8-KMaterial AgreementsOther Events

EXELON CORP 8-K Report, Agreement Terminated (Feb 28, 2014)

Filed February 28, 2014For Securities:EXC

Summary

Exelon Corporation, through its wholly owned subsidiary UII, LLC, has finalized an agreement to terminate a coal-fired generating station lease with the City of San Antonio, Texas (CPS) and related agreements. This termination, effective February 26, 2014, was prompted by a credit rating downgrade of a third-party credit support provider for CPS, which required CPS to either find a new provider or post additional collateral. As part of the termination agreement, UII will receive a net early termination payment of $335 million from CPS. Exelon views this termination as beneficial due to economic uncertainties regarding end-of-lease term options, which could have led to significant capital expenditures and increased operational risk for UII. While the termination results in a net loss at UII that is deemed not material, Exelon and its subsidiaries anticipate a significant tax payment of approximately $285 million in 2014, with Commonwealth Edison Company contributing around $150 million of this amount.

Key Highlights

  • 1Exelon's subsidiary UII, LLC terminated a material coal-fired generating station lease agreement with the City of San Antonio (CPS) on February 26, 2014.
  • 2The termination was triggered by a credit rating downgrade of a third-party credit support provider for CPS.
  • 3UII will receive a net early termination payment of $335 million from CPS.
  • 4Exelon believes the termination is in its best interest due to economic uncertainties and potential capital expenditures associated with end-of-lease term options.
  • 5The termination will result in a net loss at UII, which is not material to Exelon.
  • 6Exelon and its subsidiaries expect to pay approximately $285 million in taxes in 2014 related to this termination.
  • 7Commonwealth Edison Company will account for approximately $150 million of the total tax payment.

Frequently Asked Questions

The termination was initiated due to a credit rating downgrade of a third-party credit support provider for CPS. This downgrade required CPS to either replace the provider or post additional collateral, leading to discussions and the eventual termination agreement with Exelon's subsidiary, UII, LLC.

Exelon will receive a net early termination payment of $335 million from CPS. While there will be a net loss at UII, it is considered not material to Exelon. However, Exelon and its subsidiaries anticipate a significant tax payment of approximately $285 million in 2014 related to this transaction.

Exelon was avoiding potential significant capital expenditures and increased operational risk associated with managing the generating station under various end-of-lease term options, especially given certain economic uncertainties.

Commonwealth Edison Company, another Exelon subsidiary, will be responsible for approximately $150 million of the total estimated $285 million tax payment in 2014.