10-QPeriod: Q3 FY2016

EXELON CORP Quarterly Report for Q3 Ended Sep 30, 2016

Filed October 26, 2016For Securities:EXC

Summary

This 10-Q filing from Exelon Corporation (EXC), filed on October 26, 2016, primarily focuses on the company's market risk disclosures. Exelon actively manages risks associated with commodity prices, counterparty credit, interest rates, and equity prices through its Risk Management Committee (RMC). The company employs a comprehensive hedging strategy for its generation segment, with significant portions of expected generation hedged for 2016, 2017, and 2018. While the company utilizes derivative contracts to mitigate price fluctuations, it also engages in limited proprietary trading. For its utility segments (ComEd, PECO, BGE, Pepco, DPL, ACE), costs associated with energy procurement are largely passed through to customers, mitigating direct financial impact on the utilities. Credit risk is managed through collateral arrangements and the financial strength of counterparties, with a significant portion of Generation's net exposure to investment-grade counterparties.

Financial Highlights

51 data points
Beta

Revenue

$9.00B

Net Income

$490.00M

5.4% Net Margin

EPS (Diluted)

$0.53

Total Assets

$114.53B

Cash & Equivalents

$1.90B

Free Cash Flow

$931.00M

Financial Statements
Beta
Revenue$9.00B
Operating Expenses$7.74B
Operating Income$1.27B
Interest Expense$506.00M
Net Income$490.00M
EPS (Basic)$0.53
EPS (Diluted)$0.53
Shares Outstanding (Basic)925.00M
Shares Outstanding (Diluted)927.00M

Key Highlights

  • 1Exelon utilizes a robust hedging strategy for its Generation segment, with 98%-101% of expected 2016 generation hedged, 85%-88% for 2017, and 54%-57% for 2018.
  • 2The company actively manages commodity price risk through both derivative and non-derivative contracts to hedge anticipated exposures.
  • 3While Exelon Generation engages in limited proprietary trading, it represents a small portion of overall revenue.
  • 4Utility subsidiaries (ComEd, PECO, BGE, etc.) generally recover energy procurement costs from customers, limiting direct financial impact on the utilities from market price volatility.
  • 5The company monitors and manages counterparty credit risk, with a substantial portion of Generation's net credit exposure to investment-grade counterparties.
  • 6A significant development is Exelon's required deposit of approximately $1,250 million with the IRS in October 2016 related to a Tax Court ruling on its 1999 sale of fossil generating assets, which it intends to appeal.

Frequently Asked Questions

Exelon manages commodity price risk through a combination of strategies, including entering into non-derivative and derivative contracts (forwards, futures, swaps, options) to hedge anticipated exposures. For its Generation segment, a significant portion of expected generation is hedged over a three-year period to mitigate price fluctuations.

For its utility subsidiaries such as ComEd, PECO, BGE, Pepco, DPL, and ACE, the costs of electric and natural gas supply procurement are generally recovered from retail customers. This typically means that market price volatility has a limited direct impact on the financial results of these utility operations, as costs are passed through with minimal markup.

Exelon is exposed to credit risk from counterparties in its derivative instruments. The company manages this by monitoring counterparty credit ratings and requiring collateral. As of September 30, 2016, Exelon Generation's net credit exposure was primarily to investment-grade counterparties, with a significant portion of its total exposure covered by collateral.

The Tax Court rejected Exelon's like-kind exchange position regarding the 1999 sale of its fossil generating assets, ruling that Exelon is liable for deferred gain, penalty, and interest. Exelon deposited approximately $1,250 million with the IRS in October 2016 and plans to appeal the decision to the U.S. Court of Appeals for the Seventh Circuit.