What is the main purpose of the Master Agreement with EDF?

The Master Agreement outlines terms for Exelon Generation to operate the CENG nuclear fleet, provide services, and receive financial returns on its investment. It also establishes terms for EDFI's potential exit from CENG and Exelon's assumption of certain liabilities.

What are the financial implications of the $400 million loan and subsequent distributions?

Exelon Generation is loaning $400 million to CENG, which CENG will use to pay a special distribution to EDFI. Subsequently, Exelon Generation will receive preferred distributions from CENG to recover this $400 million plus an 8.5% annual return, essentially structuring the return of capital and profit for Exelon.

When can EDFI sell its stake in CENG to Exelon, and how will the price be determined?

EDFI has a put option to sell its 49.99% interest in CENG to Exelon Generation starting in 2016 and ending on June 30, 2022. The sale price will be determined by mutual agreement between the parties or, if they cannot agree, through a third-party arbitration process based on fair market value.

What are the potential accounting changes for Exelon Generation as a result of this agreement?

If the agreements are executed, Exelon Generation may be required to consolidate CENG's financial statements. This would necessitate re-measuring Exelon's investment in CENG to fair value, potentially resulting in a material gain or loss recognized in Exelon's and Generation's financial results.

EXC 8-K SEC Disclosure — Jul 30, 2013

Summary

Exelon Corporation (EXC) has announced a significant Master Agreement with Electricité de France (EDF) and its subsidiaries concerning the Constellation Energy Nuclear Group LLC (CENG) nuclear generation fleet. This agreement, expected to close in late Q1 or early Q2 2014 pending regulatory approvals, will see Exelon Generation Company, LLC (Generation) operating the CENG nuclear fleet and providing related services. The transaction involves a $400 million loan from Generation to CENG, which will be immediately used by CENG for a special distribution to EDFI. Following this, Generation is set to receive preferred distributions from CENG, including the repayment of the loan plus an 8.5% annual return, until the initial capital and return are fully recovered. Further, the agreement includes a put option for EDFI to sell its 49.99% stake in CENG to Generation between 2016 and mid-2022, with pricing determined by market value or arbitration. Exelon Generation will also assume indemnity for certain future nuclear incident claims related to the CENG plants, with Exelon Corporation providing a guarantee. This transaction has potential accounting implications, as Generation may need to consolidate CENG's financials, leading to a fair value re-measurement of its CENG investment that could materially impact Exelon's results.

Key Highlights

1Exelon Generation to operate the Constellation Energy Nuclear Group (CENG) nuclear fleet and provide services.
2A $400 million loan from Exelon Generation to CENG, with CENG making an immediate $400 million distribution to EDFI.
3Exelon Generation to receive preferred distributions from CENG totaling $400 million plus an 8.5% annual return.
4EDFI granted a put option to sell its 49.99% interest in CENG to Exelon Generation between 2016 and June 30, 2022.
5Exelon Generation to indemnify EDF and affiliates against certain future nuclear incident claims, guaranteed by Exelon Corporation.
6Potential consolidation of CENG into Exelon's financial statements if operating agreements are executed, impacting reported earnings.
7Transaction closing is expected in late Q1 or early Q2 2014, subject to regulatory approvals and customary conditions.

EXELON CORP 8-K Report, Corporate Update (Jul 30, 2013)

Summary

Key Highlights

Frequently Asked Questions