offset againstmark-to-market
assetsandliabilities. AsofDecember 31,2013,$10 million ofcash collateral postedwasnot offset against net derivativepositions
becauseitwasnot associatedwithenergy-relatedderivatives. AsofDecember 31,2012,Generation hadcash collateral heldof
$499 million andcash collateral postedof$527million for counterpartieswithderivativepositions, of which $31 million in net cash
collateral depositswere offset againstmark-to-market assetsandliabilities. AsofDecember 31,2012,$3million ofcash collateral
receivedwasnot offset against net mark-to-market assetsandliabilitiesbecauseitwasnot associatedwithenergy-related
derivatives. See Note 22 oftheCombinedNotesto ConsolidatedFinancial Statementsfor information regardingthe lettersofcredit
supportingthecash collateral.
ComEd
AsofDecember 31,2013,ComEd held immaterial amountsofcash andlettersofcreditfor the purposeofcollateral fromsuppliersin
association withenergy procurement contractsandheldapproximately$19million intheformofcash for bothannual andlong-term
renewable energy contracts. See Notes3and12 oftheCombinedNotesto ConsolidatedFinancial Statementsfor further
information.
PECO
AsofDecember 31,2013, PECO wasnot requiredto postcollateral under itsenergy andnatural gasprocurement contracts. See
Note 12 oftheCombinedNotesto ConsolidatedFinancial Statementsfor further information.
BGE
BGE is not requiredto postcollateral under itselectric supplycontracts. AsofDecember 31,2013, BGE wasnot requiredto post
collateral under itsnatural gasprocurement contracts, nor wasitholdingcollateral under itselectric supplyandnatural gas
procurement contracts. See Note 12 oftheCombinedNotesto ConsolidatedFinancial Statementsfor further information.
RTOs and ISOs
Generation,ComEd, PECO and BGE participate in all,or some,oftheestablished, real-time energy marketsthat are administered
by PJM, ISO-NE, ISO-NY, CAISO, MISO, SPP, AESO, OIESO andERCOT. Inthese areas, power is tradedthrough bilateral
agreementsbetween buyersandsellersandon thespot marketsthat are operatedbytheRTOs or ISOs, asapplicable.In areas
where there is no spot market,electricityispurchasedandsoldsolelythrough bilateral agreements. For salesinto thespot markets
administeredbyan RTO or ISO, theRTO or ISO maintainsfinancial assurance policiesthat are establishedandenforcedbythose
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