10-QPeriod: Q3 FY2015

EXELON CORP Quarterly Report for Q3 Ended Sep 30, 2015

Filed October 30, 2015For Securities:EXC

Summary

This 10-Q filing for Exelon Corporation (EXC) as of September 30, 2015, primarily details the company's market risk exposures and management strategies. Exelon actively manages commodity price risk, interest rate risk, and equity price risk through a comprehensive risk management framework overseen by its Risk Management Committee (RMC). The company employs a range of derivative and non-derivative instruments to hedge its generation portfolio, aiming to mitigate volatility associated with fluctuating energy prices. Specific disclosures cover Generation's hedging activities, proprietary trading, fuel procurement, and the regulatory environments impacting ComEd, PECO, and BGE's cost recovery mechanisms. Of particular note is Generation's hedging strategy, which aims to cover a significant portion of its expected generation over a three-year horizon, with 97-100% hedged for 2015, 81-84% for 2016, and 51-54% for 2017. The company also detailed its credit risk exposures, particularly for Generation, and its collateral management practices. The financial statement section highlights the mark-to-market energy contract net assets and liabilities, with a significant portion of fair value derived from models rather than actively quoted prices.

Financial Highlights

50 data points
Beta

Revenue

$7.40B

Net Income

$629.00M

8.5% Net Margin

EPS (Diluted)

$0.69

Total Assets

$95.13B

Cash & Equivalents

$7.26B

Free Cash Flow

-$278.00M

Financial Statements
Beta
Revenue$7.40B
Operating Expenses$6.20B
Operating Income$1.20B
Interest Expense$243.00M
Net Income$629.00M
EPS (Basic)$0.69
EPS (Diluted)$0.69
Shares Outstanding (Basic)913.00M
Shares Outstanding (Diluted)915.00M

Key Highlights

  • 1Exelon's Risk Management Committee (RMC), chaired by the CEO, oversees risk management policies and objectives.
  • 2Generation's hedging program covers a significant portion of expected generation: 97-100% for 2015, 81-84% for 2016, and 51-54% for 2017.
  • 3The company utilizes a variety of derivative and non-derivative instruments to mitigate commodity price risk.
  • 4Generation's proprietary trading activities represent a small portion of its overall revenue, with pre-tax gains of $3 million for the nine months ended September 30, 2015.
  • 5A substantial portion of Exelon's (and Generation's) commodity contract net assets/liabilities are valued using models (Level 3), indicating less liquid market pricing.
  • 6Generation has a significant net exposure of $2,068 million from derivative instruments, normal purchase/sales agreements, and receivables, primarily to investment-grade counterparties.
  • 7Exelon manages interest rate risk through a mix of fixed and variable-rate debt and interest rate swaps, with a hypothetical 50 bps rate increase potentially reducing pre-tax income by $3 million.

Frequently Asked Questions

Exelon, primarily through its Generation segment, manages commodity price risk by selling and purchasing electricity, fossil fuels, and other commodities. They employ a hedging strategy using non-derivative and derivative contracts (forwards, futures, swaps, options) to hedge anticipated exposures, aiming to mitigate price fluctuations. A significant portion of expected generation is hedged over a three-year period.

Exelon Generation engages in energy-related derivatives for proprietary trading purposes, which are subject to strict limits. This activity represents a small portion of Generation's overall revenue from energy marketing. For the nine months ended September 30, 2015, proprietary trading activities resulted in pre-tax gains of $3 million.

Exelon is exposed to credit risk from counterparties defaulting on derivative instruments. For Generation, the net credit exposure as of September 30, 2015, was $2,068 million, primarily to investment-grade counterparties. This risk is managed through credit policies, collateral requirements, and monitoring counterparty creditworthiness. The company also manages credit risk related to fuel procurement.

Exelon manages interest rate risk by utilizing a combination of fixed-rate and variable-rate debt. They may also employ fixed-to-floating interest rate swaps (often designated as fair value hedges) and use interest rate derivatives to lock in rates for future financings (typically designated as cash flow hedges).