10-QPeriod: Q3 FY2013

EXELON CORP Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 7, 2013For Securities:EXC

Summary

Exelon Corporation's (EXC) third-quarter 2013 filing highlights its robust risk management framework, particularly concerning commodity price volatility. The company utilizes a comprehensive strategy involving both non-derivative and derivative instruments to hedge its exposure to fluctuations in electricity and fuel prices. A significant portion of Exelon Generation's expected output is hedged for the near term (97-100% for 2013, 84-87% for 2014), providing a degree of price certainty. The filing also details the company's approach to credit risk, with substantial mitigation efforts through collateral and master netting agreements. While Exelon Generation has a notable net credit exposure, much of it is with investment-grade counterparties. The regulated utility subsidiaries (ComEd, PECO, BGE) generally recover energy procurement costs from customers, thus limiting direct impact on their financial results from price fluctuations, with changes often recorded as regulatory assets or liabilities. The company also manages interest rate risk through a mix of debt instruments and hedging strategies.

Financial Highlights

49 data points
Beta

Revenue

$6.50B

Net Income

$738.00M

11.4% Net Margin

EPS (Diluted)

$0.86

Total Assets

$79.92B

Cash & Equivalents

$1.64B

Free Cash Flow

$687.00M

Financial Statements
Beta
Revenue$6.50B
Operating Expenses$5.29B
Operating Income$1.25B
Interest Expense$228.00M
Net Income$738.00M
EPS (Basic)$0.86
EPS (Diluted)$0.86
Shares Outstanding (Basic)857.00M
Shares Outstanding (Diluted)860.00M

Key Highlights

  • 1Exelon Generation has hedged a significant portion of its expected generation for 2013 (97-100%) and 2014 (84-87%), reducing exposure to short-term commodity price fluctuations.
  • 2The company utilizes a variety of derivative instruments, including forwards, futures, and swaps, to manage commodity price risk.
  • 3Exelon Generation's proprietary trading activities are a small part of its overall operations, with pre-tax gains of $13 million reported for the first nine months of 2013.
  • 4The regulated utility subsidiaries (ComEd, PECO, BGE) generally recover energy procurement costs from customers, with derivative impacts often recorded as regulatory assets or liabilities, thus minimizing direct financial impact on the parent company.
  • 5Exelon Generation has a total net credit exposure of $2,066 million as of September 30, 2013, with a significant portion concentrated in investment-grade counterparties.
  • 6The company actively manages interest rate risk through a combination of fixed and variable-rate debt and interest rate swaps.
  • 7A $14 million pre-tax impairment charge was recognized in Q2 2013 related to an other-than-temporary decline in the estimated residual value of one of Exelon's direct financing leases.

Frequently Asked Questions

Exelon, primarily through Exelon Generation, employs a strategy of hedging anticipated exposures using non-derivative and derivative contracts (forwards, futures, swaps, options). This aims to mitigate the impact of fluctuations in electricity and fuel prices. A substantial percentage of expected generation is hedged for the upcoming years.

Exelon Generation has a net credit exposure of $2,066 million as of September 30, 2013, with a significant portion ($1,576 million) from investment-grade counterparties. The company manages this risk through collateral arrangements, master netting agreements, and by monitoring counterparty credit ratings. For regulated utilities like ComEd, PECO, and BGE, energy procurement costs are generally recovered from customers, limiting direct credit risk on those operations.

Exelon Generation engages in proprietary trading for energy-related derivatives, which represent a small portion of its overall business. For the nine months ended September 30, 2013, these activities resulted in pre-tax gains of $13 million, composed of net mark-to-market losses of $35 million and realized gains of $48 million. The daily Value at Risk (VaR) averaged $1.4 million.

Exelon uses a combination of fixed-rate and variable-rate debt. To manage interest rate exposure, the company may also employ fixed-to-floating and floating-to-fixed interest rate swaps, often designated as fair value or cash flow hedges. At September 30, 2013, Exelon had $1,250 million in notional amounts of fixed-to-floating hedges and $213 million in floating-to-fixed hedges outstanding.