7. Implications of Potential Early Plant Retirements (Exelon and Generation)

Exelon and Generation continue to evaluate the current and expected economic value of each of Generation’s nuclear plants. Factors that will continue to affect the economic value of Generation’s nuclear plants include, but are not limited to: market power prices, results of capacity auctions, potential legislative and regulatory solutions in New York and Illinois such as the recently proposed Zero Emission Standard element of the Next Generation Energy Plan (NGEP) or Low Carbon Portfolio Standard (LCPS) legislation in Illinois and Clean Energy Standard (CES) in New York, the impact of final rules from the EPA requiring reduction of carbon and other emissions and the efforts of the states to implement those final rules.

In 2015, Exelon and Generation deferred retirement decisions on Clinton and Quad Cities until 2016 in order to participate in the 2016-2017 MISO primary reliability auction and the 2019-2020 PJM capacity auction to be held in April and May 2016, respectively, as well as to provide Illinois policy makers with additional time to consider needed reforms and for MISO to consider market design changes to ensure long-term power system reliability in southern Illinois. In April 2016, Clinton cleared the MISO primary reliability auction as a price taker for the 2016-2017 planning year. The resulting capacity price is insufficient to cover cash operating costs and a risk-adjusted rate of return to shareholders. The results of the 2019-2020 PJM capacity auction will be available on May 24, 2016.

On May 6, 2016 Exelon and Generation announced intentions to shut down the Clinton nuclear plant on June 1, 2017 and Quad Cities nuclear plant on June 1, 2018 if Illinois does not pass adequate legislation by May 31, 2016 and if Quad Cities does not clear the 2019-2020 PJM capacity auction. Exelon and Generation previously committed to cease operation of the Oyster Creek nuclear plant by the end of 2019. The approved RSSA requires Ginna to continue operating through the RSSA term expiring in March 2017. There remains an increased risk that, for economic reasons, Ginna could be retired before the end of its operating license period in 2029 if an adequate regulatory or legislative solution is not adopted in New York. Refer to Note 5 - Regulatory Matters for additional discussion on the Ginna RSSA.

In response to a decision to early retire one or more nuclear plants, certain changes in accounting treatment would be triggered and Exelon’s and Generation’s results of operations and cash flows could be materially affected by, among other items: accelerated depreciation expense, impairment charges related to inventory that cannot be used at other nuclear units and cancellation of in-flight capital projects, contract termination fees, accelerated amortization of plant specific nuclear fuel costs, employee-related costs (i.e. severance, relocation, retention, etc.), accelerated asset retirement obligation expense related to future decommissioning activities, and additional funding of nuclear decommissioning trust funds. In addition, any early plant retirement would also result in reduced operating costs, lower fuel expense, and lower capital expenditures in the periods beyond shutdown.

The following table provides the balance sheet amounts as of March 31, 2016 for significant assets and liabilities associated with the three nuclear plants currently considered by management to be at the greatest risk of early retirement due to their current economic valuations and other factors.



(in millions)	Quad Cities			Clinton				Ginna			Total
Asset Balances
Materials and supplies inventory	$	47		$	58			$	30		$	135
Nuclear fuel inventory, net	213			95				54			362
Completed plant, net	1,014			574				127			1,715
Construction work in progress	28			11				11			50
Liability Balances
Asset retirement obligation	(706		)	(407		)		(651		)	(1,764		)

NRC License Renewal Term	2032			2046			^(a)	2029

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(a)	Assumes Clinton seeks and receives a 20-year operating license renewal extension.

The precise timing of an early retirement date, and resulting financial statement impact, may be affected by a number of factors, including the results of any transmission system reliability study assessments, the nature of any co-owner requirements and stipulations, and decommissioning trust fund requirements, 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 obligations and just prior to its next scheduled nuclear refueling outage date in that year.