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Investment in Constellation Energy Nuclear Group, LLC (Exelon and Generation)
 3 Months Ended
Mar. 31, 2012
Equity Method Investments and Joint Ventures [Line Items]  
Investment in Constellation Energy Nuclear Group, LLC (CENG)

5. Investment in Constellation Energy Nuclear Group, LLC (Exelon and Generation)

 

As a result of the Constellation merger, Generation now owns a 50.01% interest in CENG, a nuclear generation business. Generation's total equity in losses of the investment in CENG is as follows:

  For the Period
  March 12 through March 31,
 2012
CENG$(9)
Amortization of basis difference in CENG (12)
Total equity investment losses - CENG$(21)

Generation has an initial basis difference of approximately $183 million between the initial carrying value of its investment in CENG and its underlying equity in CENG.  This basis difference is created by the requirement to record the investment in CENG at fair value under purchase accounting while the underlying assets and liabilities within CENG continue to be accounted for on a historical cost basis. Generation will amortize this basis difference over the respective useful lives of the assets of CENG or as those assets and liabilities impact the earnings of CENG.

 

In future periods, Generation may be eligible for distributions from CENG in excess of its 50.01% ownership interest based on tax sharing provisions contained in the operating agreement for CENG.  Generation would record these distributions, if realized, in earnings in the period earned.

Related Party Transactions (Exelon and Generation)

 

CENG

 

Generation has an agreement with CENG under which it will purchase between 85-90% of the output of CENG's nuclear plants that is not sold to third parties under pre-existing firm and unit contingent PPAs through 2014. Beginning on January 1, 2015 and continuing to the end of the life of the respective plants, Generation will purchase on a unit contingent basis 50.01% of the output of CENG's nuclear plants, and EDF will purchase on a unit contingent basis 49.99% of the output.

 

In addition to the PPA, a subsidiary of Generation has a power services agency agreement (PSAA) with CENG. The PSAA is a five-year agreement under which Generation provides scheduling, asset management and billing services to CENG for a specified monthly fee. On January 16, 2012, Exelon agreed to amend the PSAA, effective as of the closing of the merger with Constellation, to adjust the charges for services to reflect the cost of the service, with such cost not to exceed approximately $358,000 per month.

 

In addition to the PSAA, Exelon has an administrative services agreement (ASA) with CENG, which expires in 2017. Under the ASA, Exelon BSC provides certain administrative services to CENG including back office, human resources and information technology. The ASA includes both a consumption-based pricing structure and a fixed-price structure which are subject to change in future years based on the level of service needed. On January 16, 2012, Exelon agreed to amend the ASA, effective as of the close of the merger with Constellation, to adjust the charges for services to reflect actual post-merger costs determined on the same basis that Exelon BSC charges its affiliates for similar services.

 

The impact of transactions under these agreements on Exelon's and Generation's financial statements is summarized below:

        
        
  Increase/(Decrease)    
  in Earnings   Accounts
  March 12, 2012 Income  Receivable/
  through Statement (Accounts Payable)
Agreement March 31, 2012 Classification At March 31, 2012
PPA $(35) Purchased power and fuel $(60)
PSA  1 Operating revenues  -
ASA  3 Operating expenses  3

In May 2011, CENG issued an unsecured revolving promissory note to borrow up to an aggregate principal amount of $62.5 million from a subsidiary of Generation. CENG also issued a promissory note to EDF on substantially identical terms, such that any request for borrowings by CENG must be submitted 50% to Generation and 50% to EDF.

 

Interest accrues on the amounts borrowed on a daily basis at a rate of LIBOR, plus an adder of 250 basis points. Amounts are due at the earlier of October 31, 2012 or the date upon which the note is accelerated in accordance with the terms of the agreement.

 

As of March 31, 2012, CENG had borrowed $42.5 million from Generation.
Exelon Generation Co L L C [Member]
  
Equity Method Investments and Joint Ventures [Line Items]  
Investment in Constellation Energy Nuclear Group, LLC (CENG)

5. Investment in Constellation Energy Nuclear Group, LLC (Exelon and Generation)

 

As a result of the Constellation merger, Generation now owns a 50.01% interest in CENG, a nuclear generation business. Generation's total equity in losses of the investment in CENG is as follows:

  For the Period
  March 12 through March 31,
 2012
CENG$(9)
Amortization of basis difference in CENG (12)
Total equity investment losses - CENG$(21)

Generation has an initial basis difference of approximately $183 million between the initial carrying value of its investment in CENG and its underlying equity in CENG.  This basis difference is created by the requirement to record the investment in CENG at fair value under purchase accounting while the underlying assets and liabilities within CENG continue to be accounted for on a historical cost basis. Generation will amortize this basis difference over the respective useful lives of the assets of CENG or as those assets and liabilities impact the earnings of CENG.

 

In future periods, Generation may be eligible for distributions from CENG in excess of its 50.01% ownership interest based on tax sharing provisions contained in the operating agreement for CENG.  Generation would record these distributions, if realized, in earnings in the period earned.