ITEM 1B.UNRESOLVED STAFF COMMENTS
All Registrants
None.
Generation
The following table presents Generation’s interests in net electric generating capacity by station at December 31, 2020:
__________
(a)All nuclear stations are boiling water reactors except Braidwood, Byron, Calvert Cliffs, Ginna, and Salem, which are pressurized water reactors.
(b)100%, unless otherwise indicated.
(c)Base-load units are plants that normally operate to take all or part of the minimum continuous load of a system and, consequently, produce electricity at an essentially constant rate. Intermittent units are plants with output controlled by the natural variability of the energy resource rather than dispatched based on system requirements. Intermediate units are plants that normally operate to take load of a system during the daytime higher load hours and, consequently, produce electricity by cycling on and off daily. Peaking units consist of lower-efficiency, quick response steam units, gas turbines and diesels normally used during the maximum load periods.
(d)For nuclear stations, capacity reflects the annual mean rating. Fossil stations and wind and solar facilities reflect a summer rating.
(e)Generation has announced it will permanently cease generation operations at Byron and Dresden nuclear facilities in 2021 and Mystic Unit 8 and 9 in 2024. See Note 7 - Early Plant Retirements of the Combined Notes to the Consolidated Financial Statements for additional information.
(f)Net generation capacity is stated at proportionate ownership share.
(g)Reflects the prior sale of 49% of EGRP to a third party. See Note 23 - Variable Interest Entities of the Combined Notes to Consolidated Financial Statements for additional information.
(h)On December 8, 2020, Generation entered into an agreement with an affiliate of Brookfield Renewable, for the sale of a significant portion of Generation's solar business. The transaction is expected to be completed in the first half of 2021. See Note 2 - Mergers, Acquisitions, and Dispositions of the Combined Notes to the Consolidated Financial Statements for additional information.
(i)Generation has deactivated the site and is evaluating for potential return of service or retirement beyond 2021.
(j)Reflects Generation’s interest in CENG, a joint venture with EDF. See ITEM 1. - BUSINESS - Exelon Generation Company, LLC - Nuclear Facilities for additional information.
(k)EGRP owns 100% of the Class A membership interests and a tax equity investor owns 100% of the Class B membership interests of the entity that owns the Bluestem generating assets.
(l)Generation directly owns a 50% interest in the Albany Green Energy station and an additional 49% through the consolidation of a Variable Interest Entity.
(m)Generation has plans to retire and cease plant operations in 2021.
The net generation capability available for operation at any time may be less due to regulatory restrictions, transmission congestion, fuel restrictions, efficiency of cooling facilities, level of water supplies, or generating units being temporarily out of service for inspection, maintenance, refueling, repairs, or modifications required by regulatory authorities.
Generation maintains property insurance against loss or damage to its principal plants and properties by fire or other perils, subject to certain exceptions. For additional information regarding nuclear insurance of generating facilities, see ITEM 1. BUSINESS - Exelon Generation Company, LLC. For its insured losses, Generation is self-insured to the extent that any losses are within the policy deductible or exceed the amount of insurance maintained. Any such losses could have a material adverse effect in Generation’s consolidated financial condition or results of operations.
The Utility Registrants
The Utility Registrants' electric substations and a portion of their transmission rights are located on property that they own. A significant portion of their electric transmission and distribution facilities are located above or underneath highways, streets, other public places, or property that others own. The Utility Registrants believe that they have satisfactory rights to use those places or property in the form of permits, grants, easements, licenses, and franchise rights; however, they have not necessarily undertaken to examine the underlying title to the land upon which the rights rest.
Transmission and Distribution
The Utility Registrants’ high voltage electric transmission lines owned and in service at December 31, 2020 were as follows:
___________
(a) In addition, PECO, DPL, and ACE have an ownership interest located in Delaware and New Jersey. See Note 9 - Jointly Owned Electric Utility Plant - for additional information.
The Utility Registrants' electric distribution system includes the following number of circuit miles of overhead and underground lines:
Gas
The following table presents PECO’s, BGE’s, and DPL’s natural gas pipeline miles at December 31, 2020:
___________
(a) DPL has a 10% undivided interest in approximately 8 miles of natural gas transmission mains located in Delaware which are used by DPL for its natural gas operations and by 90% owner for distribution of natural gas to its electric generating facilities.
The following table presents PECO’s, BGE’s, and DPL’s natural gas facilities:
PECO, BGE, and DPL also own 30, 30, and 10 natural gas city gate stations and direct pipeline customer delivery points at various locations throughout their gas service territory, respectively.
First Mortgage and Insurance
The principal properties of ComEd, PECO, PEPCO, DPL, and ACE are subject to the lien of their respective Mortgages under which their respective First Mortgage Bonds are issued. See Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements for additional information.
The Utility Registrants maintain property insurance against loss or damage to their properties by fire or other perils, subject to certain exceptions. For their insured losses, the Utility Registrants are self-insured to the extent that any losses are within the policy deductible or exceed the amount of insurance maintained. Any such losses could have a material adverse effect in the consolidated financial condition or results of operations of the Utility Registrants.
Exelon
Security Measures
The Registrants have initiated and work to maintain security measures. On a continuing basis, the Registrants evaluate enhanced security measures at certain critical locations, enhanced response and recovery plans, long-term design changes, and redundancy measures. Additionally, the energy industry has strategic relationships with governmental authorities to ensure that emergency plans are in place and critical infrastructure vulnerabilities are addressed in order to maintain the reliability of the country’s energy systems.
ITEM 3.
ITEM 3.LEGAL PROCEEDINGS
All Registrants
The Registrants are parties to various lawsuits and regulatory proceedings in the ordinary course of their respective businesses. For information regarding material lawsuits and proceedings, see Note 3 - Regulatory Matters and Note 19 - Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements. Such descriptions are incorporated herein by these references.
ITEM 4.
ITEM 4.MINE SAFETY DISCLOSURES
All Registrants
Not Applicable to the Registrants.
PART II
(Dollars in millions except per share data, unless otherwise noted)
ITEM 5.
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Exelon
Exelon’s common stock is listed on the Nasdaq (trading symbol: EXC). As of January 31, 2021, there were 976,337,799 shares of common stock outstanding and approximately 91,240 record holders of common stock.
Stock Performance Graph
The performance graph below illustrates a five-year comparison of cumulative total returns based on an initial investment of $100 in Exelon common stock, as compared with the S&P 500 Stock Index and the S&P Utility Index, for the period 2016 through 2020.
This performance chart assumes:
•$100 invested on December 31, 2015 in Exelon common stock, the S&P 500 Stock Index, and the S&P Utility Index; and
•All dividends are reinvested.
Generation
As of January 31, 2021, Exelon indirectly held the entire membership interest in Generation.
ComEd
As of January 31, 2021, there were 127,021,370 outstanding shares of common stock, $12.50 par value, of ComEd, of which 127,002,904 shares were indirectly held by Exelon. At January 31, 2021, in addition to Exelon, there were 286 record holders of ComEd common stock. There is no established market for shares of the common stock of ComEd.
PECO
As of January 31, 2021, there were 170,478,507 outstanding shares of common stock, without par value, of PECO, all of which were indirectly held by Exelon.
BGE
As of January 31, 2021, there were 1,000 outstanding shares of common stock, without par value, of BGE, all of which were indirectly held by Exelon.
PHI
As of January 31, 2021, Exelon indirectly held the entire membership interest in PHI.
Pepco
As of January 31, 2021, there were 100 outstanding shares of common stock, $0.01 par value, of Pepco, all of which were indirectly held by Exelon.
DPL
As of January 31, 2021, there were 1,000 outstanding shares of common stock, $2.25 par value, of DPL, all of which were indirectly held by Exelon.
ACE
As of January 31, 2021, there were 8,546,017 outstanding shares of common stock, $3.00 par value, of ACE, all of which were indirectly held by Exelon.
All Registrants
Dividends
Under applicable Federal law, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE can pay dividends only from retained, undistributed or current earnings. A significant loss recorded at Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, or ACE may limit the dividends that these companies can distribute to Exelon.
ComEd has agreed in connection with a financing arranged through ComEd Financing III that ComEd will not declare dividends on any shares of its capital stock in the event that: (1) it exercises its right to extend the interest payment periods on the subordinated debt securities issued to ComEd Financing III; (2) it defaults on its
guarantee of the payment of distributions on the preferred trust securities of ComEd Financing III; or (3) an event of default occurs under the Indenture under which the subordinated debt securities are issued. No such event has occurred.
PECO has agreed in connection with financings arranged through PEC L.P. and PECO Trust IV that PECO will not declare dividends on any shares of its capital stock in the event that: (1) it exercises its right to extend the interest payment periods on the subordinated debentures which were issued to PEC L.P. or PECO Trust IV; (2) it defaults on its guarantee of the payment of distributions on the Series D Preferred Securities of PEC L.P. or the preferred trust securities of PECO Trust IV; or (3) an event of default occurs under the Indenture under which the subordinated debentures are issued. No such event has occurred.
BGE is subject to restrictions established by the MDPSC that prohibit BGE from paying a dividend on its common shares if (a) after the dividend payment, BGE’s equity ratio would be below 48% as calculated pursuant to the MDPSC’s ratemaking precedents or (b) BGE’s senior unsecured credit rating is rated by two of the three major credit rating agencies below investment grade. No such event has occurred.
Pepco is subject to certain dividend restrictions established by settlements approved in Maryland and the District of Columbia. Pepco is prohibited from paying a dividend on its common shares if (a) after the dividend payment, Pepco's equity ratio would be below 48% as equity levels are calculated under the ratemaking precedents of the MDPSC and DCPSC or (b) Pepco’s senior unsecured credit rating is rated by one of the three major credit rating agencies below investment grade. No such event has occurred.
DPL is subject to certain dividend restrictions established by settlements approved in Delaware and Maryland. DPL is prohibited from paying a dividend on its common shares if (a) after the dividend payment, DPL's equity ratio would be below 48% as equity levels are calculated under the ratemaking precedents of the DPSC and MDPSC or (b) DPL’s senior unsecured credit rating is rated by one of the three major credit rating agencies below investment grade. No such event has occurred.
ACE is subject to certain dividend restrictions established by settlements approved in New Jersey. ACE is prohibited from paying a dividend on its common shares if (a) after the dividend payment, ACE's equity ratio would be below 48% as equity levels are calculated under the ratemaking precedents of the NJBPU or (b) ACE's senior unsecured credit rating is rated by one of the three major credit rating agencies below investment grade. ACE is also subject to a dividend restriction which requires ACE to obtain the prior approval of the NJBPU before dividends can be paid if its equity as a percent of its total capitalization, excluding securitization debt, falls below 30%. No such events have occurred.
Exelon’s Board of Directors approved an updated dividend policy for 2021. The 2021 quarterly dividend will remain the same as the 2020 dividend of $0.3825 per share.
At December 31, 2020, Exelon had retained earnings of $16,735 million, including Generation’s undistributed earnings of $2,805 million, ComEd’s retained earnings of $1,456 million consisting of retained earnings appropriated for future dividends of $3,095 million, partially offset by $1,639 million of unappropriated accumulated deficits, PECO’s retained earnings of $1,519 million, BGE’s retained earnings of $1,879 million, and PHI's undistributed losses of $68 million.
The following table sets forth Exelon’s quarterly cash dividends per share paid during 2020 and 2019:
The following table sets forth Generation's and PHI's quarterly distributions and ComEd’s, PECO’s, BGE's, Pepco's, DPL's, and ACE's quarterly common dividend payments:
First Quarter 2021 Dividend
On February 21, 2021, Exelon's Board of Directors declared a regular quarterly dividend of $0.3825 per share on Exelon’s common stock for the first quarter of 2021. The dividend is payable on Monday, March 15, 2021, to shareholders of record of Exelon as of 5 p.m. Eastern time on Monday, March 8, 2021.
Item 7.
Item 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Exelon
Executive Overview
Exelon is a utility services holding company engaged in the generation, delivery, and marketing of energy through Generation and the energy distribution and transmission businesses through ComEd, PECO, BGE, Pepco, DPL, and ACE.
Exelon has eleven reportable segments consisting of Generation’s five reportable segments (Mid-Atlantic, Midwest, New York, ERCOT, and Other Power Regions), ComEd, PECO, BGE, Pepco, DPL, and ACE. See Note 1 - Significant Accounting Policies and Note 5 - Segment Information of the Combined Notes to Consolidated Financial Statements for additional information regarding Exelon's principal subsidiaries and reportable segments.
Exelon’s consolidated financial information includes the results of its eight separate operating subsidiary registrants, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE, which, along with Exelon, are collectively referred to as the Registrants. The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations summarizes results for the year ended December 31, 2020 compared to the year ended December 31, 2019, and is separately filed by Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE. However, none of the Registrants makes any representation as to information related solely to any of the other Registrants. For discussion of the year ended December 31, 2019 compared to the year ended December 31, 2018, refer to ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the 2019 Form 10-K, which was filed with the SEC on February 11, 2020.
COVID-19. The Registrants have taken steps to mitigate the potential risks posed by the global outbreak (pandemic) of COVID-19. The Registrants provide a critical service to our customers which means that it is paramount that we keep our employees who operate our businesses safe and minimize unnecessary risk of exposure to the virus. The Registrants have taken extra precautions for our employees who work in the field and for employees who continue to work in our facilities. The Registrants have implemented work from home policies where appropriate, and imposed travel limitations on their employees. In addition, the Registrants have updated existing business continuity plans in the context of this pandemic.
The Registrants continue to implement strong physical and cyber-security measures to ensure that our systems remain functional in order to both serve our operational needs with a remote workforce and keep them running to ensure uninterrupted service to our customers.
There were no changes in internal control over financial reporting in 2020 as a result of COVID-19 that materially affected, or are reasonably likely to materially affect, any of the Registrants’ internal control over financial reporting. See ITEM 9A. CONTROLS AND PROCEDURES for additional information.
Unfavorable economic conditions due to COVID-19 have impacted the demand for electricity and natural gas at Generation and the Utility Registrants, which has resulted in a decrease in operating revenues.
As a result of COVID-19, Generation temporarily suspended interruption of service for all retail residential customers for non-payment and temporarily ceased new late payment fees for all retail customers from March to May of 2020. Starting in March of 2020, the Utility Registrants also temporarily suspended customer disconnections for non-payment and temporarily ceased new late payment fees for all customers and restored service to customers upon request who were disconnected in the last twelve months. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information on such measures at the Utility Registrants. At Generation, such measures resulted in an increase in credit loss expense. ComEd and ACE recorded regulatory assets for the incremental credit loss expense based on existing mechanisms. BGE, PECO, Pepco, and DPL also recorded regulatory assets for substantially all the incremental credit loss expense incurred in 2020. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.
Generation and the Utility Registrants have also incurred direct costs related to COVID-19 consisting primarily of costs to acquire personal protective equipment, costs for cleaning supplies and services, and costs to hire healthcare professionals to monitor the health of their employees. At Generation and PECO, such costs are recorded as Operating and maintenance expense and are excluded from Adjusted (non-GAAP) Operating Earnings. At ComEd, BGE, Pepco, DPL, and ACE, such costs are primarily recorded as regulatory assets. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.
The estimated impact to Generation’s and the Utility Registrants’ Net income is approximately $170 million and $75 million for the year ended December 31, 2020, respectively.
To offset the unfavorable impacts from COVID-19, the Registrants identified approximately $250 million in cost savings across Generation and the Utility Registrants in 2020. The cost savings achieved in 2020 were higher than originally anticipated.
The Registrants rely on the capital markets for publicly offered debt as well as the commercial paper markets to meet their financial commitments and short-term liquidity needs. As a result of the disruptions in the commercial paper markets in March of 2020, Generation borrowed $1.5 billion on its revolving credit facility to refinance commercial paper, which Generation repaid on April 3, 2020. Generation also entered into two short-term loan agreements in March of 2020 for an aggregate of $500 million. On April 8, 2020, Generation received approximately $500 million in cash after entering into an accounts receivable financing arrangement. On April 24, 2020, Exelon Corporate entered into a credit agreement establishing a $550 million 364-day revolving credit facility to be used as an additional source of short-term liquidity. In addition, the Registrants issued long-term debt of $5.3 billion and were able to successfully complete their planned long-term debt issuances in 2020. See Liquidity and Capital Resources, Note 17 - Debt and Credit Agreements, and Note 6 - Accounts Receivable of the Combined Notes to Consolidated Financial Statements for additional information.
The Registrants assessed long-lived assets, goodwill, and investments for recoverability and there were no material impairment charges recorded in 2020 as a result of COVID-19. See Note 12 - Asset Impairments for additional information related to other impairment assessments in the third quarter of 2020. Certain assumptions are highly sensitive to changes. Changes in significant assumptions could potentially result in future impairments, which could be material.
This is an evolving situation that could lead to extended disruption of economic activity in our markets. The Registrants will continue to monitor developments affecting their workforce, customers, and suppliers and will take additional precautions that they determine to be necessary in order to mitigate the impacts. The extent to which COVID-19 may impact the Registrants’ ability to operate their generating and transmission and distribution assets, the ability to access capital markets, and results of operations, including demand for electricity and natural gas, will depend on the spread and proliferation of COVID-19 around the world and future developments, which are highly uncertain and cannot be predicted at this time.
Financial Results of Operations
GAAP Results of Operations. The following table sets forth Exelon's GAAP consolidated Net Income attributable to common shareholders by Registrant for the year ended December 31, 2020 compared to the same period in 2019. For additional information regarding the financial results for the years ended December 31, 2020 and 2019 see the discussions of Results of Operations by Registrant.
__________
(a)Primarily includes eliminating and consolidating adjustments, Exelon’s corporate operations, shared service entities, and other financing and investing activities.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019. Net income attributable to common shareholders decreased by $973 million and diluted earnings per average common share decreased to $2.01 in 2020 from $3.01 in 2019 primarily due to:
•One-time charges and accelerated depreciation and amortization associated with Generation's decisions in the third quarter of 2020 to early retire Byron and Dresden nuclear facilities in 2021 and Mystic Units 8 and 9 in 2024, partially offset by the absence of accelerated depreciation and amortization due to the early retirement of TMI in September 2019;
•Impairment of the New England asset group;
•Payments that ComEd made under the Deferred Prosecution Agreement. See Note 19 - Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements for additional information;
•Lower capacity revenue;
•Reduction in load due to COVID-19 at Generation;
•Lower realized energy prices;
•Higher nuclear outage days;
•Impact of Generation's annual update to the nuclear ARO for Non-Regulatory Agreement Units;
•Lower net unrealized and realized gains on NDT funds;
•COVID-19 direct costs;
•Lower electric distribution earnings from lower allowed ROE due to a decrease in treasury rates, partially offset by higher rate base at ComEd;
•Higher storm costs related to the June 2020 and August 2020 storms at PECO, net of tax repairs, and related to the August 2020 storm at DPL;
•Unfavorable weather conditions at PECO, DPL Delaware, and ACE; and
•A net increase in depreciation and amortization expense due to ongoing capital expenditures at PECO, BGE, Pepco, DPL, and ACE, partially offset at Generation due to the impact of extending the operating license at Peach Bottom.
The decreases were partially offset by;
•Higher mark-to-market gains;
•Unrealized gains resulting from equity investments without readily determinable fair values that became publicly traded entities in the fourth quarter and were fair valued based on quoted market prices of the stocks as of December 31, 2020;
•Lower operating and maintenance expense at Generation primarily due to previous cost management programs, lower contracting costs, and lower travel costs, partially offset by lower NEIL insurance distributions;
•Lower nuclear fuel costs;
•A tax benefit related to a settlement in the first quarter of 2020, partially offset by the absence of a tax benefit related to certain research and development activities recorded in the fourth quarter of 2019 at Generation; and
•Regulatory rate increases at BGE, DPL, and ACE.
Adjusted (non-GAAP) Operating Earnings. In addition to net income, Exelon evaluates its operating performance using the measure of Adjusted (non-GAAP) operating earnings because management believes it represents earnings directly related to the ongoing operations of the business. Adjusted (non-GAAP) operating earnings exclude certain costs, expenses, gains and losses, and other specified items. This information is intended to enhance an investor’s overall understanding of year-to-year operating results and provide an indication of Exelon’s baseline operating performance excluding items that are considered by management to be not directly related to the ongoing operations of the business. In addition, this information is among the primary indicators management uses as a basis for evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting of future periods. Adjusted (non-GAAP) operating earnings is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.
The following table provides a reconciliation between Net income attributable to common shareholders as determined in accordance with GAAP and Adjusted (non-GAAP) operating earnings for the year ended December 31, 2020 as compared to 2019:
__________
Note:
Amounts may not sum due to rounding.
Unless otherwise noted, the income tax impact of each reconciling item between GAAP Net Income and Adjusted (non-GAAP) Operating Earnings is based on the marginal statutory federal and state income tax rates for each Registrant, taking into account whether the income or expense item is taxable or deductible, respectively, in whole or in part. For all items except the unrealized gains and losses related to NDT funds, the marginal statutory income tax rates for 2020 and 2019 ranged from 26.0% to 29.0%. Under IRS regulations, NDT fund investment returns are taxed at different rates for investments if they are in qualified or non-qualified funds. The effective tax rates for the unrealized gains and losses related to NDT funds were 52.1% and 47.3% for the years ended December 31, 2020 and 2019, respectively.
(a)Reflects the impact of net unrealized gains and losses on Generation’s NDT fund investments for Non-Regulatory and Regulatory Agreement Units. The impacts of the Regulatory Agreement Units, including the associated income taxes, are contractually eliminated, resulting in no earnings impact.
(b)In 2020, reflects an impairment at ComEd in the second quarter of 2020 related to the acquisition of transmission assets and an impairment of the New England asset group in the third quarter of 2020. In 2019, primarily reflects the impairment of equity method investments in certain distributed energy companies. The impact of such impairment net of noncontrolling interest is $0.02.
(c)In 2020, primarily reflects one-time charges and accelerated depreciation and amortization associated with Generation's decisions in the third quarter of 2020 to early retire Byron and Dresden nuclear facilities in 2021 and Mystic Units 8 and 9 in 2024. In 2019, primarily reflects accelerated depreciation and amortization expenses associated with the early retirement of the TMI nuclear facility and certain fossil sites and the loss on the sale of Oyster Creek to Holtec, partially offset by net realized gains related to Oyster Creek's NDT fund investments, a net benefit associated with remeasurements of the TMI ARO, and a gain on the sale of certain wind assets.
(d)Primarily represents reorganization and severance costs related to cost management programs.
(e)Reflects an adjustment to Generation's nuclear ARO for Non-Regulatory Agreement Units resulting from the annual update.
(f)Represents direct costs related to COVID-19 consisting primarily of costs to acquire personal protective equipment, costs for cleaning supplies and services, and costs to hire healthcare professionals to monitor the health of employees.
(g)Reflects the payments made by ComEd under the Deferred Prosecution Agreement, which ComEd entered into on July 17, 2020 with the U.S. Attorney’s Office for the Northern District of Illinois.
(h)Reflects costs related to the acquisition of EDF's interest in CENG.
(i)Reflects costs related to a multi-year ERP system implementation.
(j)Primarily reflects the adjustment to deferred income taxes due to changes in forecasted apportionment.
(k)Represents elimination from Generation’s results of the noncontrolling interests related to certain exclusion items. In 2020, primarily related to unrealized gains and losses on NDT fund investments for CENG units. In 2019, primarily related to the impact of unrealized gains on NDT fund investments and the impact of the Generation's annual nuclear ARO update for CENG units, partially offset by the impairment of certain equity investments in distributed energy companies.
Significant 2020 Transactions and Developments
Planned Separation
On February 21, 2021, Exelon’s Board of Directors approved a plan to separate the Utility Registrants and Generation, creating two publicly traded companies with the resources necessary to best serve customers and sustain long-term investment and operating excellence. The separation gives each company the financial and strategic independence to focus on its specific customer needs, while executing its core business strategy. See Note 26 - Subsequent Events of the Combined Notes to Consolidated Financial Statements for additional information.
Impacts of February 2021 Weather Events and Texas-based Generating Assets Outages
Beginning on February 15, 2021, Generation’s Texas-based generating assets within the ERCOT market, specifically Colorado Bend II, Wolf Hollow II, and Handley, experienced periodic outages as a result of historically severe cold weather conditions. In addition, those weather conditions drove increased demand for service, limited the availability of natural gas to fuel power plants, and dramatically increased wholesale power and gas prices.
Exelon and Generation estimate the impact to their Net income for the first quarter of 2021 arising from these market and weather conditions to be approximately $560 million to $710 million. The estimated impact includes favorable results in certain regions within Generation’s wholesale gas business. The ultimate impact to Exelon’s and Generation’s consolidated financial statements may be affected by a number of factors, including final settlement data, the impacts of customer and counterparty credit losses, any state sponsored solutions to address the financial challenges caused by the event, and litigation and contract disputes which may result. Exelon expects to offset between $410 million and $490 million of this impact primarily at Generation through a combination of enhanced revenue opportunities, deferral of selected non-essential maintenance, and primarily one-time cost savings.
See Note 26 - Subsequent Events of the Combined Notes to Consolidated Financial Statements for additional information.
Agreement for Sale of Generation’s Solar Business
On December 8, 2020, Generation entered into an agreement with an affiliate of Brookfield Renewable, for the sale of a significant portion of Generation’s solar business, including 360 megawatts of generation in operation or under construction across more than 600 sites across the United States, for a purchase price of $810 million. Completion of the transaction is expected to occur in the first half of 2021. Generation will retain certain solar assets not included in this agreement, primarily Antelope Valley. See Note 2 - Mergers, Acquisitions, and Dispositions of the Combined Notes to Consolidated Financial Statements for additional information.
Early Retirement of Generation Facilities
In August 2020, Generation announced that it intends to retire the Byron Generating Station in September 2021, Dresden Generating Station in November 2021, and Mystic Units 8 and 9 at the expiration of the cost of service commitment in May 2024. As a result, in the third quarter of 2020, Exelon and Generation recognized a $500 million impairment of its New England asset group and one-time non-cash charges for Byron, Dresden, and Mystic related to materials and supplies inventory reserve adjustments, employee-related costs, and construction work-in-progress impairments, among other items. In addition, there will be ongoing annual financial impacts stemming from shortening the expected economic useful lives of these facilities, primarily related to accelerated depreciation of plant assets (including any ARC) and accelerated amortization of nuclear fuel. Such ongoing charges are excluded from Adjusted (non-GAAP) Operating Earnings.
The following table summarizes the incremental expense recorded for the year ended December 31, 2020 and the estimated amounts of incremental expense expected to be incurred through the retirement dates.
_________
(a)Actual results may differ based on incremental future capital additions, actual units of production for nuclear fuel amortization, future revised ARO assumptions, etc.
(b)Reflects incremental accelerated depreciation of plant assets, including any ARC.
(c)Reflects primarily the net impacts associated with the remeasurement of the ARO for Dresden. See Note 10 - Asset Retirement Obligations of the Combined Notes to Consolidated Financial Statements for additional information.
(d)Reflects contractual offset for ARO accretion, ARC depreciation, and net impacts associated with the remeasurement of the ARO for Byron and Dresden. Based on the regulatory agreement with the ICC, decommissioning-related activities are offset within Exelon's and Generation's Consolidated Statements of Operations and Comprehensive Income as long as the net cumulative decommissioning-related activities result in a regulatory liability at ComEd. Recognition of a regulatory asset for nuclear decommissioning-related activities at ComEd is not permissible. The offset results in an equal adjustment to the noncurrent payables to ComEd at Generation and an adjustment to the regulatory liabilities at ComEd. See Note 10 - Asset Retirement Obligations of the Combined Notes to Consolidated Financial Statements for additional information.
Deferred Prosecution Agreement
On July 17, 2020, ComEd entered into a Deferred Prosecution Agreement (DPA) with the U.S. Attorney’s Office for the Northern District of Illinois (USAO) to resolve the USAO’s investigation into ComEd’s lobbying activities in the State of Illinois. Under the DPA, the USAO filed a single charge alleging that ComEd improperly gave and offered to give jobs, vendor subcontracts, and payments associated with those jobs and subcontracts for the benefit of the Speaker of the Illinois House of Representatives and the Speaker’s associates, with the intent to influence the Speaker’s action regarding legislation affecting ComEd’s interests. The DPA provides that the USAO will defer any prosecution of such charge and any other criminal or civil case against ComEd in connection with the matters identified therein for a three-year period subject to certain obligations of ComEd, including payment to the United States Treasury of $200 million, with $100 million payable within thirty days of the filing of the DPA with the United States District Court for the Northern District of Illinois and an additional $100 million within ninety days of such filing date. The payments will not be recovered in rates or charged to customers, and ComEd will not seek or accept reimbursement or indemnification from any source other than Exelon. See Note 19 - Commitments and Contingencies for additional information.
Utility Distribution Base Rate Case Proceedings
The Utility Registrants file base rate cases with their regulatory commissions seeking increases or decreases to their electric transmission and distribution, and gas distribution rates to recover their costs and earn a fair return on their investments. The outcomes of these regulatory proceedings impact the Utility Registrants’ current and future financial statements.
The following tables show the Utility Registrants’ completed and pending distribution base rate case proceedings in 2020. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information on these and other regulatory proceedings.
Completed Distribution Base Rate Case Proceedings
Pending Distribution Base Rate Case Proceedings
Transmission Formula Rates
The following total increases/(decreases) were included in the Utility Registrants' 2020 annual electric transmission formula rate updates. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.
Sales of Customer Accounts Receivable
On April 8, 2020, NER, a bankruptcy remote, special purpose entity, which is wholly owned by Generation, entered into an accounts receivable financing facility with a number of financial institutions and a commercial paper conduit to sell certain customer accounts receivables. Generation received approximately $500 million of cash in accordance with the initial sale of approximately $1.2 billion receivables. See Note 6 - Accounts Receivable of the Combined Notes to Consolidated Financial Statements for additional information.
Exelon’s Strategy and Outlook
On February 21, 2021, Exelon’s Board of Directors approved a plan to separate the Utility Registrants and Generation, creating two publicly traded companies with the resources necessary to best serve customers and sustain long-term investment and operating excellence. The separation gives each company the financial and strategic independence to focus on its specific customer needs, while executing its core business strategy. See Note 26 - Subsequent Events of the Combined Notes to Consolidated Financial Statements for additional information.
In 2021, the businesses remain focused on maintaining industry leading operational excellence, meeting or exceeding their financial commitments, ensuring timely recovery on investments to enable customer benefits, supporting enactment of clean energy policies, and continued commitment to corporate responsibility.
Exelon’s utility strategy is to improve reliability and operations and enhance the customer experience, while ensuring ratemaking mechanisms provide the utilities fair financial returns. The Utility Registrants only invest in rate base where it provides a benefit to customers and the community by improving reliability and the service experience or otherwise meeting customer needs. The Utility Registrants make these investments at the lowest
reasonable cost to customers. Exelon seeks to leverage its scale and expertise across the utilities platform through enhanced standardization and sharing of resources and best practices to achieve improved operational and financial results. Additionally, the Utility Registrants anticipate making significant future investments in smart grid technology, transmission projects, gas infrastructure, and electric system improvement projects, providing greater reliability and improved service for our customers and a stable return for the company.
Generation’s competitive businesses create value for customers by providing innovative energy solutions and reliable, clean, and affordable energy. Generation’s electricity generation strategy is to pursue opportunities that provide stable revenues and match supply to customers. Generation leverages its energy generation portfolio to deliver energy to both wholesale and retail customers. Generation’s customer-facing activities foster development and delivery of other innovative energy-related products and services for its customers. Generation operates in well-developed energy markets and employs an integrated hedging strategy to manage commodity price volatility. Its generation fleet, including its nuclear plants which consistently operate at high capacity factors, also provide geographic and supply source diversity. These factors help Generation mitigate the current challenging conditions in competitive energy markets.
Various market, financial, regulatory, legislative and operational factors could affect the Registrants' success in pursuing their strategies. Exelon continues to assess infrastructure, operational, commercial, policy, and legal solutions to these issues. One key issue is ensuring the ability to properly value nuclear generation assets in the market, solutions to which Exelon is actively pursuing in a variety of jurisdictions and venues. See ITEM 1A. RISK FACTORS for additional information regarding market and financial factors.
Growth Opportunities
Management continually evaluates growth opportunities aligned with Exelon’s businesses, assets and markets, leveraging Exelon’s expertise in those areas and offering sustainable returns.
Regulated Energy Businesses. The Utility Registrants anticipate investing approximately $27 billion over the next four years in electric and natural gas infrastructure improvements and modernization projects, including smart grid technology, storm hardening, advanced reliability technologies, and transmission projects, which is projected to result in an increase to current rate base of approximately $15 billion by the end of 2024. The Utility Registrants invest in rate base where beneficial to customers and the community by increasing reliability and the service experience or otherwise meeting customer needs. These investments are made at the lowest reasonable cost to customers.
Competitive Energy Businesses. Generation continually assesses the optimal structure and composition of its generation assets as well as explores wholesale and retail opportunities within the power and gas sectors. Generation’s strategy is to ensure appropriate valuation of its generation assets, in part through public policy efforts, identify and capitalize on opportunities that match supply to customers as a means to provide stable earnings, and identify emerging technologies where strategic investments provide the option for significant future growth or influence in market development.
Other Key Business Drivers and Management Strategies
Utility Rates and Rate Proceedings
The Utility Registrants file rate cases with their regulatory commissions seeking increases or decreases to their electric transmission and distribution, and gas distribution rates to recover their costs and earn a fair return on their investments. The outcomes of these regulatory proceedings impact the Utility Registrants’ current and future results of operations, cash flows, and financial positions. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information on these regulatory proceedings.
Power Markets
Price of Fuels
The use of new technologies to recover natural gas from shale deposits is increasing natural gas supply and reserves, which places downward pressure on natural gas prices and, therefore, on wholesale and retail power prices, which results in a reduction in Exelon’s revenues. Forward natural gas prices have declined significantly
over the last several years; in part reflecting an increase in supply due to strong natural gas production (due to shale gas development).
Section 232 Uranium Petition
On January 16, 2018, two Canadian-owned uranium mining companies with operations in the U.S. jointly submitted a petition to the U.S. Department of Commerce ("DOC") seeking relief under Section 232 of the Trade Expansion Act of 1962 from imports of uranium products, alleging that these imports threaten national security.
The United States Nuclear Fuel Working Group ("Working Group") report was made public on April 23, 2020. The Working Group report states that nuclear power is intrinsically tied to national security, and promises that the U.S. government will take bold actions to strengthen all parts of the nuclear fuel industry in the U.S. It recommends the Agreement Suspending the Antidumping Investigation on Uranium from the Russian Federation (the “Russian Suspension Agreement” or "RSA") be extended and to consider reducing the amount of Russian imports of nuclear fuel. The Russian Suspension Agreement is the historical resolution of a 1991 DOC investigation that found that the Russians had been selling or “dumping” cheap uranium products into the U.S. The RSA has been amended several times in the intervening years to allow Russia to supply limited amounts of uranium products into the U.S. It was set to expire at the end of 2020, but was amended on October 5, 2020 to extend for another 20 years.
The Working Group report should be viewed as policy recommendations that may be implemented by executive agencies, congress, and or regulatory bodies. Exelon and Generation cannot currently predict the outcome of all of the policy changes recommended by the Working Group.
Complaint at FERC Seeking to Alter Capacity Market Default Offer Caps
On February 21, 2019, PJM's Independent Market Monitor (IMM) filed a complaint alleging that the number of performance assessment intervals used to calculate the default offer cap for bids to supply capacity in PJM is too high, resulting in an overstated default offer cap that obviates the need for most sellers to seek unit-specific approval of their offers. The IMM claims that this allows for the exercise of market power. The IMM asks FERC to require PJM to reduce the number of performance assessment intervals used to calculate the opportunity costs of a capacity supplier assuming a capacity obligation. This would, in turn, lower the default offer cap and allow the IMM to review more offers on a unit-specific basis. It is too early to predict the final outcome of this proceeding or its potential financial impact, if any, on Exelon or Generation.
Energy Demand
Load growth at the Utility Registrants is driven by recovery from COVID-19 impacts. ComEd and PECO are projecting modest growth in load of 2.5% and 1.8%, respectively, in 2021 as compared to reduced load in 2020. BGE, Pepco, DPL, and ACE are projecting slower growth as prolonged COVID-19 impacts decrease load by (2.0)%, (0.8)%, (0.9)%, and (2.4)%, respectively, in 2021 compared to 2020.
Retail Competition
Generation’s retail operations compete for customers in a competitive environment, which affect the margins that Generation can earn and the volumes that it is able to serve. Forward natural gas and power prices are expected to remain low and thus we expect retail competitors to stay aggressive in their pursuit of market share, and that wholesale generators (including Generation) will continue to use their retail operations to hedge generation output.
Hedging Strategy
Exelon’s policy to hedge commodity risk on a ratable basis over three-year periods is intended to reduce the financial impact of market price volatility. Generation is exposed to commodity price risk associated with the unhedged portion of its electricity portfolio. Generation enters into non-derivative and derivative contracts, including financially-settled swaps, futures contracts and swap options, and physical options and physical forward contracts, all with credit-approved counterparties, to hedge this anticipated exposure. As of December 31, 2020, the percentage of expected generation hedged for the Mid-Atlantic, Midwest, New York, and ERCOT reportable segments is 94%-97% for 2021. Generation has been and will continue to be proactive in using hedging strategies to mitigate commodity price risk.
Generation procures natural gas through long-term and short-term contracts and spot-market purchases. Nuclear fuel assemblies are obtained predominantly through long-term uranium concentrate supply contracts, contracted conversion services, contracted enrichment services, or a combination thereof, and contracted fuel fabrication services. The supply markets for uranium concentrates and certain nuclear fuel services are subject to price fluctuations and availability restrictions. Approximately 60% of Generation’s uranium concentrate requirements from 2021 through 2025 are supplied by three suppliers. In the event of non-performance by these or other suppliers, Generation believes that replacement uranium concentrate can be obtained, although at prices that may be unfavorable when compared to the prices under the current supply agreements. Non-performance by these counterparties could have a material adverse impact on Exelon’s and Generation’s consolidated financial statements.
See Note 16 - Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements and ITEM 7A.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrants are exposed to market risks associated with adverse changes in commodity prices, counterparty credit, interest rates, and equity prices. Exelon’s RMC approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval, and the monitoring and reporting of risk exposures. The RMC is chaired by the chief executive officer and includes the chief risk officer, chief strategy officer, chief executive officer of Exelon Utilities, chief commercial officer, chief financial officer, and chief executive officer of Constellation. The RMC reports to the Finance and Risk Committee of the Exelon Board of Directors on the scope of the risk management activities.
Commodity Price Risk (All Registrants)
Commodity price risk is associated with price movements resulting from changes in supply and demand, fuel costs, market liquidity, weather conditions, governmental regulatory and environmental policies, and other factors. To the extent the total amount of energy Exelon generates and purchases differs from the amount of energy it has contracted to sell, Exelon is exposed to market fluctuations in commodity prices. Exelon seeks to mitigate its commodity price risk through the sale and purchase of electricity, fossil fuel, and other commodities.
Generation
Electricity available from Generation’s owned or contracted generation supply in excess of Generation’s obligations to customers, including portions of the Utility Registrants' retail load, is sold into the wholesale markets. To reduce commodity price risk caused by market fluctuations, Generation enters into non-derivative contracts as well as derivative contracts, including swaps, futures, forwards, and options, with approved counterparties to hedge anticipated exposures. Generation uses derivative instruments as economic hedges to mitigate exposure to fluctuations in commodity prices. Generation expects the settlement of the majority of its economic hedges will occur during 2021 through 2023.
In general, increases and decreases in forward market prices have a positive and negative impact, respectively, on Generation’s owned and contracted generation positions which have not been hedged. Exelon's hedging program involves the hedging of commodity price risk for Exelon's expected generation, typically on a ratable basis over three-year periods. As of December 31, 2020, the percentage of expected generation hedged for the Mid-Atlantic, Midwest, New York, and ERCOT reportable segments is 94%-97% for 2021. The percentage of expected generation hedged is the amount of equivalent sales divided by the expected generation. Expected generation is the volume of energy that best represents our commodity position in energy markets from owned or contracted generation based upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market quotes for power, fuel, load following products, and options. Equivalent sales represent all hedging products, which include economic hedges and certain non-derivative contracts, including Generation’s sales to ComEd, PECO, BGE, Pepco, DPL, and ACE to serve their retail load.
A portion of Generation’s hedging strategy may be accomplished with fuel products based on assumed correlations between power and fuel prices, which routinely change in the market. Market price risk exposure is the risk of a change in the value of unhedged positions. The forecasted market price risk exposure for Generation’s entire economic hedge portfolio associated with a $5 reduction in the annual average around-the-clock energy price based on December 31, 2020 market conditions and hedged position would be a decrease in pre-tax net income of approximately $15 million for 2021. Power price sensitivities are derived by adjusting power price assumptions while keeping all other price inputs constant. Generation actively manages its portfolio to mitigate market price risk exposure for its unhedged position. Actual results could differ depending on the specific timing of, and markets affected by, price changes, as well as future changes in Generation’s portfolio. See Note 16 - Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.
Fuel Procurement
Generation procures natural gas through long-term and short-term contracts, and spot-market purchases. Nuclear fuel assemblies are obtained predominantly through long-term uranium concentrate supply contracts, contracted conversion services, contracted enrichment services, or a combination thereof, and contracted fuel fabrication services. The supply markets for uranium concentrates and certain nuclear fuel services are subject to price fluctuations and availability restrictions. Supply market conditions may make Generation’s procurement contracts subject to credit risk related to the potential non-performance of counterparties to deliver the contracted commodity or service at the contracted prices. Approximately 60% of Generation’s uranium concentrate requirements from 2021 through 2025 are supplied by three suppliers. In the event of non-performance by these or other suppliers, Generation believes that replacement uranium concentrates can be obtained, although at prices that may be unfavorable when compared to the prices under the current supply agreements. Non-performance by these counterparties could have a material adverse impact on Exelon’s and Generation’s financial statements.
Utility Registrants
ComEd entered into 20-year floating-to-fixed renewable energy swap contracts beginning in June 2012, which are considered an economic hedge and have changes in fair value recorded to an offsetting regulatory asset or liability. ComEd has block energy contracts to procure electric supply that are executed through a competitive procurement process, which are considered derivatives and qualify for NPNS, and as a result are accounted for on an accrual basis of accounting. PECO, BGE, Pepco, DPL, and ACE have contracts to procure electric supply that are executed through a competitive procurement process. BGE, Pepco, DPL, and ACE have certain full requirements contracts, which are considered derivatives and qualify for NPNS, and as a result are accounted for on an accrual basis of accounting. Other full requirements contracts are not derivatives.
PECO, BGE, and DPL also have executed derivative natural gas contracts, which either qualify for NPNS or have no mark-to-market balances because the derivatives are index priced, to hedge their long-term price risk in the natural gas market. The hedging programs for natural gas procurement have no direct impact on their financial statements. PECO, BGE, Pepco, DPL, and ACE do not execute derivatives for speculative or proprietary trading purposes.
For additional information on these contracts, see Note 3 - Regulatory Matters and Note 16 - Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements.
Trading and Non-Trading Marketing Activities
The following table detailing Exelon’s, Generation’s, and ComEd’s trading and non-trading marketing activities are included to address the recommended disclosures by the energy industry’s Committee of Chief Risk Officers (CCRO).
The following table provides detail on changes in Exelon’s, Generation’s, and ComEd’s commodity mark-to-market net asset or liability balance sheet position from December 31, 2018 to December 31, 2020. It indicates the drivers behind changes in the balance sheet amounts. This table incorporates the mark-to-market activities that are immediately recorded in earnings. This table excludes all NPNS contracts and does not segregate proprietary trading activity. See Note 16 - Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information on the balance sheet classification of the mark-to-market energy contract net assets (liabilities) recorded as of December 31, 2020 and 2019.
__________
(a)Amounts are shown net of collateral paid to and received from counterparties.
(b)For ComEd, the changes in fair value are recorded as a change in regulatory assets. As of December 31, 2019 and 2020, ComEd recorded a regulatory liability of $301 million and $301 million, respectively, related to its mark-to-market derivative liabilities with Generation and unaffiliated suppliers. ComEd recorded $78 million of decreases in fair value and an increase for realized losses due to settlements of $26 million in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2019. ComEd recorded $33 million of decrease in fair value and an increase for realized losses due to settlements of $33 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2020.
(c)Includes derivative contracts acquired or sold by Generation through upfront payments or receipts of cash, excluding option premiums, and the associated amortizations.
Fair Values
The following tables present maturity and source of fair value for Exelon, Generation, and ComEd mark-to-market commodity contract net assets (liabilities). The tables provide two fundamental pieces of information. First, the tables provide the source of fair value used in determining the carrying amount of the Registrants’ total mark-to-market net assets (liabilities), net of allocated collateral. Second, the tables show the maturity, by year, of the Registrants’ commodity contract net assets (liabilities), net of allocated collateral, giving an indication of when these mark-to-market amounts will settle and either generate or require cash. See Note 18 - Fair Value of Financial Assets and Liabilities of the Combined Notes to Consolidated Financial Statements for additional information regarding fair value measurements and the fair value hierarchy.
Exelon
__________
(a)Mark-to-market gains and losses on other economic hedge and trading derivative contracts that are recorded in results of operations.
(b)Amounts are shown net of collateral paid to and received from counterparties (and offset against mark-to-market assets and liabilities) of $416 million at December 31, 2020.
(c)Includes ComEd’s net assets (liabilities) associated with the floating-to-fixed energy swap contracts with unaffiliated suppliers.
Generation
__________
(a)Mark-to-market gains and losses on other economic hedge and trading derivative contracts that are recorded in the results of operations.
(b)Amounts are shown net of collateral paid to and received from counterparties (and offset against mark-to-market assets and liabilities) of $416 million at December 31, 2020.
ComEd
__________
(a)Represents ComEd’s net liabilities associated with the floating-to-fixed energy swap contracts with unaffiliated suppliers.
Credit Risk (All Registrants)
The Registrants would be exposed to credit-related losses in the event of non-performance by counterparties that execute derivative instruments. The credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts at the reporting date. See Note 16-Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for a detailed discussion of credit risk.
Generation
The following tables provide information on Generation’s credit exposure for all derivative instruments, normal purchases and normal sales agreements, and payables and receivables, net of collateral and instruments that are subject to master netting agreements, as of December 31, 2020. The tables further delineate that exposure by credit rating of the counterparties and provide guidance on the concentration of credit risk to individual counterparties and an indication of the duration of a company’s credit risk by credit rating of the counterparties. The figures in the table below exclude credit risk exposure from individual retail customers, uranium procurement contracts, and exposure through RTOs, ISOs, and commodity exchanges, which are discussed below.
__________
(a)As of December 31, 2020, credit collateral held from counterparties where Generation had credit exposure included $31 million of cash and $25 million of letters of credit.
The Utility Registrants
Credit risk for the Utility Registrants is governed by credit and collection policies, which are aligned with state regulatory requirements. The Utility Registrants are currently obligated to provide service to all electric customers within their franchised territories. The Utility Registrants record an allowance for credit losses on customer receivables, based upon historical loss experience, current conditions, and forward-looking risk factors, to provide for the potential loss from nonpayment by these customers. The Utility Registrants will monitor nonpayment from customers and will make any necessary adjustments to the allowance for credit losses on customer receivables. See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for the allowance for credit losses policy. The Utility Registrants did not have any customers representing over 10% of their revenues as of December 31, 2020. See Note 3 - Regulatory Matters of the
Combined Notes to Consolidated Financial Statements for additional information regarding the regulatory recovery of credit losses on customer accounts receivable.
As of December 31, 2020, the Utility Registrants net credit exposure to suppliers was immaterial. See Note 16 - Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements.
Credit-Risk-Related Contingent Features (All Registrants)
Generation
As part of the normal course of business, Generation routinely enters into physical or financial contracts for the sale and purchase of electricity, natural gas, and other commodities. In accordance with the contracts and applicable law, if Generation is downgraded by a credit rating agency, especially if such downgrade is to a level below investment grade, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of future performance. Depending on Generation’s net position with a counterparty, the demand could be for the posting of collateral. In the absence of expressly agreed-to provisions that specify the collateral that must be provided, collateral requested will be a function of the facts and circumstances of the situation at the time of the demand. See Note 16 - Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information regarding collateral requirements and Note 19 - Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements for additional information regarding the letters of credit supporting the cash collateral.
Generation transacts output through bilateral contracts. The bilateral contracts are subject to credit risk, which relates to the ability of counterparties to meet their contractual payment obligations. Any failure to collect these payments from counterparties could have a material impact on Exelon’s and Generation’s financial statements. As market prices rise above or fall below contracted price levels, Generation is required to post collateral with purchasers; as market prices fall below contracted price levels, counterparties are required to post collateral with Generation. To post collateral, Generation depends on access to bank credit facilities, which serve as liquidity sources to fund collateral requirements. See ITEM 7. Liquidity and Capital Resources - Credit Matters - Exelon Credit Facilities for additional information.
The Utility Registrants
As of December 31, 2020, the Utility Registrants were not required to post collateral under their energy and/or natural gas procurement contracts. See Note 3 - Regulatory Matters and Note 16 - Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.
RTOs and ISOs (All Registrants)
All Registrants participate in all, or some, of the established, wholesale spot energy markets that are administered by PJM, ISO-NE, NYISO, CAISO, MISO, SPP, AESO, OIESO, and ERCOT. ERCOT is not subject to regulation by FERC but performs a similar function in Texas to that performed by RTOs in markets regulated by FERC. In these areas, power is traded through bilateral agreements between buyers and sellers and on the spot energy markets that are administered by the RTOs or ISOs, as applicable. In areas where there is no spot energy market, electricity is purchased and sold solely through bilateral agreements. For sales into the spot markets administered by an RTO or ISO, the RTO or ISO maintains financial assurance policies that are established and enforced by those administrators. The credit policies of the RTOs and ISOs may, under certain circumstances, require that losses arising from the default of one member on spot energy market transactions be shared by the remaining participants. Non-performance or non-payment by a major counterparty could result in a material adverse impact on the Registrants’ financial statements.
Exchange Traded Transactions (Exelon, Generation, PHI, and DPL)
Generation enters into commodity transactions on NYMEX, ICE, NASDAQ, NGX, and the Nodal exchange ("the Exchanges"). DPL enters into commodity transactions on ICE. The Exchange clearinghouses act as the counterparty to each trade. Transactions on the Exchanges must adhere to comprehensive collateral and margining requirements. As a result, transactions on Exchanges are significantly collateralized and have limited counterparty credit risk.
Interest Rate and Foreign Exchange Risk (Exelon and Generation)
Exelon and Generation use a combination of fixed-rate and variable-rate debt to manage interest rate exposure. Exelon and Generation may also utilize interest rate swaps to manage their interest rate exposure. A hypothetical 50 basis point increase in the interest rates associated with unhedged variable-rate debt (excluding Commercial Paper) and fixed-to-floating swaps would result in approximately a $2 million decrease in Exelon pre-tax income for the year ended December 31, 2020. To manage foreign exchange rate exposure associated with international energy purchases in currencies other than U.S. dollars, Generation utilizes foreign currency derivatives, which are typically designated as economic hedges. See Note 16-Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.
Equity Price Risk (Exelon and Generation)
Exelon and Generation maintain trust funds, as required by the NRC, to fund certain costs of decommissioning its nuclear plants. As of December 31, 2020, Generation’s NDT funds are reflected at fair value in its Consolidated Balance Sheets. The mix of securities in the trust funds is designed to provide returns to be used to fund decommissioning and to compensate Generation for inflationary increases in decommissioning costs; however, the equity securities in the trust funds are exposed to price fluctuations in equity markets, and the value of fixed-rate, fixed-income securities are exposed to changes in interest rates. Generation actively monitors the investment performance of the trust funds and periodically reviews asset allocation in accordance with Generation’s NDT fund investment policy. A hypothetical 25 basis points increase in interest rates and 10% decrease in equity prices would result in a $851 million reduction in the fair value of the trust assets. This calculation holds all other variables constant and assumes only the discussed changes in interest rates and equity prices. See Liquidity and Capital Resources section of ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for additional information of equity price risk as a result of the current capital and credit market conditions.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Generation
General
Generation’s integrated business consists of the generation, physical delivery, and marketing of power across multiple geographical regions through its customer-facing business, Constellation, which sells electricity and natural gas to both wholesale and retail customers. Generation also sells renewable energy and other energy-related products and services. Generation has five reportable segments consisting of the Mid-Atlantic, Midwest, New York, ERCOT, and Other Power Regions. These segments are discussed in further detail in ITEM 1. BUSINESS - Exelon Generation Company, LLC of this Form 10-K.
Executive Overview
A discussion of items pertinent to Generation’s executive overview is set forth under ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Exelon Corporation - Executive Overview of this Form 10-K.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
A discussion of Generation’s results of operations for 2020 compared to 2019 is set forth under Results of Operations-Generation in EXELON CORPORATION - Results of Operations of this Form 10-K.
Liquidity and Capital Resources
Generation’s business is capital intensive and requires considerable capital resources. Generation’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt, commercial paper, participation in the intercompany money pool, or capital contributions from Exelon. Generation’s access to external financing at reasonable terms is dependent on its credit ratings and general business conditions, as well as that of the utility industry in general. If these conditions deteriorate to where Generation no longer has access to the capital markets at reasonable terms, Generation has credit facilities in the aggregate of $5.3 billion that currently support its commercial paper program and issuances of letters of credit.
See EXELON CORPORATION - Liquidity and Capital Resources and Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements of this Form 10-K for additional information.
Capital resources are used primarily to fund Generation’s capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and OPEB obligations, and invest in new and existing ventures. Generation spends a significant amount of cash on capital improvements and construction projects that have a long-term return on investment.
Cash Flows from Operating Activities
A discussion of items pertinent to Generation’s cash flows from operating activities is set forth under Cash Flows from Operating Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Investing Activities
A discussion of items pertinent to Generation’s cash flows from investing activities is set forth under Cash Flows from Investing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Financing Activities
A discussion of items pertinent to Generation’s cash flows from financing activities is set forth under Cash Flows from Financing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Credit Matters
A discussion of credit matters pertinent to Generation is set forth under Credit Matters in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Contractual Obligations and Off-Balance Sheet Arrangements
A discussion of Generation’s contractual obligations, commercial commitments, and off-balance sheet arrangements is set forth under Contractual Obligations and Off-Balance Sheet Arrangements in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Critical Accounting Policies and Estimates
See All Registrants - Critical Accounting Policies and Estimates above for a discussion of Generation’s critical accounting policies and estimates.
New Accounting Pronouncements
See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Generation
Generation is exposed to market risks associated with credit, interest rates, and equity price. These risks are described above under Quantitative and Qualitative Disclosures about Market Risk - Exelon.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ComEd
General
ComEd operates in a single business segment and its operations consist of the purchase and regulated retail sale of electricity and the provision of distribution and transmission services to retail customers in northern Illinois, including the City of Chicago. This segment is discussed in further detail in ITEM 1. BUSINESS-ComEd of this Form 10-K.
Executive Overview
A discussion of items pertinent to ComEd’s executive overview is set forth under EXELON CORPORATION-Executive Overview of this Form 10-K.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
A discussion of ComEd’s results of operations for 2020 compared to 2019 is set forth under Results of Operations-ComEd in EXELON CORPORATION - Results of Operations of this Form 10-K.
Liquidity and Capital Resources
ComEd’s business is capital intensive and requires considerable capital resources. ComEd’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt, commercial paper, or credit facility borrowings. ComEd’s access to external financing at reasonable terms is dependent on its credit ratings and general business conditions, as well as that of the utility industry in general. At December 31, 2020, ComEd had access to a revolving credit facility with aggregate bank commitments of $1 billion.
See EXELON CORPORATION - Liquidity and Capital Resources and Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements of this Form 10-K for additional information.
Capital resources are used primarily to fund ComEd’s capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and OPEB obligations, and invest in new and existing ventures. ComEd spends a significant amount of cash on capital improvements and construction projects that have a long-term return on investment. Additionally, ComEd operates in rate-regulated environments in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time.
Cash Flows from Operating Activities
A discussion of items pertinent to ComEd’s cash flows from operating activities is set forth under Cash Flows from Operating Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Investing Activities
A discussion of items pertinent to ComEd’s cash flows from investing activities is set forth under Cash Flows from Investing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Financing Activities
A discussion of items pertinent to ComEd’s cash flows from financing activities is set forth under Cash Flows from Financing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Credit Matters
A discussion of credit matters pertinent to ComEd is set forth under Credit Matters in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Contractual Obligations and Off-Balance Sheet Arrangements
A discussion of ComEd’s contractual obligations, commercial commitments, and off-balance sheet arrangements is set forth under Contractual Obligations and Off-Balance Sheet Arrangements in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Critical Accounting Policies and Estimates
See All Registrants - Critical Accounting Policies and Estimates above for a discussion of ComEd’s critical accounting policies and estimates.
New Accounting Pronouncements
See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ComEd
ComEd is exposed to market risks associated with commodity price and credit. These risks are described above under Quantitative and Qualitative Disclosures about Market Risk- Exelon.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PECO
General
PECO operates in a single business segment and its operations consist of the purchase and regulated retail sale of electricity and the provision of distribution and transmission services in southeastern Pennsylvania including the City of Philadelphia, and the purchase and regulated retail sale of natural gas and the provision of distribution service in Pennsylvania in the counties surrounding the City of Philadelphia. This segment is discussed in further detail in ITEM 1. BUSINESS-PECO of this Form 10-K.
Executive Overview
A discussion of items pertinent to PECO’s executive overview is set forth under EXELON CORPORATION-Executive Overview of this Form 10-K.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
A discussion of PECO’s results of operations for 2020 compared to 2019 is set forth under Results of Operations-PECO in EXELON CORPORATION - Results of Operations of this Form 10-K.
Liquidity and Capital Resources
PECO’s business is capital intensive and requires considerable capital resources. PECO’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt, commercial paper, or participation in the intercompany money pool. PECO’s access to external financing at reasonable terms is dependent on its credit ratings and general business conditions, as well as that of the utility industry in general. If these conditions deteriorate to where PECO no longer has access to the capital markets at reasonable terms, PECO has access to a revolving credit facility. At December 31, 2020, PECO had access to a revolving credit facility with aggregate bank commitments of $600 million.
See EXELON CORPORATION - Liquidity and Capital Resources and Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements of this Form 10-K for additional information.
Capital resources are used primarily to fund PECO’s capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and OPEB obligations, and invest in new and existing ventures. PECO spends a significant amount of cash on capital improvements and construction projects that have a long-term return on investment. Additionally, PECO operates in a rate-regulated environment in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time.
Cash Flows from Operating Activities
A discussion of items pertinent to PECO’s cash flows from operating activities is set forth under Cash Flows from Operating Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Investing Activities
A discussion of items pertinent to PECO’s cash flows from investing activities is set forth under Cash Flows from Investing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Financing Activities
A discussion of items pertinent to PECO’s cash flows from financing activities is set forth under Cash Flows from Financing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Credit Matters
A discussion of credit matters pertinent to PECO is set forth under Credit Matters in “EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Contractual Obligations and Off-Balance Sheet Arrangements
A discussion of PECO’s contractual obligations, commercial commitments, and off-balance sheet arrangements is set forth under Contractual Obligations and Off-Balance Sheet Arrangements in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Critical Accounting Policies and Estimates
See All Registrants - Critical Accounting Policies and Estimates above for a discussion of PECO’s critical accounting policies and estimates.
New Accounting Pronouncements
See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PECO
PECO is exposed to market risks associated with credit and interest rates. These risks are described above under Quantitative and Qualitative Disclosures about Market Risk-Exelon.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BGE
General
BGE operates in a single business segment and its operations consist of the purchase and regulated retail sale of electricity and the provision of distribution and transmission services in central Maryland, including the City of Baltimore, and the purchase and regulated retail sale of natural gas and the provision of distribution service in central Maryland, including the City of Baltimore. This segment is discussed in further detail in ITEM 1. BUSINESS-BGE of this Form 10-K.
Executive Overview
A discussion of items pertinent to BGE’s executive overview is set forth under EXELON CORPORATION - Executive Overview of this Form 10-K.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
A discussion of BGE’s results of operations for 2020 compared to 2019 is set forth under Results of Operations-BGE in EXELON CORPORATION - Results of Operations of this Form 10-K.
Liquidity and Capital Resources
BGE’s business is capital intensive and requires considerable capital resources. BGE’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt or commercial paper. BGE’s access to external financing at reasonable terms is dependent on its credit ratings and general business conditions, as well as that of the utility industry in general. If these conditions deteriorate to where BGE no longer has access to the capital markets at reasonable terms, BGE has access to a revolving credit facility. At December 31, 2020, BGE had access to a revolving credit facility with aggregate bank commitments of $600 million.
See EXELON CORPORATION - Liquidity and Capital Resources and Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements of this Form 10-K for additional information.
Capital resources are used primarily to fund BGE’s capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and OPEB obligations, and invest in new and existing ventures. BGE spends a significant amount of cash on capital improvements and construction projects that have a long-term return on investment. Additionally, BGE operates in a rate-regulated environment in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time.
Cash Flows from Operating Activities
A discussion of items pertinent to BGE’s cash flows from operating activities is set forth under Cash Flows from Operating Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Investing Activities
A discussion of items pertinent to BGE’s cash flows from investing activities is set forth under “Cash Flows from Investing Activities” in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Financing Activities
A discussion of items pertinent to BGE’s cash flows from financing activities is set forth under “Cash Flows from Financing Activities” in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Credit Matters
A discussion of credit matters pertinent to BGE is set forth under Credit Matters in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Contractual Obligations and Off-Balance Sheet Arrangements
A discussion of BGE’s contractual obligations, commercial commitments, and off-balance sheet arrangements is set forth under Contractual Obligations and Off-Balance Sheet Arrangements in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Critical Accounting Policies and Estimates
See All Registrants - Critical Accounting Policies and Estimates above for a discussion of BGE’s critical accounting policies and estimates.
New Accounting Pronouncements
See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
BGE
BGE is exposed to market risks associated with credit and interest rates. These risks are described above under Quantitative and Qualitative Disclosures about Market Risk-Exelon.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PHI
General
PHI has three reportable segments Pepco, DPL, and ACE. Its operations consist of the purchase and regulated retail sale of electricity and the provision of distribution and transmission services, and to a lesser extent, the purchase and regulated retail sale and supply of natural gas in Delaware. This segment is discussed in further detail in ITEM 1. BUSINESS - PHI of this Form 10-K.
Executive Overview
A discussion of items pertinent to PHI’s executive overview is set forth under EXELON CORPORATION - Executive Overview of this Form 10-K.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
A discussion of PHI’s results of operations for 2020 compared to 2019 is set forth under Results of Operations-PHI in EXELON CORPORATION - Results of Operations of this Form 10-K.
Liquidity and Capital Resources
PHI’s business is capital intensive and requires considerable capital resources. PHI’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt or commercial paper, borrowings from the Exelon money pool, or capital contributions from Exelon. PHI’s access to external financing at reasonable terms is dependent on its credit ratings and general business conditions, as well as that of the utility industry in general.
See EXELON CORPORATION - Liquidity and Capital Resources and Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements of this Form 10-K for additional information.
Capital resources are used primarily to fund PHI’s capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and OPEB obligations, and invest in new and existing ventures. PHI spends a significant amount of cash on capital improvements and construction projects that have a long-term return on investment.
Cash Flows from Operating Activities
A discussion of items pertinent to PHI’s cash flows from operating activities is set forth under Cash Flows from Operating Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Investing Activities
A discussion of items pertinent to PHI’s cash flows from investing activities is set forth under “Cash Flows from Investing Activities” in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Financing Activities
A discussion of items pertinent to PHI’s cash flows from financing activities is set forth under “Cash Flows from Financing Activities” in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Credit Matters
A discussion of credit matters pertinent to PHI is set forth under Credit Matters in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Contractual Obligations and Off-Balance Sheet Arrangements
A discussion of PHI’s contractual obligations, commercial commitments, and off-balance sheet arrangements is set forth under Contractual Obligations and Off-Balance Sheet Arrangements in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Critical Accounting Policies and Estimates
See All Registrants - Critical Accounting Policies and Estimates above for a discussion of PHI’s critical accounting policies and estimates.
New Accounting Pronouncements
See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PHI
PHI is exposed to market risks associated with credit and interest rates. These risks are described above under Quantitative and Qualitative Disclosures about Market Risk - Exelon.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Pepco
General
Pepco operates in a single business segment and its operations consist of the purchase and regulated retail sale of electricity and the provision of distribution and transmission services to retail customers in District of Columbia and major portions of Prince George’s County and Montgomery County in Maryland. This segment is discussed in further detail in ITEM 1. BUSINESS - Pepco of this Form 10-K.
Executive Overview
A discussion of items pertinent to Pepco’s executive overview is set forth under EXELON CORPORATION - Executive Overview of this Form 10-K.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
A discussion of Pepco’s results of operations for 2020 compared to 2019 is set forth under Results of Operations-Pepco in EXELON CORPORATION - Results of Operations of this Form 10-K.
Liquidity and Capital Resources
Pepco’s business is capital intensive and requires considerable capital resources. Pepco’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt, commercial paper, or credit facility borrowings. Pepco’s access to external financing at reasonable terms is dependent on its credit ratings and general business conditions, as well as that of the utility industry in general. At December 31, 2020, Pepco had access to a revolving credit facility with aggregate bank commitments of $300 million.
See EXELON CORPORATION - Liquidity and Capital Resources and Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements of this Form 10-K for additional information.
Capital resources are used primarily to fund Pepco’s capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and OPEB obligations, and invest in new and existing ventures. Pepco spends a significant amount of cash on capital improvements and construction projects that have a long-term return on investment. Additionally, Pepco operates in rate-regulated environments in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time.
Cash Flows from Operating Activities
A discussion of items pertinent to Pepco’s cash flows from operating activities is set forth under Cash Flows from Operating Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Investing Activities
A discussion of items pertinent to Pepco’s cash flows from investing activities is set forth under Cash Flows from Investing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Financing Activities
A discussion of items pertinent to Pepco’s cash flows from financing activities is set forth under Cash Flows from Financing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Credit Matters
A discussion of credit matters pertinent to Pepco is set forth under Credit Matters in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Contractual Obligations and Off-Balance Sheet Arrangements
A discussion of Pepco’s contractual obligations, commercial commitments, and off-balance sheet arrangements is set forth under Contractual Obligations and Off-Balance Sheet Arrangements in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Critical Accounting Policies and Estimates
See All Registrants - Critical Accounting Policies and Estimates above for a discussion of Pepco’s critical accounting policies and estimates.
New Accounting Pronouncements
See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pepco
Pepco is exposed to market risks associated with credit and interest rates. These risks are described above under Quantitative and Qualitative Disclosures about Market Risk- Exelon.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DPL
General
DPL operates in a single business segment and its operations consist of the purchase and regulated retail sale of electricity and the provision of distribution and transmission services in portions of Maryland and Delaware, and the purchase and regulated retail sale and supply of natural gas in New Castle County, Delaware. This segment is discussed in further detail in ITEM 1. BUSINESS - DPL of this Form 10-K.
Executive Overview
A discussion of items pertinent to DPL’s executive overview is set forth under EXELON CORPORATION - Executive Overview of this Form 10-K.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
A discussion of DPL’s results of operations for 2020 compared to 2019 is set forth under Results of Operations-DPL in EXELON CORPORATION - Results of Operations of this Form 10-K.
Liquidity and Capital Resources
DPL’s business is capital intensive and requires considerable capital resources. DPL’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt or commercial paper. DPL’s access to external financing at reasonable terms is dependent on its credit ratings and general business conditions, as well as that of the utility industry in general. If these conditions deteriorate to where DPL no longer has access to the capital markets at reasonable terms, DPL has access to a revolving credit facility. At December 31, 2020, DPL had access to a revolving credit facility with aggregate bank commitments of $300 million.
See EXELON CORPORATION - Liquidity and Capital Resources and Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements of this Form 10-K for additional information.
Capital resources are used primarily to fund DPL’s capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and OPEB obligations, and invest in new and existing ventures. DPL spends a significant amount of cash on capital improvements and construction projects that have a long-term return on investment. Additionally, DPL operates in a rate-regulated environment in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time.
Cash Flows from Operating Activities
A discussion of items pertinent to DPL’s cash flows from operating activities is set forth under Cash Flows from Operating Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Investing Activities
A discussion of items pertinent to DPL’s cash flows from investing activities is set forth under Cash Flows from Investing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Financing Activities
A discussion of items pertinent to DPL’s cash flows from financing activities is set forth under Cash Flows from Financing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Credit Matters
A discussion of credit matters pertinent to DPL is set forth under Credit Matters in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Contractual Obligations and Off-Balance Sheet Arrangements
A discussion of DPL’s contractual obligations, commercial commitments, and off-balance sheet arrangements is set forth under Contractual Obligations and Off-Balance Sheet Arrangements in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Critical Accounting Policies and Estimates
See All Registrants - Critical Accounting Policies and Estimates above for a discussion of DPL’s critical accounting policies and estimates.
New Accounting Pronouncements
See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DPL
DPL is exposed to market risks associated with credit and interest rates. These risks are described above under Quantitative and Qualitative Disclosures about Market Risk-Exelon.
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACE
General
ACE operates in a single business segment and its operations consist of the purchase and regulated retail sale of electricity and the provision of distribution and transmission services to retail customers in portions of southern New Jersey. This segment is discussed in further detail in ITEM 1. BUSINESS - ACE of this Form 10-K.
Executive Overview
A discussion of items pertinent to ACE’s executive overview is set forth under EXELON CORPORATION - Executive Overview of this Form 10-K.
Results of Operations
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
A discussion of ACE’s results of operations for 2020 compared to 2019 is set forth under Results of Operations-ACE in EXELON CORPORATION - Results of Operations of this Form 10-K.
Liquidity and Capital Resources
ACE’s business is capital intensive and requires considerable capital resources. ACE’s capital resources are primarily provided by internally generated cash flows from operations and, to the extent necessary, external financing, including the issuance of long-term debt, commercial paper, or credit facility borrowings. ACE’s access to external financing at reasonable terms is dependent on its credit ratings and general business conditions, as well as that of the utility industry in general. At December 31, 2020, ACE had access to a revolving credit facility with aggregate bank commitments of $300 million.
See EXELON CORPORATION - Liquidity and Capital Resources and Note 17 - Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements of this Form 10-K for additional information.
Capital resources are used primarily to fund ACE’s capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and OPEB obligations, and invest in new and existing ventures. ACE spends a significant amount of cash on capital improvements and construction projects that have a long-term return on investment. Additionally, ACE operates in rate-regulated environments in which the amount of new investment recovery may be limited and where such recovery takes place over an extended period of time.
Cash Flows from Operating Activities
A discussion of items pertinent to ACE’s cash flows from operating activities is set forth under Cash Flows from Operating Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Investing Activities
A discussion of items pertinent to ACE’s cash flows from investing activities is set forth under Cash Flows from Investing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Cash Flows from Financing Activities
A discussion of items pertinent to ACE’s cash flows from financing activities is set forth under Cash Flows from Financing Activities in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Credit Matters
A discussion of credit matters pertinent to ACE is set forth under Credit Matters in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Contractual Obligations and Off-Balance Sheet Arrangements
A discussion of ACE’s contractual obligations, commercial commitments, and off-balance sheet arrangements is set forth under Contractual Obligations and Off-Balance Sheet Arrangements in EXELON CORPORATION - Liquidity and Capital Resources of this Form 10-K.
Critical Accounting Policies and Estimates
See All Registrants - Critical Accounting Policies and Estimates above for a discussion of ACE’s critical accounting policies and estimates.
New Accounting Pronouncements
See Note 1 - Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for information regarding new accounting pronouncements.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ACE
ACE is exposed to market risks associated with credit and interest rates. These risks are described above under Quantitative and Qualitative Disclosures about Market Risk- Exelon.
ITEM 8.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management’s Report on Internal Control Over Financial Reporting
The management of Exelon Corporation (Exelon) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Exelon’s management conducted an assessment of the effectiveness of Exelon’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, Exelon’s management concluded that, as of December 31, 2020, Exelon’s internal control over financial reporting was effective.
The effectiveness of Exelon’s internal control over financial reporting as of December 31, 2020, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
February 24, 2021
Management’s Report on Internal Control Over Financial Reporting
The management of Exelon Generation Company, LLC (Generation) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Generation’s management conducted an assessment of the effectiveness of Generation’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, Generation’s management concluded that, as of December 31, 2020, Generation’s internal control over financial reporting was effective.
February 24, 2021
Management’s Report on Internal Control Over Financial Reporting
The management of Commonwealth Edison Company (ComEd) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ComEd’s management conducted an assessment of the effectiveness of ComEd’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, ComEd’s management concluded that, as of December 31, 2020, ComEd’s internal control over financial reporting was effective.
February 24, 2021
Management’s Report on Internal Control Over Financial Reporting
The management of PECO Energy Company (PECO) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PECO’s management conducted an assessment of the effectiveness of PECO’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, PECO’s management concluded that, as of December 31, 2020, PECO’s internal control over financial reporting was effective.
February 24, 2021
Management’s Report on Internal Control Over Financial Reporting
The management of Baltimore Gas and Electric Company (BGE) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
BGE’s management conducted an assessment of the effectiveness of BGE’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, BGE’s management concluded that, as of December 31, 2020, BGE’s internal control over financial reporting was effective.
February 24, 2021
Management’s Report on Internal Control Over Financial Reporting
The management of Pepco Holdings LLC (PHI) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PHI’s management conducted an assessment of the effectiveness of PHI’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, PHI’s management concluded that, as of December 31, 2020, PHI’s internal control over financial reporting was effective.
February 24, 2021
Management’s Report on Internal Control Over Financial Reporting
The management of Potomac Electric Power Company (Pepco) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Pepco’s management conducted an assessment of the effectiveness of Pepco’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, Pepco’s management concluded that, as of December 31, 2020, Pepco’s internal control over financial reporting was effective.
February 24, 2021
Management’s Report on Internal Control Over Financial Reporting
The management of Delmarva Power & Light Company (DPL) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
DPL’s management conducted an assessment of the effectiveness of DPL’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, DPL’s management concluded that, as of December 31, 2020, DPL’s internal control over financial reporting was effective.
February 24, 2021
Management’s Report on Internal Control Over Financial Reporting
The management of Atlantic City Electric Company (ACE) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
ACE’s management conducted an assessment of the effectiveness of ACE’s internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, ACE’s management concluded that, as of December 31, 2020, ACE’s internal control over financial reporting was effective.
February 24, 2021
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Exelon Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(1)(i), and the financial statement schedules listed in the index appearing under Item 15(a)(1)(ii), of Exelon Corporation and its subsidiaries (the “Company”) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Annual Nuclear Decommissioning Asset Retirement Obligations (ARO) Assessment
As described in Notes 1 and 10 to the consolidated financial statements, the Company has a legal obligation to decommission its nuclear generation stations following the expiration of their operating licenses. To estimate its decommissioning obligation related to its nuclear generating stations for financial accounting and reporting purposes, management uses a probability-weighted cash flow model, which on a unit-by-unit basis, considers multiple scenarios that include significant estimates and assumptions such as decommissioning cost studies, cost escalation rates, probabilistic cash flow models and discount rates. Management updates its ARO annually unless circumstances warrant more frequent updates, based on its review of updated cost studies and its annual evaluation of cost escalation factors and probabilities assigned to various scenarios. As of December 31, 2020, the nuclear decommissioning ARO was approximately $11.9 billion.
The principal considerations for our determination that performing procedures relating to the Company’s annual ARO assessment is a critical audit matter are the significant judgment by management when estimating its decommissioning obligation; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the reasonableness of management’s cash flow model and significant assumptions related to decommissioning cost studies. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s development of the inputs, assumptions, and model used in management’s ARO assessment. These procedures also included, among others, testing management’s process for developing the ARO estimates by evaluating the appropriateness of the cash flow model, testing the completeness and accuracy of data used by management, and evaluating the reasonableness of management’s significant assumptions related to decommissioning cost studies. Professionals with specialized skill and knowledge were used to assist in evaluating the results of decommissioning cost studies.
Impairment Assessment of Long-Lived Generation Assets
As described in Notes 1 and 12 to the consolidated financial statements, the Company evaluates the carrying value of long-lived assets or asset groups for recoverability whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. Indicators of impairment may include a deteriorating business climate, including, but not limited to, declines in energy prices, condition of the asset, or plans to dispose of a long-lived asset significantly before the end of its useful life. Management determines if long-lived assets and asset groups are impaired by comparing the undiscounted expected future cash flows to the carrying value. When the undiscounted cash flow analysis indicates a long-lived asset or asset group is not recoverable, the amount of the impairment loss is determined by measuring the excess of the carrying amount of the long-lived asset or asset group over its fair value. The expected future cash flows include significant unobservable inputs including revenue and generation forecasts, projected capital and maintenance expenditures and discount rates. As of December 31, 2020, the total carrying value of long-lived generation assets subject to this evaluation was approximately $22.2 billion.
The principal considerations for our determination that performing procedures relating to the Company’s impairment assessment of long-lived generation assets is a critical audit matter are the significant judgment by management in assessing the recoverability of these asset groups; this in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the reasonableness of management’s significant assumptions related to revenue and generation forecasts. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s development of the inputs, assumptions, and model used to estimate the recoverability and fair value of the Company’s long-lived generation asset groups. These procedures also included, among others, testing management’s process for developing expected future cash flows for long-lived generation asset groups by evaluating the appropriateness of the future cash flow model, testing the completeness and accuracy of the data used by management, and evaluating the reasonableness of management’s significant assumptions related to revenue and generation forecasts. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of revenue forecasts.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the consolidated financial statements, the Company applies the authoritative guidance for accounting for certain types of regulation, which requires management to record in their consolidated financial statements the effects of cost-based rate regulation for entities with regulated operations that meet the following criteria, (i) rates are established or approved by a third-party regulator; (ii) rates are designed to recover the entity’s cost of providing services or products; and (iii) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. The Company accounts for its regulated operations in accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction under state public utility laws and the FERC under various Federal laws. Upon updates in material regulatory and legislative proceedings, where applicable, management will record new regulatory assets or liabilities and will assess whether it is probable that its currently recorded regulatory assets and liabilities will be recovered and settled, respectively, in future rates. As of December 31, 2020, there were approximately $10.0 billion of regulatory assets and approximately $10.1 billion of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of rate regulation is a critical audit matter are the high degree of audit effort to assess the impact of regulation on accounting for regulatory assets and liabilities and to evaluate the complex audit evidence related to whether the regulatory assets and liabilities will be recovered and settled.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to accounting for regulatory matters and evaluation of existing regulatory assets and liabilities. These procedures also included, among others, obtaining the Company’s correspondence with regulators, evaluating the reasonableness of management’s judgments regarding regulatory guidance and proceedings and the related accounting implications, and calculating regulatory assets and liabilities based on provisions outlined in rate orders and other correspondence with regulators.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 24, 2021
We have served as the Company’s auditor since 2000.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Member of Exelon Generation Company, LLC
Opinion on the Financial Statements
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(2)(i), and the financial statement schedule listed in the index appearing under Item 15(a)(2)(ii), of Exelon Generation Company, LLC and its subsidiaries (the “Company”) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Annual Nuclear Decommissioning Asset Retirement Obligations (ARO) Assessment
As described in Notes 1 and 10 to the consolidated financial statements, the Company has a legal obligation to decommission its nuclear generation stations following the expiration of their operating licenses. To estimate its decommissioning obligation related to its nuclear generating stations for financial accounting and reporting purposes, management uses a probability-weighted cash flow model, which on a unit-by-unit basis, considers multiple scenarios that include significant estimates and assumptions such as decommissioning cost studies, cost escalation rates, probabilistic cash flow models and discount rates. Management updates its ARO annually
unless circumstances warrant more frequent updates, based on its review of updated cost studies and its annual evaluation of cost escalation factors and probabilities assigned to various scenarios. As of December 31, 2020, the nuclear decommissioning ARO was approximately $11.9 billion.
The principal considerations for our determination that performing procedures relating to the Company’s annual ARO assessment is a critical audit matter are the significant judgment by management when estimating its decommissioning obligation; this in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating the reasonableness of management’s cash flow model and significant assumptions related to decommissioning cost studies. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s development of the inputs, assumptions, and model used in management’s ARO assessment. These procedures also included, among others, testing management’s process for developing the ARO estimates by evaluating the appropriateness of the cash flow model, testing the completeness and accuracy of data used by management, and evaluating the reasonableness of management’s significant assumptions related to decommissioning cost studies. Professionals with specialized skill and knowledge were used to assist in evaluating the results of decommissioning cost studies.
Impairment Assessment of Long-Lived Generation Assets
As described in Notes 1 and 12 to the consolidated financial statements, the Company evaluates the carrying value of long-lived assets or asset groups for recoverability whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. Indicators of impairment may include a deteriorating business climate, including, but not limited to, declines in energy prices, condition of the asset, or plans to dispose of a long-lived asset significantly before the end of its useful life. Management determines if long-lived assets and asset groups are impaired by comparing the undiscounted expected future cash flows to the carrying value. When the undiscounted cash flow analysis indicates a long-lived asset or asset group is not recoverable, the amount of the impairment loss is determined by measuring the excess of the carrying amount of the long-lived asset or asset group over its fair value. The expected future cash flows include significant unobservable inputs including revenue and generation forecasts, projected capital and maintenance expenditures and discount rates. As of December 31, 2020, the total carrying value of long-lived generation assets subject to this evaluation was approximately $22.2 billion.
The principal considerations for our determination that performing procedures relating to the Company’s impairment assessment of long-lived generation assets is a critical audit matter are the significant judgment by management in assessing the recoverability of these asset groups; this in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating the reasonableness of management’s significant assumptions related to revenue and generation forecasts. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s development of the inputs, assumptions, and model used to estimate the recoverability and fair value of the Company’s long-lived generation asset groups. These procedures also included, among others, testing management’s process for developing expected future cash flows for long-lived generation asset groups by evaluating the appropriateness of the future cash flow model, testing the completeness and accuracy of the data used by management, and evaluating the reasonableness of management’s significant assumptions related to revenue and generation forecasts. Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of revenue forecasts.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 24, 2021
We have served as the Company's auditor since 2001.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Commonwealth Edison Company
Opinion on the Financial Statements
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(3)(i), and the financial statement schedule listed in the index appearing under Item 15(a)(3)(ii), of Commonwealth Edison Company and its subsidiaries (the “Company”) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the consolidated financial statements, the Company applies the authoritative guidance for accounting for certain types of regulation, which requires management to record in their consolidated financial statements the effects of cost-based rate regulation for entities with regulated operations that meet the following criteria, (i) rates are established or approved by a third-party regulator; (ii) rates are designed to recover the entity’s cost of providing services or products; and (iii) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. The Company accounts for its regulated operations in accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction under state public utility laws and the FERC under various Federal laws. Upon updates in material regulatory and legislative proceedings, where applicable, management will record new regulatory assets or liabilities and will assess whether it is probable that its currently recorded regulatory assets and liabilities will
be recovered and settled, respectively, in future rates. As of December 31, 2020, there were approximately $2.0 billion of regulatory assets and approximately $6.7 billion of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of rate regulation is a critical audit matter are the high degree of audit effort to assess the impact of regulation on accounting for regulatory assets and liabilities and to evaluate the complex audit evidence related to whether the regulatory assets and liabilities will be recovered and settled.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to accounting for regulatory matters and evaluation of existing regulatory assets and liabilities. These procedures also included, among others, obtaining the Company’s correspondence with regulators, evaluating the reasonableness of management’s judgments regarding regulatory guidance and proceedings and the related accounting implications, and calculating regulatory assets and liabilities based on provisions outlined in rate orders and other correspondence with regulators.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 24, 2021
We have served as the Company's auditor since 2000.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of PECO Energy Company
Opinion on the Financial Statements
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(4)(i), and the financial statement schedule listed in the index appearing under Item 15(a)(4)(ii), of PECO Energy Company and its subsidiaries (the “Company”) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the consolidated financial statements, the Company applies the authoritative guidance for accounting for certain types of regulation, which requires management to record in their consolidated financial statements the effects of cost-based rate regulation for entities with regulated operations that meet the following criteria, (i) rates are established or approved by a third-party regulator; (ii) rates are designed to recover the entity’s cost of providing services or products; and (iii) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. The Company accounts for its regulated operations in accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction under state public utility laws and the FERC under various Federal laws. Upon updates in material regulatory and legislative proceedings, where applicable, management will record new regulatory assets or liabilities and will assess whether it is probable that its currently recorded regulatory assets and liabilities will
be recovered and settled, respectively, in future rates. As of December 31, 2020, there were approximately $801 million of regulatory assets and approximately $624 million of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of rate regulation is a critical audit matter are the high degree of audit effort to assess the impact of regulation on accounting for regulatory assets and liabilities and to evaluate the complex audit evidence related to whether the regulatory assets and liabilities will be recovered and settled.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to accounting for regulatory matters and evaluation of existing regulatory assets and liabilities. These procedures also included, among others, obtaining the Company’s correspondence with regulators, evaluating the reasonableness of management’s judgments regarding regulatory guidance and proceedings and the related accounting implications, and calculating regulatory assets and liabilities based on provisions outlined in rate orders and other correspondence with regulators.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 24, 2021
We have served as the Company's auditor since 1932.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Baltimore Gas and Electric Company
Opinion on the Financial Statements
We have audited the financial statements, including the related notes, as listed in the index appearing under Item 15(a)(5)(i), and the financial statement schedule listed in the index appearing under Item 15(a)(5)(ii), of Baltimore Gas and Electric Company (the “Company”) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the financial statements, the Company applies the authoritative guidance for accounting for certain types of regulation, which requires management to record in their financial statements the effects of cost-based rate regulation for entities with regulated operations that meet the following criteria, (i) rates are established or approved by a third-party regulator; (ii) rates are designed to recover the entity’s cost of providing services or products; and (iii) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. The Company accounts for its regulated operations in
accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction under state public utility laws and the FERC under various Federal laws. Upon updates in material regulatory and legislative proceedings, where applicable, management will record new regulatory assets or liabilities and will assess whether it is probable that its currently recorded regulatory assets and liabilities will be recovered and settled, respectively, in future rates. As of December 31, 2020, there were approximately $649 million of regulatory assets and approximately $1,139 million of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of rate regulation is a critical audit matter are the high degree of audit effort to assess the impact of regulation on accounting for regulatory assets and liabilities and to evaluate the complex audit evidence related to whether the regulatory assets and liabilities will be recovered and settled.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to accounting for regulatory matters and evaluation of existing regulatory assets and liabilities. These procedures also included, among others, obtaining the Company’s correspondence with regulators, evaluating the reasonableness of management’s judgments regarding regulatory guidance and proceedings and the related accounting implications, and calculating regulatory assets and liabilities based on provisions outlined in rate orders and other correspondence with regulators.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
February 24, 2021
We have served as the Company’s auditor since at least 1993. We have not been able to determine the specific year we began serving as auditor of the Company.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Member of Pepco Holdings LLC
Opinion on the Financial Statements
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(6)(i), and the financial statement schedule listed in the index appearing under Item 15(a)(6)(ii), of Pepco Holdings LLC and its subsidiaries (the “Company”) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the consolidated financial statements, the Company applies the authoritative guidance for accounting for certain types of regulation, which requires management to record in their consolidated financial statements the effects of cost-based rate regulation for entities with regulated operations that meet the following criteria, (i) rates are established or approved by a third-party regulator; (ii) rates are designed to recover the entity’s cost of providing services or products; and (iii) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. The Company accounts for
its regulated operations in accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction under state public utility laws and the FERC under various Federal laws. Upon updates in material regulatory and legislative proceedings, where applicable, management will record new regulatory assets or liabilities and will assess whether it is probable that its currently recorded regulatory assets and liabilities will be recovered and settled, respectively, in future rates. As of December 31, 2020, there were approximately $2.4 billion of regulatory assets and approximately $1.6 billion of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of rate regulation is a critical audit matter are the high degree of audit effort to assess the impact of regulation on accounting for regulatory assets and liabilities and to evaluate the complex audit evidence related to whether the regulatory assets and liabilities will be recovered and settled.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to accounting for regulatory matters and evaluation of existing regulatory assets and liabilities. These procedures also included, among others, obtaining the Company’s correspondence with regulators, evaluating the reasonableness of management’s judgments regarding regulatory guidance and proceedings and the related accounting implications, and calculating regulatory assets and liabilities based on provisions outlined in rate orders and other correspondence with regulators.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 24, 2021
We have served as the Company's auditor since 2001.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Potomac Electric Power Company
Opinion on the Financial Statements
We have audited the financial statements, including the related notes, as listed in the index appearing under Item 15(a)(7)(i), and the financial statement schedule listed in the index appearing under Item 15(a)(7)(ii), of Potomac Electric Power Company (the “Company”) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the financial statements, the Company applies the authoritative guidance for accounting for certain types of regulation, which requires management to record in their financial statements the effects of cost-based rate regulation for entities with regulated operations that meet the following criteria, (i) rates are established or approved by a third-party regulator; (ii) rates are designed to recover the entity’s cost of providing services or products; and (iii) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. The Company accounts for its regulated operations in
accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction under state public utility laws and the FERC under various Federal laws. Upon updates in material regulatory and legislative proceedings, where applicable, management will record new regulatory assets or liabilities and will assess whether it is probable that its currently recorded regulatory assets and liabilities will be recovered and settled, respectively, in future rates. As of December 31, 2020, there were approximately $784 million of regulatory assets and approximately $690 million of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of rate regulation is a critical audit matter are the high degree of audit effort to assess the impact of regulation on accounting for regulatory assets and liabilities and to evaluate the complex audit evidence related to whether the regulatory assets and liabilities will be recovered and settled.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to accounting for regulatory matters and evaluation of existing regulatory assets and liabilities. These procedures also included, among others, obtaining the Company’s correspondence with regulators, evaluating the reasonableness of management’s judgments regarding regulatory guidance and proceedings and the related accounting implications, and calculating regulatory assets and liabilities based on provisions outlined in rate orders and other correspondence with regulators.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 24, 2021
We have served as the Company's auditor since at least 1993. We have not been able to determine the specific year we began serving as auditor of the Company.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Delmarva Power & Light Company
Opinion on the Financial Statements
We have audited the financial statements, including the related notes, as listed in the index appearing under Item 15(a)(8)(i), and the financial statement schedule listed in the index appearing under Item 15(a)(8)(ii), of Delmarva Power & Light Company (the “Company”) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the financial statements, the Company applies the authoritative guidance for accounting for certain types of regulation, which requires management to record in their financial statements the effects of cost-based rate regulation for entities with regulated operations that meet the following criteria, (i) rates are established or approved by a third-party regulator; (ii) rates are designed to recover the entity’s cost of providing services or products; and (iii) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. The Company accounts for its regulated operations in
accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction under state public utility laws and the FERC under various Federal laws. Upon updates in material regulatory and legislative proceedings, where applicable, management will record new regulatory assets or liabilities and will assess whether it is probable that its currently recorded regulatory assets and liabilities will be recovered and settled, respectively, in future rates. As of December 31, 2020, there were approximately $280 million of regulatory assets and approximately $540 million of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of rate regulation is a critical audit matter are the high degree of audit effort to assess the impact of regulation on accounting for regulatory assets and liabilities and to evaluate the complex audit evidence related to whether the regulatory assets and liabilities will be recovered and settled.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. These procedures included testing the effectiveness of controls relating to accounting for regulatory matters and evaluation of existing regulatory assets and liabilities. These procedures also included, among others, obtaining the Company’s correspondence with regulators, evaluating the reasonableness of management’s judgments regarding regulatory guidance and proceedings and the related accounting implications, and calculating regulatory assets and liabilities based on provisions outlined in rate orders and other correspondence with regulators.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 24, 2021
We have served as the Company's auditor since at least 1993. We have not been able to determine the specific year we began serving as auditor of the Company.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholder of Atlantic City Electric Company
Opinion on the Financial Statements
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(9)(i), and the financial statement schedule listed in the index appearing under Item 15(a)(9)(ii), of Atlantic City Electric Company and its subsidiary (the “Company”) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for the Effects of Rate Regulation
As described in Notes 1 and 3 to the consolidated financial statements, the Company applies the authoritative guidance for accounting for certain types of regulation, which requires management to record in their consolidated financial statements the effects of cost-based rate regulation for entities with regulated operations that meet the following criteria, (i) rates are established or approved by a third-party regulator; (ii) rates are designed to recover the entity’s cost of providing services or products; and (iii) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. The Company accounts for
its regulated operations in accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction under state public utility laws and the FERC under various Federal laws. Upon updates in material regulatory and legislative proceedings, where applicable, management will record new regulatory assets or liabilities and will assess whether it is probable that its currently recorded regulatory assets and liabilities will be recovered and settled, respectively, in future rates. As of December 31, 2020, there were approximately $470 million of regulatory assets and approximately $318 million of regulatory liabilities.
The principal considerations for our determination that performing procedures relating to management’s accounting for the effects of rate regulation is a critical audit matter are the high degree of audit effort to assess the impact of regulation on accounting for regulatory assets and liabilities and to evaluate the complex audit evidence related to whether the regulatory assets and liabilities will be recovered and settled.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to accounting for regulatory matters and evaluation of existing regulatory assets and liabilities. These procedures also included, among others, obtaining the Company’s correspondence with regulators, evaluating the reasonableness of management’s judgments regarding regulatory guidance and proceedings and the related accounting implications, and calculating regulatory assets and liabilities based on provisions outlined in rate orders and other correspondence with regulators.
/s/ PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
February 24, 2021
We have served as the Company's auditor since 1998.
Exelon Corporation and Subsidiary Companies
Consolidated Statements of Operations and Comprehensive Income
__________
(a)The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was less than 1 million for the years ended December 31, 2020 and December 31, 2019 and approximately 3 million for the year ended December 31, 2018.
See the Combined Notes to Consolidated Financial Statements
Exelon Corporation and Subsidiary Companies
Consolidated Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
Exelon Corporation and Subsidiary Companies
Consolidated Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Exelon Corporation and Subsidiary Companies
Consolidated Balance Sheets
__________
(a)Exelon’s consolidated assets include $10,200 million and $9,532 million at December 31, 2020 and 2019, respectively, of certain VIEs that can only be used to settle the liabilities of the VIE. Exelon’s consolidated liabilities include $3,598 million and $3,473 million at December 31, 2020 and 2019, respectively, of certain VIEs for which the VIE creditors do not have recourse to Exelon. See Note 23-Variable Interest Entities for additional information.
See the Combined Notes to Consolidated Financial Statements
Exelon Corporation and Subsidiary Companies
Consolidated Statements of Changes in Equity
See the Combined Notes to Consolidated Financial Statements
Exelon Generation Company, LLC and Subsidiary Companies
Consolidated Statements of Operations and Comprehensive Income
See the Combined Notes to Consolidated Financial Statements
Exelon Generation Company, LLC and Subsidiary Companies
Consolidated Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
Exelon Generation Company, LLC and Subsidiary Companies
Consolidated Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Exelon Generation Company, LLC and Subsidiary Companies
Consolidated Balance Sheets
__________
(a)Generation’s consolidated assets include $10,182 million and $9,512 million at December 31, 2020 and 2019, respectively, of certain VIEs that can only be used to settle the liabilities of the VIE. Generation’s consolidated liabilities include $3,572 million and $3,429 million at December 31, 2020 and 2019, respectively, of certain VIEs for which the VIE creditors do not have recourse to Generation. See Note 23-Variable Interest Entities for additional information.
See the Combined Notes to Consolidated Financial Statements
Exelon Generation Company, LLC and Subsidiary Companies
Consolidated Statements of Changes in Equity
See the Combined Notes to Consolidated Financial Statements
Commonwealth Edison Company and Subsidiary Companies
Consolidated Statements of Operations and Comprehensive Income
See the Combined Notes to Consolidated Financial Statements
Commonwealth Edison Company and Subsidiary Companies
Consolidated Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
Commonwealth Edison Company and Subsidiary Companies
Consolidated Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Commonwealth Edison Company and Subsidiary Companies
Consolidated Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Commonwealth Edison Company and Subsidiary Companies
Consolidated Statements of Changes in Shareholders’ Equity
See the Combined Notes to Consolidated Financial Statements
PECO Energy Company and Subsidiary Companies
Consolidated Statements of Operations and Comprehensive Income
See the Combined Notes to Consolidated Financial Statements
PECO Energy Company and Subsidiary Companies
Consolidated Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
PECO Energy Company and Subsidiary Companies
Consolidated Balance Sheets
See the Combined Notes to Consolidated Financial Statements
PECO Energy Company and Subsidiary Companies
Consolidated Balance Sheets
See the Combined Notes to Consolidated Financial Statements
PECO Energy Company and Subsidiary Companies
Consolidated Statements of Changes in Shareholder's Equity
See the Combined Notes to Consolidated Financial Statements
Baltimore Gas and Electric Company
Statements of Operations and Comprehensive Income
See the Combined Notes to Consolidated Financial Statements
Baltimore Gas and Electric Company
Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
Baltimore Gas and Electric Company
Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Baltimore Gas and Electric Company
Balance Sheets
_____________
(a)In millions, shares round to zero. Number of shares is 1,500 authorized and 1,000 outstanding at December 31, 2020 and 2019.
See the Combined Notes to Consolidated Financial Statements
Baltimore Gas and Electric Company
Statements of Changes in Shareholder's Equity
See the Combined Notes to Consolidated Financial Statements
Pepco Holdings LLC and Subsidiary Companies
Consolidated Statements of Operations and Comprehensive Income
See the Combined Notes to Consolidated Financial Statements
Pepco Holdings LLC and Subsidiary Companies
Consolidated Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
Pepco Holdings LLC and Subsidiary Companies
Consolidated Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Pepco Holdings LLC and Subsidiary Companies
Consolidated Balance Sheets
_____________
(a)PHI’s consolidated total assets include $18 million and $20 million at December 31, 2020 and 2019, respectively, of PHI's consolidated VIE that can only be used to settle the liabilities of the VIE. PHI’s consolidated total liabilities include $26 million and $44 million at December 31, 2020 and 2019, respectively, of PHI's consolidated VIE for which the VIE creditors do not have recourse to PHI. See Note 23 - Variable Interest Entities for additional information.
See the Combined Notes to Consolidated Financial Statements
Pepco Holdings LLC and Subsidiary Companies
Consolidated Statements of Changes in Equity
See the Combined Notes to Consolidated Financial Statements
Potomac Electric Power Company
Statements of Operations and Comprehensive Income
See the Combined Notes to Consolidated Financial Statements
Potomac Electric Power Company
Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
Potomac Electric Power Company
Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Potomac Electric Power Company
Balance Sheets
_____________
(a)In millions, shares round to zero. Number of shares is 100 outstanding at December 31, 2020 and 2019.
See the Combined Notes to Consolidated Financial Statements
Potomac Electric Power Company
Statements of Changes in Shareholder's Equity
See the Combined Notes to Consolidated Financial Statements
Delmarva Power & Light Company
Statements of Operations and Comprehensive Income
See the Combined Notes to Consolidated Financial Statements
Delmarva Power & Light Company
Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
Delmarva Power & Light Company
Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Delmarva Power & Light Company
Balance Sheets
_____________
(a)In millions, shares round to zero. Number of shares is 1,000 authorized and 1,000 outstanding at December 31, 2020 and 2019.
See the Combined Notes to Consolidated Financial Statements
Delmarva Power & Light Company
Statements of Changes in Shareholder's Equity
See the Combined Notes to Consolidated Financial Statements
Atlantic City Electric Company and Subsidiary Company
Consolidated Statements of Operations and Comprehensive Income
See the Combined Notes to Consolidated Financial Statements
Atlantic City Electric Company and Subsidiary Company
Consolidated Statements of Cash Flows
See the Combined Notes to Consolidated Financial Statements
Atlantic City Electric Company and Subsidiary Company
Consolidated Balance Sheets
See the Combined Notes to Consolidated Financial Statements
Atlantic City Electric Company and Subsidiary Company
Consolidated Balance Sheets
_____________
(a)ACE’s consolidated assets include $13 million and $17 million at December 31, 2020 and 2019, respectively, of ACE’s consolidated VIE that can only be used to settle the liabilities of the VIE. ACE’s consolidated liabilities include $21 million and $41 million at December 31, 2020 and 2019, respectively, of ACE’s consolidated VIE for which the VIE creditors do not have recourse to ACE. See Note 23 - Variable Interest Entities for additional information.
See the Combined Notes to Consolidated Financial Statements
Atlantic City Electric Company and Subsidiary Company
Consolidated Statements of Changes in Shareholder's Equity
See the Combined Notes to Consolidated Financial Statements
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
1. Significant Accounting Policies (All Registrants)
Description of Business (All Registrants)
Exelon is a utility services holding company engaged in the generation, delivery and marketing of energy through Generation and the energy distribution and transmission businesses through ComEd, PECO, BGE, Pepco, DPL, and ACE.
Basis of Presentation (All Registrants)
This is a combined annual report of all Registrants. The Notes to the Consolidated Financial Statements apply to the Registrants as indicated parenthetically next to each corresponding disclosure. When appropriate, the Registrants are named specifically for their related activities and disclosures. Each of the Registrant’s Consolidated Financial Statements includes the accounts of its subsidiaries. All intercompany transactions have been eliminated.
Through its business services subsidiary, BSC, Exelon provides its subsidiaries with a variety of support services at cost, including legal, human resources, financial, information technology, and supply management services. PHI also has a business services subsidiary, PHISCO, which provides a variety of support services at cost, including legal, accounting, engineering, customer operations, distribution and transmission planning, asset management, system operations, and power procurement, to PHI operating companies. The costs of BSC and PHISCO are directly charged or allocated to the applicable subsidiaries. The results of Exelon’s corporate operations are presented as “Other” within the consolidated financial statements and include intercompany eliminations unless otherwise disclosed.
Exelon owns 100% of Generation, PECO, BGE, and PHI and more than 99% of ComEd. PHI owns 100% of Pepco, DPL, and ACE. Generation owns 100% of its significant consolidated subsidiaries, either directly or
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
indirectly, except for certain consolidated VIEs, including CENG and EGRP, of which Generation holds a 50.01% and 51% interest, respectively. The remaining interests in these consolidated VIEs are included in noncontrolling interests on Exelon’s and Generation’s Consolidated Balance Sheets. See Note 23 - Variable Interest Entities for additional information of Exelon’s and Generation’s consolidated VIEs.
The Registrants consolidate the accounts of entities in which a Registrant has a controlling financial interest, after the elimination of intercompany transactions. Where the Registrants do not have a controlling financial interest in an entity, proportionate consolidation, equity method accounting, or accounting for investments in equity securities with or without readily determinable fair value is applied. The Registrants apply proportionate consolidation when they have an undivided interest in an asset and are proportionately liable for their share of each liability associated with the asset. The Registrants proportionately consolidate their undivided ownership interests in jointly owned electric plants and transmission facilities. Under proportionate consolidation, the Registrants separately record their proportionate share of the assets, liabilities, revenues, and expenses related to the undivided interest in the asset. The Registrants apply equity method accounting when they have significant influence over an investee through an ownership in common stock, which generally approximates a 20% to 50% voting interest. The Registrants apply equity method accounting to certain investments and joint ventures. Under equity method accounting, the Registrants report their interest in the entity as an investment and the Registrants’ percentage share of the earnings from the entity as single line items in their financial statements. The Registrants use accounting for investments in equity securities with or without readily determinable fair values if they lack significant influence, which generally results when they hold less than 20% of the common stock of an entity. Under accounting for investments in equity securities with readily determinable fair values, the Registrants report their investment values based on quoted prices in active markets and realized and unrealized gains and losses are included in earnings. Under accounting for investments in equity securities without readily determinable fair values, the Registrants report their investments at cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairment, and changes in measurement are reported in earnings.
The accompanying consolidated financial statements have been prepared in accordance with GAAP for annual financial statements and in accordance with the instructions to Form 10-K and Regulation S-X promulgated by the SEC.
COVID-19 (All Registrants)
The Registrants have taken steps to mitigate the potential risks posed by the global outbreak (pandemic) of the 2019 novel coronavirus (COVID-19). The Registrants provide a critical service to their customers and have taken measures to keep employees who operate the business safe and minimize unnecessary risk of exposure to the virus, including extra precautions for employees who work in the field. The Registrants have implemented work from home policies where appropriate and imposed travel limitations on employees. In addition, the Registrants have updated their existing business continuity plans.
Management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and accompanying notes, and the amounts of revenues and expenses reported during the periods covered by those financial statements and accompanying notes. Management assessed certain accounting matters that require consideration of forecasted financial information, including, but not limited to, the Registrants' allowance for credit losses and the carrying value of goodwill and other long-lived assets, in context with the information reasonably available to the Registrants and the unknown future impacts of COVID-19 as of December 31, 2020 and through the date of this report. The Registrants' future assessment of their current expectations of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to their consolidated financial statements in future reporting periods.
Use of Estimates (All Registrants)
The preparation of financial statements of each of the Registrants in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Areas in which significant estimates have been made include, but are not limited to, the accounting for nuclear decommissioning costs and other AROs, pension and OPEB, inventory reserves, allowance for credit losses, goodwill and asset impairment assessments, derivative instruments, unamortized
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
energy contracts, fixed asset depreciation, environmental costs and other loss contingencies, taxes, and unbilled energy revenues. Actual results could differ from those estimates.
Accounting for the Effects of Regulation (Exelon and the Utility Registrants)
For their regulated electric and gas operations, Exelon and the Utility Registrants reflect the effects of cost-based rate regulation in their financial statements, which is required for entities with regulated operations that meet the following criteria: 1) rates are established or approved by a third-party regulator; (2) rates are designed to recover the entities’ cost of providing services or products; and (3) there is a reasonable expectation that rates designed to recover costs can be charged to and collected from customers. Exelon and the Utility Registrants account for their regulated operations in accordance with regulatory and legislative guidance from the regulatory authorities having jurisdiction, principally the ICC, PAPUC, MDPSC, DCPSC, DPSC, and NJBPU, under state public utility laws and the FERC under various Federal laws. Regulatory assets and liabilities are amortized and the related expense or revenue is recognized in the Consolidated Statements of Operations consistent with the recovery or refund included in customer rates. Exelon's regulatory assets and liabilities as of the balance sheet date are probable of being recovered or settled in future rates. If a separable portion of the Registrants' business was no longer able to meet the criteria discussed above, the affected entities would be required to eliminate from their consolidated financial statements the effects of regulation for that portion, which could have a material impact on their financial statements. See Note 3 - Regulatory Matters for additional information.
With the exception of income tax-related regulatory assets and liabilities, Exelon and the Utility Registrants classify regulatory assets and liabilities with a recovery or settlement period greater than one year as both current and non-current in their Consolidated Balance Sheets, with the current portion representing the amount expected to be recovered from or refunded to customers over the next twelve-month period as of the balance sheet date. Income tax-related regulatory assets and liabilities are classified entirely as non-current in Exelon's and the Utility Registrants’ Consolidated Balance Sheets to align with the classification of the related deferred income tax balances.
Exelon and the Utility Registrants treat the impacts of a final rate order received after the balance sheet date but prior to the issuance of the financial statements as a non-recognized subsequent event, as the receipt of a final rate order is a separate and distinct event that has future impacts on the parties affected by the order.
Revenues (All Registrants)
Operating Revenues. The Registrants’ operating revenues generally consist of revenues from contracts with customers involving the sale and delivery of energy commodities and related products and services, utility revenues from ARP, and realized and unrealized revenues recognized under mark-to-market energy commodity derivative contracts. The Registrants recognize revenue from contracts with customers to depict the transfer of goods or services to customers in an amount that the entities expect to be entitled to in exchange for those goods or services. Generation’s primary sources of revenue include competitive sales of power, natural gas, and other energy-related products and services. The Utility Registrants’ primary sources of revenue include regulated electric and natural gas tariff sales, distribution, and transmission services. At the end of each month, the Registrants accrue an estimate for the unbilled amount of energy delivered or services provided to customers.
ComEd records ARP revenue for its best estimate of the electric distribution, energy efficiency, and transmission revenue impacts resulting from future changes in rates that ComEd believes are probable of approval by the ICC and FERC in accordance with its formula rate mechanisms. BGE, Pepco, and DPL record ARP revenue for their best estimate of the electric and natural gas distribution revenue impacts resulting from future changes in rates that they believe are probable of approval by the MDPSC and/or DCPSC in accordance with their revenue decoupling mechanisms. PECO, BGE, Pepco, DPL, and ACE record ARP revenue for their best estimate of the transmission revenue impacts resulting from future changes in rates that they believe are probable of approval by FERC in accordance with their formula rate mechanisms. See Note 3 - Regulatory Matters for additional information.
Option Contracts, Swaps, and Commodity Derivatives. Certain option contracts and swap arrangements that meet the definition of derivative instruments are recorded at fair value with subsequent changes in fair value recognized as revenue or expense. The classification of revenue or expense is based on the intent of the transaction. To the extent a Utility Registrant receives full cost recovery for energy procurement and related costs from retail customers, it records the fair value of its energy swap contracts with unaffiliated suppliers as well as
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
an offsetting regulatory asset or liability in its Consolidated Balance Sheets. See Note 3 - Regulatory Matters and Note 16 - Derivative Financial Instruments for additional information.
Taxes Directly Imposed on Revenue-Producing Transactions. The Registrants collect certain taxes from customers such as sales and gross receipts taxes, along with other taxes, surcharges, and fees, that are levied by state or local governments on the sale or distribution of electricity and gas. Some of these taxes are imposed on the customer, but paid by the Registrants, while others are imposed on the Registrants. Where these taxes are imposed on the customer, such as sales taxes, they are reported on a net basis with no impact to the Consolidated Statements of Operations and Comprehensive Income. However, where these taxes are imposed on the Registrants, such as gross receipts taxes or other surcharges or fees, they are reported on a gross basis. Accordingly, revenues are recognized for the taxes collected from customers along with an offsetting expense. See Note 24 - Supplemental Financial Information for Generation’s and the Utility Registrants' utility taxes that are presented on a gross basis.
Leases (All Registrants)
The Registrants adopted new accounting guidance issued by the FASB related to leases as of January 1, 2019. The Registrants recognize a ROU asset and lease liability for operating and finance leases with a term of greater than one year. Operating lease ROU assets are included in Other deferred debits and other assets and operating lease liabilities are included in Other current liabilities and Other deferred credits and other liabilities on the Consolidated Balance Sheets. Finance lease ROU assets are included in Plant, property, and equipment, net and finance lease liabilities are included in Long-term debt due within one year and Long-term debt on the Consolidated Balance Sheets. The ROU asset is measured as the sum of (1) the present value of all remaining fixed and in-substance fixed payments using each Registrant’s incremental borrowing rate, (2) any lease payments made at or before the commencement date (less any lease incentives received), and (3) any initial direct costs incurred. The lease liability is measured the same as the ROU asset, but excludes any payments made before the commencement date and initial direct costs incurred. Lease terms include options to extend or terminate the lease if it is reasonably certain they will be exercised. The Registrants include non-lease components for most asset classes, which are service-related costs that are not integral to the use of the asset, in the measurement of the ROU asset and lease liability.
Expense for operating leases and leases with a term of one year or less is recognized on a straight-line basis over the term of the lease, unless another systematic and rational basis is more representative of the derivation of benefit from use of the leased property. Variable lease payments are recognized in the period in which the related obligation is incurred and consist primarily of payments for purchases of electricity under contracted generation and are based on the electricity produced by those generating assets. Operating lease expense and variable lease payments are recorded to Purchased power and fuel expense for contracted generation or Operating and maintenance expense for all other lease agreements on the Registrants’ Statements of Operations and Comprehensive Income. Expense for finance leases is primarily recorded to Operating and maintenance on the Utility Registrants’ Statements of Operations and Comprehensive Income.
Income from operating leases, including subleases, is recognized on a straight-line basis over the term of the lease, unless another systematic and rational basis is more representative of the pattern in which income is earned over the term of the lease. Variable lease payments are recognized in the period in which the related obligation is performed and consist primarily of payments received from sales of electricity under contracted generation and are based on the electricity produced by those generating assets. Operating lease income and variable lease payments are recorded to Operating revenues on the Registrants’ Statements of Operations and Comprehensive Income.
The Registrants’ operating and finance leases consist primarily of contracted generation, real estate including office buildings, and vehicles and equipment. The Registrants generally account for contracted generation in which the generating asset is not renewable as a lease if the customer has dispatch rights and obtains substantially all of the economic benefits. For new agreements entered after January 1, 2019, the Registrants generally do not account for contracted generation in which the generating asset is renewable as a lease if the customer does not design the generating asset. The Registrants account for land right arrangements that provide for exclusive use as leases while shared use land arrangements are generally not leases. The Registrants do not account for secondary use pole attachments as leases.
See Note 11 - Leases for additional information.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
Income Taxes (All Registrants)
Deferred Federal and state income taxes are recorded on significant temporary differences between the book and tax basis of assets and liabilities and for tax benefits carried forward. Investment tax credits have been deferred in the Registrants’ Consolidated Balance Sheets and are recognized in book income over the life of the related property. The Registrants account for uncertain income tax positions using a benefit recognition model with a two-step approach; a more-likely-than-not recognition criterion; and a measurement approach that measures the position as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. If it is not more-likely-than-not that the benefit of the tax position will be sustained on its technical merits, no benefit is recorded. Uncertain tax positions that relate only to timing of when an item is included on a tax return are considered to have met the recognition threshold. The Registrants recognize accrued interest related to unrecognized tax benefits in Interest expense, net or Other, net (interest income) and recognize penalties related to unrecognized tax benefits in Other, net in their Consolidated Statements of Operations and Comprehensive Income.
Cash and Cash Equivalents (All Registrants)
The Registrants consider investments purchased with an original maturity of three months or less to be cash equivalents.
Restricted Cash and Cash Equivalents (All Registrants)
Restricted cash and cash equivalents represent funds that are restricted to satisfy designated current liabilities. As of December 31, 2020 and 2019, the Registrants' restricted cash and cash equivalents primarily represented the following items:
Restricted cash and cash equivalents not available to satisfy current liabilities are classified as noncurrent assets. As of December 31, 2020 and 2019, the Registrants' noncurrent restricted cash and cash equivalents primarily represented ComEd’s over-recovered RPS costs and alternative compliance payments received from RES pursuant to FEJA and costs for the remediation of an MGP site, and ACE’s repayment of Transition Bonds.
See Note 24 - Supplemental Financial Information for additional information.
Allowance for Credit Losses on Accounts Receivables (All Registrants)
The allowance for credit losses reflects the Registrants’ best estimates of losses on the customers' accounts receivable balances based on historical experience, current information, and reasonable and supportable forecasts.
The allowance for credit losses for Generation’s retail customers is based on accounts receivable aging historical experience coupled with specific identification through a credit monitoring process, which considers current conditions and forward-looking information such as industry trends, macroeconomic factors, changes in the regulatory environment, external credit ratings, publicly available news, payment status, payment history, and the
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
exercise of collateral calls. The allowance for credit losses for Generation wholesale customers is developed using a credit monitoring process, similar to that used for retail customers. When a wholesale customer’s risk characteristics are no longer aligned with the pooled population, Generation uses specific identification to develop an allowance for credit losses. Adjustments to the allowance for credit losses are recorded in Operating and maintenance expense on Generation’s Consolidated Statements of Operations and Comprehensive Income.
The allowance for credit losses for the Utility Registrants’ customers is developed by applying loss rates for each Utility Registrant, based on historical loss experience, current conditions, and forward-looking risk factors, to the outstanding receivable balance by customer risk segment. Utility Registrants' customer accounts are written off consistent with approved regulatory requirements. Adjustments to the allowance for credit losses are primarily recorded to Operating and maintenance expense on the Utility Registrants' Consolidated Statements of Operations and Comprehensive Income or Regulatory assets and liabilities on the Utility Registrants' Consolidated Balance Sheets. See Note 3 - Regulatory Matters for additional information regarding the regulatory recovery of credit losses on customer accounts receivable.
The Registrants have certain non-customer receivables in Other deferred debits and other assets which primarily are with governmental agencies and other high-quality counterparties with no history of default. As such, the allowance for credit losses related to these receivables is not material. The Registrants monitor these balances and will record an allowance if there are indicators of a decline in credit quality.
Variable Interest Entities (Exelon, Generation, PHI, and ACE)
Exelon accounts for its investments in and arrangements with VIEs based on the following specific requirements:
•requires an entity to qualitatively assess whether it should consolidate a VIE based on whether the entity has a controlling financial interest,
•requires an ongoing reconsideration of this assessment instead of only upon certain triggering events, and
•requires the entity that consolidates a VIE (the primary beneficiary) to disclose (1) the assets of the consolidated VIE, if they can be used to only settle specific obligations of the consolidated VIE, and (2) the liabilities of a consolidated VIE for which creditors do not have recourse to the general credit of the primary beneficiary.
See Note 23 - Variable Interest Entities for additional information.
Inventories (All Registrants)
Inventory is recorded at the lower of weighted average cost or net realizable value. Provisions are recorded for excess and obsolete inventory. Fossil fuel, materials and supplies, and emissions allowances are generally included in inventory when purchased. Fossil fuel and emissions allowances are expensed to purchased power and fuel expense when used or sold. Materials and supplies generally includes transmission, distribution, and generating plant materials and are expensed to operating and maintenance or capitalized to property, plant, and equipment, as appropriate, when installed or used.
Debt and Equity Security Investments (Exelon and Generation)
Debt Security Investments. Debt securities are reported at fair value and classified as available-for-sale securities. Unrealized gains and losses, net of tax, are reported in OCI.
Equity Security Investments without Readily Determinable Fair Values. Exelon has certain equity securities without readily determinable fair values. Exelon has elected to use the practicability exception to measure these investments, defined as cost adjusted for changes from observable transactions for identical or similar investments of the same issuer, less impairment. Changes in measurement are reported in earnings.
Equity Security Investments with Readily Determinable Fair Values. Exelon has certain equity securities with readily determinable fair values. For equity securities held in NDT funds, realized and unrealized gains and losses, net of tax, on Generation’s NDT funds associated with the Regulatory Agreement Units are included in regulatory liabilities at Exelon, ComEd, and PECO, in Noncurrent payables to affiliates at Generation and in
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
Noncurrent receivables from affiliates at ComEd and PECO. Realized and unrealized gains and losses, net of tax, on Generation’s NDT funds associated with the Non-Regulatory Agreement Units are included in earnings at Exelon and Generation. Exelon's and Generation's NDT funds are classified as current or noncurrent assets, depending on the timing of the decommissioning activities and income taxes on trust earnings. For all other equity securities with readily determinable fair values, realized and unrealized gains and losses are included in earnings at Exelon and Generation. See Note 3 - Regulatory Matters for additional information regarding ComEd’s and PECO’s regulatory assets and liabilities and Note 18 - Fair Value of Financial Assets and Liabilities and Note 10 - Asset Retirement Obligations for additional information.
Property, Plant, and Equipment (All Registrants)
Property, plant, and equipment is recorded at original cost. Original cost includes construction-related direct labor and material costs. The Utility Registrants also include indirect construction costs including labor and related costs of departments associated with supporting construction activities. When appropriate, original cost also includes capitalized interest for Generation, Exelon Corporate, and PHI and AFUDC for regulated property at the Utility Registrants. The cost of repairs and maintenance, including planned major maintenance activities and minor replacements of property, is charged to Operating and maintenance expense as incurred.
Third parties reimburse the Utility Registrants for all or a portion of expenditures for certain capital projects. Such contributions in aid of construction costs (CIAC) are recorded as a reduction to Property, plant, and equipment, net. DOE SGIG and other funds reimbursed to the Utility Registrants have been accounted for as CIAC.
For Generation, upon retirement, the cost of property is generally charged to accumulated depreciation in accordance with the composite and group methods of depreciation. Upon replacement of an asset, the costs to remove the asset, net of salvage, are capitalized to gross plant when incurred as part of the cost of the newly-installed asset and recorded to depreciation expense over the life of the new asset. Removal costs, net of salvage, incurred for property that will not be replaced is charged to Operating and maintenance expense as incurred.
For the Utility Registrants, upon retirement, the cost of property, net of salvage, is charged to accumulated depreciation consistent with the composite and group methods of depreciation. Depreciation expense at ComEd, BGE, Pepco, DPL, and ACE includes the estimated cost of dismantling and removing plant from service upon retirement. Actual incurred removal costs are applied against a related regulatory liability or recorded to a regulatory asset if in excess of previously collected removal costs. PECO’s removal costs are capitalized to accumulated depreciation when incurred and recorded to depreciation expense over the life of the new asset constructed consistent with PECO’s regulatory recovery method.
Capitalized Software. Certain costs, such as design, coding, and testing incurred during the application development stage of software projects that are internally developed or purchased for operational use are capitalized within Property, plant, and equipment. Similar costs incurred for cloud-based solutions treated as service arrangements are capitalized within Other Current Assets and Deferred Debits and Other Assets. Such capitalized amounts are amortized ratably over the expected lives of the projects when they become operational, generally not to exceed five years. Certain other capitalized software costs are being amortized over longer lives based on the expected life or pursuant to prescribed regulatory requirements.
Capitalized Interest and AFUDC. During construction, Exelon and Generation capitalize the costs of debt funds used to finance non-regulated construction projects. Capitalization of debt funds is recorded as a charge to construction work in progress and as a non-cash credit to interest expense.
AFUDC is the cost, during the period of construction, of debt and equity funds used to finance construction projects for regulated operations. AFUDC is recorded to construction work in progress and as a non-cash credit to an allowance that is included in interest expense for debt-related funds and other income and deductions for equity-related funds. The rates used for capitalizing AFUDC are computed under a method prescribed by regulatory authorities.
See Note 8 - Property, Plant, and Equipment, Note 9 - Jointly Owned Electric Utility Plant and Note 24 - Supplemental Financial Information for additional information regarding property, plant and equipment.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
Nuclear Fuel (Exelon and Generation)
The cost of nuclear fuel is capitalized within Property, plant, and equipment and charged to fuel expense using the unit-of-production method. Any potential future SNF disposal fees will be expensed through fuel expense. Additionally, certain on-site SNF storage costs are being reimbursed by the DOE since a DOE (or government-owned) long-term storage facility has not been completed. See Note 19 - Commitments and Contingencies for additional information regarding the cost of SNF storage and disposal.
Nuclear Outage Costs (Exelon and Generation)
Costs associated with nuclear outages, including planned major maintenance activities, are expensed to Operating and maintenance expense or capitalized to Property, plant, and equipment (based on the nature of the activities) in the period incurred.
Depreciation and Amortization (All Registrants)
Except for the amortization of nuclear fuel, depreciation is generally recorded over the estimated service lives of property, plant, and equipment on a straight-line basis using the group, composite or unitary methods of depreciation. The group approach is typically for groups of similar assets that have approximately the same useful lives and the composite approach is used for dissimilar assets that have different lives. Under both methods, a reporting entity depreciates the assets over the average life of the assets in the group. ComEd, BGE, Pepco, DPL, and ACE's depreciation expense includes the estimated cost of dismantling and removing plant from service upon retirement, which is consistent with each utility's regulatory recovery method. PECO's removal costs are capitalized to accumulated depreciation when incurred, and recorded to depreciation expense over the life of the new asset constructed consistent with PECO's regulatory recovery method. The estimated service lives for the Registrants are based on a combination of depreciation studies, historical retirements, site licenses, and management estimates of operating costs and expected future energy market conditions. See Note 7 - Early Plant Retirements for additional information on the impacts of early plant retirements.
See Note 8 - Property, Plant, and Equipment for additional information regarding depreciation.
Amortization of regulatory assets and liabilities are recorded over the recovery or refund period specified in the related legislation or regulatory order or agreement. When the recovery or refund period is less than one year, amortization is recorded to the line item in which the deferred cost or income would have originally been recorded in the Utility Registrants’ Consolidated Statements of Operations and Comprehensive Income. Amortization of ComEd’s electric distribution and energy efficiency formula rate regulatory assets and the Utility Registrants' transmission formula rate regulatory assets is recorded to Operating revenues.
Amortization of income tax related regulatory assets and liabilities is generally recorded to Income tax expense. With the exception of the regulatory assets and liabilities discussed above, when the recovery period is more than one year, the amortization is generally recorded to Depreciation and amortization in the Registrants’ Consolidated Statements of Operations and Comprehensive Income.
See Note 3 - Regulatory Matters and Note 24 - Supplemental Financial Information for additional information regarding Generation’s nuclear fuel and ARC, and the amortization of the Utility Registrants' regulatory assets.
Asset Retirement Obligations (All Registrants)
Generation estimates and recognizes a liability for its legal obligation to perform asset retirement activities even though the timing and/or methods of settlement may be conditional on future events. Generation generally updates its nuclear decommissioning ARO annually, unless circumstances warrant more frequent updates, based on its annual evaluation of cost escalation factors and probabilities assigned to the multiple outcome scenarios within its probability-weighted discounted cash flow models. Generation’s multiple outcome scenarios are generally based on decommissioning cost studies which are updated, on a rotational basis, for each of Generation’s nuclear units at least every five years, unless circumstances warrant more frequent updates. AROs are accreted throughout each year to reflect the time value of money for these present value obligations through a charge to Operating and maintenance expense in the Consolidated Statements of Operations and Comprehensive Income for Non-Regulatory Agreement Units and through a decrease to regulatory liabilities for Regulatory Agreement Units or, in the case of the Utility Registrants' accretion, through an increase to regulatory assets. See Note 10 - Asset Retirement Obligations for additional information.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
Guarantees (All Registrants)
If necessary, the Registrants recognize a liability at the time of issuance of a guarantee for the fair market value of the obligations they have undertaken by issuing the guarantee. The liability is reduced or eliminated as the Registrants are released from risk under the guarantee. Depending on the nature of the guarantee, the release from risk of the Registrant may be recognized only upon the expiration or settlement of the guarantee or by a systematic and rational amortization method over the term of the guarantee. See Note 19 - Commitments and Contingencies for additional information.
Asset Impairments
Long-Lived Assets (All Registrants). The Registrants regularly monitor and evaluate the carrying value of long-lived assets and asset groups for recoverability whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. Indicators of impairment may include a deteriorating business climate, including, but not limited to, declines in energy prices, condition of the asset, specific regulatory disallowance, or plans to dispose of a long-lived asset significantly before the end of its useful life. The Registrants determine if long-lived assets and asset groups are impaired by comparing the undiscounted expected future cash flows to the carrying value. When the undiscounted cash flow analysis indicates a long-lived asset or asset group is not recoverable, the amount of the impairment loss is determined by measuring the excess of the carrying amount of the long-lived asset or asset group over its fair value. See Note 12 - Asset Impairments for additional information.
Goodwill (Exelon, ComEd, and PHI). Goodwill represents the excess of the purchase price paid over the estimated fair value of the net assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized, but is assessed for impairment at least annually or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. See Note 13 - Intangible Assets for additional information.
Equity Method Investments (Exelon and Generation). Exelon and Generation regularly monitor and evaluate equity method investments to determine whether they are impaired. An impairment is recorded when the investment has experienced a decline in value that is other-than-temporary in nature. Additionally, if the entity in which Generation holds an investment recognizes an impairment loss, Exelon and Generation would record their proportionate share of that impairment loss and evaluate the investment for an other-than-temporary decline in value.
Debt Security Investments (Exelon and Generation). Declines in the fair value of debt security investments below the cost basis are reviewed to determine if such declines are other-than-temporary. If the decline is determined to be other-than-temporary, the amount of the impairment loss is included in earnings.
Equity Security Investments (Exelon and Generation). Equity investments with readily determinable fair values are measured and recorded at fair value with any changes in fair value recorded through earnings. Investments in equity securities without readily determinable fair values are qualitatively assessed for impairment each reporting period. If it is determined that the equity security is impaired on the basis of the qualitative assessment, an impairment loss will be recognized in earnings to the amount by which the security’s carrying amount exceeds its fair value.
Derivative Financial Instruments (All Registrants)
All derivatives are recognized on the balance sheet at their fair value unless they qualify for certain exceptions, including the NPNS. For derivatives intended to serve as economic hedges, changes in fair value are recognized in earnings each period. Amounts classified in earnings are included in Operating revenue, Purchased power and fuel, Interest expense, or Other, net in the Consolidated Statements of Operations and Comprehensive Income based on the activity the transaction is economically hedging. While the majority of the derivatives serve as economic hedges, there are also derivatives entered into for proprietary trading purposes, subject to Exelon’s Risk Management Policy, and changes in the fair value of those derivatives are recorded in revenue in the Consolidated Statements of Operations and Comprehensive Income. At the Utility Registrants, changes in fair value may be recorded as a regulatory asset or liability if there is an ability to recover or return the associated costs. Cash inflows and outflows related to derivative instruments are included as a component of operating, investing, or financing cash flows in the Consolidated Statements of Cash Flows, depending on the nature of each transaction. On July 1, 2018, Exelon and Generation de-designated its fair value and cash flow
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 1 - Significant Accounting Policies
hedges. See Note 3 - Regulatory Matters and Note 16 - Derivative Financial Instruments for additional information.
As part of Generation’s energy marketing business, Generation enters into contracts to buy and sell energy to meet the requirements of its customers. These contracts include short-term and long-term commitments to purchase and sell energy and energy-related products in the energy markets with the intent and ability to deliver or take delivery of the underlying physical commodity. NPNS are contracts where physical delivery is probable, quantities are expected to be used or sold in the normal course of business over a reasonable period of time and will not be financially settled. Revenues and expenses on derivative contracts that qualify, and are designated, as NPNS are recognized when the underlying physical transaction is completed. While these contracts are considered derivative financial instruments, they are not required to be recorded at fair value, but rather are recorded on an accrual basis of accounting. See Note 16 - Derivative Financial Instruments for additional information.
Retirement Benefits (All Registrants)
Exelon sponsors defined benefit pension plans and OPEB plans for essentially all current employees.
The plan obligations and costs of providing benefits under these plans are measured as of December 31. The measurement involves various factors, assumptions, and accounting elections. The impact of assumption changes or experience different from that assumed on pension and OPEB obligations is recognized over time rather than immediately recognized in the Consolidated Statements of Operations and Comprehensive Income. Gains or losses in excess of the greater of ten percent of the projected benefit obligation or the MRV of plan assets are amortized over the expected average remaining service period of plan participants. See Note 15 - Retirement Benefits for additional information.
New Accounting Standards (All Registrants)
New Accounting Standards Adopted in 2020: In 2020, the Registrants adopted the following new authoritative accounting guidance issued by the FASB.
Impairment of Financial Instruments (Issued June 2016). Provides for a new Current Expected Credit Loss (CECL) impairment model for specified financial instruments including loans, trade receivables, debt securities classified as held-to-maturity investments, and net investments in leases recognized by a lessor. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects its current estimate of credit losses expected to be incurred over the life of the financial instrument based on historical experience, current conditions, and reasonable and supportable forecasts. The standard was effective January 1, 2020 and requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. This standard is primarily applicable to Generation's and the Utility Registrants' trade accounts receivables balances. The guidance did not have a significant impact on the Registrants' consolidated financial statements.
Goodwill Impairment (Issued January 2017). Simplifies the accounting for goodwill impairment by removing Step 2 of the current impairment assessment model, which requires calculation of a hypothetical purchase price allocation. Under the revised guidance, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill (currently Step 1 of the two-step impairment assessment). Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment assessment is necessary. The standard was effective January 1, 2020 and must be applied on a prospective basis. Exelon, ComEd, and PHI adopted the new guidance in 2020. The new guidance did not impact Exelon's, ComEd's, and PHI's 2020 annual goodwill impairment assessments as they performed a qualitative assessment.
2. Mergers, Acquisitions, and Dispositions (Exelon and Generation)
CENG Put Option (Exelon and Generation)
Generation owns a 50.01% membership interest in CENG, a joint venture with EDF, which wholly owns the Calvert Cliffs and Ginna nuclear stations and Nine Mile Point Unit 1, in addition to an 82% undivided ownership
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 2 - Mergers, Acquisitions, and Dispositions
interest in Nine Mile Point Unit 2. CENG is 100% consolidated in Exelon's and Generation's financial statements. See Note 23 - Variable Interest Entities for additional information.
On April 1, 2014, Generation and EDF entered into various agreements including a NOSA, an amended LLC Operating Agreement, an Employee Matters Agreement, and a Put Option Agreement, among others. Under the amended LLC Operating Agreement, CENG made a $400 million special distribution to EDF and committed to make preferred distributions to Generation until Generation has received aggregate distributions of $400 million plus a return of 8.50% per annum. Under the Put Option Agreement, EDF has the option to sell its 49.99% equity interest in CENG to Generation exercisable beginning on January 1, 2016 and thereafter until June 30, 2022. On November 20, 2019, Generation received notice of EDF’s intention to exercise the put option to sell its interest in CENG to Generation, and the put automatically exercised on January 19, 2020 at the end of the sixty-day advance notice period.
Under the terms of the Put Option Agreement, the purchase price is to be determined by agreement of the parties, or absent such agreement, by a third-party arbitration process. The third parties determining fair market value of EDF’s 49.99% interest are to take into consideration all rights and obligations under the LLC Operating Agreement and Employee Matters Agreement including but not limited to Generation’s rights with respect to any unpaid aggregate preferred distributions and the related return. As of December 31, 2020, the total unpaid aggregate preferred distributions and related return owed to Generation is $619 million. At this time, Generation cannot reasonably predict the ultimate purchase price that will be paid to EDF for its interest in CENG. The transaction will require approval by the NYPSC and the FERC. The FERC approval was obtained on July 30, 2020. The process and regulatory approvals are expected to close in the second half of 2021.
Agreement for Sale of Generation’s Solar Business (Exelon and Generation)
On December 8, 2020, Generation entered into an agreement with an affiliate of Brookfield Renewable, for the sale of a significant portion of Generation’s solar business, including 360 megawatts of generation in operation or under construction across more than 600 sites across the United States. Under the terms of the transaction, the purchase price is $810 million, subject to certain working capital and other post-closing adjustments. Generation will retain certain solar assets not included in this agreement, primarily Antelope Valley.
As a result of the transaction, in the fourth quarter of 2020, Exelon and Generation reclassified the solar assets and liabilities on Exelon’s and Generation’s Consolidated Balance Sheets as held for sale. The transaction is expected to result in an estimated pre-tax gain ranging from $75 million to $125 million. The gain will be recorded in Gain on sales of assets and businesses in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income upon completion of the transaction. Completion of the transaction contemplated by the sale agreement is subject to the satisfaction of several closing conditions and is expected to occur in the first half of 2021. See Note 17 - Debt and Credit Agreements for additional information on the SolGen nonrecourse debt included as part of the transaction.
Disposition of Oyster Creek (Exelon and Generation)
On July 31, 2018, Generation entered into an agreement with Holtec and its indirect wholly owned subsidiary, OCEP, for the sale and decommissioning of Oyster Creek located in Forked River, New Jersey, which permanently ceased generation operations on September 17, 2018. Completion of the transaction contemplated by the sale agreement was subject to the satisfaction of several closing conditions, including approval of the license transfer from the NRC and other regulatory approvals, and a private letter ruling from the IRS, which were satisfied in the second quarter 2019. The sale was completed on July 1, 2019. Exelon and Generation recognized a loss on the sale in the third quarter of 2019, which was immaterial.
Under the terms of the transaction, Generation transferred to OCEP substantially all the assets associated with Oyster Creek, including assets held in NDT funds, along with the assumption of liability for all responsibility for the site, including full decommissioning and ongoing management of spent fuel until the spent fuel is moved offsite. The terms of the transaction also include various forms of performance assurance for the obligations of OCEP to timely complete the required decommissioning, including a parental guaranty from Holtec for all performance and payment obligations of OCEP, and a requirement for Holtec to deliver a letter of credit to Generation upon the occurrence of specified events.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 2 - Mergers, Acquisitions, and Dispositions
Upon remeasurement of the Oyster Creek ARO, Exelon and Generation recognized an $84 million and a $9 million pre-tax charge to Operating and maintenance expense in 2018 and in 2019, respectively. See Note 10 - Asset Retirement Obligations for additional information.
Disposition of Electrical Contracting Business (Exelon and Generation)
On February 28, 2018, Generation completed the sale of its interest in an electrical contracting business that primarily installs, maintains, and repairs underground and high-voltage cable transmission and distribution systems for $87 million, resulting in a pre-tax gain which is included within Gain on sales of assets and businesses in Exelon's and Generation's Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2018.
3. Regulatory Matters (All Registrants)
The following matters below discuss the status of material regulatory and legislative proceedings of the Registrants.
Utility Regulatory Matters (Exelon, PHI, and the Utility Registrants)
Distribution Base Rate Case Proceedings
The following tables show the completed and pending distribution base rate case proceedings in 2020.
Completed Distribution Base Rate Case Proceedings
__________
(a)Pursuant to EIMA and FEJA, ComEd’s electric distribution rates are established through a performance-based formula, which sunsets at the end of 2022. The electric distribution formula rate includes decoupling provisions and, as a result, ComEd's electric distribution formula rate revenues are not impacted by abnormal weather, usage per customer, or number of customers. ComEd is required to file an annual update to its electric distribution formula rate on or before May 1st, with resulting rates effective in January of the following year. ComEd’s annual electric distribution formula rate update is based on prior year actual costs and current year projected capital additions (initial year revenue requirement). The update also reconciles any differences between the revenue requirement in effect for the prior year and actual costs incurred from the year (annual reconciliation).
ComEd’s 2020 approved revenue requirement above reflects an increase of $51 million for the initial year revenue requirement for 2020 and a decrease of $68 million related to the annual reconciliation for 2018. The revenue requirement for 2020 and the revenue requirement for 2018 provides for a weighted average debt and equity return on distribution rate
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
base of 6.51% inclusive of an allowed ROE of 8.91%, reflecting the monthly average yields for 30-year treasury bonds plus 580 basis points.
ComEd’s 2021 approved revenue requirement above reflects an increase of $50 million for the initial year revenue requirement for 2021 and a decrease of $64 million related to the annual reconciliation for 2019. The revenue requirement for 2021 and the revenue requirement for 2019 provide for a weighted average debt and equity return on distribution rate base of 6.28% inclusive of an allowed ROE of 8.38%, reflecting the monthly average yields for 30-year treasury bonds plus 580 basis points. See table below for ComEd's regulatory assets associated with its electric distribution formula rate.
(b) Reflects a three-year cumulative multi-year plan for 2021 through 2023. The MDPSC awarded BGE electric revenue requirement increases of $59 million, $39 million, and $42 million in 2021, 2022, and 2023, respectively, and natural gas revenue requirement increases of $53 million, $11 million, and $10 million in 2021, 2022, and 2023, respectively. However, the MDPSC utilized certain tax benefits to fully offset the increases in 2021 so that customer rates will remain unchanged from 2020 to 2021. The MDPSC has deferred a decision on whether to use certain tax benefits to offset the revenue requirement increases in 2022 and 2023 and BGE cannot predict the outcome.
Pending Distribution Base Rate Case Proceedings
_________
(a)Pepco filed the multi-year plan enhanced proposal as an alternative to address the impacts of COVID-19. Reflects a three-year cumulative multi-year plan for 2020 through 2022 and requested revenue requirement increases of $73 million in 2022 and $63 million in 2023, to recover capital investments made during 2018 through 2020 and planned capital investments through the end of 2022.
(b)Reflects a three-year cumulative multi-year plan for April 1, 2021 through March 31, 2024 and total requested revenue requirement increases of $56 million effective April 1, 2023 and $54 million effective April 1, 2024 to recover capital investments made in 2019 and 2020 and planned capital investments through March 31, 2024.
(c)The rates went into effect on October 6, 2020, subject to refund.
(d)Requested increases are before New Jersey sales and use tax. ACE intends to put rates into effect on September 8, 2021, subject to refund.
Transmission Formula Rates (Exelon, PHI, and the Utility Registrants)
The Utility Registrants' transmission rates are each established based on a FERC-approved formula. ComEd, BGE, Pepco, DPL, and ACE are required to file an annual update to the FERC-approved formula on or before May 15, and PECO is required to file on or before May 31, with the resulting rates effective on June 1 of the same year. The annual update for ComEd, BGE, DPL, and ACE is based on prior year actual costs and current year projected capital additions (initial year revenue requirement). The annual update for PECO is based on prior year actual costs and current year projected capital additions, accumulated depreciation, and accumulated deferred income taxes. The annual update for Pepco is based on prior year actual costs and current year projected capital additions, accumulated depreciation, depreciation and amortization expense, and accumulated deferred income taxes. The update for ComEd, BGE, DPL, and ACE also reconciles any differences between the revenue requirement in effect beginning June 1 of the prior year and actual costs incurred for that year (annual reconciliation). The update for PECO and Pepco also reconciles any differences between the actual costs and actual revenues for the calendar year (annual reconciliation).
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
For 2020, the following total increases/(decreases) were included in the Utility Registrants' electric transmission formula rate updates:
__________
(a)All rates are effective June 30, 2020 - May 31, 2021, subject to review by interested parties pursuant to review protocols of each Utility Registrant's tariff.
(b)The decrease in PECO's transmission revenue requirement relates to refunds from December 1, 2017, in accordance with the settlement agreement dated July 22, 2019. The increase in BGE's transmission revenue requirement includes a $9 million reduction related to a FERC approved dedicated facilities charge to recover the costs of providing transmission service to specifically designated load by BGE. ComEd, BGE, Pepco, DPL, and ACE’s transmission revenue requirement include a decrease related to the April 24, 2020 settlement agreement related to excess deferred income taxes. Refer to Transmission-Related Income Tax Regulatory assets below for additional information.
(c)Represents the weighted average debt and equity return on transmission rate bases.
(d)As part of the FERC-approved settlement of ComEd’s 2007 and PECO's 2017 transmission rate cases, the rate of return on common equity is 11.50% and 10.35%, respectively inclusive of a 50-basis-point incentive adder for being a member of a RTO, and the common equity component of the ratio used to calculate the weighted average debt and equity return for the transmission formula rate is currently capped at 55% and 55.75%, respectively. As part of the FERC-approved settlement of the ROE complaint against BGE, Pepco, DPL, and ACE, the rate of return on common equity is 10.50%, inclusive of a 50-basis-point incentive adder for being a member of a RTO.
Other State Regulatory Matters
Illinois Regulatory Matters
Energy Efficiency Formula Rate (Exelon and ComEd). FEJA allows ComEd to defer energy efficiency costs (except for any voltage optimization costs which are recovered through the electric distribution formula rate) as a separate regulatory asset that is recovered through the energy efficiency formula rate over the weighted average useful life, as approved by the ICC, of the related energy efficiency measures. ComEd earns a return on the energy efficiency regulatory asset at a rate equal to its weighted average cost of capital, which is based on a year-end capital structure and calculated using the same methodology applicable to ComEd’s electric distribution formula rate. Beginning January 1, 2018 through December 31, 2030, the ROE that ComEd earns on its energy efficiency regulatory asset is subject to a maximum downward or upward adjustment of 200 basis points if ComEd’s cumulative persisting annual MWh savings falls short of or exceeds specified percentage benchmarks of its annual incremental savings goal. ComEd is required to file an update to its energy efficiency formula rate on or before June 1st each year, with resulting rates effective in January of the following year. The annual update is based on projected current year energy efficiency costs, PJM capacity revenues, and the projected year-end regulatory asset balance less any related deferred income taxes (initial year revenue requirement). The update also reconciles any differences between the revenue requirement in effect for the prior year and actual costs incurred from the year (annual reconciliation). The approved energy efficiency formula rate also provides for revenue decoupling provisions similar to those in ComEd’s electric distribution formula rate.
During 2020, the ICC approved the following total increases in ComEd's requested energy efficiency revenue requirement:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
_________
(a)ComEd’s 2021 approved revenue requirement above reflects an increase of $45 million for the initial year revenue requirement for 2021 and an increase of $3 million related to the annual reconciliation for 2019. The revenue requirement for 2021 provides for a weighted average debt and equity return on the energy efficiency regulatory asset and rate base of 6.28% inclusive of an allowed ROE of 8.38%, reflecting the monthly average yields for 30-year treasury bonds plus 580 basis points. The revenue requirement for 2019 provides for a weighted average debt and equity return on the energy efficiency regulatory asset and rate base of 6.56% inclusive of an allowed ROE of 8.96%, which includes an upward performance adjustment that can either increase or decrease the ROE. See table below for ComEd's regulatory assets associated with its energy efficiency formula rate.
Maryland Regulatory Matters
The Maryland Strategic Infrastructure Development and Enhancement Program (Exelon and BGE). On December 1, 2017 (as amended on January 22, 2018), BGE filed an application with the MDPSC seeking approval for a new gas infrastructure replacement plan and associated surcharge, effective for the five-year period from 2019 through 2023. On May 30, 2018, the MDPSC approved with modifications a new infrastructure plan and associated surcharge, subject to BGE's acceptance of the Order. On June 1, 2018, BGE accepted the MDPSC Order and the associated surcharge became effective January 2019. The five-year plan calls for capital expenditures over the 2019-2023 timeframe of $732 million with an associated revenue requirement of $200 million.
Cash Working Capital Order (Exelon and BGE). On November 17, 2016, the MDPSC rendered a decision in the proceeding to review BGE’s request to recover its cash working capital (CWC) requirement for its POLR service, also known as SOS, as well as other components that make up the Administrative Charge, the mechanism that enables BGE to recover its SOS-related costs. The Administrative Charge is comprised of five components: CWC, uncollectibles, incremental costs, return, and an administrative adjustment, which acts as a proxy for retail suppliers’ costs. The MDPSC accepted BGE's positions on recovery of CWC and pass-through recovery of BGE’s actual uncollectibles and incremental costs. The order also grants BGE a return on the SOS. Subsequently, the MDPSC Staff and residential consumer advocate sought clarification and appealed the amount of return awarded to BGE on the SOS. On July 27, 2020, the Maryland Court of Special Appeals affirmed the circuit court’s judgment affirming the MDPSC’s decision. No party appealed the decision to the Maryland Court of Appeals. Also, in BGE’s 2019 electric and gas distribution base rate proceeding, the MDPSC established a normalized administrative adjustment. However, a group of electric suppliers appealed the MDPSC’s decision to the Circuit Court for Baltimore City. BGE cannot predict the outcome of this appeal.
New Jersey Regulatory Matters
ACE Infrastructure Investment Program Filing (Exelon, PHI, and ACE). On February 28, 2018, ACE filed with the NJBPU the company’s IIP proposing to seek recovery of a series of investments through a new rider mechanism, totaling $338 million, between 2019-2022 to provide safe and reliable service for its customers. The IIP will allow for more timely recovery of investments made to modernize and enhance ACE’s electric system. On April 15, 2019, ACE entered into a settlement agreement with other parties, which allows for a recovery totaling $96 million of reliability related capital investments from July 1, 2019 through June 30, 2023. On April 18, 2019, the NJBPU approved the settlement agreement.
Advanced Metering Infrastructure Filing (Exelon, PHI, and ACE). On August 26, 2020, ACE filed an application with the NJBPU as was required seeking approval to deploy a smart energy network in alignment with New Jersey’s Energy Master Plan and Clean Energy Act. The proposal consists of estimated costs totaling $220 million, with deployment taking place over a 3-year implementation period from approximately 2021 to 2024 that involves the installation of an integrated system of smart meters for all customers accompanied by the requisite communications facilities and data management systems. ACE is seeking authority to recover these estimated investments through a combination of the ACE IIP rider mechanism and future distribution base rates. ACE currently expects a decision in this matter in the third quarter of 2021 but cannot predict if the NJBPU will approve the application as filed.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
New Jersey Clean Energy Legislation (Exelon, PHI, and ACE). On May 23, 2018, New Jersey enacted legislation that established and modified New Jersey’s clean energy and energy efficiency programs and solar and RPS. On the same day, New Jersey enacted legislation that established a ZEC program that provides compensation for nuclear plants that demonstrate to the NJBPU that they meet certain requirements, including that they make a significant contribution to air quality in the state and that their revenues are insufficient to cover their costs and risks. Electric distribution utilities in New Jersey, including ACE, began collecting from retail distribution customers, through a non-bypassable charge, all costs associated with the utility’s procurement of the ZECs effective April 18, 2019. See Generation Regulatory Matters below for additional information.
Other Federal Regulatory Matters
Transmission-Related Income Tax Regulatory Assets (Exelon, ComEd, BGE, PHI, Pepco, DPL, and ACE). On December 13, 2016 (and as amended on March 13, 2017), BGE filed with FERC to begin recovering certain existing and future transmission-related income tax regulatory assets through its transmission formula rate. BGE’s existing regulatory assets included (1) amounts that, if BGE’s transmission formula rate provided for recovery, would have been previously amortized and (2) amounts that would be amortized and recovered prospectively. On November 16, 2017, FERC issued an order rejecting BGE’s proposed revisions to its transmission formula rate to recover these transmission-related income tax regulatory assets. In the fourth quarter of 2017, ComEd, BGE, Pepco, DPL, and ACE fully impaired their associated transmission-related income tax regulatory assets for the portion of the income tax regulatory assets that would have been previously amortized.
On February 23, 2018 (as amended on July 9, 2018), ComEd, Pepco, DPL, and ACE each filed with FERC to revise their transmission formula rate mechanisms to permit recovery of transmission-related income tax regulatory assets, including those amounts that would have been previously amortized and recovered through rates had the transmission formula rate provided for such recovery.
On September 7, 2018, FERC issued orders rejecting 1) BGE’s rehearing request of FERC's November 16, 2017 order and 2) the February 23, 2018 (as amended on July 9, 2018) filing by ComEd, Pepco, DPL, and ACE for similar recovery.
On November 2, 2018, BGE filed an appeal of FERC's September 7, 2018 order to the U.S. Court of Appeals for the D.C. Circuit. On March 27, 2020, the U.S. Court of Appeals for the D.C. Circuit Court denied BGE’s November 2, 2018 appeal.
On October 1, 2018, ComEd, BGE, Pepco, DPL, and ACE submitted filings to recover ongoing non-TCJA amortization amounts and credit TCJA transmission-related income tax regulatory liabilities to customers for the prospective period starting on October 1, 2018. On April 26, 2019, FERC issued an order accepting ComEd's, BGE's, Pepco's, DPL's, and ACE's October 1, 2018 filings, effective October 1, 2018, subject to refund and established hearing and settlement judge procedures. On April 24, 2020, ComEd, BGE, Pepco, DPL, ACE, and other parties filed a settlement agreement with FERC, which FERC approved on September 24, 2020. The settlement agreement provides for the recovery of ongoing transmission-related income tax regulatory assets and establishes the amount and amortization period for excess deferred income taxes resulting from TCJA. The settlement resulted in a reduction to Operating revenues and an offsetting reduction to Income tax expense in the second quarter of 2020.
Regulatory Assets and Liabilities
Regulatory assets represent incurred costs that have been deferred because of their probable future recovery from customers through regulated rates. Regulatory liabilities represent the excess recovery of costs or accrued credits that have been deferred because it is probable such amounts will be returned to customers through future regulated rates or represent billings in advance of expenditures for approved regulatory programs.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
The following tables provide information about the regulatory assets and liabilities of Exelon, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE as of December 31, 2020 and December 31, 2019:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
Descriptions of the regulatory assets and liabilities included in the tables above are summarized below, including their recovery and amortization periods.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
COVID-19 (Exelon and the Utility Registrants). Starting in March of 2020, the Utility Registrants temporarily suspended customer disconnections for non-payment and temporarily ceased new late payment fees for all customers and restored service to customers upon request who were disconnected in the last twelve months. The duration and extent of these measures varies by jurisdiction. While these measures are no longer in place for some jurisdictions as of December 31, 2020, they are expected to continue through the first quarter of 2021 in other jurisdictions. Typically, the Utility Registrants recover credit loss expense through regulatory required programs or distribution base rate cases. ComEd and ACE have existing mechanisms for recovery of credit loss expense. For those jurisdictions without an existing regulatory required program to recover credit loss expense, the Utility Registrants are pursuing strategies to recover incremental costs being incurred as a result of COVID-19:
•In the period of April to July of 2020, the MDPSC, the DCPSC, the DPSC, and the NJBPU issued orders authorizing the creation of regulatory assets to track incremental COVID-19 related costs.
•In May of 2020, the PAPUC issued a Secretarial Letter authorizing the creation of regulatory assets to track incremental credit loss expense related to COVID-19.
The Utility Registrants have also incurred direct costs related to COVID-19 consisting primarily of costs to acquire personal protective equipment, costs for cleaning supplies and services, and costs to hire healthcare professionals to monitor the health of their employees.
The Utility Registrants have recorded regulatory assets for the impacts of COVID-19 reflecting primarily incremental credit losses and direct costs, partially offset by a decrease in travel costs at BGE and PHI. Refer to the Regulatory assets table above for amounts as of December 31, 2020. The Utility Registrants expect to seek recovery in upcoming distribution base rate cases.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
Capitalized Ratemaking Amounts Not Recognized
The following table presents authorized amounts capitalized for ratemaking purposes related to earnings on shareholders’ investment that are not recognized for financial reporting purposes in Exelon's and the Utility Registrant's Consolidated Balance Sheets. These amounts will be recognized as revenues in the related Consolidated Statements of Operations and Comprehensive Income in the periods they are billable to our customers.
__________
(a)Reflects ComEd's unrecognized equity returns/(losses) earned/(incurred) for ratemaking purposes on its electric distribution formula rate regulatory assets.
(b)BGE's authorized amounts capitalized for ratemaking purposes primarily relate to earnings on shareholders' investment on its AMI programs.
(c)Pepco's and DPL's authorized amounts capitalized for ratemaking purposes relate to earnings on shareholders' investment on their respective AMI Programs and Energy Efficiency and Demand Response Programs. The earnings on energy efficiency are on Pepco DC and DPL DE programs only.
Generation Regulatory Matters (Exelon and Generation)
Illinois Regulatory Matters
Zero Emission Standard. Pursuant to FEJA, on January 25, 2018, the ICC announced that Generation’s Clinton Unit 1, Quad Cities Unit 1, and Quad Cities Unit 2 nuclear plants were selected as the winning bidders through the IPA's ZEC procurement event.
Generation executed the ZEC procurement contracts with Illinois utilities, including ComEd, effective January 26, 2018 and began recognizing revenue with compensation for the sale of ZECs retroactive to the June 1, 2017 effective date of FEJA. The ZEC price was initially established at $16.50 per MWh of production, subject to annual future adjustments determined by the IPA for specified escalation and pricing adjustment mechanisms designed to lower the ZEC price based on increases in underlying energy and capacity prices. Illinois utilities are required to purchase all ZECs delivered by the zero-emissions nuclear-powered generating facilities, subject to annual cost caps. For the initial delivery year, June 1, 2017 to May 31, 2018, and subsequent delivery year, June 1, 2018 to May 31, 2019, the ZEC annual cost cap was set at $235 million (ComEd’s share is approximately $170 million). For subsequent delivery years, the IPA-approved targeted ZEC procurement amounts will change based on forward energy and capacity prices. ZECs delivered to Illinois utilities in excess of the annual cost cap may be paid in subsequent years if the payments do not exceed the prescribed annual cost cap for that year. During the first quarter of 2018, Generation recognized $150 million of revenue related to ZECs generated from June 1, 2017 through December 31, 2017.
New Jersey Regulatory Matters
New Jersey Clean Energy Legislation. On May 23, 2018, New Jersey enacted legislation that established a ZEC program that provides compensation for nuclear plants that demonstrate to the NJBPU that they meet certain requirements, including that they make a significant contribution to air quality in the state and that their revenues are insufficient to cover their costs and risks. Under the legislation, the NJBPU will issue ZECs to qualifying nuclear power plants and the electric distribution utilities in New Jersey, including ACE, will be required to purchase those ZECs. On April 18, 2019, the NJBPU approved the award of ZECs to Salem 1 and Salem 2. Upon approval, Generation began recognizing revenue for the sale of New Jersey ZECs in the month they are generated and has recognized $69 million and $53 million for the year ended December 31, 2020 and 2019, respectively. On May 15, 2019, New Jersey Rate Counsel appealed the NJBPU's decision to the New Jersey Superior Court. Briefing has been completed, and on December 9, 2020, oral argument took place. On October 1, 2020, PSEG and Generation filed applications seeking ZECs for the second eligibility period (June 2022 through May 2025). The NJBPU will act on the applications by the end of April 2021. Exelon and Generation cannot predict the outcome of the appeal. See Note 7 - Early Plant Retirements for additional information related to Salem.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
New York Regulatory Matters
New York Clean Energy Standard. On August 1, 2016, the NYPSC issued an order establishing the New York CES, a component of which is a Tier 3 ZEC program targeted at preserving the environmental attributes of zero-emissions nuclear-powered generating facilities that meet the criteria demonstrating public necessity as determined by the NYPSC to be Generation's FitzPatrick, Ginna, and Nine Mile Point nuclear facilities.
On November 30, 2016 (as amended on January 13, 2017), a group of parties filed a Petition in New York State court seeking to invalidate the ZEC program, which argued that the NYPSC did not have authority to establish the program, that it violated state environmental law and that it violated certain technical provisions of the State Administrative Procedures Act when adopting the ZEC program. On January 22, 2018, the court dismissed the environmental claims and the majority of the plaintiffs from the case but denied the motions to dismiss with respect to the remaining five plaintiffs and claims, without commenting on the merits of the case. On October 8, 2019, the court dismissed all remaining claims. The petitioners filed a notice of appeal on November 4, 2019 and originally had until May 4, 2020 to file their brief. Due to COVID-19 related restrictions, the court extended the deadline to July 29, 2020. Petitioners did not file a brief by the deadline, so the case is deemed dismissed. Petitioners are permitted up to one year from July 29, 2020 to file a motion to vacate the dismissal if they can show good cause for the delay.
See Note 7 - Early Plant Retirements for additional information related to Ginna and Nine Mile Point.
New England Regulatory Matters
Mystic Units 8 & 9 and Everett Marine Terminal Cost of Service Agreement (Exelon and Generation). On March 29, 2018, Generation notified grid operator ISO-NE of its plans to early retire Mystic Units 8 and 9 absent regulatory reforms on June 1, 2022. On May 16, 2018, Generation made a filing with FERC to establish cost-of-service compensation and terms and conditions of service for Mystic Units 8 & 9 for the period between June 1, 2022 - May 31, 2024. On December 20, 2018, FERC issued an order accepting the cost of service compensation, reflecting a number of adjustments to the annual fixed revenue requirement, and allowing for recovery of a substantial portion of the costs associated with the adjacent Everett Marine Terminal acquired by Generation in October 2018. Those adjustments were reflected in a compliance filing made on March 1, 2019. In the December 20, 2018 order, FERC also directed a paper hearing on ROE using a new methodology. On January 22, 2019, Exelon and several other parties filed requests for rehearing of certain findings in the order.
On July 17, 2020, FERC issued three orders, which together affirmed the recovery of key elements of Mystic's cost of service compensation, including recovery of costs associated with the operation of the Everett Marine Terminal. FERC directed a downward adjustment to the rate base for Mystic Units 8 and 9, the effect of which will be partially offset by elimination of a crediting mechanism for third party gas sales during the term of the cost of service agreement. A compliance filing was submitted on September 15, 2020 and is pending. Several parties filed protests to the compliance filing on the issue of how gross plant in-service was calculated and Generation filed an answer to the protests on October 21, 2020. On July 28, 2020, FERC ordered additional briefings in the ROE proceeding. On December 21, 2020, FERC issued an order on rehearing of the three July 17, 2020 orders, clarifying several cost of service provisions.
On August 25, 2020, a group of New England generators filed a complaint against Generation seeking to extend the scope of the claw back provision in the cost-of-service agreement, whereby Generation would refund certain amounts recovered during the term of the cost of service if it returns to market afterwards. On September 14, 2020, Generation filed an answer to the complaint arguing that the complaint is procedurally improper and a collateral attack on existing FERC orders, and pointing out that the ISO-NE tariff contains protections against the New England generators' concerns that they failed to mention. On September 28, 2020, New England generators filed an answer to Generation’s answer. Generation cannot predict the outcome of this proceeding.
On June 10, 2020, Generation filed a complaint with FERC against ISO-NE on the grounds that ISO-NE failed to follow its tariff with respect to its evaluation of Mystic for transmission security for the 2024 to 2025 Capacity Commitment Period (FCA 15) and that the modifications that ISO-NE made to its unfiled planning procedures to avoid retaining Mystic should have been filed with FERC for approval. On July 27, 2020, ISO-NE issued a memo to NEPOOL announcing its determination pursuant to its unfiled planning procedures that Mystic Units 8 and 9 are not needed for FCA 15 for transmission security. It had previously determined Mystic Units 8 and 9 are not needed for fuel security. On August 17, 2020, FERC issued an order denying the complaint. On September 16,
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
2020, Generation filed a request for rehearing with FERC. On October 19, 2020, FERC denied rehearing by operation of law and on December 18, 2020, Generation appealed to the U.S. Court of Appeals for the D.C. Circuit. The timing and the outcome of this proceeding is uncertain.
See Note 7 - Early Plant Retirements and Note 12 - Asset Impairments for additional information on the impacts of Generation’s August 2020 decision to retire Mystic Units 8 & 9 upon expiration of the cost of service agreement.
Federal Regulatory Matters
PJM and NYISO MOPR Proceedings. PJM and NYISO capacity markets include a MOPR. If a resource is subjected to a MOPR, its offer is adjusted to effectively remove the revenues it receives through a state government-provided financial support program - resulting in a higher offer that may not clear the capacity market. Prior to December 19, 2019, the MOPR in PJM applied only to certain new gas-fired resources. Currently, the MOPR in NYISO applies only to certain resources in downstate New York.
For Generation’s facilities in PJM and NYISO that are currently receiving ZEC compensation, an expanded MOPR would require exclusion of ZEC compensation when bidding into future capacity auctions, resulting in an increased risk of these facilities not receiving capacity revenues in future auctions.
On December 19, 2019, FERC required PJM to broadly apply the MOPR to all new and existing resources including nuclear, renewables, demand response, energy efficiency, storage, and all resources owned by vertically-integrated utilities. This greatly expands the breadth and scope of PJM’s MOPR, which is effective as of PJM’s next capacity auction. While FERC included some limited exemptions, no exemptions were available to state-supported nuclear resources.
FERC provided no new mechanism for accommodating state-supported resources other than the existing FRR mechanism (under which an entire utility zone would be removed from PJM’s capacity auction along with sufficient resources to support the load in such zone). In response to FERC’s order, PJM submitted a compliance filing on March 18, 2020 wherein PJM proposed tariff language interpreting and implementing FERC's directives, and proposed a schedule for resuming capacity auctions that is contingent on the timing of FERC's action on the compliance filing.
On April 16, 2020, FERC issued an order largely denying most requests for rehearing of FERC's December 2019 order but granting a few clarifications that required an additional PJM compliance filing which PJM submitted on June 1, 2020.
On October 15, 2020, FERC issued an order denying requests for rehearing of its April 16, 2020 order and accepting PJM’s two compliance filings, subject to a further compliance filing to revise minor aspects of the proposed MOPR methodology. As part of that order, FERC also accepted PJM’s proposal to condense the schedule of activities leading up to the next capacity auction. In November 2020, PJM announced that it will conduct its next capacity auction beginning on May 19, 2021 and ending on May 25, 2021 and will post the results on June 2, 2021.
Because neither Illinois nor New Jersey have implemented an FRR program in their PJM zones, the MOPR will apply in that next capacity auction to Generation's owned or jointly owned nuclear plants in those states receiving a benefit under the Illinois ZES, or the New Jersey ZEC program, as applicable, increasing the risk that those units may not clear the capacity market.
Exelon is currently working with PJM and other stakeholders to pursue the FRR option as an alternative to the PJM capacity auction. If Illinois implements the FRR option, Generation’s Illinois nuclear plants could be removed from PJM’s capacity auction and instead supply capacity, and be compensated under the FRR program, which has the potential to mitigate the current economic distress being experienced by Generation's nuclear plants in Illinois, as discussed in Note 7 - Early Plant Retirements. Implementing the FRR program in Illinois will require both legislative and regulatory changes. Whether legislation is needed in New Jersey would depend on how the state chooses to structure an FRR program. Exelon cannot predict whether or when such legislative and regulatory changes can be implemented.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
On February 20, 2020, FERC issued an order rejecting requests to expand NYISO’s version of the MOPR (referred to as buyer-side mitigation rules) beyond its current limited applicability to certain resources in downstate. However, on October 14, 2020, two natural gas-fired generators in New York filed a complaint at FERC seeking to expand the MOPR in NYISO to apply to all resources, new and existing, across the entire NYISO market. Exelon is strenuously opposing expansion of FERC’s MOPR policies in the NYISO market. While it is too early in the proceeding to predict its outcome and there are significant differences between the NYISO and PJM markets that would justify a different result, if FERC follows its MOPR precedent in PJM and applies the MOPR in NYISO broadly as requested in the complaint, Generation’s facilities in NYISO that are receiving ZEC compensation may be at increased risk of not clearing the capacity auction.
If Generation’s state-supported nuclear plants in PJM or NYISO are subjected to the MOPR or equivalent without compensation under an FRR or similar program, it could have a material adverse impact on Exelon's and Generation's financial statements, which Exelon and Generation cannot reasonably estimate at this time.
Operating License Renewals
Conowingo Hydroelectric Project. On August 29, 2012, Generation submitted a hydroelectric license application to FERC for a new license for the Conowingo Hydroelectric Project (Conowingo). In connection with Generation’s efforts to obtain a water quality certification pursuant to Section 401 of the Clean Water Act (401 Certification) from MDE for Conowingo, Generation has been working with MDE and other stakeholders to resolve water quality licensing issues, including: (1) water quality, (2) fish habitat, and (3) sediment.
On April 21, 2016, Generation and the U.S. Fish and Wildlife Service of the U.S. Department of the Interior executed a settlement agreement (DOI Settlement) resolving all fish passage issues between the parties.
On April 27, 2018, MDE issued its 401 Certification for Conowingo. As issued, the 401 Certification contains numerous conditions, including those relating to reduction of nutrients from upstream sources, removal of all visible trash and debris from upstream sources, and implementation of measures relating to fish passage, which could have a material, unfavorable impact on Exelon’s and Generation’s financial statements through an increase in capital expenditures and operating costs if implemented. On May 25, 2018, Generation filed complaints in federal and state court, along with a petition for reconsideration with MDE, alleging that the conditions are unfair and onerous and in violation of MDE regulations and state, federal, and constitutional law. Generation also requested that FERC defer the issuance of the federal license while these significant state and federal law issues are pending. On February 28, 2019, Generation filed a Petition for Declaratory Order with FERC requesting that FERC issue an order declaring that MDE waived its right to issue a 401 Certification for Conowingo because it failed to timely act on Conowingo’s 401 Certification application and requesting that FERC decline to include the conditions required by MDE in April 2018.
On October 29, 2019, Generation and MDE filed with FERC a Joint Offer of Settlement (Offer of Settlement) that would resolve all outstanding issues relating to the 401 Certification. Pursuant to the Offer of Settlement, the parties submitted Proposed License Articles to FERC to be incorporated by FERC into the new license in accordance with FERC’s discretionary authority under the Federal Power Act. Among the Proposed License Articles are modifications to river flows to improve aquatic habitat, eel passage improvements, and initiatives to support rare, threatened and endangered wildlife. If FERC approves the Offer of Settlement and incorporates the Proposed License Articles into the new license without modification, then MDE would waive its rights to issue a 401 Certification and Generation would agree, pursuant to a separate agreement with MDE (MDE Settlement), to implement additional environmental protection, mitigation, and enhancement measures over the anticipated 50-year term of the new license. These measures address mussel restoration and other ecological and water quality matters, among other commitments. Exelon’s commitments under the various provisions of the Offer of Settlement and MDE Settlement are not effective unless and until FERC approves the Offer of Settlement, and issues the new license with the Proposed License Articles.
The financial impact of the DOI and MDE Settlements and other anticipated license commitments are estimated to be $11 million to $14 million per year, on average, recognized over the new license term, including capital and operating costs. The actual timing and amount of the majority of these costs are not currently fixed and will vary from year to year throughout the life of the new license. Generation cannot currently predict when FERC will issue the new license. As of December 31, 2020, $45 million of direct costs associated with Conowingo licensing efforts have been capitalized. Generation's current depreciation provision for Conowingo assumes renewal of the FERC license.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 3 - Regulatory Matters
Peach Bottom Units 2 and 3. On July 10, 2018, Generation submitted a second 20-year license renewal application with the NRC for Peach Bottom Units 2 and 3, which was approved on March 6, 2020. Peach Bottom Units 2 and 3 are now licensed to operate through 2053 and 2054, respectively. See Note 8 - Property, Plant, and Equipment for additional information regarding the estimated useful life and depreciation provisions for Peach Bottom.
4. Revenue from Contracts with Customers (All Registrants)
The Registrants recognize revenue from contracts with customers to depict the transfer of goods or services to customers at an amount that the entities expect to be entitled to in exchange for those goods or services. Generation’s primary sources of revenue include competitive sales of power, natural gas, and other energy-related products and services. The Utility Registrants’ primary sources of revenue include regulated electric and gas tariff sales, distribution, and transmission services. The performance obligations, revenue recognition, and payment terms associated with these sources of revenue are further discussed in the table below. There are no significant financing components for these sources of revenue and no variable consideration for regulated electric and gas tariff sales and regulated transmission services unless noted below.
Unless otherwise noted, for each of the significant revenue categories and related performance obligations described below, the Registrants have the right to consideration from the customer in an amount that corresponds directly with the value transferred to the customer for the performance completed to date. Therefore, the Registrants generally recognize revenue in the amount for which they have the right to invoice the customer. As a result, there are generally no significant judgments used in determining or allocating the transaction price.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 4 - Revenue from Contracts with Customers
__________
(a)Certain contracts may contain limits on the total amount of revenue Exelon and Generation are able to collect over the entire term of the contract. In such cases, Exelon and Generation estimate the total consideration expected to be received over the term of the contract net of the constraint and allocate the expected consideration to the performance obligations
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 4 - Revenue from Contracts with Customers
in the contract such that revenue is recognized ratably over the term of the entire contract as the performance obligations are satisfied.
(b)The method recognizes revenue based on the various inputs used to satisfy the performance obligation, such as costs incurred and total labor hours expended. The total amount of revenue that will be recognized is based on the agreed upon contractually-stated amount. The average contract term for these projects is approximately 18 months.
(c)Electric and natural gas utility customers have the choice to purchase electricity or natural gas from competitive electric generation and natural gas suppliers. While the Utility Registrants are required under state legislation to bill their customers for the supply and distribution of electricity and/or natural gas, they recognize revenue related only to the distribution services when customers purchase their electricity or natural gas from competitive suppliers.
(d)Passage of time is used for NITS and access to the wholesale grid and MWHs of energy transported over the wholesale grid is used for scheduling, system control and dispatch services.
Generation incurs incremental costs in order to execute certain retail power and gas sales contracts. These costs, which primarily relate to retail broker fees and sales commissions, are capitalized when incurred as contract acquisition costs and were immaterial as of December 31, 2020 and 2019. The Utility Registrants do not incur any material costs to obtain or fulfill contracts with customers.
Contract Balances (All Registrants)
Contract Assets
Generation records contract assets for the revenue recognized on the construction and installation of energy efficiency assets and new power generating facilities before Generation has an unconditional right to bill for and receive the consideration from the customer. These contract assets are subsequently reclassified to receivables when the right to payment becomes unconditional. Generation records contract assets and contract receivables within Other current assets and Customer accounts receivable, net, respectively, within Exelon’s and Generation’s Consolidated Balance Sheets.
The following table provides a rollforward of the contract assets reflected in Exelon's and Generation's Consolidated Balance Sheets. The Utility Registrants do not have any contract assets.
__________
(a)Represents contract assets related to Generation's solar business, which were classified as held for sale as a result of the sale agreement. See Note 2 - Mergers, Acquisitions, and Dispositions for additional information.
Contract Liabilities
The Registrants record contract liabilities when consideration is received or due prior to the satisfaction of the performance obligations. The Registrants record contract liabilities within Other current liabilities and Other noncurrent liabilities within the Registrants' Consolidated Balance Sheets.
For Generation, these contract liabilities primarily relate to upfront consideration received or due for equipment service plans, solar panel leases, and the Illinois ZEC program that introduces a cap on the total consideration to be received by Generation. The Generation contract liability related to the Illinois ZEC program includes certain amounts with ComEd that are eliminated in consolidation in Exelon’s Consolidated Statements of Operations and Consolidated Balance Sheets.
On July 1, 2020, Pepco, DPL, and ACE each entered into a collaborative arrangement with an unrelated owner and manager of communication infrastructure (the Buyer). Under this arrangement, Pepco, DPL, and ACE sold a 60% undivided interest in their respective portfolios of transmission tower attachment agreements with
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 4 - Revenue from Contracts with Customers
telecommunications companies to the Buyer, in addition to transitioning management of the day-to-day operations of the jointly-owned agreements to the Buyer for 35 years, while retaining the safe and reliable operation of its utility assets. In return, Pepco, DPL, and ACE will provide the Buyer limited access on the portion of the towers where the equipment resides for the purposes of managing the agreements for the benefit of Pepco, DPL, ACE, and the Buyer. In addition, for an initial period of three years and two, two-year extensions that are subject to certain conditions, the Buyer has the exclusive right to enter into new agreements with telecommunications companies and to receive a 30% undivided interest in those new agreements. PHI, Pepco, DPL, and ACE received cash and recorded contract liabilities as of July 1, 2020 as shown in the table below. The revenue attributable to this arrangement will be recognized as operating revenue over the 35 years under the collaborative arrangement.
The following table provides a rollforward of the contract liabilities reflected in Exelon's, Generation's, PHI's, Pepco's, DPL's, and ACE'S Consolidated Balance Sheets. As of December 31, 2020, 2019, and 2018, ComEd's, PECO's, and BGE's contract liabilities were immaterial.
__________
(a)Represents contract liabilities related to Generation's solar business, which were classified as held for sale as a result of the sale agreement. See Note 2 - Mergers, Acquisitions, and Dispositions for additional information.
The following table reflects revenues recognized in the years ended December 31, 2020, 2019 and 2018, which were included in contract liabilities at December 31, 2019, 2018, and 2017, respectively:
Transaction Price Allocated to Remaining Performance Obligations (All Registrants)
The following table shows the amounts of future revenues expected to be recorded in each year for performance obligations that are unsatisfied or partially unsatisfied as of December 31, 2020. This disclosure only includes contracts for which the total consideration is fixed and determinable at contract inception. The average contract term varies by customer type and commodity but ranges from one month to several years.
This disclosure excludes Generation's power and gas sales contracts as they contain variable volumes and/or variable pricing. This disclosure also excludes the Utility Registrants' gas and electric tariff sales contracts and transmission revenue contracts as they generally have an original expected duration of one year or less and, therefore, do not contain any future, unsatisfied performance obligations to be included in this disclosure.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 4 - Revenue from Contracts with Customers
Revenue Disaggregation (All Registrants)
The Registrants disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. See Note 5 - Segment Information for the presentation of the Registrant's revenue disaggregation.
5. Segment Information (All Registrants)
Operating segments for each of the Registrants are determined based on information used by the CODM in deciding how to evaluate performance and allocate resources at each of the Registrants.
Exelon has eleven reportable segments, which include Generation's five reportable segments consisting of the Mid-Atlantic, Midwest, New York, ERCOT, and all other power regions referred to collectively as “Other Power Regions” and ComEd, PECO, BGE, and PHI's three reportable segments consisting of Pepco, DPL, and ACE. ComEd, PECO, BGE, Pepco, DPL, and ACE each represent a single reportable segment, and as such, no separate segment information is provided for these Registrants. Exelon, ComEd, PECO, BGE, Pepco, DPL, and ACE's CODMs evaluate the performance of and allocate resources to ComEd, PECO, BGE, Pepco, DPL, and ACE based on net income.
The basis for Generation's reportable segments is the integrated management of its electricity business that is located in different geographic regions, and largely representative of the footprints of ISO/RTO and/or NERC regions, which utilize multiple supply sources to provide electricity through various distribution channels (wholesale and retail). Generation's hedging strategies and risk metrics are also aligned to these same geographic regions. Descriptions of each of Generation’s five reportable segments are as follows:
•Mid-Atlantic represents operations in the eastern half of PJM, which includes New Jersey, Maryland, Virginia, West Virginia, Delaware, the District of Columbia, and parts of Pennsylvania and North Carolina.
•Midwest represents operations in the western half of PJM and the United States footprint of MISO, excluding MISO’s Southern Region.
•New York represents operations within NYISO.
•ERCOT represents operations within Electric Reliability Council of Texas.
•Other Power Regions:
•New England represents operations within ISO-NE.
•South represents operations in the FRCC, MISO’s Southern Region, and the remaining portions of the SERC not included within MISO or PJM.
•West represents operations in the WECC, which includes CAISO.
•Canada represents operations across the entire country of Canada and includes AESO, OIESO, and the Canadian portion of MISO.
The CODMs for Exelon and Generation evaluate the performance of Generation’s electric business activities and allocate resources based on RNF. Generation believes that RNF is a useful measurement of operational performance. RNF is not a presentation defined under GAAP and may not be comparable to other companies’
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
presentations or deemed more useful than the GAAP information provided elsewhere in this report. Generation’s operating revenues include all sales to third parties and affiliated sales to the Utility Registrants. Purchased power costs include all costs associated with the procurement and supply of electricity including capacity, energy, and ancillary services. Fuel expense includes the fuel costs for Generation’s owned generation and fuel costs associated with tolling agreements. The results of Generation's other business activities are not regularly reviewed by the CODM and are therefore not classified as operating segments or included in the regional reportable segment amounts. These activities include natural gas, as well as other miscellaneous business activities that are not significant to Generation's overall operating revenues or results of operations. Further, Generation’s unrealized mark-to-market gains and losses on economic hedging activities and its amortization of certain intangible assets and liabilities relating to commodity contracts recorded at fair value from mergers and acquisitions are also excluded from the regional reportable segment amounts. Exelon and Generation do not use a measure of total assets in making decisions regarding allocating resources to or assessing the performance of these reportable segments.
An analysis and reconciliation of the Registrants’ reportable segment information to the respective information in the consolidated financial statements for the years ended December 31, 2020, 2019, and 2018 is as follows:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
__________
(a)Other primarily includes Exelon’s corporate operations, shared service entities, and other financing and investment activities.
(b)Includes gross utility tax receipts from customers. The offsetting remittance of utility taxes to the governing bodies is recorded in expenses in the Registrants’ Consolidated Statements of Operations and Comprehensive Income. See Note 24 - Supplemental Financial Information for additional information on total utility taxes.
(c)Intersegment revenues exclude sales to unconsolidated affiliates. The intersegment profit associated with Generation’s sale of certain products and services by and between Exelon’s segments is not eliminated in consolidation due to the recognition of intersegment profit in accordance with regulatory accounting guidance. For Exelon, these amounts are included in Operating revenues in the Consolidated Statements of Operations and Comprehensive Income. See Note 25 - Related Party Transactions for additional information on intersegment revenues.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
PHI:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
__________
(a)Other primarily includes PHI’s corporate operations, shared service entities, and other financing and investment activities.
(b)Includes gross utility tax receipts from customers. The offsetting remittance of utility taxes to the governing bodies is recorded in expenses in the Registrants’ Consolidated Statements of Operations and Comprehensive Income. See Note 24 - Supplemental Financial Information for additional information on total utility taxes.
(c)Includes intersegment revenues with ComEd, BGE, and PECO, which are eliminated at Exelon.
(d)The Income (loss) before income taxes in Other and Intersegment Eliminations have been adjusted by an offsetting $489 million and $408 million in 2019 and 2018, respectively, and Total assets amounts in Other and Intersegment Eliminations have been adjusted by an offsetting $5.7 billion in 2019 for consistency with the Exelon consolidating disclosure above.
The following tables disaggregate the Registrants' revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. For Generation, the disaggregation of revenues reflects Generation's two primary products of power sales and natural gas sales, with further disaggregation of power sales provided by geographic region. For the Utility Registrants, the disaggregation of revenues reflects the two primary utility services of rate-regulated electric sales and rate-regulated natural gas sales (where applicable), with further disaggregation of these tariff sales provided by major customer groups. Exelon's disaggregated revenues are consistent with Generation and the Utility Registrants, but exclude any intercompany revenues.
Competitive Business Revenues (Generation):
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
__________
(a)Includes all wholesale and retail electric sales to third parties and affiliated sales to the Utility Registrants.
(b)Includes revenues from derivatives and leases.
(c)Represents activities not allocated to a region. See text above for a description of included activities. Includes unrealized mark-to-market gains of $110 million and losses of $4 million and $262 million for the years ended December 31, 2020, 2019, and 2018, respectively, and the elimination of intersegment revenues.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
Revenues net of purchased power and fuel expense (Generation):
__________
(a)Includes purchases and sales from/to third parties and affiliated sales to the Utility Registrants.
(b)Other represents activities not allocated to a region. See text above for a description of included activities. Primarily includes:
•unrealized mark-to-market gains of $295 million and losses of $215 million and $319 million for the years ended December 31, 2020, 2019, and 2018, respectively;
•accelerated nuclear fuel amortization associated with the announced early plant retirements as discussed in Note 7 - Early Plant Retirements of $60 million, $13 million, and $57 million in for the years ended December 31, 2020, 2019, and 2018, respectively; and
•the elimination of intersegment RNF.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
Electric and Gas Revenue by Customer Class (Utility Registrants):
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 5 - Segment Information
__________
(a)Includes revenues from transmission revenue from PJM, wholesale electric revenue and mutual assistance revenue.
(b)Includes operating revenues from affiliates in 2020, 2019, and 2018 respectively of:
•$37 million, $30 million, and $27 million at ComEd
•$8 million, $5 million, and $7 million at PECO
•$10 million, $8 million, and $8 million at BGE
•$17 million, $14 million, and $15 million at PHI
•$7 million, $5 million, and $6 million at Pepco
•$9 million, $7 million, and $8 million at DPL
•$4 million, $3 million, and $3 million at ACE
(c)Includes revenues from off-system natural gas sales.
(d)Includes operating revenues from affiliates in 2020, 2019, and 2018 respectively of:
•$1 million, $1 million, and $1 million at PECO
•$10 million, $18 million, and $21 million at BGE
(e)Includes late payment charge revenues.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 6 - Accounts Receivable
6. Accounts Receivable (All Registrants)
Allowance for Credit Losses on Accounts Receivable (All Registrants)
The following table presents the rollforward of Allowance for Credit Losses on Customer Accounts Receivable for the year ended December 31, 2020.
_________
(a)For the Utility Registrants, the increase is primarily as a result of increased aging of receivables, the temporary suspension of customer disconnections for non-payment, temporary cessation of new late payment fees, and reconnection of service to customers previously disconnected due to COVID-19.
(b)Recoveries were not material to the Registrants.
(c)See below for additional information on the sale of customer accounts receivable at Generation in the second quarter of 2020.
The following table presents the rollforward of Allowance for Credit Losses on Other Accounts Receivable for the year ended December 31, 2020.
_________
(a)Recoveries were not material to the Registrants.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 6 - Accounts Receivable
Unbilled Customer Revenue (All Registrants)
The following table provides additional information about unbilled customer revenues recorded in the Registrants' Consolidated Balance Sheets as of December 31, 2020 and 2019.
_________
(a)Unbilled customer revenues are classified in Customer accounts receivables, net in the Registrants' Consolidated Balance Sheets.
Sales of Customer Accounts Receivable (Exelon and Generation)
On April 8, 2020, NER, a bankruptcy remote, special purpose entity, which is wholly-owned by Generation, entered into a revolving accounts receivable financing arrangement with a number of financial institutions and a commercial paper conduit (the Purchasers) to sell certain customer accounts receivable (the Facility). The Facility, whose maximum capacity is $750 million, is scheduled to expire on April 7, 2021, unless renewed by the mutual consent of the parties in accordance with its terms. Under the Facility, NER may sell eligible short-term customer accounts receivable to the Purchasers in exchange for cash and subordinated interest. The transfers are reported as sales of receivables in Exelon’s and Generation’s consolidated financial statements. The subordinated interest in collections upon the receivables sold to the Purchasers is referred to as the DPP, which is reflected in Other current assets on Exelon’s and Generation’s Consolidated Balance Sheet.
On April 8, 2020, Generation derecognized and transferred approximately $1.2 billion of receivables at fair value to the Purchasers in exchange for approximately $500 million in cash purchase price and $650 million of DPP. On February 17, 2021, Generation received additional cash of $250 million from the Purchasers for the remaining capacity in the Facility.
The following table summarizes the impact of the sale of certain receivables:
_________
(a)Includes additional customer accounts receivable sold into the Facility of $6,608 million since the start of the financing agreement.
_________
(a)Reflected in Operating and maintenance expense on Exelon and Generation's Consolidated Statement of Operations and Comprehensive Income.
Generation’s risk of loss following the transfer of accounts receivable is limited to the DPP outstanding. Payment of DPP is not subject to significant risks other than delinquencies and credit losses on accounts receivable transferred, which have historically been and are expected to be immaterial. Generation continues to service the receivables sold in exchange for a servicing fee. Generation did not record a servicing asset or liability as the servicing fees were immaterial.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 6 - Accounts Receivable
Generation recognizes the cash proceeds received upon sale in Net cash provided by operating activities in the Consolidated Statement of Cash Flows. The collection and reinvestment of DPP is recognized in Net cash provided by investing activities of the Consolidated Statement of Cash Flows.
See Note 18 - Fair Value of Financial Assets and Liabilities and Note 23 - Variable Interest Entities for additional information.
Other Purchases and Sales of Customer and Other Accounts Receivables (All Registrants)
Generation is required, under supplier tariffs in ISO-NE, MISO, NYISO, and PJM, to sell customer and other receivables to utility companies, which include the Utility Registrants. The Utility Registrants are required, under separate legislation and regulations in Illinois, Pennsylvania, Maryland, District of Columbia, and New Jersey, to purchase certain receivables from alternative retail electric and, as applicable, natural gas suppliers that participate in the utilities' consolidated billing. The following tables present the total receivables purchased and sold for the year ended December 31, 2020.
7. Early Plant Retirements (Exelon and Generation)
Exelon and Generation continuously evaluate factors that affect the current and expected economic value of Generation’s plants, including, but not limited to: market power prices, results of capacity auctions, potential legislative and regulatory solutions to ensure plants are fairly compensated for benefits they provide through their carbon-free emissions, reliability, or fuel security, and the impact of potential rules from the EPA requiring reduction of carbon and other emissions and the efforts of states to implement those final rules. The precise timing of an early retirement date for any plant, and the resulting financial statement impacts, may be affected by many factors, including the status of potential regulatory or legislative solutions, results of any transmission system reliability study assessments, the nature of any co-owner requirements and stipulations, and NDT fund requirements for nuclear plants, among other factors. However, the earliest retirement date for any plant would usually be the first year in which the unit does not have capacity or other obligations, and where applicable, just prior to its next scheduled nuclear refueling outage.
Nuclear Generation
In 2015 and 2016, Generation identified the Clinton and Quad Cities nuclear plants in Illinois, Ginna and Nine Mile Point nuclear plants in New York, and TMI nuclear plant in Pennsylvania as having the greatest risk of early retirement based on economic valuation and other factors. In 2017, PSEG made public similar financial challenges facing its New Jersey nuclear plants, including Salem, of which Generation owns a 42.59% ownership interest. PSEG is the operator of Salem and also has the decision-making authority to retire Salem.
Assuming the continued effectiveness of the Illinois ZES, New Jersey ZEC program, and the New York CES, Generation and CENG, through its ownership of Ginna and Nine Mile Point, no longer consider Clinton, Quad Cities, Salem, Ginna, or Nine Mile Point to be at heightened risk for early retirement. However, to the extent the Illinois ZES, New Jersey ZEC program, or the New York CES do not operate as expected over their full terms,
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 7 - Early Plant Retirements
each of these plants, in addition to FitzPatrick, would be at heightened risk for early retirement, which could have a material impact on Exelon’s and Generation’s future financial statements. In addition, FERC’s December 19, 2019 order on the MOPR in PJM may undermine the continued effectiveness of the Illinois ZES and the New Jersey ZEC program unless Illinois and New Jersey implement an FRR mechanism under which the Generation plants in these states would be removed from PJM’s capacity auction. See Note 3 - Regulatory Matters for additional information on the Illinois ZES, New Jersey ZEC program, New York CES, and FERC's December 19, 2019 order on the MOPR in PJM.
In Pennsylvania, the TMI nuclear plant did not clear in the May 2017 PJM capacity auction for the 2020-2021 planning year, the third consecutive year that TMI failed to clear the PJM base residual capacity auction and on May 30, 2017, based on these capacity auction results, prolonged periods of low wholesale power prices, and the absence of federal or state policies that place a value on nuclear energy for its ability to produce electricity without air pollution, Generation announced that it would permanently cease generation operations at TMI. On September 20, 2019, Generation permanently ceased generation operations at TMI.
Generation’s Dresden, Byron, and Braidwood nuclear plants in Illinois are also showing increased signs of economic distress, in a market that does not currently compensate them for their unique contribution to grid resiliency and their ability to produce large amounts of energy without carbon and air pollution. The May 2018 PJM capacity auction for the 2021-2022 planning year resulted in the largest volume of nuclear capacity ever not selected in the auction, including all of Dresden, and portions of Byron and Braidwood. While all of LaSalle's capacity did clear in the 2021-2022 planning year auction, Generation has become increasingly concerned about the economic viability of this plant as well in a landscape where energy market prices remain depressed and energy market rules remain fatally flawed.
On August 27, 2020, Generation announced that it intends to permanently cease generation operations at Byron in September 2021 and at Dresden in November 2021. The current NRC licenses for Byron Units 1 and 2 expire in 2044 and 2046, respectively, and the licenses for Dresden Units 2 and 3 expire in 2029 and 2031, respectively.
As a result of the decision to early retire Byron and Dresden, Exelon and Generation recognized certain one-time charges for the year ended December 31, 2020 related to materials and supplies inventory reserve adjustments, employee-related costs, including severance benefit costs further discussed below, and construction work-in-progress impairments, among other items. In addition, as a result of the decisions to early retire Byron and Dresden, there are ongoing annual financial impacts stemming from shortening the expected economic useful lives of these nuclear plants primarily related to accelerated depreciation of plant assets (including any ARC), accelerated amortization of nuclear fuel, and changes in ARO accretion expense associated with the changes in decommissioning timing and cost assumptions to reflect an earlier retirement date. See Note 10 - Asset Retirement Obligations for additional information on changes to the nuclear decommissioning ARO balance and Note 12 - Asset Impairments for impairment assessment considerations given to the Midwest asset group as a result of the early retirement decision. The total impact on Exelon's and Generation's Consolidated Statements of Operations and Comprehensive Income is summarized in the table below.
_________
(a)Reflects expense for Byron and Dresden.
(b)Reflects expense for TMI.
(c)Reflects expense for TMI and Oyster Creek.
(d)Includes the accelerated depreciation of plant assets including any ARC.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 7 - Early Plant Retirements
(e)For Dresden, reflects the net impacts associated with the remeasurement of the ARO. For TMI, primarily reflects the net impacts associated with the remeasurement of the ARO. See Note 10 - Asset Retirement Obligations for additional information.
(f)Reflects contractual offset for ARO accretion, ARC depreciation, and net impacts associated with the remeasurement of the ARO. For Byron and Dresden, based on the regulatory agreement with the ICC, decommissioning-related activities in 2020 have been offset within Exelon's and Generation's Consolidated Statements of Operations and Comprehensive Income. The offset in 2020 resulted in an equal adjustment to the noncurrent payables to ComEd at Generation and an adjustment to the regulatory liabilities at ComEd. See Note 10 - Asset Retirement Obligations for additional information.
Severance benefit costs will be provided to employees impacted by the early retirements of Byron and Dresden, to the extent they are not redeployed to other nuclear plants. For the year ended December 31, 2020, Exelon and Generation recorded severance expense of $81 million within Operating and maintenance expense in their Consolidated Statements of Operations and Comprehensive Income. The final amount of severance benefit costs will depend on the specific employees severed.
The following table provides the balance sheet amounts as of December 31, 2020 for Exelon's and Generation's significant assets and liabilities associated with the Braidwood and LaSalle nuclear plants. Current depreciation provisions are based on the estimated useful lives of these nuclear generating stations, which reflect the first renewal of the operating licenses.
Exelon continues to work with stakeholders on state policy solutions, while also advocating for broader market reforms at the regional and federal level. The absence of such solutions or reforms could result in future impairments of the Midwest asset group, or accelerated depreciation for specific plants over their shortened estimated useful lives, both of which could have a material unfavorable impact on Exelon's and Generation's future results of operations.
Other Generation
In March 2018, Generation notified ISO-NE of its plans to early retire, among other assets, the Mystic Generating Station's units 8 and 9 (Mystic 8 and 9) absent regulatory reforms to properly value reliability and regional fuel security. Thereafter, ISO-NE identified Mystic 8 and 9 as being needed to ensure fuel security for the region and entered into a cost of service agreement with these two units for the period between June 1, 2022 - May 31, 2024. The agreement was approved by the FERC in December 2018.
On June 10, 2020, Generation filed a complaint with FERC against ISO-NE stating that ISO-NE failed to follow its tariff with respect to its evaluation of Mystic 8 and 9 for transmission security for the 2024 to 2025 Capacity Commitment Period (FCA 15) and that the modifications that ISO-NE made to its unfiled planning procedures to avoid retaining Mystic 8 and 9 should have been filed with FERC for approval. On August 17, 2020, FERC issued an order denying the complaint. As a result, on August 20, 2020, Exelon determined that Generation will permanently cease generation operations at Mystic 8 and 9 at the expiration of the cost of service commitment in May 2024. See Note 3 - Regulatory Matters for additional discussion of Mystic’s cost of service agreement.
As a result of the decision to early retire Mystic 8 and 9, Exelon and Generation recognized $22 million of one-time charges for the year ended December 31, 2020, related to materials and supplies inventory reserve adjustments, among other items. In addition, there are annual financial impacts stemming from shortening the expected economic useful life of Mystic 8 and 9 primarily related to accelerated depreciation of plant assets.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 7 - Early Plant Retirements
Exelon and Generation recorded incremental Depreciation and amortization expense of $26 million for the year ended December 31, 2020. See Note 12 - Asset Impairments for impairment assessment considerations of the New England Asset Group.
8. Property, Plant, and Equipment (All Registrants)
The following tables present a summary of property, plant, and equipment by asset category as of December 31, 2020 and 2019:
__________
(a)Includes nuclear fuel that is in the fabrication and installation phase of $939 million and $1,025 million at December 31, 2020 and 2019, respectively.
(b)Primarily composed of land and non-utility property.
(c)Includes accumulated amortization of nuclear fuel in the reactor core at Generation of $2,774 million and $2,867 million as of December 31, 2020 and 2019, respectively.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 8 - Property, Plant, and Equipment
The following table presents the average service life for each asset category in number of years:
Depreciation provisions are based on the estimated useful lives of the stations, which reflect the first renewal of the operating licenses for all of Generation's operating nuclear generating stations except for Clinton, Byron, Dresden, and Peach Bottom. Clinton depreciation provisions are based on an estimated useful life through 2027, which is the last year of the Illinois ZES. Peach Bottom depreciation provisions are based on estimated useful life of 2053 and 2054 for Unit 2 and Unit 3, respectively, which reflects the second renewal of its operating licenses. Beginning August 2020, Byron, Dresden, and Mystic depreciation provisions were based on their announced shutdown dates of September 2021, November 2021, and May 2024, respectively. See Note 3 - Regulatory Matters for additional information regarding license renewals and the Illinois ZECs and Note 7 - Early Plant Retirements for additional information on the impacts of early plant retirements.
The following table presents the annual depreciation rates for each asset category. Nuclear fuel amortization is charged to fuel expense using the unit-of-production method and not included in the below table.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 8 - Property, Plant, and Equipment
Capitalized Interest and AFUDC (All Registrants)
The following table summarizes capitalized interest and credits to AFUDC by year:
See Note 1 - Significant Accounting Policies for additional information regarding property, plant and equipment policies. See Note 17 - Debt and Credit Agreements for additional information regarding Exelon’s, ComEd’s, PECO's, Pepco's, DPL's, and ACE’s property, plant and equipment subject to mortgage liens.
9. Jointly Owned Electric Utility Plant (Exelon, Generation, PECO, DPL, and ACE)
Exelon's, Generation's, PECO's, DPL's, and ACE's material undivided ownership interests in jointly owned electric plants and transmission facilities at December 31, 2020 and 2019 were as follows:
__________
(a)PECO, DPL, and ACE own a 42.55%, 1%, and 13.9% share, respectively in 151.3 miles of 500kV lines located in New Jersey and of the Salem generating plant substation. PECO, DPL, and ACE also own a 42.55%, 7.45%, and 7.45% share, respectively, in 2.5 miles of 500kV line located over the Delaware River. ACE also has a 21.78% share in a 500kV New Freedom Switching substation.
Exelon’s, Generation’s, PECO's, DPL's, and ACE's undivided ownership interests are financed with their funds and all operations are accounted for as if such participating interests were wholly owned facilities. Exelon’s, Generation’s, PECO's, DPL's, and ACE's share of direct expenses of the jointly owned plants are included in Purchased power and fuel and Operating and maintenance expenses in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income and in Operating and maintenance expenses in PECO's, PHI's, DPL's, and ACE's Consolidated Statements of Operations and Comprehensive Income.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 10 - Asset Retirement Obligations
10. Asset Retirement Obligations (All Registrants)
Nuclear Decommissioning Asset Retirement Obligations (Exelon and Generation)
Generation has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. To estimate its decommissioning obligation related to its nuclear generating stations for financial accounting and reporting purposes, Generation uses a probability-weighted, discounted cash flow model which, on a unit-by-unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on decommissioning cost studies, cost escalation rates, probabilistic cash flow models, and discount rates. Generation updates its ARO annually unless circumstances warrant more frequent updates, based on its review of updated cost studies and its annual evaluation of cost escalation factors and probabilities assigned to various scenarios. Generation began decommissioning the TMI nuclear plant upon permanently ceasing operations in 2019. See below section for decommissioning of Zion Station.
The financial statement impact for changes in the ARO, on an individual unit basis, due to the changes in and timing of estimated cash flows generally result in a corresponding change in the unit’s ARC within Property, plant, and equipment on Exelon’s and Generation’s Consolidated Balance Sheets. If the ARO decreases for a Non-Regulatory Agreement unit without any remaining ARC, the corresponding change is recorded as decrease in Operating and maintenance expense within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.
The following table provides a rollforward of the nuclear decommissioning ARO reflected in Exelon’s and Generation’s Consolidated Balance Sheets, from January 1, 2019 to December 31, 2020:
__________
(a)Includes $80 million and $112 million as the current portion of the ARO at December 31, 2020 and 2019, respectively, which is included in Other current liabilities in Exelon’s and Generation’s Consolidated Balance Sheets.
The net $1,022 million increase in the ARO during 2020 for changes in the amounts and timing of estimated decommissioning cash flows was driven by multiple adjustments throughout the year. These adjustments primarily include:
•A net increase of approximately $800 million was driven by updates to Byron and Dresden reflecting changes in assumed retirement dates and assumed methods of decommissioning as a result of the announcement to early retire these plants in 2021. Refer to Note 7 - Early Plant Retirements for additional information.
•An increase of approximately $360 million resulting from the change in the assumed DOE spent fuel acceptance date for disposal from 2030 to 2035.
•A decrease of approximately $220 million due to lower estimated decommissioning costs primarily for Limerick and Peach Bottom nuclear units resulting from the completion of updated cost studies.
The 2020 ARO updates resulted in a increase of $60 million in Operating and maintenance expense for the year ended December 31, 2020 within Exelon and Generation's Consolidated Statements of Operations and Comprehensive Income.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 10 - Asset Retirement Obligations
The net $864 million increase in the ARO during 2019 for changes in the amounts and timing of estimated decommissioning cash flows was driven by multiple adjustments throughout the year, some with offsetting impacts. These adjustments primarily include:
•An increase of approximately $780 million for changes in the assumed retirement timing probabilities for sites including certain economically challenged nuclear plants and the extension of Peach Bottom’s operating life.
•An increase of approximately $490 million for other impacts that included updated cost escalation rates, primarily for labor, equipment and materials, and current discount rates.
•Lower estimated costs to decommission TMI, Nine Mile Point, Ginna, Braidwood, Byron, and LaSalle nuclear units of approximately $410 million resulting from the completion of updated cost studies.
The 2019 ARO updates resulted in a decrease of $150 million in Operating and maintenance expense for the year ended December 31, 2019 within Exelon and Generation's Consolidated Statements of Operations and Comprehensive Income. See Note 7 - Early Plant Retirements for additional information regarding TMI and economically challenged nuclear plants and Note 3 - Regulatory Matters regarding the Peach Bottom second license renewal.
NDT Funds
NDT funds have been established for each generation station unit to satisfy Generation’s nuclear decommissioning obligations. Generally, NDT funds established for a particular unit may not be used to fund the decommissioning obligations of any other unit.
The NDT funds associated with Generation's nuclear units have been funded with amounts collected from the previous owners and their respective utility customers. PECO is authorized to collect funds, in revenues, for decommissioning the former PECO nuclear plants through regulated rates, and these collections are scheduled through the operating lives of the former PECO plants. The amounts collected from PECO customers are remitted to Generation and deposited into the NDT funds for the unit for which funds are collected. Every five years, PECO files a rate adjustment with the PAPUC that reflects PECO’s calculations of the estimated amount needed to decommission each of the former PECO units based on updated fund balances and estimated decommissioning costs. The rate adjustment is used to determine the amount collectible from PECO customers. On March 31, 2017, PECO filed its Nuclear Decommissioning Cost Adjustment with the PAPUC proposing an annual recovery from customers of approximately $4 million. This amount reflects a decrease from the previously approved annual collection of approximately $24 million primarily due to the removal of the collections for Limerick Units 1 and 2 as a result of the NRC approving the extension of the operating licenses for an additional 20 years. On August 8, 2017, the PAPUC approved the filing and the new rates became effective January 1, 2018.
Any shortfall of funds necessary for decommissioning, determined for each generating station unit, is ultimately required to be funded by Generation, with the exception of a shortfall for the current decommissioning activities at Zion Station, where certain decommissioning activities have been transferred to a third-party (see Zion Station Decommissioning below) and the CENG units, where any shortfall is required to be funded by both Generation and EDF. Generation, through PECO, has recourse to collect additional amounts from PECO customers related to a shortfall of NDT funds for the former PECO units, subject to certain limitations and thresholds, as prescribed by an order from the PAPUC. Generally, PECO, and likewise Generation will not be allowed to collect amounts associated with the first $50 million of any shortfall of trust funds compared to decommissioning costs, as well as 5% of any additional shortfalls, on an aggregate basis for all former PECO units. The initial $50 million and up to 5% of any additional shortfalls would be borne by Generation. No recourse exists to collect additional amounts from utility customers for any of Generation's other nuclear units. With respect to the former ComEd and PECO units, any funds remaining in the NDTs after all decommissioning has been completed are required to be refunded to ComEd’s or PECO’s customers, subject to certain limitations that allow sharing of excess funds with Generation related to the former PECO units. With respect to Generation's other nuclear units, Generation retains any funds remaining after decommissioning. However, in connection with CENG's acquisition of the Nine Mile Point and Ginna plants and settlements with certain regulatory agencies, CENG is subject to certain conditions pertaining to NDT funds that, if met, could possibly result in obligations to make payments to certain third parties (clawbacks). For Nine Mile Point and Ginna, the clawback provisions are triggered only in the event
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 10 - Asset Retirement Obligations
that the required decommissioning activities are discontinued or not started or completed in a timely manner. In the event that the clawback provisions are triggered for Nine Mile Point, then, depending upon the triggering event, an amount equal to 50% of the total amount withdrawn from the funds for non-decommissioning activities or 50% of any excess funds in the trust funds above the amounts required for decommissioning (including spent fuel management and decommissioning) is to be paid to the Nine Mile Point sellers. In the event that the clawback provisions are triggered for Ginna, then an amount equal to any estimated cost savings realized by not completing any of the required decommissioning activities is to be paid to the Ginna sellers. Generation expects to comply with applicable regulations and timely commence and complete all required decommissioning activities.
At December 31, 2020 and 2019, Exelon and Generation had NDT funds totaling $14,599 million and $13,353 million, respectively. The NDT funds include $134 million and $163 million for the current portion of the NDT at December 31, 2020 and 2019, respectively, which are included in Other current assets in Exelon's and Generation's Consolidated Balance Sheets. See Note 24 - Supplemental Financial Information for additional information on activities of the NDT funds.
Accounting Implications of the Regulatory Agreements with ComEd and PECO
Based on the regulatory agreements with the ICC and PAPUC that dictate Generation’s obligations related to the shortfall or excess of NDT funds necessary for decommissioning the former ComEd units on a unit-by-unit basis and the former PECO units in total, decommissioning-related activities net of applicable taxes, including realized and unrealized gains and losses on the NDT funds, depreciation of the ARC, and accretion of the decommissioning obligation, are generally offset within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income and are recorded by Generation and the corresponding regulated utility as a component of the intercompany and regulatory balances on the balance sheet. For the purposes of making this determination, the decommissioning obligation referred to is different, as described below, from the calculation used in the NRC minimum funding obligation filings based on NRC guidelines.
For the former PECO units, given the symmetric settlement provisions that allow for continued recovery of decommissioning costs from PECO customers in the event of a shortfall and the obligation for Generation to ultimately return any excess funds to PECO customers (on an aggregate basis for all seven units), decommissioning-related activities are generally offset within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income regardless of whether the NDT funds are expected to exceed or fall short of the total estimated decommissioning obligation. The offset of decommissioning-related activities within the Consolidated Statement of Operations and Comprehensive Income results in an equal adjustment to the noncurrent payables or noncurrent receivables to affiliates at Generation with PECO recording an equal noncurrent affiliate receivable from or payable to Generation and a corresponding regulatory liability or regulatory asset. Any changes to the existing PECO regulatory agreements could impact Exelon’s and Generation’s ability to offset decommissioning-related activities within the Consolidated Statement of Operations and Comprehensive Income, and the impact to Exelon’s and Generation’s financial statements could be material.
For the former ComEd units, given no further recovery from ComEd customers is permitted and Generation retains an obligation to ultimately return any unused NDTs to ComEd customers (on a unit-by-unit basis), to the extent the related NDT investment balances are expected to exceed the total estimated decommissioning obligation for each unit, the offset of decommissioning-related activities within the Consolidated Statement of Operations and Comprehensive Income results with Generation recognizing an intercompany payable to ComEd while ComEd records an intercompany receivable from Generation with a corresponding regulatory liability. However, given the asymmetric settlement provision that does not allow for continued recovery from ComEd customers in the event of a shortfall, recognition of a regulatory asset at ComEd is not permissible and accounting for decommissioning-related activities at Generation for that unit would not be offset, and the impact to Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income could be material during such periods.
As of December 31, 2020, decommissioning-related activities for all of the former ComEd units, except for Zion (see Zion Station Decommissioning below), are currently offset within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 10 - Asset Retirement Obligations
The decommissioning-related activities related to the Non-Regulatory Agreement Units are reflected in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.
See Note 3 - Regulatory Matters and Note 25 - Related Party Transactions for additional information regarding regulatory liabilities at ComEd and PECO and intercompany balances between Generation, ComEd, and PECO reflecting the obligation to refund to customers any decommissioning-related assets in excess of the related decommissioning obligations.
Zion Station Decommissioning
In 2010, Generation completed an ASA under which ZionSolutions assumed responsibility for decommissioning Zion Station and Generation transferred to ZionSolutions substantially all the Zion Station’s assets, including the related NDT funds.
Following ZionSolutions' completion of its contractual obligations and transfer of the NRC license to Generation, Generation will store the SNF at Zion Station until it is transferred to the DOE for ultimate disposal, and will complete all remaining decommissioning activities associated with the SNF dry storage facility.
Generation had retained its obligation for the SNF as well as certain NDT assets to fund its obligation to maintain the SNF at Zion Station until transfer to the DOE and to complete all remaining decommissioning activities for the SNF storage facility. Any shortage of funds necessary to maintain the SNF and decommission the SNF storage facility is ultimately required to be funded by Generation. As of December 31, 2020, the ARO associated with Zion's SNF storage facility is $175 million and the NDT funds available to fund this obligation are $66 million.
NRC Minimum Funding Requirements
NRC regulations require that licensees of nuclear generating facilities demonstrate reasonable assurance that funds will be available in specified minimum amounts to decommission the facility at the end of its life. The estimated decommissioning obligations as calculated using the NRC methodology differ from the ARO recorded in Generation’s and Exelon’s Consolidated Balance Sheets primarily due to differences in the type of costs included in the estimates, the basis for estimating such costs, and assumptions regarding the decommissioning alternatives to be used, potential license renewals, decommissioning cost escalation, and the growth rate in the NDT funds. Under NRC regulations, if the minimum funding requirements calculated under the NRC methodology are less than the future value of the NDT funds, also calculated under the NRC methodology, then the NRC requires either further funding or other financial guarantees.
Key assumptions used in the minimum funding calculation using the NRC methodology at December 31, 2020 include: (1) consideration of costs only for the removal of radiological contamination at each unit; (2) the option on a unit-by-unit basis to use generic, non-site specific cost estimates; (3) consideration of only one decommissioning scenario for each unit; (4) the plants cease operation at the end of their current license lives (with no assumed license renewals for those units that have not already received renewals); (5) the assumption of current nominal dollar cost estimates that are neither escalated through the anticipated period of decommissioning, nor discounted using the CARFR; and (6) assumed annual after-tax returns on the NDT funds of 2% (3% for the former PECO units, as specified by the PAPUC).
In contrast, the key criteria and assumptions used by Generation to determine the ARO and to forecast the target growth in the NDT funds at December 31, 2020 include: (1) the use of site specific cost estimates that are updated at least once every five years; (2) the inclusion in the ARO estimate of all legally unavoidable costs required to decommission the unit (e.g., radiological decommissioning and full site restoration for certain units, on-site spent fuel maintenance and storage subsequent to ceasing operations and until DOE acceptance, and disposal of certain LLRW); (3) the consideration of multiple scenarios where decommissioning and site restoration activities, as applicable, are completed under possible scenarios ranging from 10 to 70 years after the cessation of plant operations; (4) the consideration of multiple end of life scenarios; (5) the measurement of the obligation at the present value of the future estimated costs and an annual average accretion of the ARO of approximately 4% through a period of approximately 30 years after the end of the extended lives of the units; and (6) an estimated targeted annual pre-tax return on the NDT funds of 5.6% to 6.1% (as compared to a historical 5-year annual average pre-tax return of approximately 9.0%).
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 10 - Asset Retirement Obligations
Generation is required to provide to the NRC a biennial report by unit (annually for units that have been retired or are within five years of the current approved license life), based on values as of December 31, addressing Generation’s ability to meet the NRC minimum funding levels. Depending on the value of the trust funds, Generation may be required to take steps, such as providing financial guarantees through letters of credit or parent company guarantees or making additional contributions to the trusts, which could be significant, to ensure that the trusts are adequately funded and that NRC minimum funding requirements are met. As a result, Exelon’s and Generation’s cash flows and financial positions may be significantly adversely affected.
Generation filed its biennial decommissioning funding status report with the NRC on April 1, 2019 for all units, including its shutdown units, except for Zion Station which is included in a separate report to the NRC submitted by ZionSolutions, LLC. The status report demonstrated adequate decommissioning funding assurance as of December 31, 2018 for all units except for Clinton and Peach Bottom Unit 1. As of February 28, 2019, Clinton demonstrated adequate minimum funding assurance due to market recovery and no further action is required. This demonstration was also included in the April 1, 2019 submittal. On March 31, 2020, Generation filed its annual decommissioning funding status report with the NRC for Generation’s shutdown units (excluding Zion Station for the reason noted above). The annual status report demonstrated adequate decommissioning funding assurance as of December 31, 2019, for all of its shutdown reactors except for Peach Bottom Unit 1. As a former PECO plant, financial assurance for decommissioning Peach Bottom Unit 1 is provided by the NDT fund, collections from PECO ratepayers, and the ability to adjust those collections in accordance with the approved PAPUC tariff. No additional actions are required aside from the PAPUC filing in accordance with the tariff.
Generation will file its next decommissioning funding status report with the NRC by March 31, 2021. This report will reflect the status of decommissioning funding assurance as of December 31, 2020 and will include the 2021 early retirements of Byron and Dresden. A shortfall could require Exelon to post parental guarantee for Generation’s share of the funding assurance. However, the amount of any required guarantee will ultimately depend on the decommissioning approach adopted at Byron and Dresden, the associated level of costs, and the decommissioning trust fund investment performance going forward.
As the future values of trust funds change due to market conditions, the NRC minimum funding status of Generation’s units will change. In addition, if changes occur to the regulatory agreement with the PAPUC that currently allows amounts to be collected from PECO customers for decommissioning the former PECO units, the NRC minimum funding status of those plants could change at subsequent NRC filing dates.
Non-Nuclear Asset Retirement Obligations (All Registrants)
Generation has AROs for plant closure costs associated with its fossil and renewable generating facilities, including asbestos abatement, removal of certain storage tanks, restoring leased land to the condition it was in prior to construction of renewable generating stations and other decommissioning-related activities. The Utility Registrants have AROs primarily associated with the abatement and disposal of equipment and buildings contaminated with asbestos and PCBs. See Note 1 - Significant Accounting Policies for additional information on the Registrants’ accounting policy for AROs.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 10 - Asset Retirement Obligations
The following table provides a rollforward of the non-nuclear AROs reflected in the Registrants’ Consolidated Balance Sheets from January 1, 2019 to December 31, 2020:
__________
(a)For ComEd, PECO, BGE, PHI, Pepco, and DPL, the majority of the accretion is recorded as an increase to a regulatory asset due to the associated regulatory treatment.
(b)Represents AROs related to Generation's solar business, which were classified as held for sale as a result of the sale agreement. See Note 2 - Mergers, Acquisitions, and Dispositions for additional information.
11. Leases (All Registrants)
Lessee
The Registrants have operating and finance leases for which they are the lessees. The following tables outline the significant types of leases at each registrant and other terms and conditions of the lease agreements as of December 31, 2020. Exelon, Generation, ComEd, PECO, and BGE did not have material finance leases in 2020 or in 2019. PHI, Pepco, DPL, and ACE also did not have material finance leases in 2019.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 11 - Leases
The components of operating lease costs were as follows:
__________
(a)Excludes $48 million, $44 million, $4 million, and $4 million of sublease income recorded at Exelon, Generation, PHI, and DPL, respectively, for the year ended December 31, 2020 and $51 million, $44 million, $7 million, and $7 million of sublease income recorded at Exelon, Generation, PHI, and DPL, respectively, for the year ended December 31, 2019.
PHI, Pepco, DPL, and ACE recorded finance lease costs of $9 million, $3 million, $4 million, and $2 million, respectively, for the year ended December 31, 2020.
The following table presents the Registrants' rental expense under the prior lease accounting guidance for the year ended December 31, 2018:
__________
(a)Includes contingent operating lease payments associated with contracted generation agreements that are not included in the minimum future operating lease payments table. Payments made under Generation's contracted generation lease agreements totaled $493 million.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 11 - Leases
The following tables provide additional information regarding the presentation of operating and finance lease ROU assets and lease liabilities within the Registrants’ Consolidated Balance Sheets:
__________
(a)Exelon's and Generation's operating ROU assets and lease liabilities include $387 million and $528 million, respectively, related to contracted generation as of December 31, 2020, and $515 million and $664 million, respectively, as of December 31, 2019.
The weighted average remaining lease terms, in years, for operating and finance leases were as follows:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 11 - Leases
The weighted average discount rates for operating and finance leases were as follows:
Future minimum lease payments for operating and finance leases as of December 31, 2020 were as follows:
Cash paid for amounts included in the measurement of operating and finance lease liabilities were as follows:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 11 - Leases
ROU assets obtained in exchange for operating and finance lease obligations were as follows:
Lessor
The Registrants have operating leases for which they are the lessors. The following tables outline the significant types of leases at each registrant and other terms and conditions of their lease agreements as of December 31, 2020.
The components of lease income were as follows:
Future minimum lease payments to be recovered under operating leases as of December 31, 2020 were as follows:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 12 - Asset Impairments
12. Asset Impairments (Exelon and Generation)
The Registrants evaluate the carrying value of long-lived assets or asset groups for recoverability whenever events or changes in circumstances indicate that the carrying value of those assets may not be recoverable. Indicators of impairment may include a deteriorating business climate, including, but not limited to, declines in energy prices, condition of the asset, specific regulatory disallowance, or plans to dispose of a long-lived asset significantly before the end of its useful life. The Registrants determine if long-lived assets or asset groups are impaired by comparing the undiscounted expected future cash flows to the carrying value. When the undiscounted cash flow analysis indicates a long-lived asset or asset group is not recoverable, the amount of the impairment loss is determined by measuring the excess of the carrying amount of the long-lived asset or asset group over its fair value. The fair value analysis is primarily based on the income approach using significant unobservable inputs (Level 3) including revenue and generation forecasts, projected capital and maintenance expenditures and discount rates. A variation in the assumptions used could lead to a different conclusion regarding the recoverability of an asset or asset group and, thus, could potentially result in material future impairments of the Registrant's long-lived assets.
Antelope Valley Solar Facility
Generation’s Antelope Valley, a 242 MW solar facility in Lancaster, CA, sells all of its output to PG&E through a PPA. As a result of the PG&E bankruptcy filing in the first quarter of 2019, Generation completed a comprehensive review of Antelope Valley's estimated undiscounted future cash flows and no impairment charge was recorded.
The United States Bankruptcy Court entered an order on June 20, 2020 confirming PG&E’s plan of reorganization. On July 1, 2020 the plan became effective, and PG&E emerged from bankruptcy. Under the confirmed plan, PG&E will continue to honor the existing PPA agreement with Antelope Valley.
See Note 17 - Debt and Credit Agreements for additional information.
New England Asset Group
During the first quarter of 2018, Mystic Unit 9 did not clear in the ISO-NE capacity auction for the 2021 - 2022 planning year. On March 29, 2018, Generation notified grid operator ISO-NE of its plans to early retire its Mystic Units 8 and 9 absent regulatory reforms on June 1, 2022. These events suggested that the carrying value of the New England asset group may be impaired. In the first quarter of 2018, Generation completed a comprehensive review of the estimated undiscounted future cash flows of the New England asset group and no impairment charge was required.
In the third quarter of 2020, in conjunction with the retirement announcement of Mystic Units 8 and 9, Generation completed a comprehensive review of the estimated undiscounted future cash flows of the New England asset group and concluded that the estimated undiscounted future cash flows and fair value of the New England asset group were less than their carrying values. As a result, a pre-tax impairment charge of $500 million was recorded in the third quarter of 2020 within Operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income. See Note 7 - Early Plant Retirements for additional information.
Midwest Asset Group
In the third quarter of 2020, in conjunction with the retirement announcements of the Byron and Dresden nuclear plants, Generation completed a comprehensive review of the estimated undiscounted future cash flows of the Midwest asset group and no impairment charge was required.
Generation will continue to monitor the recoverability of the carrying value of the Midwest asset group as certain other nuclear plants in Illinois are also showing increased signs of economic distress, which could lead to an early retirement. See Note 7 - Early Plant Retirements for additional information.
Equity Method Investments in Certain Distributed Energy Companies
In the third quarter of 2019, Generation’s equity method investments in certain distributed energy companies were fully impaired due to an other-than-temporary decline in market conditions and underperforming projects.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 12 - Asset Impairments
Exelon and Generation recorded a pre-tax impairment charge of $164 million in Equity in losses of unconsolidated affiliates and an offsetting pre-tax $96 million in Net income attributable to noncontrolling interests in their Consolidated Statements of Operations and Comprehensive Income. As a result, Generation accelerated the amortization of investment tax credits associated with these companies and Exelon and Generation recorded a benefit of $46 million in Income taxes. The impairment charge and the accelerated amortization of investment tax credits resulted in a net $15 million decrease to Exelon’s and Generation’s earnings. See Note 23 - Variable Interest Entities for additional information.
13. Intangible Assets (Exelon, Generation, ComEd, PHI, Pepco, DPL, and ACE)
Goodwill
The following table presents the gross amount, accumulated impairment loss, and carrying amount of goodwill at Exelon, ComEd, and PHI as of December 31, 2020 and 2019. There were no additions or impairments during the years ended December 31, 2020 and 2019.
__________
(a)Reflects goodwill recorded in 2000 from the PECO/Unicom merger (predecessor parent company of ComEd).
(b)Reflects goodwill recorded in 2016 from the PHI merger.
Goodwill is not amortized, but is subject to an assessment for impairment at least annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of ComEd's and PHI's reporting units below their carrying amounts. A reporting unit is an operating segment or one level below an operating segment (known as a component) and is the level at which goodwill is assessed for impairment. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and its operating results are regularly reviewed by segment management. ComEd has a single operating segment. PHI's operating segments are Pepco, DPL, and ACE. See Note 5 - Segment Information for additional information. There is no level below these operating segments for which operating results are regularly reviewed by segment management. Therefore, the ComEd, Pepco, DPL, and ACE operating segments are also considered reporting units for goodwill impairment assessment purposes. Exelon's and ComEd's $2.6 billion of goodwill has been assigned entirely to the ComEd reporting unit, while Exelon's and PHI's $4.0 billion of goodwill has been assigned to the Pepco, DPL, and ACE reporting units in the amounts of $2.1 billion, $1.4 billion, and $0.5 billion, respectively.
Entities assessing goodwill for impairment have the option of first performing a qualitative assessment to determine whether a quantitative assessment is necessary. As part of the qualitative assessments, Exelon, ComEd, and PHI evaluate, among other things, management's best estimate of projected operating and capital cash flows for their businesses, outcomes of recent regulatory proceedings, changes in certain market conditions, including the discount rate and regulated utility peer EBITDA multiples, and the passing margin from their last quantitative assessments performed. If an entity bypasses the qualitative assessment, a quantitative, fair value-based assessment is performed, which compares the fair value of the reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the entity recognizes an impairment charge, which is limited to the amount of goodwill allocated to the reporting unit.
Application of the goodwill impairment assessment requires management judgment, including the identification of reporting units and determining the fair value of the reporting unit, which management estimates using a weighted combination of a discounted cash flow analysis and a market multiples analysis. Significant assumptions used in these fair value analyses include discount and growth rates, utility sector market performance and transactions, projected operating and capital cash flows for ComEd's, Pepco's, DPL's, and ACE's businesses, and the fair value of debt.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 13 - Intangible Assets
2020 and 2019 Goodwill Impairment Assessment. ComEd and PHI qualitatively determined that it was more likely than not that the fair values of their reporting units exceeded their carrying values and, therefore, did not perform quantitative assessments as of November 1, 2020 and 2019 for ComEd and PHI. The last quantitative assessments performed were as of November 1, 2016 for ComEd and November 1, 2018 for PHI.
While the annual assessments indicated no impairments, certain assumptions used to estimate reporting unit fair values are highly sensitive to changes. Adverse regulatory actions or changes in significant assumptions could potentially result in future impairments of Exelon's, ComEd's, and PHI’s goodwill, which could be material.
Other Intangible Assets and Liabilities
Exelon’s, Generation’s, ComEd’s, and PHI's other intangible assets and liabilities, included in Unamortized energy contract assets and liabilities and Other deferred debits and other assets in their Consolidated Balance Sheets, consisted of the following as of December 31, 2020 and 2019. The intangible assets and liabilities shown below are amortized on a straight line basis, except for unamortized energy contracts which are amortized in relation to the expected realization of the underlying cash flows:
The following table summarizes the amortization expense related to intangible assets and liabilities for each of the years ended December 31, 2020, 2019, and 2018:
__________
(a)At Exelon and Generation, amortization of unamortized energy contracts totaling $30 million, $21 million, and $14 million for the years ended December 31, 2020, 2019, and 2018, respectively, was recorded in Operating revenues or Purchased power and fuel expense in their Consolidated Statements of Operations and Comprehensive Income.
(b)At Exelon and PHI, amortization of the unamortized energy contract fair value adjustment amounts and the corresponding offsetting regulatory asset and liability amounts are amortized through Purchased power and fuel expense in their Consolidated Statements of Operations and Comprehensive Income.
The following table summarizes the estimated future amortization expense related to intangible assets and liabilities as of December 31, 2020:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 13 - Intangible Assets
Renewable Energy Credits (Exelon and Generation)
Exelon’s and Generation’s RECs are included in Other current assets and Other deferred debits and other assets in the Consolidated Balance Sheets. Purchased RECs are recorded at cost on the date they are purchased. The cost of RECs purchased on a stand-alone basis is based on the transaction price, while the cost of RECs acquired through PPAs represents the difference between the total contract price and the market price of energy at contract inception. Generally, revenue for RECs that are sold to a counterparty under a contract that specifically identifies a power plant is recognized at a point in time when the power is produced. This includes both bundled and unbundled REC sales. Otherwise, the revenue is recognized upon physical transfer of the REC to the customer.
The following table presents the current and noncurrent RECs as of December 31, 2020 and 2019:
14. Income Taxes (All Registrants)
Components of Income Tax Expense or Benefit
Income tax expense (benefit) from continuing operations is comprised of the following components:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 14 - Income Taxes
Rate Reconciliation
The effective income tax rate from continuing operations varies from the U.S. federal statutory rate principally due to the following:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 14 - Income Taxes
__________
(a)Positive percentages represent income tax expense. Negative percentages represent income tax benefit.
(b)At ComEd, the higher effective tax rate is primarily related to the nondeductible Deferred Prosecution Agreement payments. See Note 19 - Commitments and Contingencies for additional information.
(c)At PECO, the negative effective tax rate is primarily related to an increase in plant basis differences attributable to tax repair deductions related to an increase in storms and qualifying projects.
(d)At BGE, the lower effective tax rate, and at PHI, Pepco, DPL, and ACE, the negative effective tax rate is primarily attributable to accelerated amortization of transmission related income tax regulatory liabilities as a result of regulatory settlements. See Note 3 - Regulatory Matters for additional information.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 14 - Income Taxes
Tax Differences and Carryforwards
The tax effects of temporary differences and carryforwards, which give rise to significant portions of the deferred tax assets (liabilities), as of December 31, 2020 and 2019 are presented below:
__________
(a)Does not include unamortized investment tax credits reclassified to liabilities held for sale.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 14 - Income Taxes
The following table provides Exelon’s, Generation’s, PECO’s, BGE’s, PHI’s, Pepco’s, DPL’s, and ACE’s carryforwards, which are presented on a post-apportioned basis, and any corresponding valuation allowances as of December 31, 2020. ComEd does not have net operating losses or credit carryforwards for the year ended December 31, 2020.
__________
(a)Generation's state net operating loss carryforwards will begin expiring in 2029. PECO's Pennsylvania charitable contribution carryforwards and BGE's Maryland charitable deduction and capital loss carryforwards will begin expiring in 2021. ACE's New Jersey tax credit carryforward has an indefinite carryforward period. These amounts are not material.
Tabular Reconciliation of Unrecognized Tax Benefits
The following table presents changes in unrecognized tax benefits, by Registrant.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 14 - Income Taxes
__________
(a)Exelon, Generation, BGE, PHI, Pepco, and DPL decreased their unrecognized state tax benefits primarily due to the receipt of favorable guidance with respect to the deductibility of certain depreciable fixed assets. The recognition of the tax benefits related to BGE, PHI, Pepco, and DPL was offset by corresponding regulatory liabilities and that portion had no immediate impact to their effective tax rate.
(b)Exelon's and Generation's unrecognized federal and state tax benefits decreased in the first quarter of 2020 by approximately $411 million due to the settlement of a federal refund claim with IRS Appeals. The recognition of these tax benefits resulted in an increase to Exelon's and Generation’s net income of $76 million and $73 million, respectively, in the first quarter of 2020, reflecting a decrease to Exelon's and Generation's income tax expense of $67 million.
Like-Kind Exchange
In 2016, the Tax Court held that Exelon was not entitled to defer a gain on its 1999 like-kind exchange transaction. In addition to the tax and interest related to the gain deferral, the Tax Court also ruled that Exelon was liable for penalties and interest on the penalties. Exelon had fully paid the amounts assessed resulting from the Tax Court decision in 2017. In September 2017, Exelon appealed the Tax Court decision to the U.S. Court of Appeals for the Seventh Circuit. In October 2018, the U.S. Court of Appeals for the Seventh Circuit affirmed the
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 14 - Income Taxes
Tax Court’s decision. Exelon filed a petition seeking rehearing of the Seventh Circuit’s decision, but the Seventh Circuit denied that petition in December 2018. In the first quarter of 2019, Exelon elected not to seek a further review by the U.S. Supreme Court. As a result, Exelon's and ComEd's unrecognized tax benefits decreased by approximately $33 million and $2 million, respectively, in the first quarter of 2019.
Recognition of unrecognized tax benefits
The following table presents Exelon's, Generation's, and PHI's unrecognized tax benefits that, if recognized, would decrease the effective tax rate. ComEd's, PECO's, BGE's, Pepco's, DPL's, and ACE's amounts are not material.
__________
(a)PHI has $21 million of unrecognized state tax benefits that, if recognized, $14 million would be in the form of a net operating loss carryforward, which is expected to require a full valuation allowance based on present circumstances.
ACE has $14 million of unrecognized tax benefits as of December 31, 2020, 2019 and 2018 that, if recognized, may be included in future base rates and that portion would have no impact on the effective tax rate. Exelon's, Generation's, ComEd's, PECO's, BGE's, PHI's, Pepco's, and DPL's amounts are not material.
Reasonably possible the total amount of unrecognized tax benefits could significantly increase or decrease within 12 months after the reporting date
As of December 31, 2020, ACE has approximately $14 million of unrecognized state tax benefits that could significantly decrease within the 12 months after the reporting date based on the outcome of pending court cases involving other taxpayers. The unrecognized tax benefit, if recognized, may be included in future base rates and that portion would have no impact to the effective tax rate.
Total amounts of interest and penalties recognized
The following table represents the net interest and penalties receivable (payable) related to tax positions reflected in Exelon's Consolidated Balance Sheets. Generation's and the Utility Registrants' amounts are not material.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 14 - Income Taxes
The Registrants did not record material interest and penalty expense related to tax positions reflected in their Consolidated Balance Sheets. Interest expense and penalty expense are recorded in Interest expense, net and Other, net, respectively, in Other income and deductions in the Registrants' Consolidated Statements of Operations and Comprehensive Income.
Description of tax years open to assessment by major jurisdiction
__________
(a)Certain registrants are only open to assessment for tax years since joining the Exelon federal consolidated group; BGE beginning in 2012 and PHI, Pepco, DPL, and ACE beginning in 2016.
Other Tax Matters
Long-Term Marginal State Income Tax Rate (All Registrants)
Quarterly, Exelon reviews and updates its marginal state income tax rates for changes in state apportionment. The Registrants remeasure their existing deferred income tax balances to reflect the changes in marginal rates, which results in either an increase or a decrease to their net deferred income tax liability balances. Utility Registrants record corresponding regulatory liabilities or assets to the extent such amounts are probable of settlement or recovery through customer rates and an adjustment to income tax expense for all other amounts. The impacts to the Utility Registrants for the years ended December 31, 2020, 2019, and 2018 were not material.
Allocation of Tax Benefits (All Registrants)
Generation and the Utility Registrants are all party to an agreement with Exelon and other subsidiaries of Exelon that provides for the allocation of consolidated tax liabilities and benefits (Tax Sharing Agreement). The Tax Sharing Agreement provides that each party is allocated an amount of tax similar to that which would be owed had the party been separately subject to tax. In addition, any net federal and state benefits attributable to Exelon is reallocated to the other Registrants. That allocation is treated as a contribution to the capital of the party receiving the benefit.
The following table presents the allocation of tax benefits from Exelon under the Tax Sharing Agreement.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 14 - Income Taxes
__________
(a)BGE did not record an allocation of federal tax benefits from Exelon under the Tax Sharing Agreement as a result of a tax net operating loss.
(b)ACE did not record an allocation of federal tax benefits from Exelon under the Tax Sharing Agreement as a result of a tax net operating loss.
(c)Pepco, DPL, and ACE did not record an allocation of federal tax benefits from Exelon under the Tax Sharing Agreement as a result of a tax net operating loss.
Research and Development Activities
In the fourth quarter of 2019, Exelon and Generation recognized additional tax benefits related to certain research and development activities that qualify for federal and state tax incentives for the 2010 through 2018 tax years, which resulted in an increase to Exelon’s and Generation’s net income of $108 million and $75 million, respectively, for the year ended December 31, 2019, reflecting a decrease to Exelon’s and Generation’s Income tax expense of $97 million and $66 million, respectively.
15. Retirement Benefits (All Registrants)
Exelon sponsors defined benefit pension plans and OPEB plans for essentially all current employees. Substantially all non-union employees and electing union employees hired on or after January 1, 2001 participate in cash balance pension plans. Effective January 1, 2009, substantially all newly-hired union-represented employees participate in cash balance pension plans. Effective February 1, 2018 for most newly-hired Generation and BSC non-represented, non-craft, employees and January 1, 2021 for most newly-hired utility management employees, these newly-hired employees are not eligible for pension benefits, and will instead be eligible to receive an enhanced non-discretionary employer contribution in an Exelon defined contribution savings plan. Effective January 1, 2018, most newly-hired non-represented, non-craft, employees are not eligible for OPEB benefits and employees represented by Local 614 are not eligible for retiree health care benefits. Effective January 1, 2021, most non-represented, non-craft, employees who are under the age of 40 are not eligible for retiree health care benefits.
Effective January 1, 2019, Exelon merged the Exelon Corporation Cash Balance Pension Plan (CBPP) into the Exelon Corporation Retirement Program (ECRP). The merging of the plans did not change the benefits offered to the plan participants and, thus, had no impact on Exelon's pension obligation. However, beginning in 2019, actuarial losses and gains related to the CBPP and ECRP are amortized over participants’ average remaining service period of the merged ECRP rather than each individual plan.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
The table below shows the pension and OPEB plans in which employees of each operating company participated at December 31, 2020:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
__________
(a)These plans are collectively referred to as the legacy Exelon plans.
(b)These plans are collectively referred to as the legacy Constellation Energy Group (CEG) Plans.
(c)These plans are collectively referred to as the legacy CENG plans.
(d)These plans are collectively referred to as the legacy PHI plans.
(e)Employees generally remain in their legacy benefit plans when transferring between operating companies.
Exelon’s traditional and cash balance pension plans are intended to be tax-qualified defined benefit plans. Exelon has elected that the trusts underlying these plans be treated as qualified trusts under the IRC. If certain conditions are met, Exelon can deduct payments made to the qualified trusts, subject to certain IRC limitations.
Benefit Obligations, Plan Assets, and Funded Status
During the first quarter of 2020, Exelon received an updated valuation of its pension and OPEB to reflect actual census data as of January 1, 2020. This valuation resulted in an increase to the pension and OPEB obligations of $8 million and $31 million, respectively. Additionally, accumulated other comprehensive loss increased by $7 million (after-tax) and regulatory assets and liabilities increased by $19 million and decreased by $10 million, respectively.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
The following tables provide a rollforward of the changes in the benefit obligations and plan assets of Exelon for the most recent two years for all plans combined:
__________
(a)The pension and OPEB actuarial losses in 2020 and 2019 primarily reflect a decrease in the discount rate. OPEB losses in 2020 were offset by gains related to plan changes.
Exelon presents its benefit obligations and plan assets net on its balance sheet within the following line items:
The following table provides the ABO and fair value of plan assets for all pension plans with an ABO in excess of plan assets. Information for pension and OPEB plans with projected benefit obligations (PBO) and accumulated postretirement benefit obligation (APBO), respectively, in excess of plan assets has been disclosed in the Obligations and Plan Assets table above as all pension and OPEB plans are underfunded.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
Components of Net Periodic Benefit Costs
The majority of the 2020 pension benefit cost for the Exelon-sponsored plans is calculated using an expected long-term rate of return on plan assets of 7.00% and a discount rate of 3.34%. The majority of the 2020 OPEB cost is calculated using an expected long-term rate of return on plan assets of 6.69% for funded plans and a discount rate of 3.31%.
A portion of the net periodic benefit cost for all plans is capitalized within the Consolidated Balance Sheets. The following table presents the components of Exelon’s net periodic benefit costs, prior to capitalization, for the years ended December 31, 2020, 2019, and 2018.
Cost Allocation to Exelon Subsidiaries
All Registrants account for their participation in Exelon’s pension and OPEB plans by applying multi-employer accounting. Exelon allocates costs related to its pension and OPEB plans to its subsidiaries based on both active and retired employee participation in each plan.
The amounts below represent the Registrants' allocated pension and OPEB costs. For Exelon, the service cost component is included in Operating and maintenance expense and Property, plant, and equipment, net while the non-service cost components are included in Other, net and Regulatory assets. For Generation and the Utility Registrants, the service cost and non-service cost components are included in Operating and maintenance expense and Property, plant, and equipment, net in their consolidated financial statements.
Components of AOCI and Regulatory Assets
Exelon recognizes the overfunded or underfunded status of defined benefit pension and OPEB plans as an asset or liability on its balance sheet, with offsetting entries to AOCI and regulatory assets (liabilities). A portion of current year actuarial (gains) losses and prior service costs (credits) is capitalized within Exelon’s Consolidated Balance Sheets to reflect the expected regulatory recovery of these amounts, which would otherwise be recorded to AOCI. The following tables provide the components of AOCI and regulatory assets (liabilities) for Exelon for the years ended December 31, 2020, 2019, and 2018 for all plans combined.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
The following table provides the components of gross accumulated other comprehensive loss and regulatory assets (liabilities) for Exelon that have not been recognized as components of periodic benefit cost at December 31, 2020 and 2019, respectively, for all plans combined:
Average Remaining Service Period
For pension benefits, Exelon amortizes its unrecognized prior service costs (credits) and certain actuarial (gains) losses, as applicable, based on participants’ average remaining service periods.
For OPEB, Exelon amortizes its unrecognized prior service costs (credits) over participants’ average remaining service period to benefit eligibility age and amortizes certain actuarial (gains) losses over participants’ average remaining service period to expected retirement. The resulting average remaining service periods for pension and OPEB were as follows:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
Assumptions
The measurement of the plan obligations and costs of providing benefits under Exelon’s defined benefit and OPEB plans involves various factors, including the development of valuation assumptions and inputs and accounting policy elections. The measurement of benefit obligations and costs is impacted by several assumptions and inputs, as shown below, among other factors. When developing the required assumptions, Exelon considers historical information as well as future expectations.
Expected Rate of Return. In determining the EROA, Exelon considers historical economic indicators (including inflation and GDP growth) that impact asset returns, as well as expectations regarding future long-term capital market performance, weighted by Exelon’s target asset class allocations.
Mortality. The mortality assumption is composed of a base table that represents the current expectation of life expectancy of the population adjusted by an improvement scale that attempts to anticipate future improvements in life expectancy. For the year ended December 31, 2020, Exelon’s mortality assumption utilizes the SOA 2019 base table (Pri-2012) and MP-2020 improvement scale adjusted to use Proxy SSA ultimate improvement rates. For the year ended December 31, 2019, Exelon's mortality assumption utilizes the SOA 2019 base table (Pri-2012) and MP-2019 improvement scale adjusted to a 0.75% long-term rate reached in 2035.
For Exelon, the following assumptions were used to determine the benefit obligations for the plans at December 31, 2020 and 2019. Assumptions used to determine year-end benefit obligations are the assumptions used to estimate the subsequent year’s net periodic benefit costs.
__________
(a)The discount rates above represent the blended rates used to determine the majority of Exelon’s pension and OPEB obligations. Certain benefit plans used individual rates, which range from 2.11% - 2.73% and 2.45% - 2.63% for pension and OPEB plans, respectively, as of December 31, 2020 and 3.02% - 3.44% and 3.27% - 3.40% for pension and OPEB plans, respectively, as of December 31, 2019.
(b)The investment crediting rate above represents a weighted average rate.
(c)3.25% through 2019 and 3.75% thereafter.
The following assumptions were used to determine the net periodic benefit cost for Exelon for the years ended December 31, 2020, 2019 and 2018:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
__________
(a)The discount rates above represent the blended rates used to establish the majority of Exelon’s pension and OPEB costs. Certain benefit plans used individual rates, which range from 3.02%-3.44% and 3.27%-3.40% for pension and OPEB plans, respectively, for the year ended December 31, 2020; 4.13%-4.36% and 4.27%-4.38% for pension and OPEB plans; respectively, for the year ended December 31, 2019; and 3.49%-3.65% and 3.57%-3.68% for pension and OPEB plans, respectively, for the year ended December 31, 2018.
(b)The investment crediting rate above represents a weighted average rate.
(c)Not applicable to pension and OPEB plans that do not have plan assets.
(d)3.25% through 2019 and 3.75% thereafter.
Contributions
Exelon allocates contributions related to its legacy Exelon pension and OPEB plans to its subsidiaries based on accounting cost. For legacy CEG, CENG, FitzPatrick, and PHI plans, pension and OPEB contributions are allocated to the subsidiaries based on employee participation (both active and retired). The following tables provide contributions to the pension and OPEB plans:
Management considers various factors when making pension funding decisions, including actuarially determined minimum contribution requirements under ERISA, contributions required to avoid benefit restrictions and at-risk status as defined by the Pension Protection Act of 2006 (the Act), management of the pension obligation, and regulatory implications. The Act requires the attainment of certain funding levels to avoid benefit restrictions (such as an inability to pay lump sums or to accrue benefits prospectively), and at-risk status (which triggers higher minimum contribution requirements and participant notification). The projected contributions below reflect a funding strategy to make levelized annual contributions with the objective of achieving 100% funded status on an ABO basis over time. This level funding strategy helps minimize volatility of future period required pension contributions. Based on this funding strategy and current market conditions, which are subject to change,
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
Exelon’s estimated annual qualified pension contributions will be approximately $500 million in 2021. Unlike the qualified pension plans, Exelon’s non-qualified pension plans are not funded, given that they are not subject to statutory minimum contribution requirements.
While OPEB plans are also not subject to statutory minimum contribution requirements, Exelon does fund certain of its plans. For Exelon's funded OPEB plans, contributions generally equal accounting costs, however, Exelon’s management has historically considered several factors in determining the level of contributions to its OPEB plans, including liabilities management, levels of benefit claims paid, and regulatory implications (amounts deemed prudent to meet regulatory expectations and best assure continued rate recovery). The amounts below include benefit payments related to unfunded plans.
The following table provides all Registrants' planned contributions to the qualified pension plans, planned benefit payments to non-qualified pension plans, and planned contributions to OPEB plans in 2021:
Estimated Future Benefit Payments
Estimated future benefit payments to participants in all of the pension plans and postretirement benefit plans at December 31, 2020 were:
Plan Assets
Investment Strategy. On a regular basis, Exelon evaluates its investment strategy to ensure that plan assets will be sufficient to pay plan benefits when due. As part of this ongoing evaluation, Exelon may make changes to its targeted asset allocation and investment strategy.
Exelon has developed and implemented a liability hedging investment strategy for its qualified pension plans that has reduced the volatility of its pension assets relative to its pension liabilities. Exelon is likely to continue to gradually increase the liability hedging portfolio as the funded status of its plans improves. The overall objective is to achieve attractive risk-adjusted returns that will balance the liquidity requirements of the plans’ liabilities while striving to minimize the risk of significant losses. Trust assets for Exelon’s OPEB plans are managed in a diversified investment strategy that prioritizes maximizing liquidity and returns while minimizing asset volatility.
Actual asset returns have an impact on the costs reported for the Exelon-sponsored pension and OPEB plans. The actual asset returns across Exelon’s pension and OPEB plans for the year ended December 31, 2020 were 14.45% and 9.14%, respectively, compared to an expected long-term return assumption of 7.00% and 6.69%,
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
respectively. Exelon used an EROA of 7.00% and 6.46% to estimate its 2021 pension and OPEB costs, respectively.
Exelon’s pension and OPEB plan target asset allocations at December 31, 2020 and 2019 were as follows:
__________
(a)Alternative investments include private equity, hedge funds, real estate, and private credit.
Concentrations of Credit Risk. Exelon evaluated its pension and OPEB plans’ asset portfolios for the existence of significant concentrations of credit risk as of December 31, 2020. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of December 31, 2020, there were no significant concentrations (defined as greater than 10% of plan assets) of risk in Exelon’s pension and OPEB plan assets.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
Fair Value Measurements
The following tables present pension and OPEB plan assets measured and recorded at fair value in Exelon's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy at December 31, 2020 and 2019:
__________
(a)See Note 18-Fair Value of Financial Assets and Liabilities for a description of levels within the fair value hierarchy.
(b)Includes derivative instruments of $2 million for the years ended December 31, 2020 and 2019, which have total notional amounts of $6,879 million and $6,668 million at December 31, 2020 and 2019, respectively. The notional principal
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
amounts for these instruments provide one measure of the transaction volume outstanding as of the fiscal years ended and do not represent the amount of the company’s exposure to credit or market loss.
(c)Includes investments in equities sold short held in investment vehicles primarily to hedge the equity option component of its convertible debt. Pension equities sold short totaled $(96) million and $(75) million as of December 31, 2020 and 2019, respectively. OPEB equities sold short totaled $(42) million and $(35) million as of December 31, 2020 and 2019, respectively.
(d)Excludes net liabilities of $132 million and $120 million at December 31, 2020 and 2019, respectively, which include certain derivative assets that have notional amounts of $239 million and $632 million at December 31, 2020 and 2019, respectively. These items are required to reconcile to the fair value of net plan assets and consist primarily of receivables or payables related to pending securities sales and purchases and interest and dividends receivable.
The following table presents the reconciliation of Level 3 assets and liabilities for Exelon measured at fair value for pension and OPEB plans for the years ended December 31, 2020 and 2019:
__________
(a)Represents cash settlements only.
(b)In 2020, a contract was terminated for a certain fixed income commingled fund resulting in the ownership of certain fixed income securities which led to a transfer into Level 3 from not subject to leveling of $299 million.
Valuation Techniques Used to Determine Fair Value
The techniques used to fair value the pension and OPEB assets invested in cash equivalents, equities, fixed income, derivatives, private equity, real estate, and private credit investments are the same as the valuation techniques for these types of investments in NDTFs. See Cash Equivalents and NDT Fund Investments in Note 18 - Fair Value of Financial Assets and Liabilities for further information.
Pension and OPEB assets also include investments in hedge funds. Hedge fund investments include those that employ a broad range of strategies to enhance returns and provide additional diversification. The fair value of
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 15 - Retirement Benefits
hedge funds is determined using NAV or its equivalent as a practical expedient, and therefore, hedge funds are not classified within the fair value hierarchy. Exelon has the ability to redeem these investments at NAV or its equivalent subject to certain restrictions which may include a lock-up period or a gate.
Defined Contribution Savings Plan (All Registrants)
The Registrants participate in various 401(k) defined contribution savings plans that are sponsored by Exelon. The plans are qualified under applicable sections of the IRC and allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. All Registrants match a percentage of the employee contributions up to certain limits. The following table presents matching contributions to the savings plan for the years ended December 31, 2020, 2019, and 2018:
16. Derivative Financial Instruments (All Registrants)
The Registrants use derivative instruments to manage commodity price risk, interest rate risk, and foreign exchange risk related to ongoing business operations.
Authoritative guidance requires that derivative instruments be recognized as either assets or liabilities at fair value, with changes in fair value of the derivative recognized in earnings immediately. Other accounting treatments are available through special election and designation, provided they meet specific, restrictive criteria both at the time of designation and on an ongoing basis. These alternative permissible accounting treatments include NPNS, cash flow hedges, and fair value hedges. All derivative economic hedges related to commodities, referred to as economic hedges, are recorded at fair value through earnings at Generation and are offset by a corresponding regulatory asset or liability at ComEd. For all NPNS derivative instruments, accounts receivable or accounts payable are recorded when derivative settles and revenue or expense is recognized in earnings as the underlying physical commodity is sold or consumed.
Authoritative guidance about offsetting assets and liabilities requires the fair value of derivative instruments to be shown in the Combined Notes to Consolidated Financial Statements on a gross basis, even when the derivative instruments are subject to legally enforceable master netting agreements and qualify for net presentation in the Consolidated Balance Sheets. A master netting agreement is an agreement between two counterparties that may have derivative and non-derivative contracts with each other providing for the net settlement of all referenced contracts via one payment stream, which takes place as the contracts deliver, when collateral is requested or in the event of default. In the tables below, which present fair value balances, Generation’s energy-related economic hedges and proprietary trading derivatives are shown gross. The impact of the netting of fair value balances with the same counterparty that are subject to legally enforceable master netting agreements, as well as netting of cash collateral, including margin on exchange positions, is aggregated in the collateral and netting columns.
Generation’s and ComEd’s use of cash collateral is generally unrestricted unless Generation or ComEd are downgraded below investment grade. Cash collateral held by PECO, BGE, Pepco, DPL, and ACE must be deposited in an unaffiliated major U.S. commercial bank or foreign bank with a U.S. branch office that meet certain qualifications.
Commodity Price Risk (All Registrants)
Each of the Registrants employ established policies and procedures to manage their risks associated with market fluctuations in commodity prices by entering into physical and financial derivative contracts, including swaps, futures, forwards, options, and short-term and long-term commitments to purchase and sell energy and commodity products. The Registrants believe these instruments, which are either determined to be non-derivative or classified as economic hedges, mitigate exposure to fluctuations in commodity prices.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 16 - Derivative Financial Instruments
Generation. To the extent the amount of energy Generation produces differs from the amount of energy it has contracted to sell, Exelon and Generation are exposed to market fluctuations in the prices of electricity, fossil fuels, and other commodities. Within Exelon, Generation has the most exposure to commodity price risk. As such, Generation uses a variety of derivative and non-derivative instruments to manage the commodity price risk of its electric generation facilities, including power and gas sales, fuel and power purchases, natural gas transportation and pipeline capacity agreements, and other energy-related products marketed and purchased. To manage these risks, Generation may enter into fixed-price derivative or non-derivative contracts to hedge the variability in future cash flows from expected sales of power and gas and purchases of power and fuel. The objectives for executing such hedges include fixing the price for a portion of anticipated future electricity sales at a level that provides an acceptable return. Generation is also exposed to differences between the locational settlement prices of certain economic hedges and the hedged generating units. This price difference is actively managed through other instruments which include derivative congestion products, whose changes in fair value are recognized in earnings each period, and auction revenue rights, which are accounted for on an accrual basis.
Additionally, Generation is exposed to certain market risks through its proprietary trading activities. The proprietary trading activities are a complement to Generation’s energy marketing portfolio but represent a small portion of Generation’s overall energy marketing activities and are subject to limits established by Exelon’s RMC.
Utility Registrants. The Utility Registrants procure electric and natural gas supply through a competitive procurement process approved by each of the respective state utility commissions. The Utility Registrants’ hedging programs are intended to reduce exposure to energy and natural gas price volatility and have no direct earnings impact as the costs are fully recovered from customers through regulatory-approved recovery mechanisms. The following table provides a summary of the Utility Registrants’ primary derivative hedging instruments, listed by commodity and accounting treatment.
_________
(a)See Note 3-Regulatory Matters for additional information.
(b)As part of its hedging program, PECO enters into electric supply procurement contracts that do not meet the definition of a derivative instrument.
(c)The fair value of the DPL economic hedge is not material as of December 31, 2020 and 2019 and is not presented in the fair value tables below.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 16 - Derivative Financial Instruments
The following table provides a summary of the derivative fair value balances recorded by Exelon, Generation, and ComEd as of December 31, 2020 and 2019:
_________
(a)Exelon and Generation net all available amounts allowed under the derivative authoritative guidance in the balance sheet. These amounts include unrealized derivative transactions with the same counterparty under legally enforceable master netting agreements and cash collateral. In some cases Exelon and Generation may have other offsetting exposures, subject to a master netting or similar agreement, such as trade receivables and payables, transactions that do not qualify as derivatives, letters of credit, and other forms of non-cash collateral. These amounts are not material and not reflected in the table above.
(b)Of the collateral posted, $209 million and $511 million represents variation margin on the exchanges at December 31, 2020 and 2019, respectively.
Economic Hedges (Commodity Price Risk)
Generation. For the years ended December 31, 2020, 2019, and 2018, Exelon and Generation recognized the following net pre-tax commodity mark-to-market gains (losses) which are also located in the Net fair value changes related to derivatives line in the Consolidated Statements of Cash Flows.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 16 - Derivative Financial Instruments
In general, increases and decreases in forward market prices have a positive and negative impact, respectively, on Generation’s owned and contracted generation positions that have not been hedged. Generation hedges commodity price risk on a ratable basis over three-year periods. As of December 31, 2020, the percentage of expected generation hedged for the Mid-Atlantic, Midwest, New York, and ERCOT reportable segments is 94%-97% for 2021.
Proprietary Trading (Commodity Price Risk)
Generation also executes commodity derivatives for proprietary trading purposes. Proprietary trading includes all contracts executed with the intent of benefiting from shifts or changes in market prices as opposed to those executed with the intent of hedging or managing risk. Gains and losses associated with proprietary trading are reported as Operating revenues in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income and are included in the Net fair value changes related to derivatives line in the Consolidated Statements of Cash Flows. For the years ended December 31, 2020, 2019, and 2018, net pre-tax commodity mark-to-market gains and losses for Exelon and Generation were not material. The Utility Registrants do not execute derivatives for proprietary trading purposes.
Interest Rate and Foreign Exchange Risk (Exelon and Generation)
Exelon and Generation utilize interest rate swaps, which are treated as economic hedges, to manage their interest rate exposure. On July 1, 2018, Exelon de-designated its fair value hedges related to interest rate risk and Generation de-designated its cash flow hedges related to interest rate risk. The notional amounts were $516 million and $1,269 million at December 31, 2020 and 2019, respectively, for Exelon and $516 million and $569 million at December 31, 2020 and 2019, respectively, for Generation.
Generation utilizes foreign currency derivatives to manage foreign exchange rate exposure associated with international commodity purchases in currencies other than U.S. dollars, which are treated as economic hedges. The notional amounts were $149 million and $231 million at December 31, 2020 and 2019, respectively.
The mark-to-market derivative assets and liabilities as of December 31, 2020 and 2019 and the mark-to-market gains and losses for the years ended December 31, 2020, 2019, and 2018 were not material for Exelon and Generation.
Credit Risk (All Registrants)
The Registrants would be exposed to credit-related losses in the event of non-performance by counterparties on executed derivative instruments. The credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts at the reporting date.
Generation. For commodity derivatives, Generation enters into enabling agreements that allow for payment netting with its counterparties, which reduces Generation’s exposure to counterparty risk by providing for the offset of amounts payable to the counterparty against amounts receivable from the counterparty. Typically, each enabling agreement is for a specific commodity and so, with respect to each individual counterparty, netting is limited to transactions involving that specific commodity product, except where master netting agreements exist with a counterparty that allow for cross product netting. In addition to payment netting language in the enabling agreement, Generation’s credit department establishes credit limits, margining thresholds and collateral requirements for each counterparty, which are defined in the derivative contracts. Counterparty credit limits are based on an internal credit review process that considers a variety of factors, including the results of a scoring model, leverage, liquidity, profitability, credit ratings by credit rating agencies, and risk management capabilities. To the extent that a counterparty’s margining thresholds are exceeded, the counterparty is required to post collateral with Generation as specified in each enabling agreement. Generation’s credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and an aggregate basis.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 16 - Derivative Financial Instruments
The following tables provide information on Generation’s credit exposure for all derivative instruments, NPNS, and payables and receivables, net of collateral and instruments that are subject to master netting agreements, as of December 31, 2020. The tables further delineate that exposure by credit rating of the counterparties and provide guidance on the concentration of credit risk to individual counterparties. The figures in the tables below exclude credit risk exposure from individual retail counterparties, nuclear fuel procurement contracts, and exposure through RTOs, ISOs, NYMEX, ICE, NASDAQ, NGX, and Nodal commodity exchanges.
__________
(a)As of December 31, 2020, credit collateral held from counterparties where Generation had credit exposure included $31 million of cash and $25 million of letters of credit. The credit collateral does not include non-liquid collateral.
Utility Registrants. The Utility Registrants have contracts to procure electric and natural gas supply that provide suppliers with a certain amount of unsecured credit. If the exposure on the supply contract exceeds the amount of unsecured credit, the suppliers may be required to post collateral. The net credit exposure is mitigated primarily by the ability to recover procurement costs through customer rates. As of December 31, 2020, the Utility Registrants’ counterparty credit risk with suppliers was not material.
Credit-Risk-Related Contingent Features (All Registrants)
Generation. As part of the normal course of business, Generation routinely enters into physically or financially settled contracts for the purchase and sale of electric capacity, electricity, fuels, emissions allowances, and other energy-related products. Certain of Generation’s derivative instruments contain provisions that require Generation to post collateral. Generation also enters into commodity transactions on exchanges where the exchanges act as the counterparty to each trade. Transactions on the exchanges must adhere to comprehensive collateral and margining requirements. This collateral may be posted in the form of cash or credit support with thresholds contingent upon Generation’s credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit-risk related contingent features stipulate that if Generation were to be downgraded or lose its investment grade credit rating (based on its senior unsecured debt rating), it would be required to provide additional collateral. This incremental collateral requirement allows for the offsetting of derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master netting agreements. In the absence of expressly agreed-to provisions that specify the collateral that must be provided, collateral requested will be a function of the facts and circumstances of the situation at the time of the demand. In this case, Generation believes an amount of several months of future payments (i.e., capacity payments) rather than a calculation of fair value is the best estimate for the contingent collateral obligation, which has been factored into the disclosure below.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 16 - Derivative Financial Instruments
The aggregate fair value of all derivative instruments with credit-risk related contingent features in a liability position that are not fully collateralized (excluding transactions on the exchanges that are fully collateralized) is detailed in the table below:
__________
(a)Amount represents the gross fair value of out-of-the-money derivative contracts containing credit-risk-related contingent features ignoring the effects of master netting agreements.
(b)Amount represents the offsetting fair value of in-the-money derivative contracts under legally enforceable master netting agreements with the same counterparty, which reduces the amount of any liability for which Generation could potentially be required to post collateral.
(c)Amount represents the net fair value of out-of-the-money derivative contracts containing credit-risk related contingent features after considering the mitigating effects of offsetting positions under master netting arrangements and reflects the actual net liability upon which any potential contingent collateral obligations would be based.
As of December 31, 2020 and 2019, Exelon and Generation posted or held the following amounts of cash collateral and letters of credit on derivative contracts with external counterparties, after giving consideration to offsetting derivative and non-derivative positions under master netting agreements.
Generation entered into supply forward contracts with certain utilities, including PECO and BGE, with one-sided collateral postings only from Generation. If market prices fall below the benchmark price levels in these contracts, the utilities are not required to post collateral. However, when market prices rise above the benchmark price levels, counterparty suppliers, including Generation, are required to post collateral once certain unsecured credit limits are exceeded.
Utility Registrants
The Utility Registrants’ electric supply procurement contracts do not contain provisions that would require them to post collateral.
PECO’s, BGE’s, and DPL’s natural gas procurement contracts contain provisions that could require PECO, BGE, and DPL to post collateral in the form of cash or credit support, which vary by contract and counterparty, with thresholds contingent upon PECO’s, BGE's, and DPL’s credit rating. As of December 31, 2020, PECO, BGE, and DPL were not required to post collateral for any of these agreements. If PECO, BGE, or DPL lost their investment grade credit rating as of December 31, 2020, they could have been required to post incremental collateral to their counterparties of $34 million, $54 million, and $9 million, respectively.
17. Debt and Credit Agreements (All Registrants)
Short-Term Borrowings
Exelon Corporate, ComEd, and BGE meet their short-term liquidity requirements primarily through the issuance of commercial paper. Generation and PECO meet their short-term liquidity requirements primarily through the issuance of commercial paper and borrowings from the Exelon intercompany money pool. Pepco, DPL, and ACE meet their short-term liquidity requirements primarily through the issuance of commercial paper and borrowings
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
from the PHI intercompany money pool. PHI Corporate meets its short-term liquidity requirements primarily through the issuance of short-term notes and borrowings from the Exelon intercompany money pool. The Registrants may use their respective credit facilities for general corporate purposes, including meeting short-term funding requirements and the issuance of letters of credit.
Commercial Paper
The following table reflects the Registrants' commercial paper programs supported by the revolving credit agreements and bilateral credit agreements at December 31, 2020 and 2019:
__________
(a)Excludes $1,500 million and $1,400 million in bilateral credit facilities at December 31, 2020 and 2019, respectively, and $144 million and $159 million in credit facilities for project finance at December 31, 2020 and 2019, respectively. These credit facilities do not back Generation's commercial paper program.
(b)At December 31, 2020, excludes $135 million of credit facility agreements arranged at minority and community banks at Generation, ComEd, PECO, BGE, Pepco, DPL, and ACE with aggregate commitments of $38 million, $32 million, $33 million, $8 million, $8 million, $8 million, and $8 million, respectively. These facilities expire on October 8, 2021. These facilities are solely utilized to issue letters of credit. At December 31, 2019, excludes $142 million of credit facility agreements arranged at minority and community banks at Generation, ComEd, PECO, BGE, Pepco, DPL, and ACE with aggregate commitments of $44 million, $33 million, $33 million, $8 million, $8 million, $8 million, and $8 million, respectively.
(c)Pepco, DPL, and ACE's revolving credit facility has the ability to flex to $500 million, $500 million, and $350 million, respectively. The borrowing capacity may be increased or decreased during the term of the facility, except that (i) the sum of the borrowing capacity must equal the total amount of the facility, and (ii) the aggregate amount of credit used at any given time by each of Pepco, DPL, or ACE may not exceed $900 million or the maximum amount of short-term debt the company is permitted to have outstanding by its regulatory authorities. The total number of the borrowing reallocations may not exceed eight per year during the term of the facility.
(d)Includes revolving credit agreement at Exelon Corporate with a maximum program size of $600 million at both December 31, 2020 and 2019, respectively. Exelon Corporate had no outstanding commercial paper as of December 31, 2020 and $136 million at 2019 with an average interest rate on commercial paper borrowings of 1.92%.
(e)Represents the consolidated amounts of Pepco, DPL, and ACE.
In order to maintain their respective commercial paper programs in the amounts indicated above, each Registrant must have credit facilities in place, at least equal to the amount of its commercial paper program. A registrant does not issue commercial paper in an aggregate amount exceeding the then available capacity under its credit facility.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
At December 31, 2020, the Registrants had the following aggregate bank commitments, credit facility borrowings, and available capacity under their respective credit facilities:
__________
(a)On May 26, 2018, each of the Registrants' respective syndicated revolving credit facilities had their maturity dates extended to May 26, 2023.
(b)Excludes $135 million of credit facility agreements arranged at minority and community banks at Generation, ComEd, PECO, BGE, Pepco, DPL, and ACE with aggregate commitments of $38 million, $32 million, $33 million, $8 million, $8 million, $8 million, and $8 million, respectively. These facilities expire on October 8, 2021. These facilities are solely utilized to issue letters of credit. As of December 31, 2020, letters of credit issued under these facilities totaled $5 million, $5 million, and $2 million for Generation, ComEd, and BGE, respectively.
(c)Includes $600 million aggregate bank commitment related to Exelon Corporate. Exelon Corporate had $6 million outstanding letters of credit at December 31, 2020. Exelon Corporate had $594 million in available capacity to support additional commercial paper at December 31, 2020.
On March 19, 2020, Generation borrowed $1.5 billion on its revolving credit facility due to disruptions in the commercial paper markets as a result of COVID-19. The funds were used to refinance commercial paper. Generation repaid the $1.5 billion borrowed on the revolving credit facility on April 3, 2020.
Short-Term Loan Agreements
On March 23, 2017, Exelon Corporate entered into a 12-month term loan agreement for $500 million, which was renewed annually on March 22, 2018, March 20, 2019, and March 19, 2020, respectively. The loan agreement will expire on March 18, 2021. Pursuant to the loan agreement, as of December 31, 2020, loans made thereunder bear interest at a variable rate equal to LIBOR plus 0.65% and all indebtedness thereunder is unsecured. The loans beared interest at LIBOR plus 0.95% as of December 31, 2019 as part of the March 20, 2019 renewal. The loan agreement is reflected in Exelon's Consolidated Balance Sheets within Short-term borrowings.
On March 19, 2020, Generation entered into a term loan agreement for $200 million. The loan agreement has an expiration of March 18, 2021. Pursuant to the loan agreement, loans made thereunder bear interest at a variable rate equal to LIBOR plus 0.50% and all indebtedness thereunder is unsecured. The loan agreement is reflected in Generation's Consolidated Balance Sheet within Short-term borrowings.
On March 31, 2020, Generation entered into a term loan agreement for $300 million. The loan agreement has an expiration of March 30, 2021. Pursuant to the loan agreement, loans made thereunder bear interest at a variable rate equal to LIBOR plus 0.75% and all indebtedness thereunder is unsecured. The loan agreement is reflected in Generation's Consolidated Balance Sheet within Short-term borrowings.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
On January 25, 2021, ComEd entered into two 90-day term loan agreements of $125 million each with variable interest rates of LIBOR plus 0.50% and LIBOR plus 0.75%, respectively.
Revolving Credit Agreements
On April 24, 2020, Exelon Corporate entered into a credit agreement establishing a $550 million 364-day revolving credit facility at a variable interest rate of LIBOR plus 1.75%. This facility will be used by Exelon as an additional source of short-term liquidity as needed.
Bilateral Credit Agreements
The following table reflects the bilateral credit agreements at December 31, 2020:
__________
(a)Credit facilities that do not contain a maturity date are specific to the agreements set within each contract. In some instances, credit facilities are automatically renewed based on the contingency standards set within the specific agreement.
(b)Bilateral credit facility relates to CENG, which is incorporated within Generation, and supports the issuance of letters of credit and funding for working capital and does not back Generation's commercial paper program. During the second and third quarters of 2020, CENG drew on its bilateral credit facility. As of December 31, 2020, there was no outstanding balance at this facility.
(c)Bilateral credit agreements solely support the issuance of letters of credit and do not back Generation's commercial paper program.
Borrowings under Exelon’s, Generation’s, ComEd’s, PECO’s, BGE's, Pepco's, DPL's, and ACE's revolving credit agreements bear interest at a rate based upon either the prime rate or a LIBOR-based rate, plus an adder based upon the particular Registrant’s credit rating. The adders for the prime based borrowings and LIBOR-based borrowings are presented in the following table:
__________
(a)Includes interest rate adders at Exelon Corporate of 27.5 and 127.5 for prime and LIBOR-based borrowings, respectively.
If any registrant loses its investment grade rating, the maximum adders for prime rate borrowings and LIBOR-based rate borrowings would be 65 basis points and 165 basis points, respectively. The credit agreements also require the borrower to pay a facility fee based upon the aggregate commitments. The fee varies depending upon the respective credit ratings of the borrower.
Variable Rate Demand Bonds
DPL has outstanding obligations in respect of Variable Rate Demand Bonds (VRDB). VRDBs are subject to repayment on the demand of the holders and, for this reason, are accounted for as short-term debt in accordance with GAAP. However, these bonds may be converted to a fixed-rate, fixed-term option to establish a maturity which corresponds to the date of final maturity of the bonds. On this basis, PHI views VRDBs as a source of long-term financing. As of both December 31, 2020 and December 31, 2019, $79 million in variable
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
rate demand bonds issued by DPL were outstanding and are included in the Long-term debt due within one year in Exelon's, PHI's, and DPL's Consolidated Balance Sheet.
Long-Term Debt
The following tables present the outstanding long-term debt at the Registrants as of December 31, 2020 and 2019:
Exelon
__________
(a)Substantially all of ComEd’s assets other than expressly excepted property and substantially all of PECO’s, Pepco's, DPL's, and ACE's assets are subject to the liens of their respective mortgage indentures.
(b)Amounts owed to these financing trusts are recorded as Long-term debt to financing trusts within Exelon’s Consolidated Balance Sheets.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
Generation
ComEd
__________
(a)Substantially all of ComEd’s assets, other than expressly excepted property, are subject to the lien of its mortgage indenture.
(b)Amount owed to this financing trust is recorded as Long-term debt to financing trust within ComEd’s Consolidated Balance Sheets.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
PECO
__________
(a)Substantially all of PECO’s assets are subject to the lien of its mortgage indenture.
(b)Amounts owed to this financing trust are recorded as Long-term debt to financing trusts within PECO’s Consolidated Balance Sheets.
BGE
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
PHI
_________
(a)Substantially all of Pepco's, DPL's, and ACE's assets are subject to the liens of their respective mortgage indentures.
Pepco
__________
(a)Substantially all of Pepco's assets are subject to the lien of its mortgage indenture.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
DPL
__________
(a)Substantially all of DPL's assets are subject to the lien of its mortgage indenture.
ACE
__________
(a)Substantially all of ACE's assets are subject to the lien of its mortgage indenture.
Long-term debt maturities at the Registrants in the periods 2021 through 2025 and thereafter are as follows:
__________
(a)Includes $390 million due to ComEd and PECO financing trusts.
(b)Includes $206 million due to ComEd financing trust.
(c)Includes $184 million due to PECO financing trusts.
Debt Covenants
As of December 31, 2020, the Registrants are in compliance with debt covenants.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
Nonrecourse Debt
Exelon and Generation have issued nonrecourse debt financing, in which approximately $2.2 billion of generating assets have been pledged as collateral at December 31, 2020. Borrowings under these agreements are secured by the assets and equity of each respective project. The lenders do not have recourse against Exelon or Generation in the event of a default. If a specific project financing entity does not maintain compliance with its specific nonrecourse debt financing covenants, there could be a requirement to accelerate repayment of the associated debt or other borrowings earlier than the stated maturity dates. In these instances, if such repayment was not satisfied, the lenders or security holders would generally have rights to foreclose against the project-specific assets and related collateral. The potential requirement to satisfy its associated debt or other borrowings earlier than otherwise anticipated could lead to impairments due to a higher likelihood of disposing of the respective project-specific assets significantly before the end of their useful lives.
Antelope Valley Solar Ranch One. In December 2011, the DOE Loan Programs Office issued a guarantee for up to $646 million for a nonrecourse loan from the Federal Financing Bank to support the financing of the construction of the Antelope Valley facility. The project became fully operational in 2014. The loan will mature on January 5, 2037. Interest rates on the loan were fixed upon each advance at a spread of 37.5 basis points above U.S. Treasuries of comparable maturity. The advances were completed as of December 31, 2015 and the outstanding loan balance will bear interest at an average blended interest rate of 2.82%. As of December 31, 2020 and December 31, 2019, approximately $460 million and $485 million were outstanding, respectively. In addition, Generation has issued letters of credit to support its equity investment in the project. As of December 31, 2020, Generation had $37 million in letters of credit outstanding related to the project. In December 2017, Generation’s interests in Antelope Valley were contributed to and are pledged as collateral for the EGR IV financing structures referenced below.
Antelope Valley sells all of its output to PG&E through a PPA. On January 29, 2019, PG&E filed for protection under Chapter 11 of the U.S. Bankruptcy Code, which created an event of default for Antelope Valley’s nonrecourse debt that provided the lender with a right to accelerate amounts outstanding under the loan such that they would become immediately due and payable. As a result of the event of default and in the absence of a waiver from the lender foregoing their acceleration rights, the debt was reclassified as current in Exelon’s and Generation’s Consolidated Balance Sheets in the first quarter of 2019. Further, distributions from Antelope Valley to EGR IV were suspended.
The United States Bankruptcy Court entered an order on June 20, 2020 confirming PG&E’s plan of reorganization. On July 1, 2020 the plan became effective, and PG&E emerged from bankruptcy. On July 21, 2020, Antelope Valley received a waiver from the DOE for the event of default and, as such, distributions from Antelope Valley to EGR IV were permitted and the debt was classified as noncurrent as of June 30, 2020. The debt continues to be presented as noncurrent as of December 31, 2020.
See Note 12 - Asset Impairments for additional information.
Continental Wind, LLC. In September 2013, Continental Wind, an indirect subsidiary of Exelon and Generation, completed the issuance and sale of $613 million senior secured notes. Continental Wind owns and operates a portfolio of wind farms in Idaho, Kansas, Michigan, Oregon, New Mexico, and Texas with a total net capacity of 667 MW. The net proceeds were distributed to Generation for its general business purposes. The notes are scheduled to mature on February 28, 2033. The notes bear interest at a fixed rate of 6.00% with interest payable semi-annually. As of December 31, 2020 and December 31, 2019, approximately $415 million and $447 million were outstanding, respectively.
In addition, Continental Wind has a $122 million letter of credit facility and $4 million working capital revolver facility. Continental Wind has issued letters of credit to satisfy certain of its credit support and security obligations. As of December 31, 2020, the Continental Wind letter of credit facility had $114 million in letters of credit outstanding related to the project.
In 2017, Generation’s interests in Continental Wind were contributed to EGRP. Refer to Note 23 - Variable Interest Entities for additional information on EGRP.
Renewable Power Generation. In March 2016, RPG, an indirect subsidiary of Exelon and Generation, issued $150 million aggregate principal amount of a nonrecourse senior secured notes. The net proceeds were distributed to Generation for paydown of long term debt obligations at Sacramento PV Energy and Constellation
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 17 - Debt and Credit Agreements
Solar Horizons and for general business purposes. The loan is scheduled to mature on March 31, 2035. The term loan bears interest at a fixed rate of 4.11% payable semi-annually. As of December 31, 2020 and December 31, 2019, approximately $95 million and $106 million were outstanding, respectively.
In 2017, Generation’s interests in RPG were contributed to EGRP. Refer to Note 23 - Variable Interest Entities for additional information on EGRP.
SolGen, LLC. In September 2016, SolGen, an indirect subsidiary of Exelon and Generation, issued $150 million aggregate principal amount of a nonrecourse senior secured notes. The net proceeds were distributed to Generation for general business purposes. The loan is scheduled to mature on September 30, 2036. The term loan bears interest at a fixed rate of 3.93% payable semi-annually. As of December 31, 2020 and December 31, 2019, approximately $125 million and $131 million were outstanding, respectively. As a result of the sale agreement with an affiliate of Brookfield Renewable in the fourth quarter of 2020, the outstanding balance was reclassified to Liabilities held for sale in Exelon's and Generation's Consolidated Balance Sheets as of December 31, 2020. In 2017, Generation’s interests in SolGen were contributed to and were pledged as collateral for the EGR IV financing structure. In December 2020, as part of the EGR IV financing, SolGen was removed from the collateral terms structured within the agreement. See EGR IV discussed below for additional information and Note 2 - Mergers, Acquisitions, and Dispositions for additional information on the sale agreement.
ExGen Renewables IV. In November 2017, EGR IV, an indirect subsidiary of Exelon and Generation, entered into an $850 million nonrecourse senior secured term loan credit facility agreement with a maturity date of November 28, 2024. In addition to the financing, EGR IV entered into interest rate swaps with an initial notional amount of $636 million at an interest rate of 2.32% to manage a portion of the interest rate exposure in connection with the financing.
In December 2020, EGR IV entered into a financing agreement for a $750 million nonrecourse senior secured term loan credit facility, scheduled to mature on December 15, 2027. The term loan bears interest at a variable rate equal to LIBOR plus 2.75%, subject to a 1% LIBOR floor with interest payable quarterly. In addition to the financing, EGR IV entered into interest rate swaps with an initial notional amount of $516 million at an interest rate of 1.05% to manage a portion of the interest rate exposure in connection with the financing.
The proceeds were used to repay the November 2017 nonrecourse senior secured term loan credit facility of $850 million, of which $709 million was outstanding as of the retirement date in December of 2020, and to settle the November 2017 interest rate swap. Generation’s interests in EGRP and Antelope Valley remained contributed to and are pledged as collateral for this financing. As of December 31, 2020, $750 million was outstanding. See Note 23 - Variable Interest Entities for additional information on EGRP and Note 16 - Derivative Financial Instruments for additional information on interest rate swaps.
18. Fair Value of Financial Assets and Liabilities (All Registrants)
Exelon measures and classifies fair value measurements in accordance with the hierarchy as defined by GAAP. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
•Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the Registrants have the ability to liquidate as of the reporting date.
•Level 2 - inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
•Level 3 - unobservable inputs, such as internally developed pricing models or third-party valuations for the asset or liability due to little or no market activity for the asset or liability.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
Fair Value of Financial Liabilities Recorded at Amortized Cost
The following tables present the carrying amounts and fair values of the Registrants’ short-term liabilities, long-term debt, SNF obligation, and trust preferred securities (long-term debt to financing trusts or junior subordinated debentures) as of December 31, 2020 and 2019. The Registrants have no financial liabilities classified as Level 1.
The carrying amounts of the Registrants’ short-term liabilities as presented on their Consolidated Balance Sheets are representative of their fair value (Level 2) because of the short-term nature of these instruments.
__________
(a) Includes unamortized debt issuance costs which are not fair valued. Refer to Note 17 - Debt and Credit Agreements for each Registrants’ unamortized debt issuance costs.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
Exelon uses the following methods and assumptions to estimate fair value of financial liabilities recorded at carrying cost:
Recurring Fair Value Measurements
The following tables present assets and liabilities measured and recorded at fair value in the Registrants' Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2020 and 2019:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
Exelon and Generation
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
__________
(a)Exelon excludes cash of $409 million and $373 million at December 31, 2020 and 2019, respectively, and restricted cash of $59 million and $110 million at December 31, 2020 and 2019, respectively, and includes long-term restricted cash of $53 million and $177 million at December 31, 2020 and 2019, respectively, which is reported in Other deferred debits in
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
the Consolidated Balance Sheets. Generation excludes cash of $171 million and $177 million at December 31, 2020 and 2019, respectively, and restricted cash of $20 million and $58 million at December 31, 2020 and 2019, respectively.
(b)Includes $116 million and $90 million of cash received from outstanding repurchase agreements at December 31, 2020 and 2019, respectively, and is offset by an obligation to repay upon settlement of the agreement as discussed in (e) below.
(c)Includes investments in equities sold short of $(62) million and $(48) million as of December 31, 2020 and 2019, respectively, held in an investment vehicle primarily to hedge the equity option component of its convertible debt.
(d)Includes derivative assets of $2 million and $2 million, which have total notional amounts of $1,043 million and $724 million at December 31, 2020 and 2019, respectively. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of the periods ended and do not represent the amount of Exelon and Generation's exposure to credit or market loss.
(e)Excludes net liabilities of $181 million and $147 million at December 31, 2020 and 2019, respectively, which include certain derivative assets that have notional amounts of $104 million and $99 million at December 31, 2020 and 2019, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables, repurchase agreement obligations, and payables related to pending securities purchases. The repurchase agreements are generally short-term in nature with durations generally of 30 days or less.
(f)Reflects equity investments held by Generation which were previously designated as equity investments without readily determinable fair values but are now publicly traded and therefore have readily determinable fair values. Generation recorded the fair value of these investments in Other current assets on Exelon's and Generation's Consolidated Balance Sheets based on the quoted market prices of the stocks at December 31, 2020, which resulted in an unrealized gain of $186 million within Other, net in Exelon's and Generation's Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2020.
(g)Collateral posted/(received) from counterparties, net of collateral paid to counterparties, totaled $(67) million, $321 million, and $162 million allocated to Level 1, Level 2, and Level 3 mark-to-market derivatives, respectively, as of December 31, 2020. Collateral posted/(received) from counterparties, net of collateral paid to counterparties, totaled $163 million, $551 million, and $214 million allocated to Level 1, Level 2, and Level 3 mark-to-market derivatives, respectively, as of December 31, 2019.
(h)Of the collateral posted/(received), $209 million and $511 million represents variation margin on the exchanges as of December 31, 2020 and 2019, respectively.
As of December 31, 2020, Exelon and Generation have outstanding commitments to invest in private credit, private equity, and real estate investments of approximately $195 million, $254 million, and $369 million, respectively. These commitments will be funded by Generation’s existing NDT funds.
Exelon and Generation held investments without readily determinable fair values with carrying amounts of $73 million and $55 million as of December 31, 2020, respectively. Exelon and Generation held investments without readily determinable fair values with carrying amounts of $69 million as of December 31, 2019. Changes in fair value, cumulative adjustments, and impairments were not material for the years ended December 31, 2020 and December 31, 2019.
ComEd, PECO, and BGE
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
__________
(a)ComEd excludes cash of $83 million and $90 million at December 31, 2020 and 2019, respectively, and restricted cash of $37 million and $33 million at December 31, 2020 and 2019, respectively, and includes long-term restricted cash of $43 million and $163 million at December 31, 2020 and 2019, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. PECO excludes cash of $18 million and $12 million at December 31, 2020 and 2019, respectively. BGE excludes cash of $24 million at both December 31, 2020 and 2019, respectively, and restricted cash of $1 million at both December 31, 2020 and 2019, respectively.
(b)The Level 3 balance consists of the current and noncurrent liability of $33 million and $268 million, respectively, at December 31, 2020 and $32 million and $269 million, respectively, at December 31, 2019 related to floating-to-fixed energy swap contracts with unaffiliated suppliers.
PHI, Pepco, DPL, and ACE
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
__________
(a)PHI excludes cash of $74 million and $57 million at December 31, 2020 and 2019, respectively, and includes long-term restricted cash of $10 million and $14 million at December 31, 2020 and 2019, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. Pepco excludes cash of $30 million and $29 million at December 31, 2020 and 2019, respectively. DPL excludes cash of $15 million and $13 million at December 31, 2020 and 2019, respectively. ACE excludes cash of $17 million and $12 million at December 31, 2020 and 2019, respectively, and includes long-term restricted cash of $10 million and $14 million at December 31, 2020 and 2019, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
Reconciliation of Level 3 Assets and Liabilities
The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2020 and 2019:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
__________
(a)Includes a reduction for the reclassification of $420 million and $377 million of realized gains due to the settlement of derivative contracts for the years ended December 31, 2020 and 2019, respectively.
(b)Includes $33 million of decreases in fair value and an increase for realized losses due to settlements of $33 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2020. Includes $78 million of decreases in fair value and an increase for realized losses due to settlements of $26 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2019.
(c)Transfers into and out of Level 3 generally occur when the contract tenor becomes less and more observable, respectively, primarily due to changes in market liquidity or assumptions for certain commodity contracts.
The following tables present the income statement classification of the total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2020 and 2019:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
Valuation Techniques Used to Determine Fair Value
Cash Equivalents (All Registrants). Investments with original maturities of three months or less when purchased, including mutual and money market funds, are considered cash equivalents. The fair values are based on observable market prices and, therefore, are included in the recurring fair value measurements hierarchy as Level 1.
NDT Fund Investments (Exelon and Generation). The trust fund investments have been established to satisfy Generation’s and CENG's nuclear decommissioning obligations as required by the NRC. The NDT funds hold debt and equity securities directly and indirectly through commingled funds and mutual funds, which are included in equities and fixed income. Generation’s and CENG's NDT fund investments policies outline investment guidelines for the trusts and limit the trust funds’ exposures to investments in highly illiquid markets and other alternative investments, including private credit, private equity, and real estate. Investments with maturities of three months or less when purchased, including certain short-term fixed income securities are considered cash equivalents and included in the recurring fair value measurements hierarchy as Level 1 or Level 2.
Equities. These investments consist of individually held equity securities, equity mutual funds, and equity commingled funds in domestic and foreign markets. With respect to individually held equity securities, the trustees obtain prices from pricing services, whose prices are generally obtained from direct feeds from market exchanges, which Exelon and Generation are able to independently corroborate. Equity securities held individually, including real estate investment trusts, rights, and warrants, are primarily traded on exchanges that contain only actively traded securities due to the volume trading requirements imposed by these exchanges. The equity securities that are held directly by the trust funds are valued based on quoted prices in active markets and categorized as Level 1. Certain equity securities have been categorized as Level 2 because they are based on evaluated prices that reflect observable market information, such as actual trade information or similar securities. Certain private placement equity securities are categorized as Level 3 because they are not publicly traded and are priced using significant unobservable inputs.
Equity commingled funds and mutual funds are maintained by investment companies, and fund investments are held in accordance with a stated set of fund objectives. The values of some of these funds are publicly quoted. For mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. For equity commingled funds and mutual funds which are not publicly quoted, the fund administrators value the funds using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities and are not classified within the fair value hierarchy. These investments typically can be redeemed monthly or more frequently, with 30 or less days of notice and without further restrictions.
Fixed income. For fixed income securities, which consist primarily of corporate debt securities, U.S. government securities, foreign government securities, municipal bonds, asset and mortgage-backed securities, commingled funds, mutual funds, and derivative instruments, the trustees obtain multiple prices from pricing vendors whenever possible, which enables cross-provider validations in addition to checks for unusual daily movements. A primary price source is identified based on asset type, class, or issue for each security. With respect to individually held fixed income securities, the trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the portfolio managers challenge an assigned price and the trustees determine that another price source is considered to be preferable. Exelon and Generation have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Exelon and Generation selectively
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
corroborate the fair values of securities by comparison to other market-based price sources. Investments in U.S. Treasury securities have been categorized as Level 1 because they trade in highly-liquid and transparent markets. Certain private placement fixed income securities have been categorized as Level 3 because they are priced using certain significant unobservable inputs and are typically illiquid. The remaining fixed income securities, including certain other fixed income investments, are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized as Level 2.
Other fixed income investments primarily consist of fixed income commingled funds and mutual funds, which are maintained by investment companies and hold fund investments in accordance with a stated set of fund objectives. The values of some of these funds are publicly quoted. For mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. For fixed income commingled funds and mutual funds which are not publicly quoted, the fund administrators value the funds using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities and are not classified within the fair value hierarchy. These investments typically can be redeemed monthly or more frequently, with 30 or less days of notice and without further restrictions.
Derivative instruments. These instruments, consisting primarily of futures and swaps to manage risk, are recorded at fair value. Over-the-counter derivatives are valued daily, based on quoted prices in active markets and trade in open markets, and have been categorized as Level 1. Derivative instruments other than over-the-counter derivatives are valued based on external price data of comparable securities and have been categorized as Level 2.
Private credit. Private credit investments primarily consist of investments in private debt strategies. These investments are generally less liquid assets with an underlying term of 3 to 5 years and are intended to be held to maturity. The fair value of these investments is determined by the fund manager or administrator using a combination of valuation models including cost models, market models, and income models and typically cannot be redeemed until maturity of the term loan. Private credit investments held directly by Exelon and Generation are categorized as Level 3 because they are based largely on inputs that are unobservable and utilize complex valuation models. For managed private credit funds, the fair value is determined using a combination of valuation models including cost models, market models, and income models and typically cannot be redeemed until maturity of the term loan. Managed private credit fund investments are not classified within the fair value hierarchy because their fair value is determined using NAV or its equivalent as a practical expedient.
Private equity. These investments include those in limited partnerships that invest in operating companies that are not publicly traded on a stock exchange such as leveraged buyouts, growth capital, venture capital, distressed investments, and investments in natural resources. These investments typically cannot be redeemed and are generally liquidated over a period of 8 to 10 years from the initial investment date, which is based on Exelon's understanding of the investment funds. Private equity valuations are reported by the fund manager and are based on the valuation of the underlying investments, which include unobservable inputs such as cost, operating results, discounted future cash flows, and market based comparable data. These valuation inputs are unobservable. The fair value of private equity investments is determined using NAV or its equivalent as a practical expedient, and therefore, these investments are not classified within the fair value hierarchy.
Real estate. These investments are funds with a direct investment in pools of real estate properties. These funds are reported by the fund manager and are generally based on independent appraisals from sources with professional qualifications, typically using a combination of market comparables and discounted cash flows. These valuation inputs are unobservable. The fair value of real estate investments is determined using NAV or its equivalent as a practical expedient, and therefore, these investments are not classified within the fair value hierarchy.
Generation evaluated its NDT portfolios for the existence of significant concentrations of credit risk as of December 31, 2020. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of December 31, 2020, there were no significant concentrations (generally defined as greater than 10 percent) of risk in Generation's NDT assets.
See Note 10 - Asset Retirement Obligations for additional information on the NDT fund investments. See Note 15 - Retirement Benefits for the valuation techniques used for hedge fund investments.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
Rabbi Trust Investments (Exelon, Generation, PECO, BGE, PHI, Pepco, DPL, and ACE). The Rabbi trusts were established to hold assets related to deferred compensation plans existing for certain active and retired members of Exelon’s executive management and directors. The Rabbi trusts' assets are included in investments in the Registrants’ Consolidated Balance Sheets and consist primarily of money market funds, mutual funds, fixed income securities, and life insurance policies. Money market funds and mutual funds are publicly quoted and have been categorized as Level 1 given the clear observability of the prices. The fair values of fixed income securities are based on evaluated prices that reflect observable market information, such as actual trade information or similar securities, adjusted for observable differences and are categorized in Level 2. The life insurance policies are valued using the cash surrender value of the policies, net of loans against those policies, which is provided by a third-party. Certain life insurance policies, which consist primarily of mutual funds that are priced based on observable market data, have been categorized as Level 2 because the life insurance policies can be liquidated at the reporting date for the value of the underlying assets. Life insurance policies that are valued using unobservable inputs have been categorized as Level 3, where the fair value is determined based on the cash surrender value of the policy, which contains unobservable inputs and assumptions. Because Exelon relies on its third-party insurance provider to develop the inputs without adjustment for the valuations of its Level 3 investments, quantitative information about significant unobservable inputs used in valuing these investments is not reasonably available to Exelon. Therefore, Exelon has not disclosed such inputs.
Deferred Compensation Obligations (All Registrants). The Registrants’ deferred compensation plans allow participants to defer certain cash compensation into a notional investment account. The Registrants include such plans in other current and noncurrent liabilities in their Consolidated Balance Sheets. The value of the Registrants’ deferred compensation obligations is based on the market value of the participants’ notional investment accounts. The underlying notional investments are comprised primarily of equities, mutual funds, commingled funds, and fixed income securities which are based on directly and indirectly observable market prices. Since the deferred compensation obligations themselves are not exchanged in an active market, they are categorized as Level 2 in the fair value hierarchy.
The value of certain employment agreement obligations (which are included with the Deferred Compensation Obligation in the tables above) are based on a known and certain stream of payments to be made over time and are categorized as Level 2 within the fair value hierarchy.
Investments in Equities (Exelon and Generation). Exelon and Generation hold certain investments in equity securities with readily determinable fair values in addition to those held within the NDT funds. These equity securities are valued based on quoted prices in active markets and are categorized as Level 1.
Deferred Purchase Price Consideration (Exelon and Generation). Exelon and Generation have DPP consideration for the sale of certain receivables of retail electricity at Generation. This amount is valued based on the sales price of the receivables net of allowance for credit losses based on accounts receivable aging historical experience coupled with specific identification through a credit monitoring process, which considers current conditions and forward-looking information such as industry trends, macroeconomic factors, changes in the regulatory environment, external credit ratings, publicly available news, payment status, payment history, and the exercise of collateral calls. Since the DPP consideration is based on the sales price of the receivables, it is categorized as Level 2 in the fair value hierarchy. See Note 6 - Accounts Receivable for additional information on the sale of certain receivables.
Mark-to-Market Derivatives (Exelon, Generation, and ComEd). Derivative contracts are traded in both exchange-based and non-exchange-based markets. Exchange-based derivatives that are valued using unadjusted quoted prices in active markets are categorized in Level 1 in the fair value hierarchy. Certain derivatives’ pricing is verified using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask, mid-point prices and are obtained from sources that the Registrants believe provide the most liquid market for the commodity. The price quotations are reviewed and corroborated to ensure the prices are observable and representative of an orderly transaction between market participants. This includes consideration of actual transaction volumes, market delivery points, bid-ask spreads, and contract duration. The remainder of derivative contracts are valued using the Black model, an industry standard option valuation model. The Black model takes into account inputs such as contract terms, including maturity, and market parameters, including assumptions of the future prices of energy, interest rates, volatility, credit worthiness, and credit spread. For derivatives that trade in liquid markets, such as generic forwards, swaps, and options, model inputs are generally observable. Such instruments are categorized in Level 2. The Registrants’ derivatives are predominantly at liquid trading points.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
For derivatives that trade in less liquid markets with limited pricing information, model inputs generally would include both observable and unobservable inputs. These valuations may include an estimated basis adjustment from an illiquid trading point to a liquid trading point for which active price quotations are available. Such instruments are categorized in Level 3.
For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations whose contract tenure extends into unobservable periods. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility, and contract duration. Such instruments are categorized in Level 3 as the model inputs generally are not observable. Forward price curves for the power market utilized by the front office to manage the portfolio, are reviewed and verified by the middle office, and used for financial reporting by the back office. The Registrants consider credit and nonperformance risk in the valuation of derivative contracts categorized in Level 2 and 3, including both historical and current market data, in their assessment of credit and nonperformance risk by counterparty. Due to master netting agreements and collateral posting requirements, the impacts of credit and nonperformance risk were not material to the financial statements.
Disclosed below is detail surrounding the Registrants’ significant Level 3 valuations. The calculated fair value includes marketability discounts for margining provisions and other attributes. Generation’s Level 3 balance generally consists of forward sales and purchases of power and natural gas and certain transmission congestion contracts. Generation utilizes various inputs and factors including market data and assumptions that market participants would use in pricing assets or liabilities as well as assumptions about the risks inherent in the inputs to the valuation technique. The inputs and factors include forward commodity prices, commodity price volatility, contractual volumes, delivery location, interest rates, credit quality of counterparties, and credit enhancements.
For commodity derivatives, the primary input to the valuation models is the forward commodity price curve for each instrument. Forward commodity price curves are derived by risk management for liquid locations and by the traders and portfolio managers for illiquid locations. All locations are reviewed and verified by risk management considering published exchange transaction prices, executed bilateral transactions, broker quotes, and other observable or public data sources. The relevant forward commodity curve used to value each of the derivatives depends on a number of factors, including commodity type, delivery location, and delivery period. Price volatility varies by commodity and location. When appropriate, Generation discounts future cash flows using risk free interest rates with adjustments to reflect the credit quality of each counterparty for assets and Generation’s own credit quality for liabilities. The level of observability of a forward commodity price varies generally due to the delivery location and delivery period. Certain delivery locations including PJM West Hub (for power) and Henry Hub (for natural gas) are more liquid and prices are observable for up to three years in the future. The observability period of volatility is generally shorter than the underlying power curve used in option valuations. The forward curve for a less liquid location is estimated by using the forward curve from the liquid location and applying a spread to represent the cost to transport the commodity to the delivery location. This spread does not typically represent a majority of the instrument’s market price. As a result, the change in fair value is closely tied to liquid market movements and not a change in the applied spread. The change in fair value associated with a change in the spread is generally immaterial. An average spread calculated across all Level 3 power and gas delivery locations is approximately $2.49 and $0.38 for power and natural gas, respectively. Many of the commodity derivatives are short term in nature and thus a majority of the fair value may be based on observable inputs even though the contract as a whole must be classified as Level 3.
On December 17, 2010, ComEd entered into several 20-year floating to fixed energy swap contracts with unaffiliated suppliers for the procurement of long-term renewable energy and associated RECs. See Note 16 - Derivative Financial Instruments for additional information. The fair value of these swaps has been designated as a Level 3 valuation due to the long tenure of the positions and internal modeling assumptions. The modeling assumptions include using natural gas heat rates to project long term forward power curves adjusted by a renewable factor that incorporates time of day and seasonality factors to reflect accurate renewable energy pricing. In addition, marketability reserves are applied to the positions based on the tenor and supplier risk.
See Note 16 - Derivative Financial Instruments for additional information on mark-to-market derivatives.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 18 - Fair Value of Financial Assets and Liabilities
The following table presents the significant inputs to the forward curve used to value these positions:
__________
(a)The valuation techniques, unobservable inputs, ranges, and arithmetic averages are the same for the asset and liability positions.
(b)The fair values do not include cash collateral posted on level three positions of $162 million and $214 million as of December 31, 2020 and December 31, 2019, respectively.
(c)Quoted forward natural gas rates are utilized to project the forward power curve for the delivery of energy at specified future dates. The natural gas curve is extrapolated beyond its observable period to the end of the contract’s delivery.
The inputs listed above, which are as of the balance sheet date, would have a direct impact on the fair values of the above instruments if they were adjusted. The significant unobservable inputs used in the fair value measurement of Generation’s commodity derivatives are forward commodity prices and for options is price volatility. Increases (decreases) in the forward commodity price in isolation would result in significantly higher (lower) fair values for long positions (contracts that give Generation the obligation or option to purchase a commodity), with offsetting impacts to short positions (contracts that give Generation the obligation or right to sell a commodity). Increases (decreases) in volatility would increase (decrease) the value for the holder of the option (writer of the option). Generally, a change in the estimate of forward commodity prices is unrelated to a change in the estimate of volatility of prices. An increase to the reserves listed above would decrease the fair value of the positions. An increase to the heat rate or renewable factors would increase the fair value accordingly. Generally, interrelationships exist between market prices of natural gas and power. As such, an increase in natural gas pricing would potentially have a similar impact on forward power markets.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
19. Commitments and Contingencies (All Registrants)
Commitments
PHI Merger Commitments (Exelon, PHI, Pepco, DPL, and ACE). Approval of the PHI merger in Delaware, New Jersey, Maryland, and the District of Columbia was conditioned upon Exelon and PHI agreeing to certain commitments. The following amounts represent total commitment costs that have been recorded since the acquisition date and the total remaining obligations for Exelon, PHI, Pepco, DPL, and ACE as of December 31, 2020:
__________
(a)Remaining commitments extend through 2026 and include rate credits, energy efficiency programs, and delivery system modernization.
In addition, Exelon is committed to develop or to assist in the commercial development of approximately 37 MWs of new solar generation in Maryland, District of Columbia, and Delaware at an estimated cost of approximately $135 million, which will generate future earnings at Exelon and Generation. Investment costs, which are expected to be primarily capital in nature, are recognized as incurred and recorded in Exelon's and Generation's financial statements. As of December 31, 2020, 27 MWs of new generation were developed and Exelon and Generation have incurred costs of $119 million. Exelon has also committed to purchase 100 MWs of wind energy in PJM. DPL has committed to conducting three RFPs to procure up to a total of 120 MWs of wind RECs for the purpose of meeting Delaware's renewable portfolio standards. DPL has conducted two of the three wind REC RFPs. The first 40 MW wind REC tranche was conducted in 2017 and did not result in a purchase agreement. The second 40 MW wind REC tranche was conducted in 2018 and resulted in a proposed REC purchase agreement that was approved by the DPSC in March 2019. The third and final 40 MW wind REC tranche will be conducted in 2022.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
Commercial Commitments (All Registrants). The Registrants' commercial commitments as of December 31, 2020, representing commitments potentially triggered by future events, were as follows:
__________
(a)Surety bonds-Guarantees issued related to contract and commercial agreements, excluding bid bonds.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
(b)Represents the maximum potential obligation in the event that the fair value of certain leased equipment and fleet vehicles is zero at the end of the maximum lease term. The lease term associated with these assets ranges from 1 to 8 years. The maximum potential obligation at the end of the minimum lease term would be $71 million guaranteed by Exelon and PHI, of which $24 million, $30 million, and $17 million is guaranteed by Pepco, DPL, and ACE, respectively. Historically, payments under the guarantees have not been made and PHI believes the likelihood of payments being required under the guarantees is remote.
Nuclear Insurance (Exelon and Generation)
Generation is subject to liability, property damage, and other risks associated with major incidents at any of its nuclear stations. Generation has mitigated its financial exposure to these risks through insurance and other industry risk-sharing provisions.
The Price-Anderson Act was enacted to ensure the availability of funds for public liability claims arising from an incident at any of the U.S. licensed nuclear facilities and to limit the liability of nuclear reactor owners for such claims from any single incident. As of December 31, 2020, the current liability limit per incident is $13.8 billion and is subject to change to account for the effects of inflation and changes in the number of licensed reactors at least once every five years with the last adjustment effective November 1, 2018. In accordance with the Price-Anderson Act, Generation maintains financial protection at levels equal to the amount of liability insurance available from private sources through the purchase of private nuclear energy liability insurance for public liability claims that could arise in the event of an incident. Effective January 1, 2017, the required amount of nuclear energy liability insurance purchased is $450 million for each operating site. Claims exceeding that amount are covered through mandatory participation in a financial protection pool, as required by the Price Anderson-Act, which provides the additional $13.3 billion per incident in funds available for public liability claims. Participation in this secondary financial protection pool requires the operator of each reactor to fund its proportionate share of costs for any single incident that exceeds the primary layer of financial protection. Generation’s share of this secondary layer would be approximately $2.9 billion, however any amounts payable under this secondary layer would be capped at $434 million per year.
In addition, the U.S. Congress could impose revenue-raising measures on the nuclear industry to pay public liability claims exceeding the $13.8 billion limit for a single incident.
As part of the execution of the NOSA on April 1, 2014, Generation executed an Indemnity Agreement pursuant to which Generation agreed to indemnify EDF and its affiliates against third-party claims that may arise from any future nuclear incident (as defined in the Price-Anderson Act) in connection with the CENG nuclear plants or their operations. Exelon guarantees Generation’s obligations under this indemnity. See Note 23 - Variable Interest Entities for additional information on Generation’s operations relating to CENG.
Generation is required each year to report to the NRC the current levels and sources of property insurance that demonstrates Generation possesses sufficient financial resources to stabilize and decontaminate a reactor and reactor station site in the event of an accident. The property insurance maintained for each facility is currently provided through insurance policies purchased from NEIL, an industry mutual insurance company of which Generation is a member.
NEIL may declare distributions to its members as a result of favorable operating experience. In recent years, NEIL has made distributions to its members, but Generation cannot predict the level of future distributions or if they will continue at all. Generation's portion of the annual distribution declared by NEIL is estimated to be $75 million for 2020, and was $136 million and $58 million for 2019 and 2018, respectively. In addition, in March 2018, NEIL declared a supplemental distribution. Generation's portion of the supplemental distribution declared by NEIL was $31 million. The distributions were recorded as a reduction to Operating and maintenance expense within Exelon and Generation’s Consolidated Statements of Operations and Comprehensive Income.
Premiums paid to NEIL by its members are also subject to a potential assessment for adverse loss experience in the form of a retrospective premium obligation. NEIL has never assessed this retrospective premium since its formation in 1973, and Generation cannot predict the level of future assessments, if any. The current maximum aggregate annual retrospective premium obligation for Generation is approximately $252 million. NEIL requires its members to maintain an investment grade credit rating or to ensure collectability of their annual retrospective premium obligation by providing a financial guarantee, letter of credit, deposit premium, or some other means of assurance.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
NEIL provides “all risk” property damage, decontamination, and premature decommissioning insurance for each station for losses resulting from damage to its nuclear plants, either due to accidents or acts of terrorism. If the decision is made to decommission the facility, a portion of the insurance proceeds will be allocated to a fund, which Generation is required by the NRC to maintain, to provide for decommissioning the facility. In the event of an insured loss, Generation is unable to predict the timing of the availability of insurance proceeds to Generation and the amount of such proceeds that would be available. In the event that one or more acts of terrorism cause accidental property damage within a twelve-month period from the first accidental property damage under one or more policies for all insured plants, the maximum recovery by Generation will be an aggregate of $3.2 billion plus such additional amounts as the insurer may recover for all such losses from reinsurance, indemnity, and any other source, applicable to such losses.
For its insured losses, Generation is self-insured to the extent that losses are within the policy deductible or exceed the amount of insurance maintained. Uninsured losses and other expenses, to the extent not recoverable from insurers or the nuclear industry, could also be borne by Generation. Any such losses could have a material adverse effect on Exelon’s and Generation’s financial statements.
Spent Nuclear Fuel Obligation (Exelon and Generation)
Under the NWPA, the DOE is responsible for the development of a geologic repository for and the disposal of SNF and high-level radioactive waste. As required by the NWPA, Generation is a party to contracts with the DOE (Standard Contracts) to provide for disposal of SNF from Generation’s nuclear generating stations. In accordance with the NWPA and the Standard Contracts, Generation historically had paid the DOE one mill ($0.001) per kWh of net nuclear generation for the cost of SNF disposal. Due to the lack of a viable disposal program, the DOE reduced the SNF disposal fee to zero in May 2014. Until a new fee structure is in effect, Exelon and Generation will not accrue any further costs related to SNF disposal fees. This fee may be adjusted prospectively to ensure full cost recovery.
Generation currently assumes the DOE will begin accepting SNF in 2035 and uses that date for purposes of estimating the nuclear decommissioning asset retirement obligations. The SNF acceptance date assumption is based on management’s estimates of the amount of time required for DOE to select a site location and develop the necessary infrastructure for long-term SNF storage.
The NWPA and the Standard Contracts required the DOE to begin taking possession of SNF generated by nuclear generating units by no later than January 31, 1998. The DOE, however, failed to meet that deadline and its performance is expected to be delayed significantly. In August 2004, Generation and the DOJ, in close consultation with the DOE, reached a settlement under which the government agreed to reimburse Generation, subject to certain damage limitations based on the extent of the government’s breach, for costs associated with storage of SNF at Generation’s nuclear stations pending the DOE’s fulfillment of its obligations. Generation’s settlement agreement does not include FitzPatrick and FitzPatrick does not currently have a settlement agreement in place. Calvert Cliffs, Ginna, and Nine Mile Point each have separate settlement agreements in place with the DOE which were extended during 2020 to provide for the reimbursement of SNF storage costs through December 31, 2022. Generation submits annual reimbursement requests to the DOE for costs associated with the storage of SNF. In all cases, reimbursement requests are made only after costs are incurred and only for costs resulting from DOE delays in accepting the SNF.
Under the settlement agreements, Generation received total cumulative cash reimbursements of $1,455 million through December 31, 2020 for costs incurred. After considering the amounts due to co-owners of certain nuclear stations and to the former owner of Oyster Creek, Generation received net cumulative cash reimbursements of $1,266 million. As of December 31, 2020 and 2019, the amount of SNF storage costs for which reimbursement has been or will be requested from the DOE under the DOE settlement agreements is as follows:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
__________
(a)Recorded in Accounts receivable, other.
(b)Recorded in Deferred debits and other assets, other.
(c)Recorded in Accounts receivable, other. Represents amounts owed to the co-owners of Peach Bottom, Quad Cities, and Nine Mile Point Unit 2 generating facilities.
The Standard Contracts with the DOE also required the payment to the DOE of a one-time fee applicable to nuclear generation through April 6, 1983. The below table outlines the SNF liability recorded at Exelon and Generation as of December 31, 2020 and 2019:
__________
(a)ComEd previously elected to defer payment of the one-time fee of $277 million for its units (which are now part of Generation), with interest to the date of payment, until just prior to the first delivery of SNF to the DOE. The unfunded liabilities for SNF disposal costs, including the one-time fee, were transferred to Generation as part of Exelon’s 2001 corporate restructuring.
(b)A prior owner of FitzPatrick elected to defer payment of the one-time fee of $34 million, with interest to the date of payment, for the FitzPatrick unit. As part of the FitzPatrick acquisition on March 31, 2017, Generation assumed a SNF liability for the DOE one-time fee obligation with interest related to FitzPatrick along with an offsetting asset, included in Other deferred debits and other assets, for the contractual right to reimbursement from NYPA, a prior owner of FitzPatrick, for amounts paid for the FitzPatrick DOE one-time fee obligation.
Interest for Exelon's and Generation's SNF liabilities accrues at the 13-week Treasury Rate. The 13-week Treasury Rate in effect for calculation of the interest accrual at December 31, 2020 was 0.096% for the deferred amount transferred from ComEd and 0.101% for the deferred FitzPatrick amount.
The following table summarizes sites for which Exelon and Generation do not have an outstanding SNF Obligation:
Environmental Remediation Matters
General (All Registrants). The Registrants’ operations have in the past, and may in the future, require substantial expenditures to comply with environmental laws. Additionally, under Federal and state environmental laws, the Registrants are generally liable for the costs of remediating environmental contamination of property now or formerly owned by them and of property contaminated by hazardous substances generated by them. The Registrants own or lease a number of real estate parcels, including parcels on which their operations or the operations of others may have resulted in contamination by substances that are considered hazardous under environmental laws. In addition, the Registrants are currently involved in a number of proceedings relating to sites where hazardous substances have been deposited and may be subject to additional proceedings in the future. Unless otherwise disclosed, the Registrants cannot reasonably estimate whether they will incur significant liabilities for additional investigation and remediation costs at these or additional sites identified by the Registrants, environmental agencies, or others, or whether such costs will be recoverable from third parties, including customers. Additional costs could have a material, unfavorable impact on the Registrants' financial statements.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
MGP Sites (Exelon and the Utility Registrants). ComEd, PECO, BGE, and DPL have identified sites where former MGP or gas purification activities have or may have resulted in actual site contamination. For almost all of these sites, there are additional PRPs that may share responsibility for the ultimate remediation of each location.
•ComEd has 21 sites that are currently under some degree of active study and/or remediation. ComEd expects the majority of the remediation at these sites to continue through at least 2026.
•PECO has 8 sites that are currently under some degree of active study and/or remediation. PECO expects the majority of the remediation at these sites to continue through at least 2023.
•BGE has 4 sites that currently require some level of remediation and/or ongoing activity. BGE expects the majority of the remediation at these sites to continue through at least 2023.
•DPL has 1 site that is currently under study and the required cost at the site is not expected to be material.
The historical nature of the MGP and gas purification sites and the fact that many of the sites have been buried and built over, impacts the ability to determine a precise estimate of the ultimate costs prior to initial sampling and determination of the exact scope and method of remedial activity. Management determines its best estimate of remediation costs using all available information at the time of each study, including probabilistic and deterministic modeling for ComEd and PECO, and the remediation standards currently required by the applicable state environmental agency. Prior to completion of any significant clean up, each site remediation plan is approved by the appropriate state environmental agency.
ComEd, pursuant to an ICC order, and PECO, pursuant to settlements of natural gas distribution rate cases with the PAPUC, are currently recovering environmental remediation costs of former MGP facility sites through customer rates. While BGE and DPL do not have riders for MGP clean-up costs, they have historically received recovery of actual clean-up costs in distribution rates.
As of December 31, 2020 and 2019, the Registrants had accrued the following undiscounted amounts for environmental liabilities in Other current liabilities and Other deferred credits and other liabilities within their respective Consolidated Balance Sheets:
Cotter Corporation (Exelon and Generation). The EPA has advised Cotter Corporation (Cotter), a former ComEd subsidiary, that it is potentially liable in connection with radiological contamination at a site known as the West Lake Landfill in Missouri. In 2000, ComEd sold Cotter to an unaffiliated third-party. As part of the sale, ComEd agreed to indemnify Cotter for any liability arising in connection with the West Lake Landfill. In connection with Exelon’s 2001 corporate restructuring, this responsibility to indemnify Cotter was transferred to Generation. Including Cotter, there are three PRPs participating in the West Lake Landfill remediation proceeding. Investigation by Generation has identified a number of other parties who also may be PRPs and could be liable to contribute to the final remedy. Further investigation is ongoing.
In September 2018, the EPA issued its Record of Decision (ROD) Amendment for the selection of a final remedy. The ROD Amendment modified the remedy previously selected by EPA in its 2008 ROD. While the 2008 ROD
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
required only that the radiological materials and other wastes at the site be capped, the 2018 ROD Amendment requires partial excavation of the radiological materials in addition to the previously selected capping remedy. The ROD Amendment also allows for variation in depths of excavation depending on radiological concentrations. The EPA and the PRPs have entered into a Consent Agreement to perform the Remedial Design, which is expected to be completed by early 2022. In March 2019 the PRPs received Special Notice Letters from the EPA to perform the Remedial Action work. On October 8, 2019, Cotter (Generation’s indemnitee) provided a non-binding good faith offer to conduct, or finance, a portion of the remedy, subject to certain conditions. The total estimated cost of the remedy, taking into account the current EPA technical requirements and the total costs expected to be incurred collectively by the PRPs in fully executing the remedy, is approximately $280 million, including cost escalation on an undiscounted basis, which would be allocated among the final group of PRPs. Generation has determined that a loss associated with the EPA’s partial excavation and enhanced landfill cover remedy is probable and has recorded a liability, included in the table above, that reflects management’s best estimate of Cotter’s allocable share of the ultimate cost. Given the joint and several nature of this liability, the magnitude of Generation’s ultimate liability will depend on the actual costs incurred to implement the required remedy as well as on the nature and terms of any cost-sharing arrangements with the final group of PRPs. Therefore, it is reasonably possible that the ultimate cost and Cotter's associated allocable share could differ significantly once these uncertainties are resolved, which could have a material impact on Exelon's and Generation's future financial statements.
One of the other PRPs has indicated it will be making a contribution claim against Cotter for costs that it has incurred to prevent the subsurface fire from spreading to those areas of the West Lake Landfill where radiological materials are believed to have been disposed. At this time, Exelon and Generation do not have sufficient information to assess this claim and therefore are unable to estimate a range of loss, if any. As such, no liability has been recorded for the potential contribution claim. It is reasonably possible, however, that resolution of this matter could have a material, unfavorable impact on Exelon’s and Generation's financial statements.
In January 2018, the PRPs were advised by the EPA that it will begin an additional investigation and evaluation of groundwater conditions at the West Lake Landfill. In September 2018, the PRPs agreed to an Administrative Settlement Agreement and Order on Consent for the performance by the PRPs of the groundwater Remedial Investigation (RI)/Feasibility Study (FS). The purpose of this RI/FS is to define the nature and extent of any groundwater contamination from the West Lake Landfill site and evaluate remedial alternatives. Generation estimates the undiscounted cost for the groundwater RI/FS to be approximately $30 million. Generation determined a loss associated with the RI/FS is probable and has recorded a liability, included in the table above, that reflects management’s best estimate of Cotter’s allocable share of the cost among the PRPs. At this time Generation cannot predict the likelihood that, or the extent to which any, remediation activities may be required and therefore cannot estimate a reasonably possible range of loss for response costs beyond those associated with the RI/FS component. It is reasonably possible, however, that resolution of this matter could have a material, unfavorable impact on Exelon’s and Generation’s future financial statements.
In August 2011, Cotter was notified by the DOJ that Cotter is considered a PRP with respect to the government’s clean-up costs for contamination attributable to low level radioactive residues at a former storage and reprocessing facility named Latty Avenue near St. Louis, Missouri. The Latty Avenue site is included in ComEd’s (now Generation's) indemnification responsibilities discussed above as part of the sale of Cotter. The radioactive residues had been generated initially in connection with the processing of uranium ores as part of the U.S. Government’s Manhattan Project. Cotter purchased the residues in 1969 for initial processing at the Latty Avenue facility for the subsequent extraction of uranium and metals. In 1976, the NRC found that the Latty Avenue site had radiation levels exceeding NRC criteria for decontamination of land areas. Latty Avenue was investigated and remediated by the United States Army Corps of Engineers pursuant to funding under FUSRAP. Pursuant to a series of annual agreements since 2011, the DOJ and the PRPs have tolled the statute of limitations until August 31, 2021 so that settlement discussions can proceed. On August 3, 2020, the DOJ advised Cotter and the other PRPs that it is seeking approximately $90 million from all the PRPs and has directed that the PRPs must submit a good faith joint proposed settlement offer. Generation has determined that a loss associated with this matter is probable under its indemnification agreement with Cotter and has recorded an estimated liability, which is included in the table above.
Benning Road Site (Exelon, Generation, PHI, and Pepco). In September 2010, PHI received a letter from EPA identifying the Benning Road site as one of six land-based sites potentially contributing to contamination of the lower Anacostia River. A portion of the site was formerly the location of a Pepco Energy Services electric generating facility, which was deactivated in June 2012. The remaining portion of the site consists of a Pepco
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
transmission and distribution service center that remains in operation. In December 2011, the U.S. District Court for the District of Columbia approved a Consent Decree entered into by Pepco and Pepco Energy Services with the DOEE, which requires Pepco and Pepco Energy Services to conduct a RI/FS for the Benning Road site and an approximately 10 to 15-acre portion of the adjacent Anacostia River.
Since 2013, Pepco and Pepco Energy Services (now Generation, pursuant to Exelon's 2016 acquisition of PHI) have been performing RI work and have submitted multiple draft RI reports to the DOEE. In September 2019, Pepco and Generation issued a draft “final” RI report which DOEE approved on February 3, 2020. Pepco and Generation are developing a FS to evaluate possible remedial alternatives for submission to DOEE. The Court has established a schedule for completion of the FS, and approval by the DOEE, by September 16, 2021. After completion and approval of the FS, DOEE will prepare a Proposed Plan for public comment and then issue a ROD identifying any further response actions determined to be necessary. PHI, Pepco, and Generation have determined that a loss associated with this matter is probable and have accrued an estimated liability, which is included in the table above.
Anacostia River Tidal Reach (Exelon, PHI, and Pepco). Contemporaneous with the Benning Road site RI/FS being performed by Pepco and Generation, DOEE and the National Park Service have been conducting a separate RI/FS focused on the entire tidal reach of the Anacostia River extending from just north of the Maryland-District of Columbia boundary line to the confluence of the Anacostia and Potomac Rivers. The river-wide RI incorporated the results of the river sampling performed by Pepco and Pepco Energy Services as part of the Benning RI/FS, as well as similar sampling efforts conducted by owners of other sites adjacent to this segment of the river and supplemental river sampling conducted by DOEE’s contractor. In April 2018, DOEE released a draft RI report for public review and comment. Pepco submitted written comments on the draft RI and participated in a public hearing.
Pepco has determined that it is probable that costs for remediation will be incurred and recorded a liability in the third quarter 2019 for management’s best estimate of its share of those costs. On September 30, 2020, DOEE released its Interim ROD. The Interim ROD reflects an adaptive management approach which will require several identified “hot spots” in the river to be addressed first while continuing to conduct studies and to monitor the river to evaluate improvements and determine potential future remediation plans. The adaptive management process chosen by DOEE is less intrusive, provides more long-term environmental certainty, is less costly, and allows for site specific remediation plans already underway, including the plan for the Benning Road site to proceed to conclusion. Pepco has concluded that incremental exposure remains reasonably possible, but management cannot reasonably estimate a range of loss beyond the amounts recorded, which are included in the table above.
In addition to the activities associated with the remedial process outlined above, CERCLA separately requires federal and state (here including Washington, D.C.) Natural Resource Trustees (federal or state agencies designated by the President or the relevant state, respectively, or Indian tribes) to conduct an assessment of any damages to natural resources within their jurisdiction as a result of the contamination that is being remediated. The Trustees can seek compensation from responsible parties for such damages, including restoration costs. During the second quarter of 2018, Pepco became aware that the Trustees are in the beginning stages of a Natural Resources Damages (NRD) assessment, a process that often takes many years beyond the remedial decision to complete. Pepco has concluded that a loss associated with the eventual NRD assessment is reasonably possible. Due to the very early stage of the assessment process, Pepco cannot reasonably estimate the range of loss.
Litigation and Regulatory Matters
Asbestos Personal Injury Claims (Exelon and Generation). Generation maintains a reserve for claims associated with asbestos-related personal injury actions in certain facilities that are currently owned by Generation or were previously owned by ComEd and PECO. The estimated liabilities are recorded on an undiscounted basis and exclude the estimated legal costs associated with handling these matters, which could be material.
At December 31, 2020 and 2019, Exelon and Generation recorded estimated liabilities of approximately $89 million and $83 million, respectively, in total for asbestos-related bodily injury claims. As of December 31, 2020, approximately $25 million of this amount related to 261 open claims presented to Generation, while the remaining $64 million is for estimated future asbestos-related bodily injury claims anticipated to arise through 2055, based on actuarial assumptions and analyses, which are updated on an annual basis. On a quarterly
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
basis, Generation monitors actual experience against the number of forecasted claims to be received and expected claim payments and evaluates whether adjustments to the estimated liabilities are necessary.
It is reasonably possible that additional exposure to estimated future asbestos-related bodily injury claims in excess of the amount accrued could have a material, unfavorable impact on Exelon’s and Generation’s financial statements. However, management cannot reasonably estimate a range of loss beyond the amounts recorded.
Fund Transfer Restrictions (All Registrants). Under applicable law, Exelon may borrow or receive an extension of credit from its subsidiaries. Under the terms of Exelon’s intercompany money pool agreement, Exelon can lend to, but not borrow from the money pool.
Under applicable law, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE can pay dividends only from retained, undistributed or current earnings. A significant loss recorded at Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, or ACE may limit the dividends that these companies can distribute to Exelon.
ComEd has agreed in connection with financings arranged through ComEd Financing III that it will not declare dividends on any shares of its capital stock in the event that: (1) it exercises its right to extend the interest payment periods on the subordinated debt securities issued to ComEd Financing III; (2) it defaults on its guarantee of the payment of distributions on the preferred trust securities of ComEd Financing III; or (3) an event of default occurs under the Indenture under which the subordinated debt securities are issued. No such event has occurred.
PECO has agreed in connection with financings arranged through PEC L.P. and PECO Trust IV that PECO will not declare dividends on any shares of its capital stock in the event that: (1) it exercises its right to extend the interest payment periods on the subordinated debentures, which were issued to PEC L.P. or PECO Trust IV; (2) it defaults on its guarantee of the payment of distributions on the Series D Preferred Securities of PEC L.P. or the preferred trust securities of PECO Trust IV; or (3) an event of default occurs under the Indenture under which the subordinated debentures are issued. No such event has occurred.
BGE is subject to restrictions established by the MDPSC that prohibit BGE from paying a dividend on its common shares if (a) after the dividend payment, BGE’s equity ratio would be below 48% as calculated pursuant to the MDPSC’s ratemaking precedents or (b) BGE’s senior unsecured credit rating is rated by two of the three major credit rating agencies below investment grade. No such event has occurred.
Pepco is subject to certain dividend restrictions established by settlements approved in Maryland and the District of Columbia. Pepco is prohibited from paying a dividend on its common shares if (a) after the dividend payment, Pepco's equity ratio would be 48% as equity levels are calculated under the ratemaking precedents of the MDPSC and DCPSC or (b) Pepco’s senior unsecured credit rating is rated by one of the three major credit rating agencies below investment grade. No such event has occurred.
DPL is subject to certain dividend restrictions established by settlements approved in Delaware and Maryland. DPL is prohibited from paying a dividend on its common shares if (a) after the dividend payment, DPL's equity ratio would be 48% as equity levels are calculated under the ratemaking precedents of the DPSC and MDPSC or (b) DPL’s senior unsecured credit rating is rated by one of the three major credit rating agencies below investment grade. No such event has occurred.
ACE is subject to certain dividend restrictions established by settlements approved in New Jersey. ACE is prohibited from paying a dividend on its common shares if (a) after the dividend payment, ACE's equity ratio would be 48% as equity levels are calculated under the ratemaking precedents of the NJBPU or (b) ACE's senior unsecured credit rating is rated by one of the three major credit rating agencies below investment grade. ACE is also subject to a dividend restriction which requires ACE to obtain the prior approval of the NJBPU before dividends can be paid if its equity as a percent of its total capitalization, excluding securitization debt, falls below 30%. No such events have occurred.
City of Everett Tax Increment Financing Agreement (Exelon and Generation). On April 10, 2017, the City of Everett petitioned the Massachusetts Economic Assistance Coordinating Council (EACC) to revoke the 1999 tax increment financing agreement (TIF Agreement) relating to Mystic Units 8 and 9 on the grounds that the total investment in Mystic Units 8 and 9 materially deviates from the investment set forth in the TIF Agreement. On October 31, 2017, a three-member panel of the EACC conducted an administrative hearing on the City’s petition. On November 30, 2017, the hearing panel issued a tentative decision denying the City’s petition, finding that
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
there was no material misrepresentation that would justify revocation of the TIF Agreement. On December 13, 2017, the tentative decision was adopted by the full EACC. On January 12, 2018, the City filed a complaint in Massachusetts Superior Court requesting, among other things, that the court set aside the EACC’s decision, grant the City’s request to decertify the Project and the TIF Agreement, and award the City damages for alleged underpaid taxes over the period of the TIF Agreement. On January 8, 2020, the Massachusetts Superior Court affirmed the decision of the EACC denying the City's petition. The City had until March 9, 2020 to appeal the decision and did not. As a result, the decision is final and the case is resolved. It is reasonably possible that property taxes assessed in future periods, including those following the expiration of the TIF Agreement on June 30, 2020, could be material to Generation’s financial statements.
Deferred Prosecution Agreement (DPA) and Related Matters (Exelon and ComEd). Exelon and ComEd received a grand jury subpoena in the second quarter of 2019 from the U.S. Attorney’s Office for the Northern District of Illinois (USAO) requiring production of information concerning their lobbying activities in the State of Illinois. On October 4, 2019, Exelon and ComEd received a second grand jury subpoena from the USAO requiring production of records of any communications with certain individuals and entities. On October 22, 2019, the SEC notified Exelon and ComEd that it had also opened an investigation into their lobbying activities. On July 17, 2020, ComEd entered into a DPA with the USAO to resolve the USAO investigation. Under the DPA, the USAO filed a single charge alleging that ComEd improperly gave and offered to give jobs, vendor subcontracts, and payments associated with those jobs and subcontracts for the benefit of the Speaker of the Illinois House of Representatives and the Speaker’s associates, with the intent to influence the Speaker’s action regarding legislation affecting ComEd’s interests. The DPA provides that the USAO will defer any prosecution of such charge and any other criminal or civil case against ComEd in connection with the matters identified therein for a three-year period subject to certain obligations of ComEd, including payment to the U.S. Treasury of $200 million, with $100 million payable within thirty days of the filing of the DPA with the United States District Court for the Northern District of Illinois and an additional $100 million within ninety days of such filing date. The payments were recorded within Operating and maintenance expense in Exelon’s and ComEd’s Consolidated Statements of Operations and Comprehensive Income in the second quarter of 2020. The payments will not be recovered in rates or charged to customers and ComEd will not seek or accept reimbursement or indemnification from any source other than Exelon. Exelon made equity contributions to ComEd of $200 million in 2020. On August 13, 2020, a motion was filed in the U.S. District Court for the Northern District of Illinois by a ComEd customer and on behalf of ComEd customers seeking to enjoin ComEd from paying these funds to the U.S. Treasury and requiring the U.S. government to establish a victims’ restitution fund from which the $200 million would be disbursed to ComEd customers. The motion was denied without prejudice on November 6, 2020 and ComEd submitted the $200 million payment to the U.S. Treasury. On January 6, 2021, the customer petitioned the Seventh Circuit for a writ of mandamus to seek review of the district court’s ruling, but on January 8, 2021, the Seventh Circuit denied the petition. On January 22, 2021, the customer petitioned the Seventh Circuit for rehearing of its denial of his petition for a writ of mandamus. On February 5, 2021, the Seventh Circuit denied the petition for rehearing.
Exelon was not made a party to the DPA, and therefore the investigation by the USAO into Exelon’s activities ended with no charges being brought against Exelon.
The SEC’s investigation remains ongoing and Exelon and ComEd have cooperated fully and intend to continue to cooperate fully with the SEC. Exelon and ComEd cannot predict the outcome of the SEC investigation. No loss contingency has been reflected in Exelon's and ComEd's consolidated financial statements with respect to the SEC investigation, as this contingency is neither probable nor reasonably estimable at this time.
Subsequent to Exelon announcing the receipt of the subpoenas, various lawsuits have been filed and various demand letters have been received related to the subject of the subpoenas, the conduct described in the DPA and the SEC's investigation, including:
•A putative class action lawsuit against Exelon and certain officers of Exelon and ComEd was filed in federal court in December 2019 alleging misrepresentations and omissions in Exelon’s SEC filings related to ComEd’s lobbying activities and the related investigations. The complaint was amended on September 16, 2020, to dismiss two of the original defendants and add other defendants, including ComEd. Defendants filed a motion to dismiss in November 2020. Briefing was completed on February 17, 2021.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 19 - Commitments and Contingencies
•A derivative shareholder lawsuit was filed against Exelon, its directors and certain officers of Exelon and ComEd in April 2020 alleging, among other things, breaches of fiduciary duties also purporting to relate to matters that are the subject of the subpoenas and the SEC investigation. The plaintiff voluntarily dismissed this derivative action without prejudice to refile on July 28, 2020.
•Three putative class action lawsuits against ComEd and Exelon were filed in Illinois state court in the third quarter of 2020 seeking restitution and compensatory damages on behalf of ComEd customers. These three state cases were consolidated into a single action in October of 2020. In addition, on November 2, 2020, the Citizens Utility Board (CUB) filed a motion to intervene in the state cases pursuant to an Illinois statute allowing CUB to intervene as a party or otherwise participate on behalf of utility consumers in any proceeding which affects the interest of utility consumers. On November 23, 2020, the court allowed CUB’s intervention, but denied CUB’s request to stay these cases. Plaintiffs subsequently filed a consolidated complaint, and ComEd and Exelon filed a motion to dismiss on jurisdictional and substantive grounds on January 11, 2021. Briefing on that motion is ongoing.
•Four putative class action lawsuits against ComEd and Exelon were filed in federal court in the third quarter of 2020 alleging, among other things, civil violations of federal racketeering laws. In addition, CUB filed a motion to intervene in these cases on October 22, 2020 which was granted on December 23, 2020. In addition, on December 2, 2020, the court appointed interim lead plaintiffs in the federal cases which consisted of counsel for three of the four federal cases. These plaintiffs filed a consolidated complaint on January 5, 2021. CUB also filed its own complaint against ComEd only on the same day. The remaining federal case, Potter, et al. v. Exelon et al, differed from the other lawsuits as it named additional individual defendants not named in the consolidated complaint. On January 10, 2021, the Potter plaintiffs filed a motion asking the court to clarify that their class action complaint against ComEd, Exelon and the individual named defendants remains in effect, notwithstanding the consolidated amended complaint, and asked the court to stay the Potter case. On January 21, 2021, the court determined that the appointed lead counsel had sole discretion to determine which parties to name as plaintiffs and defendants, and that the Potter plaintiffs have the option to opt-out of that class and file a separate, individual action against the defendants named in their original complaint. The Potter plaintiffs have until March 23, 2021 to make that decision.
•Four shareholders sent letters to the Exelon Board of Directors in 2020 demanding, among other things, that the Exelon Board of Directors investigate and address alleged breaches of fiduciary duties and other alleged violations by Exelon and ComEd officers and directors related to the conduct described in the DPA.
No loss contingencies have been reflected in Exelon’s and ComEd’s consolidated financial statements with respect to these matters, as such contingencies are neither probable nor reasonably estimable at this time.
General (All Registrants). The Registrants are involved in various other litigation matters that are being defended and handled in the ordinary course of business. The assessment of whether a loss is probable or reasonably possible, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. The Registrants maintain accruals for such losses that are probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of reasonably possible loss, particularly where (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.
20. Shareholders' Equity (Exelon and Utility Registrants)
ComEd Common Stock Warrants
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 20 - Shareholders' Equity
The following table presents warrants outstanding to purchase ComEd common stock and shares of common stock reserved for the conversion of warrants. The warrants entitle the holders to convert such warrants into common stock of ComEd at a conversion rate of one share of common stock for three warrants.
Share Repurchases
There currently is no Exelon Board of Director authority to repurchase shares. Any previous shares repurchased are held as treasury shares, at cost, unless cancelled or reissued at the discretion of Exelon’s management.
Preferred and Preference Securities
The following table presents Exelon, ComEd, PECO, BGE, Pepco, and ACE's shares of preferred securities authorized, none of which were outstanding as of December 31, 2020 and 2019. There are no shares of preferred securities authorized for DPL.
__________
(a)Includes 799,979 shares of cumulative preferred stock and 2,000,000 of no-par preferred stock as of December 31, 2020 and 2019.
The following table presents ComEd's, BGE's, and ACE's preference securities authorized, none of which were outstanding as of December 31, 2020 and 2019. There are no shares of preference securities authorized for Exelon, PECO, Pepco, and DPL.
__________
(a)Includes 4,600,000 shares of unclassified preference securities and 1,900,000 shares of previously redeemed preference securities as of December 31, 2020 and 2019.
21. Stock-Based Compensation Plans (All Registrants)
Stock-Based Compensation Plans
Exelon grants stock-based awards through its LTIP, which primarily includes performance share awards, restricted stock units, and stock options. At December 31, 2020, there were approximately 34 million shares authorized for issuance under the LTIP. For the years ended December 31, 2020, 2019, and 2018, exercised and distributed stock-based awards were primarily issued from authorized but unissued common stock shares.
The Registrants grant cash awards. The following table does not include expense related to these plans as they are not considered stock-based compensation plans under the applicable authoritative guidance.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 21 - Stock-Based Compensation Plans
The following table presents the stock-based compensation expense included in Exelon's and Generation's Consolidated Statements of Operations and Comprehensive Income. The Utility Registrants' stock-based compensation expense for the years ended December 31, 2020, 2019, and 2018 was not material.
Exelon receives a tax deduction based on the intrinsic value of the award on the exercise date for stock options and the distribution date for performance share awards and restricted stock units. For each award, throughout the requisite service period, Exelon recognizes the tax benefit related to compensation costs. The following table presents information regarding Exelon’s realized tax benefit when distributed:
Performance Share Awards
Performance share awards are granted under the LTIP. The performance share awards are settled 50% in common stock and 50% in cash at the end of the three-year performance period, except for awards granted to vice presidents and higher officers that are settled 100% in cash if certain ownership requirements are satisfied.
The common stock portion of the performance share awards is considered an equity award and is valued based on Exelon's stock price on the grant date. The cash portion of the performance share awards is considered a liability award which is remeasured each reporting period based on Exelon’s current stock price. As the value of the common stock and cash portions of the awards are based on Exelon’s stock price during the performance period, coupled with changes in the total shareholder return modifier and expected payout of the award, the compensation costs are subject to volatility until payout is established.
For nonretirement-eligible employees, stock-based compensation costs are recognized over the vesting period of three years using the straight-line method. For performance share awards granted to retirement-eligible employees, the value of the performance shares is recognized ratably over the vesting period, which is the year of grant.
Exelon processes forfeitures as they occur for employees who do not complete the requisite service period.
The following table summarizes Exelon’s nonvested performance share awards activity:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 21 - Stock-Based Compensation Plans
__________
(a)Excludes 1,414,661 and 2,017,870 of performance share awards issued to retirement-eligible employees as of December 31, 2020 and 2019, respectively, as they are fully vested.
(b)Represents performance share awards that vested but were not distributed to retirement-eligible employees during 2020.
The following table summarizes the weighted average grant date fair value and the total fair value of performance share awards vested.
__________
(a)As of December 31, 2020, $13 million of total unrecognized compensation costs related to nonvested performance shares are expected to be recognized over the remaining weighted-average period of 1.8 years.
Restricted Stock Units
Restricted stock units are granted under the LTIP with the majority being settled in a specific number of shares of common stock after the service condition has been met. The corresponding cost of services is measured based on the grant date fair value of the restricted stock unit issued.
The value of the restricted stock units is expensed over the requisite service period using the straight-line method. The requisite service period for restricted stock units is generally three to five years. However, certain restricted stock unit awards become fully vested upon the employee reaching retirement-eligibility. The value of the restricted stock units granted to retirement-eligible employees is either recognized ratably over the first six months in the year of grant if the employee reaches retirement eligibility prior to July 1st of the grant year or through the date of which the employee reaches retirement eligibility. Exelon processes forfeitures as they occur for employees who do not complete the requisite service period.
The following table summarizes Exelon’s nonvested restricted stock unit activity:
__________
(a)Excludes 748,165 and 863,196 of restricted stock units issued to retirement-eligible employees as of December 31, 2020 and 2019, respectively, as they are fully vested.
(b)Represents restricted stock units that vested but were not distributed to retirement-eligible employees during 2020.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 21 - Stock-Based Compensation Plans
The following table summarizes the weighted average grant date fair value and the total fair value of restricted stock units vested.
__________
(a)As of December 31, 2020, $23 million of total unrecognized compensation costs related to nonvested restricted stock units are expected to be recognized over the remaining weighted-average period of 2.3 years.
Stock Options
Non-qualified stock options to purchase shares of Exelon’s common stock were granted through 2012 under the LTIP. The exercise price of the stock options is equal to the fair market value of the underlying stock on the date of option grant. Stock options will expire no later than ten years from the date of grant.
At December 31, 2020 all stock options were vested and there were no unrecognized compensation costs.
The following table presents information with respect to stock option activity:
__________
(a)Includes stock options issued to retirement eligible employees.
The following table summarizes additional information regarding stock options exercised:
__________
(a)The difference between the market value on the date of exercise and the option exercise price.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 22 - Changes in Accumulated Other Comprehensive Income
22. Changes in Accumulated Other Comprehensive Income (Exelon)
The following tables present changes in Exelon's AOCI, net of tax, by component:
__________
(a)This AOCI component is included in the computation of net periodic pension and OPEB cost. See Note 15 - Retirement Benefits for additional information. See Exelon's Statements of Operations and Comprehensive Income for individual components of AOCI.
(b)All amounts are net of noncontrolling interests.
(c)Exelon adopted the new standard Recognition and Measurement of Financial Assets and Financial Liabilities. The standard was adopted as of January 1, 2018, which resulted in an increase to Retained earnings and Accumulated other comprehensive loss of $10 million for Exelon. The amounts reclassified related to Rabbi Trusts.
The following table presents income tax benefit (expense) allocated to each component of Exelon's other comprehensive income (loss):
23. Variable Interest Entities (Exelon, Generation, PHI, and ACE)
At December 31, 2020 and 2019, Exelon, Generation, PHI, and ACE collectively consolidated several VIEs or VIE groups for which the applicable Registrant was the primary beneficiary (see Consolidated VIEs below) and had significant interests in several other VIEs for which the applicable Registrant does not have the power to direct the entities’ activities and, accordingly, was not the primary beneficiary (see Unconsolidated VIEs below). Consolidated and unconsolidated VIEs are aggregated to the extent that the entities have similar risk profiles.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 23 - Variable Interest Entities
Consolidated VIEs
The table below shows the carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the consolidated financial statements of Exelon, Generation, PHI, and ACE as of December 31, 2020 and 2019. The assets, except as noted in the footnotes to the table below, can only be used to settle obligations of the VIEs. The liabilities, except as noted in the footnotes to the table below, are such that creditors, or beneficiaries, do not have recourse to the general credit of Exelon, Generation, PHI, and ACE.
__________
(a)Includes certain purchase accounting adjustments from the PHI merger not pushed down to ACE.
(b)Generation entered into an agreement for the sale of a significant portion of Generation's solar business. As a result of this transaction, in the fourth quarter of 2020, Exelon and Generation reclassified the consolidated VIEs' solar assets and
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 23 - Variable Interest Entities
liabilities as held for sale. Refer to Note 2 - Mergers, Acquisitions, and Dispositions for additional information on the sale of the solar business.
(c)Exelon's and Generation's balances include unrestricted assets for current unamortized energy contract assets of $22 million and $23 million, Property, plant, and equipment of $1 million and $20 million, non-current unamortized energy contract assets of $249 million and $250 million, and Assets held for sale of $9 million and $0 million as of December 31, 2020 and 2019, respectively.
(d)Exelon's and Generation's balances include liabilities with recourse of $8 million and $3 million as of December 31, 2020 and 2019, respectively.
As of December 31, 2020 and 2019, Exelon's and Generation's consolidated VIEs consist of:
CENG - On April 1, 2014, Generation, CENG, and subsidiaries of CENG executed the NOSA pursuant to which Generation conducts all activities associated with the operations of the CENG fleet and provides corporate and administrative services to CENG and the CENG fleet for the remaining life of the CENG nuclear plants as if they were a part of the Generation nuclear fleet, subject to the CENG member rights of EDF.
EDF has the option to sell its 49.99% equity interest in CENG to Generation. On November 20, 2019, Generation received notice of EDF's intention to exercise the put option to sell its interest in CENG to Generation and the put automatically exercised on January 19, 2020. Refer to Note 2 - Mergers, Acquisitions, and Dispositions for additional information.
Exelon and Generation, where indicated, provide the following support to CENG:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 23 - Variable Interest Entities
•Generation executed an Indemnity Agreement pursuant to which Generation agreed to indemnify EDF against third-party claims that may arise from any future nuclear incident (as defined in the Price-Anderson Act) in connection with the CENG nuclear plants or their operations. Exelon guarantees Generation’s obligations under this Indemnity Agreement. See Note 19 - Commitments and Contingencies for more details,
•Generation and EDF share in the $688 million of contingent payment obligations for the payment of contingent retrospective premium adjustments for the nuclear liability insurance, and
•Exelon has executed an agreement to provide up to $245 million to support the operations of CENG as well as a $165 million guarantee of CENG’s cash pooling agreement with its subsidiaries.
EGRP - EGRP is a collection of wind and solar project entities and some of these project entities are VIEs that are consolidated by EGRP. Generation owns a number of limited liability companies that build, own, and operate solar and wind power facilities some of which are owned by EGRP. While Generation or EGRP owns 100% of the solar entities and 100% of the majority of the wind entities, it has been determined that certain of the solar and wind entities are VIEs because the entities require additional subordinated financial support in the form of a parental guarantee of debt, loans from the customers in order to obtain the necessary funds for construction of the solar facilities, or the customers absorb price variability from the entities through the fixed price power and/or REC purchase agreements. Generation is the primary beneficiary of these solar and wind entities that qualify as VIEs because Generation controls the design, construction, and operation of the facilities. There is limited recourse to Generation related to certain solar and wind entities.
In 2017, Generation’s interests in EGRP were contributed to and are pledged for the EGR IV non-recourse debt project financing structure. Refer to Note 17 - Debt and Credit Agreements for additional information.
As of December 31, 2020 and 2019, Exelon's, PHI's and ACE's consolidated VIE consists of:
Unconsolidated VIEs
Exelon’s and Generation’s variable interests in unconsolidated VIEs generally include equity investments and energy purchase and sale contracts. For the equity investments, the carrying amount of the investments is reflected in Exelon’s and Generation’s Consolidated Balance Sheets in Investments. For the energy purchase and sale contracts (commercial agreements), the carrying amount of assets and liabilities in Exelon’s and Generation’s Consolidated Balance Sheets that relate to their involvement with the VIEs are predominately related to working capital accounts and generally represent the amounts owed by, or owed to, Exelon and Generation for the deliveries associated with the current billing cycles under the commercial agreements.
As of December 31, 2020 and 2019, Exelon and Generation had significant unconsolidated variable interests in several VIEs for which Exelon or Generation, as applicable, was not the primary beneficiary. These interests include certain equity method investments and certain commercial agreements.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 23 - Variable Interest Entities
The following table presents summary information about Exelon's and Generation’s significant unconsolidated VIE entities:
__________
(a)These items represent amounts on the unconsolidated VIE balance sheets, not in Exelon’s or Generation’s Consolidated Balance Sheets. These items are included to provide information regarding the relative size of the unconsolidated VIEs. Exelon and Generation do not have any exposure to loss as they do not have a carrying amount in the equity investment VIEs as of December 31, 2020 and 2019.
As of December 31, 2020 and 2019, Exelon's and Generation's unconsolidated VIEs consist of:
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 24 - Supplemental Financial Information
24. Supplemental Financial Information (All Registrants)
Supplemental Statement of Operations Information
The following tables provide additional information about material items recorded in the Registrants' Consolidated Statements of Operations and Comprehensive Income.
__________
(a)Generation’s utility tax represents gross receipts tax related to its retail operations, and the Utility Registrants’ utility taxes represents municipal and state utility taxes and gross receipts taxes related to their operating revenues. The offsetting collection of utility taxes from customers is recorded in revenues in the Registrants’ Consolidated Statements of Operations and Comprehensive Income.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 24 - Supplemental Financial Information
__________
(a)Realized income includes interest, dividends, and realized gains and losses on sales of NDT fund investments.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 24 - Supplemental Financial Information
(b)Includes the elimination of decommissioning-related activities for the Regulatory Agreement Units, including the elimination of income taxes related to all NDT fund activity for those units. See Note 10 - Asset Retirement Obligations for additional information regarding the accounting for nuclear decommissioning.
(c)Unrealized gains resulting from equity investments without readily determinable fair values that became publicly traded entities in the fourth quarter of 2020 and were fair valued based on quoted market prices of the stocks as of December 31, 2020.
Supplemental Cash Flow Information
The following tables provide additional information about material items recorded in the Registrants' Consolidated Statements of Cash Flows.
__________
(a)Included in Depreciation and amortization in the Registrants' Consolidated Statements of Operations and Comprehensive Income.
(b)Included in Operating revenues or Purchased power and fuel expense in the Registrants’ Consolidated Statements of Operations and Comprehensive Income.
(c)Included in Purchased power and fuel expense in the Registrants’ Consolidated Statements of Operations and Comprehensive Income.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 24 - Supplemental Financial Information
(d)Included in Operating and maintenance expense in the Registrants’ Consolidated Statements of Operations and Comprehensive Income.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 24 - Supplemental Financial Information
__________
(a)Includes the elimination of decommissioning-related activities for the Regulatory Agreement Units, including the elimination of operating revenues, ARO updates and accretion, ARC amortization, investment income, and income taxes related to all NDT fund activity for these units. See Note 10 - Asset Retirement Obligations for additional information regarding the accounting for nuclear decommissioning.
(b)Includes option premiums reclassified to realized at the settlement of the underlying contracts and recorded to results of operations.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 24 - Supplemental Financial Information
(c)For ComEd, reflects the true-up adjustments in regulatory assets and liabilities associated with its distribution, energy efficiency, distributed generation, and transmission formula rates. For BGE, Pepco, and DPL, reflects the change in regulatory assets and liabilities associated with their decoupling mechanisms and transmission formula rates. For PECO and ACE, reflects the change in regulatory assets and liabilities associated with their transmission formula rates. See Note 3 - Regulatory Matters for additional information.
(d)For ComEd, reflects the true-up adjustments in regulatory assets and liabilities associated with its distribution and energy efficiency formula rates. For Pepco and DPL, reflects the change in regulatory assets and liabilities associated with their decoupling mechanisms. See Note 3 - Regulatory Matters for additional information.
The following tables provide a reconciliation of cash, restricted cash, and cash equivalents reported within the Registrants' Consolidated Balance Sheets that sum to the total of the same amounts in their Consolidated Statements of Cash Flows.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 24 - Supplemental Financial Information
Supplemental Balance Sheet Information
The following tables provide additional information about material items recorded in the Registrants' Consolidated Balance Sheets.
__________
(a)The Registrants’ debt and equity security investments are recorded at fair market value.
__________
(a)Primarily includes accrued payroll, bonuses and other incentives, vacation, and benefits.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 25 - Related Party Transactions
25. Related Party Transactions (All Registrants)
Operating revenues from affiliates
Generation
The following table presents Generation’s Operating revenues from affiliates, which are primarily recorded as Purchased power from affiliates and an immaterial amount recorded as Operating and maintenance expense from affiliates at the Utility Registrants:
__________
(a)Generation has an ICC-approved RFP contract with ComEd to provide a portion of ComEd’s electricity supply requirements. Generation also sells RECs and ZECs to ComEd.
(b)For 2020, ComEd’s Purchased power from Generation of $345 million is recorded as Operating revenues from ComEd of $330 million and Purchased power and fuel from ComEd of $15 million at Generation. For 2019, ComEd’s Purchased power from Generation of $376 million is recorded as Operating revenues from ComEd of $369 million and Purchased power and fuel from ComEd of $7 million at Generation.
(c)Generation provides electric supply to PECO under contracts executed through PECO’s competitive procurement process. In addition, Generation has a ten-year agreement with PECO to sell solar AECs.
(d)Generation provides a portion of BGE’s energy requirements under its MDPSC-approved market-based SOS and gas commodity programs.
(e)Generation provides electric supply to Pepco under contracts executed through Pepco's competitive procurement process approved by the MDPSC and DCPSC.
(f)Generation provides a portion of DPL's energy requirements under its MDPSC and DPSC approved market based SOS commodity programs.
(g)Generation provides electric supply to ACE under contracts executed through ACE's competitive procurement process.
PHI
PHI’s Operating revenues from affiliates are primarily with BSC for services that PHISCO provides to BSC.
Operating and maintenance expense from affiliates
The Registrants receive a variety of corporate support services from BSC. Pepco, DPL, and ACE also receive corporate support services from PHISCO. See Note 1 - Significant Accounting Policies for additional information regarding BSC and PHISCO.
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 25 - Related Party Transactions
The following table presents the service company costs allocated to the Registrants:
Current Receivables from/Payables to affiliates
The following tables present current receivables from affiliates and current payables to affiliates:
December 31, 2020
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 25 - Related Party Transactions
December 31, 2019
__________
(a)At December 31, 2020 and 2019, Generation also had a contract liability with ComEd for $50 million and $37 million, respectively, that was included in Other liabilities on Generation’s Consolidated Balance Sheets. At December 31, 2020 and 2019, ComEd had a Current Payable to Generation of $28 million and $41 million, respectively, on its Consolidated Balance Sheets, which consisted of Generation’s Current Receivable from ComEd, partially offset by Generation’s contract liability with ComEd.
Borrowings from Exelon/PHI intercompany money pool
To provide an additional short-term borrowing option that will generally be more favorable to the borrowing participants than the cost of external financing both Exelon and PHI operate an intercompany money pool. Generation, ComEd, PECO, and PHI Corporate participate in the Exelon money pool. Pepco, DPL, and ACE participate in the PHI intercompany money pool.
Noncurrent Receivables from/Payables to affiliates
Generation has long-term payables to ComEd and PECO as a result of the nuclear decommissioning contractual construct whereby, to the extent NDT funds are greater than the underlying ARO at the end of decommissioning, such amounts are due back to ComEd and PECO, as applicable, for payment to their respective customers. See Note 10 - Asset Retirement Obligations for additional information.
The following table presents noncurrent receivables from affiliates at ComEd and PECO which are recorded as noncurrent payables to affiliates at Generation:
Long-term debt to financing trusts
The following table presents Long-term debt to financing trusts:
Long-term debt to affiliates
Combined Notes to Consolidated Financial Statements
(Dollars in millions, except per share data unless otherwise noted)
Note 25 - Related Party Transactions
In connection with the debt obligations assumed by Exelon as part of the Constellation merger, Exelon and subsidiaries of Generation (former Constellation subsidiaries) assumed intercompany loan agreements that mirror the terms and amounts of the third-party debt obligations of Exelon, resulting in intercompany notes payable included in Long-term debt to affiliates in Generation’s Consolidated Balance Sheets and intercompany notes receivable at Exelon Corporate.
26. Subsequent Events (Exelon and Generation)
Planned Separation
On February 21, 2021, Exelon’s Board of Directors approved a plan to separate the Utility Registrants and Generation, creating two publicly traded companies. Under the separation plan, Exelon shareholders will retain their current shares of Exelon stock and receive a pro-rata distribution of shares of the new company’s stock in a transaction that is expected to be tax-free to Exelon and its shareholders for U.S. federal income tax purposes. The actual number of shares to be distributed to Exelon shareholders will be determined prior to closing.
Exelon is targeting to complete the separation in the first quarter of 2022, subject to final approval by Exelon’s Board of Directors, a Form 10 registration statement being declared effective by the SEC, regulatory approvals, and satisfaction of other conditions. The transaction is subject to approval by the FERC, NRC, and NYPSC, and receipt of a private letter ruling from the IRS and tax opinion from Exelon’s tax advisors. There can be no assurance that any separation transaction will ultimately occur or, if one does occur, of its terms or timing.
Impacts of February 2021 Weather Events and Texas-based Generating Assets Outages
Beginning on February 15, 2021, Generation’s Texas-based generating assets within the ERCOT market, specifically Colorado Bend II, Wolf Hollow II, and Handley, experienced periodic outages as a result of historically severe cold weather conditions. In addition, those weather conditions drove increased demand for service, limited the availability of natural gas to fuel power plants, dramatically increased wholesale power prices, and also increased gas prices in certain regions. In response to the high demand and significantly reduced total generation on the system, ERCOT implemented load reductions to maintain the reliability of the grid and required the use of an administrative price cap of $9,000 per megawatt hour during load shedding events.
Exelon and Generation estimate the impact to their Net income for the first quarter of 2021 arising from these market and weather conditions to be approximately $560 million to $710 million. The estimated impact includes favorable results in certain regions within Generation’s wholesale gas business. The ultimate impact to Exelon’s and Generation’s consolidated financial statements may be affected by a number of factors, including final settlement data, the impacts of customer and counterparty credit losses, any state sponsored solutions to address the financial challenges caused by the event, and litigation and contract disputes which may result.
Generation used a combination of commercial paper and letters of credit to manage collateral needs and has posted approximately $1.4 billion of collateral with ERCOT as of February 22, 2021. Generation continues to believe it has sufficient cash on hand and available capacity on its revolver, which was $2.4 billion as of February 22, 2021, to meet its liquidity requirements.
ITEM 9.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
All Registrants
None.
ITEM 9A.
ITEM 9A.CONTROLS AND PROCEDURES
All Registrants-Disclosure Controls and Procedures
During the fourth quarter of 2020, each registrant’s management, including its principal executive officer and principal financial officer, evaluated the effectiveness of that registrant’s disclosure controls and procedures
related to the recording, processing, summarizing, and reporting of information in that registrant’s periodic reports that it files with the SEC. These disclosure controls and procedures have been designed by each registrant to ensure that (a) information relating to that registrant, including its consolidated subsidiaries, that is required to be included in filings under the Securities Exchange Act of 1934, is accumulated and made known to that registrant’s management, including its principal executive officer and principal financial officer, by other employees of that registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and (b) this information is recorded, processed, summarized, evaluated, and reported, as applicable, within the time periods specified in the SEC’s rules and forms. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people.
Accordingly, as of December 31, 2020, the principal executive officer and principal financial officer of each registrant concluded that such registrant’s disclosure controls and procedures were effective to accomplish their objectives.
All Registrants-Changes in Internal Control Over Financial Reporting
Each registrant continually strives to improve its disclosure controls and procedures to enhance the quality of its financial reporting and to maintain dynamic systems that change as conditions warrant. However, there have been no changes in internal control over financial reporting that occurred during the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, any of the Registrant's internal control over financial reporting, including no changes resulting from COVID-19. See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Executive Overview for additional information on COVID-19.
All Registrants-Internal Control Over Financial Reporting
Management is required to assess and report on the effectiveness of its internal control over financial reporting as of December 31, 2020. As a result of that assessment, management determined that there were no material weaknesses as of December 31, 2020 and, therefore, concluded that each registrant’s internal control over financial reporting was effective. Management’s Report on Internal Control Over Financial Reporting is included in ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
ITEM 9B.
ITEM 9B.OTHER INFORMATION
All Registrants
On February 22, 2021, ComEd adopted Amended and Restated Bylaws to amend the standard for independent directors.
PART III
Exelon Generation Company, LLC, PECO Energy Company, Baltimore Gas and Electric Company, Pepco Holdings LLC, Potomac Electric Power Company, Delmarva Power & Light Company, and Atlantic City Electric Company meet the conditions set forth in General Instruction I(1)(a) and (b) of Form 10-K for a reduced disclosure format. Accordingly, all items in this section relating to Generation, PECO, BGE, PHI, Pepco, DPL, and ACE are not presented.
ITEM 10.
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Executive Officers
The information required by ITEM 10 relating to executive officers is set forth above in ITEM 1. BUSINESS-Executive officers of the Registrants at February 24, 2021.
Directors, Director Nomination Process and Audit Committee
The information required under ITEM 10 concerning directors and nominees for election as directors at the annual meeting of shareholders (Item 401 of Regulation S-K), the director nomination process (Item 407(c)(3)), the audit committee (Item 407(d)(4) and (d)(5)), and the beneficial reporting compliance (Sec. 16(a)) is incorporated herein by reference to information to be contained in Exelon’s definitive 2021 proxy statement (2021 Exelon Proxy Statement) and the ComEd information statement (2021 ComEd Information Statement) to be filed with the SEC on or before April 30, 2021 pursuant to Regulation 14A or 14C, as applicable, under the Securities Exchange Act of 1934.
Code of Ethics
Exelon’s Code of Business Conduct is the code of ethics that applies to Exelon’s and ComEd’s Chief Executive Officer, Chief Financial Officer, Corporate Controller, and other finance organization employees. The Code of Business Conduct is filed as Exhibit 14 to this report and is available on Exelon’s website at www.exeloncorp.com. The Code of Business Conduct will be made available, without charge, in print to any shareholder who requests such document from Carter C. Culver, Senior Vice President and Deputy General Counsel, Exelon Corporation, P.O. Box 805398, Chicago, Illinois 60680-5398.
If any substantive amendments to the Code of Business Conduct are made or any waivers are granted, including any implicit waiver, from a provision of the Code of Business Conduct, to its Chief Executive Officer, Chief Financial Officer or Corporate Controller, Exelon will disclose the nature of such amendment or waiver on Exelon’s website, www.exeloncorp.com, or in a report on Form 8-K.
The information required by this item will be set forth under Executive Compensation Data and Report of the Compensation Committee in the Exelon Proxy Statement for the 2021 Annual Meeting of Shareholders or the ComEd 2021 Information Statement, which are incorporated herein by reference.
ITEM 12.
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The additional information required by this item will be set forth under Ownership of Exelon Stock in the 2021 Exelon Proxy Statement or the ComEd 2021 Information Statement and incorporated herein by reference.
Securities Authorized for Issuance under Exelon Equity Compensation Plans
__________
(1)Balance includes stock options, unvested performance shares, and unvested restricted stock units that were granted under the Exelon LTIP or predecessor company plans (including shares awarded under those plans and deferred into the stock deferral plan) and deferred stock units granted to directors as part of their compensation. Unvested performance shares are subject to performance metrics and to a total shareholder return modifier. Additionally, pursuant to the terms of the Exelon LTIP plan, 50% of final payouts are made in the form of shares of common stock and 50% is made in form of in cash, or if the participant has exceeded 200% of their stock ownership requirement, 100% of the final payout is made in cash. For performance shares granted in 2018, 2019, and 2020, the total includes the maximum number of shares that could be issued assuming all participants receive 50% of payouts in shares and assuming the performance and total shareholder return modifier metrics were both at maximum, representing best case performance, for a total of 6,988,082 shares. If the performance and total shareholder return modifier metrics were at "target", the number of securities to be issued for such awards would be 3,494,041. The balance also includes 450,154 shares to be issued upon the conversion of deferred stock units awarded to members of the Exelon board of directors. Conversion of the deferred stock units to shares of common stock occurs after a director terminates service to the Exelon board or the board of any of its subsidiary companies. See Note 21 - Stock-Based Compensation Plans of the Combined Notes to Consolidated Financial Statements for additional information about the material features of the plans.
(2)The weighted-average price reported in column B does not take the performance shares and shares credited to deferred compensation plans into account.
(3)Includes 15,229,957 shares remaining available for issuance from the employee stock purchase plan and 4,729,509 shares remaining available for issuance to former Constellation employees with outstanding awards made under the prior Constellation LTIP.
No ComEd securities are authorized for issuance under equity compensation plans.
ITEM 13.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The additional information required by this item will be set forth under Related Persons Transactions and Director Independence in the Exelon Proxy Statement for the 2021 Annual Meeting of Shareholders or the ComEd 2021 Information Statement, which are incorporated herein by reference.
ITEM 14.
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item will be set forth under The Ratification of PricewaterhouseCoopers LLP as Exelon’s Independent Accountant for 2021 in the Exelon Proxy Statement for the 2021 Annual Meeting of Shareholders and the ComEd 2021 Information Statement, which are incorporated herein by reference.
PART IV
ITEM 15.
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)The following documents are filed as a part of this report:
(1) Exelon
Exelon Corporation and Subsidiary Companies
Schedule I - Condensed Financial Information of Parent (Exelon Corporate)
Condensed Statements of Operations and Other Comprehensive Income
See the Notes to Financial Statements
Exelon Corporation and Subsidiary Companies
Schedule I - Condensed Financial Information of Parent (Exelon Corporate)
Condensed Statements of Cash Flows
See the Notes to Financial Statements
Exelon Corporation and Subsidiary Companies
Schedule I - Condensed Financial Information of Parent (Exelon Corporate)
Condensed Balance Sheets
See the Notes to Financial Statements
Exelon Corporation and Subsidiary Companies
Schedule I - Condensed Financial Information of Parent (Exelon Corporate)
Condensed Balance Sheets
See the Notes to Financial Statements
Exelon Corporation and Subsidiary Companies
Schedule I - Condensed Financial Information of Parent (Exelon Corporate)
Notes to Financial Statements
1. Basis of Presentation
Exelon Corporate is a holding company that conducts substantially all of its business operations through its subsidiaries. These condensed financial statements and related footnotes have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X. These statements should be read in conjunction with the consolidated financial statements and notes thereto of Exelon Corporation.
Exelon Corporate owns 100% of all of its significant subsidiaries, either directly or indirectly, except for Commonwealth Edison Company (ComEd), of which Exelon Corporate owns more than 99%.
2. Debt and Credit Agreements
Short-Term Borrowings
Exelon Corporate meets its short-term liquidity requirements primarily through the issuance of commercial paper. Exelon Corporate had no outstanding commercial paper borrowings and $136 million at December 31, 2020 and 2019, respectively.
Short-Term Loan Agreements
On March 23, 2017, Exelon Corporate entered into a 12-month term loan agreement for $500 million, which was renewed annually on March 22, 2018, March 20, 2019, and March 19, 2020, respectively. The loan agreement will expire on March 18, 2021. Pursuant to the loan agreement, as of December 31, 2020, loans made thereunder bear interest at a variable rate equal to LIBOR plus 0.65% and all indebtedness thereunder is unsecured. The loans beared interest at LIBOR plus 0.95% as of December 31, 2019 as part of the March 20, 2019 renewal. The loan agreement is reflected in Exelon’s Consolidated Balance Sheet within Short-Term borrowings.
Revolving Credit Agreements
On May 26, 2018, Exelon Corporate's syndicated revolving credit facility of $600 million had its maturity date extended to May 26, 2023. As of December 31, 2020, Exelon Corporation had available capacity under those commitments of $594 million. See Note 17-Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements for additional information regarding Exelon Corporation’s credit agreement.
On April 24, 2020, Exelon Corporate entered into a credit agreement establishing a $550 million 364-day revolving credit facility at a variable interest rate of LIBOR plus 1.75%. This facility will be used by Exelon as an additional source of short-term liquidity as needed.
Exelon Corporation and Subsidiary Companies
Schedule I - Condensed Financial Information of Parent (Exelon Corporate)
Notes to Financial Statements
Long-Term Debt
The following tables present the outstanding long-term debt for Exelon Corporate as of December 31, 2020 and December 31, 2019:
__________
(a)Senior unsecured notes include mirror debt that is held on both Generation and Exelon Corporation's balance sheets.
The debt maturities for Exelon Corporate for the periods 2021, 2022, 2023, 2024, 2025, and thereafter are as follows:
3. Commitments and Contingencies
See Note 19-Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements for Exelon Corporate’s commitments and contingencies related to environmental matters and fund transfer restrictions.
Exelon Corporation and Subsidiary Companies
Schedule I - Condensed Financial Information of Parent (Exelon Corporate)
Notes to Financial Statements
4. Related Party Transactions
The financial statements of Exelon Corporate include related party transactions as presented in the tables below:
Exelon Corporation and Subsidiary Companies
Schedule I - Condensed Financial Information of Parent (Exelon Corporate)
Notes to Financial Statements
__________
(a)Exelon Corporate receives a variety of corporate support services from BSC, including legal, human resources, financial, information technology, and supply management services. All services are provided at cost, including applicable overhead.
(b)EEDC consists of ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE.
(c)In connection with the debt obligations assumed by Exelon as part of the Constellation merger, Exelon and subsidiaries of Generation (former Constellation subsidiaries) assumed intercompany loan agreements that mirror the terms and amounts of the third-party debt obligations of Exelon, resulting in intercompany notes payable included in Long-Term Debt to affiliates in Generation’s Consolidated Balance Sheets and intercompany notes receivable at Exelon Corporate, which are eliminated in consolidation in Exelon’s Consolidated Balance Sheets.
Exelon Corporation and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
__________
(a)Excludes the non-current allowance for credit losses related to PECO’s installment plan receivables of $5 million, $9 million, and $13 million for the years ended December 31, 2020, 2019, and 2018, respectively.
(b)The amount charged to costs and expenses includes the amount that was reclassified to regulatory assets/liabilities under different mechanisms applicable to the different jurisdictions the Utility Registrants operate in.
(c)Includes a decrease related to the sale of customer accounts receivable at Generation in the second quarter of 2020. See Note 6-Accounts Receivable of the Combined Notes to Consolidated Financial Statements for additional information.
(d)Primarily reflects write-offs, net of recoveries of individual accounts receivable.
(e)Primarily reflects expense resulting from materials and supplies inventory reserve adjustments as a result of the decision to early retire Byron, Dresden, and Mystic 8 and 9. See Note 7-Early Plant Retirements of the Combined Notes to Consolidated Financial Statements for additional information.
(f)Primarily reflects the reclassification of assets as held for sale at Generation.
Exelon Generation Company, LLC and Subsidiary Companies
(2) Generation
Exelon Generation Company, LLC and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
__________
(a)Reflects the sale of customer accounts receivable at Generation in the second quarter of 2020. See Note 6-Accounts Receivable of the Combined Notes to Consolidated Financial Statements for additional information.
(b)Write-offs, net of recoveries of individual accounts receivable.
(c)Primarily reflects expense resulting from materials and supplies inventory reserve adjustments as a result of the decision to early retire Byron, Dresden, and Mystic 8 and 9. See Note 7-Early Plant Retirements of the Combined Notes to Consolidated Financial Statements for additional information.
(d)Primarily reflects the reclassification of assets as held for sale.
Commonwealth Edison Company and Subsidiary Companies
(3) ComEd
Commonwealth Edison Company and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
__________
(a)ComEd is allowed to recover from or refund to customers the difference between its annual credit loss expense and the amounts collected in rates annually through a rider mechanism. The amount charged to costs and expenses includes the amount that was reclassified to regulatory assets/liabilities under such mechanism. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.
(b)Write-offs, net of recoveries of individual accounts receivable.
PECO Energy Company and Subsidiary Companies
(4) PECO
PECO Energy Company and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
__________
(a)Excludes the non-current allowance for credit losses related to PECO’s installment plan receivables of $5 million, $9 million, and $13 million for the years ended December 31, 2020, 2019, and 2018, respectively.
(b)The amount charged to costs and expenses includes the amount that was reclassified to the COVID-19 regulatory asset. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.
(c)Write-offs, net of recoveries of individual accounts receivable.
Baltimore Gas and Electric Company
(5) BGE
Baltimore Gas and Electric Company
Schedule II - Valuation and Qualifying Accounts
__________
(a)The amount charged to costs and expenses includes the amount that was reclassified to regulatory assets/liabilities under different mechanisms as approved by the MDPSC.
(b)Write-offs, net of recoveries of individual accounts receivable.
Pepco Holdings LLC and Subsidiary Companies
(6) PHI
Pepco Holdings LLC and Subsidiary Companies
Schedule II - Valuation and Qualifying Accounts
__________
(a)The amount charged to costs and expenses includes the amount that was reclassified to regulatory assets/liabilities under different mechanisms applicable to the different jurisdictions Pepco, DPL, and ACE operate in.
(b)Write-offs, net of recoveries of individual accounts receivable.
(c)Write-offs of individual accounts receivable.
Potomac Electric Power Company
(7) Pepco
Potomac Electric Power Company
Schedule II - Valuation and Qualifying Accounts
__________
(a)The amount charged to costs and expenses includes the amount that was reclassified to regulatory assets/liabilities under different mechanisms as approved by the DCPSC and MDPSC.
(b)Write-offs, net of recoveries of individual accounts receivable.
(c)Write-off of individual accounts receivable.
Delmarva Power & Light Company
(8) DPL
Delmarva Power & Light Company
Schedule II - Valuation and Qualifying Accounts
__________
(a)The amount charged to costs and expenses includes the amount that was reclassified to regulatory assets/liabilities under different mechanisms as approved by the DPSC and MDPSC.
(b)Write-offs, net of recoveries of individual accounts receivable.
(c)Write-off of individual accounts receivable.
Atlantic City Electric Company and Subsidiary Company
(9) ACE
Atlantic City Electric Company and Subsidiary Company
Schedule II - Valuation and Qualifying Accounts
__________
(a)ACE is allowed to recover from or refund to customers the difference between its annual credit loss expense and the amounts collected in rates annually through the Societal Benefits Charge. The amount charged to costs and expenses includes the amount that was reclassified to regulatory assets/liabilities under such mechanism. See Note 3 - Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.
(b)Write-offs, net of recoveries of individual accounts receivable.
(c)Write-off of individual accounts receivable.
Exhibits required by Item 601 of Regulation S-K:
Certain of the following exhibits are incorporated herein by reference under Rule 12b-32 of the Securities and Exchange Act of 1934, as amended. Certain other instruments which would otherwise be required to be listed below have not been so listed because such instruments do not authorize securities in an amount which exceeds 10% of the total assets of the applicable registrant and its subsidiaries on a consolidated basis and the relevant registrant agrees to furnish a copy of any such instrument to the Commission upon request.
Exhibit No.Description
4-39-1Supplemental Indentures to Potomac Electric Power Company Mortgage.
__________
* Compensatory plan or arrangements in which directors or officers of the applicable registrant participate and which are not available to all employees.
** Filed herewith.
(a)These filings are not available electronically on the SEC website as they were filed in paper previous to the electronic system that is currently in place.
All Registrants
Registrants may voluntarily include a summary of information required by Form 10-K under this Item 16. The Registrants have elected not to include such summary information.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
EXELON CORPORATION
By: /s/ CHRISTOPHER M. CRANE
Name: Christopher M. Crane
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ CHRISTOPHER M. CRANE President, Chief Executive Officer (Principal Executive Officer) and Director
Christopher M. Crane
/s/ JOSEPH NIGRO Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Joseph Nigro
/s/ FABIAN E. SOUZA Senior Vice President and Corporate Controller (Principal Accounting Officer)
Fabian E. Souza
This annual report has also been signed below by Gayle E. Littleton, Attorney-in-Fact, on behalf of the following Directors on the date indicated:
Anthony K. Anderson
Ann C. Berzin
Laurie Brlas
Yves C. de Balmann
Nicholas DeBenedictis
Linda P. Jojo Paul L. Joskow
Robert J. Lawless
John M. Richardson
Marjorie Rodgers Cheshire
Mayo A. Shattuck III
John F. Young
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
EXELON GENERATION COMPANY, LLC
By: /s/ CHRISTOPHER M. CRANE
Name: Christopher M. Crane
Title: Principal Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ CHRISTOPHER M. CRANE Principal Executive Officer
Christopher M. Crane
/s/ BRYAN P. WRIGHT Senior Vice President and Chief Financial Officer (Principal Financial Officer)
Bryan P. Wright
/s/ MATTHEW N. BAUER Vice President and Controller (Principal Accounting Officer)
Matthew N. Bauer
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
COMMONWEALTH EDISON COMPANY
By: /s/ JOSEPH DOMINGUEZ
Name: Joseph Dominguez
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ JOSEPH DOMINGUEZ Chief Executive Officer (Principal Executive Officer) and Director
Joseph Dominguez
/s/ JEANNE M. JONES Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Jeanne M. Jones
/s/ STEVEN J. CICHOCKI Director, Accounting (Principal Accounting Officer)
Steven J. Cichocki
This annual report has also been signed below by Joseph Dominguez, Attorney-in-Fact, on behalf of the following Directors on the date indicated:
Calvin G. Butler
James W. Compton
Christopher M. Crane
A. Steven Crown
Nicholas DeBenedictis
Peter V. Fazio, Jr.
Michael H. Moskow
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
PECO ENERGY COMPANY
By: /s/ MICHAEL A. INNOCENZO
Name: Michael A. Innocenzo
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ MICHAEL A. INNOCENZO President, Chief Executive Officer (Principal Executive Officer) and Director
Michael A. Innocenzo
/s/ ROBERT J. STEFANI Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Robert J. Stefani
/s/ CAROLINE FULGINITI Director, Accounting (Principal Accounting Officer)
Caroline Fulginiti
This annual report has also been signed below by Michael A. Innocenzo, Attorney-in-Fact, on behalf of the following Directors on the date indicated:
Calvin G. ButlerJohn S. Grady
Christopher M. CraneRosemarie B. Greco
Nicholas DeBenedictis Charisse R. Lillie
Nelson A. Diaz
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
BALTIMORE GAS AND ELECTRIC COMPANY
By: /s/ CARIM V. KHOUZAMI
Name: Carim V. Khouzami
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ CARIM V. KHOUZAMI Chief Executive Officer (Principal Executive Officer) and Director
Carim V. Khouzami
/s/ DAVID M. VAHOS Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
David M. Vahos
/s/ JASON T. JONES Director, Accounting (Principal Accounting Officer)
Jason T. Jones
This annual report has also been signed below by Carim V. Khouzami, Attorney-in-Fact, on behalf of the following Directors on the date indicated:
Ann C. Berzin James R. Curtiss
Calvin G. ButlerJoseph Haskins, Jr.
Christopher M. Crane Michael D. Sullivan
Michael E. CryorMaria Harris Tildon
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
PEPCO HOLDINGS LLC
By: /s/ DAVID M. VELAZQUEZ
Name: David M. Velazquez
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ DAVID M. VELAZQUEZ President, Chief Executive Officer (Principal Executive Officer), and Director
David M. Velazquez
/s/ PHILLIP S. BARNETT Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Phillip S. Barnett
/s/ JULIE E. GIESE Director, Accounting (Principal Accounting Officer)
Julie E. Giese
This annual report has also been signed below by David M. Velazquez, Attorney-in-Fact, on behalf of the following Directors on the date indicated:
Calvin. G. ButlerMichael E. Cryor
Christopher M. Crane Ernest Dianastasis
Linda W. Cropp Debra P. DiLorenzo
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
POTOMAC ELECTRIC POWER COMPANY
By: /s/ DAVID M. VELAZQUEZ
Name: David M. Velazquez
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ DAVID M. VELAZQUEZ President, Chief Executive Officer (Principal Executive Officer), and Director
David M. Velazquez
/s/ PHILLIP S. BARNETT Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Phillip S. Barnett
/s/ JULIE E. GIESE Director, Accounting (Principal Accounting Officer)
Julie E. Giese
This annual report has also been signed below by David M. Velazquez, Attorney-in-Fact, on behalf of the following Directors on the date indicated:
J. Tyler Anthony Christopher M. Crane
Phillip S. Barnett Melissa A. Lavinson
Calvin G. ButlerKevin M. McGowan
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
DELMARVA POWER & LIGHT COMPANY
By: /s/ DAVID M. VELAZQUEZ
Name: David M. Velazquez
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ DAVID M. VELAZQUEZ President, Chief Executive Officer (Principal Executive Officer), and Director
David M. Velazquez
/s/ PHILLIP S. BARNETT Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Phillip S. Barnett
/s/ JULIE E. GIESE Director, Accounting (Principal Accounting Officer)
Julie E. Giese
This annual report has also been signed below by David M. Velazquez, Attorney-in-Fact, on behalf of the following Directors on the date indicated:
Calvin G. Butler
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 24th day of February, 2021.
ATLANTIC CITY ELECTRIC COMPANY
By: /s/ DAVID M. VELAZQUEZ
Name: David M. Velazquez
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the 24th day of February, 2021.
Signature Title
/s/ DAVID M. VELAZQUEZ President, Chief Executive Officer (Principal Executive Officer), and Director
David M. Velazquez
/s/ PHILLIP S. BARNETT Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Phillip S. Barnett
/s/ JULIE E. GIESE Director, Accounting (Principal Accounting Officer)
Julie E. Giese