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Derivative Financial Instruments (Exelon, Generation, ComEd, PECO and BGE)
3 Months Ended
Mar. 31, 2016
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments (Exelon, Generation, ComEd, PECO and BGE)
 Derivative Financial Instruments (All Registrants)
The Registrants use derivative instruments to manage commodity price risk, foreign currency exchange risk and interest rate risk related to ongoing business operations.
Commodity Price Risk (All Registrants)
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. 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 energy-related products. The Registrants believe these instruments, which are classified as either economic hedges or non-derivatives, mitigate exposure to fluctuations in commodity prices.
Derivative accounting 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 each period. 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 normal purchase normal sale (NPNS), cash flow hedge and fair value hedge. For Generation, all derivative economic hedges related to commodities are recorded at fair value through earnings for the combined company, referred to as economic hedges in the following tables. The Registrants have applied the NPNS scope exception to certain derivative contracts for the forward sale of generation, power procurement agreements and natural gas supply agreements. Non-derivative contracts for access to additional generation and certain sales to load-serving entities are accounted for primarily under the accrual method of accounting, which is further discussed in Note 23Commitments and Contingencies of the Exelon 2015 Form 10-K. 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.
Economic Hedging.    The Registrants are exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels and other commodities 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. 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 energy purchases, natural gas transportation and pipeline capacity agreements and other energy-related products marketed and purchased. In order to manage these risks, Generation may enter into fixed-price derivative or non-derivative contracts to hedge the variability in future cash flows from forecasted sales of energy and gas and purchases of fuel and energy. The objectives for entering into such hedges include fixing the price for a portion of anticipated future electricity sales at a level that provides an acceptable return on electric generation operations, fixing the price of a portion of anticipated fuel purchases for the operation of power plants, and fixing the price for a portion of anticipated energy purchases to supply load-serving customers. The portion of forecasted transactions hedged may vary based upon management’s policies and hedging objectives, the market, weather conditions, operational and other factors. 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.
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 March 31, 2016, the proportion of expected generation hedged for the major reportable segments is 96%-99%, 69%-72% and 37%-40% for 2016, 2017 and 2018, respectively. 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 for capacity 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 the Utility Registrants to serve their retail load.
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. Delivery under the contracts began in June 2012. These contracts are designed to lock in a portion of the long-term commodity price risk resulting from the renewable energy resource procurement requirements in the Illinois Settlement Legislation. ComEd has not elected hedge accounting for these derivative financial instruments. ComEd records the fair value of the swap contracts on its balance sheet. Because ComEd receives full cost recovery for energy procurement and related costs from retail customers, the change in fair value each period is recorded by ComEd as a regulatory asset or liability. See Note 3Regulatory Matters of the Exelon 2015 Form 10-K for additional information.
PECO has contracts to procure electric supply that were executed through the competitive procurement process outlined in its PAPUC-approved DSP Programs, which are further discussed in Note 5Regulatory Matters. Based on Pennsylvania legislation and the DSP Programs permitting PECO to recover its electric supply procurement costs from retail customers with no mark-up, PECO’s price risk related to electric supply procurement is limited. PECO locked in fixed prices for a significant portion of its commodity price risk through full requirements contracts. PECO has certain full requirements contracts that are considered derivatives and qualify for the NPNS scope exception under current derivative authoritative guidance.
PECO’s natural gas procurement policy is designed to achieve a reasonable balance of long-term and short-term gas purchases under different pricing approaches in order to achieve system supply reliability at the least cost. PECO’s reliability strategy is two-fold. First, PECO must assure that there is sufficient transportation capacity to satisfy delivery requirements. Second, PECO must ensure that a firm source of supply exists to utilize the capacity resources. All of PECO’s natural gas supply and asset management agreements that are derivatives either qualify for the NPNS scope exception and have been designated as such, or have no mark-to-market balances because the derivatives are index priced. Additionally, in accordance with the 2015 PAPUC PGC settlement and to reduce the exposure of PECO and its customers to natural gas price volatility, PECO has continued its program to purchase natural gas for both winter and summer supplies using a layered approach of locking-in prices ahead of each season with long-term gas purchase agreements (those with primary terms of at least twelve months). Under the terms of the 2015 PGC settlement, PECO is required to lock in (i.e. economically hedge) the price of a minimum volume of its long-term gas commodity purchases. PECO’s gas-hedging program is designed to cover about 30% of planned natural gas purchases in support of projected firm sales. The hedging program for natural gas procurement has no direct impact on PECO’s financial position or results of operations as natural gas costs are fully recovered from customers under the PGC.
BGE has contracts to procure SOS electric supply that are executed through a competitive procurement process approved by the MDPSC. The SOS rates charged recover BGE's wholesale power supply costs and include an administrative fee. The administrative fee includes an incremental cost component and a shareholder return component for commercial and industrial rate classes. BGE’s price risk related to electric supply procurement is limited. BGE locks in fixed prices for all of its SOS requirements through full requirements contracts. Certain of BGE’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other BGE full requirements contracts are not derivatives.
BGE provides natural gas to its customers under a MBR mechanism approved by the MDPSC. Under this mechanism, BGE’s actual cost of gas is compared to a market index (a measure of the market price of gas in a given period). The difference between BGE’s actual cost and the market index is shared equally between shareholders and customers. BGE must also secure fixed price contracts for at least 10%, but not more than 20%, of forecasted system supply requirements for flowing (i.e. non-storage) gas for the November through March period. These fixed-price contracts are not subject to sharing under the MBR mechanism. BGE also ensures it has sufficient pipeline transportation capacity to meet customer requirements. All of BGE’s natural gas supply and asset management agreements qualify for the NPNS scope exception and result in physical delivery.
Pepco has contracts to procure SOS electric supply that are executed through a competitive procurement process approved by the MDPSC and DCPSC. The SOS rates charged recover Pepco's wholesale power supply costs and include an administrative fee. The administrative fee includes an incremental cost component and a shareholder return component for residential and commercial rate classes. Pepco’s price risk related to electric supply procurement is limited. Pepco locks in fixed prices for all of its SOS requirements through full requirements contracts. Certain of Pepco’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other Pepco full requirements contracts are not derivatives.
DPL has contracts to procure SOS electric supply that are executed through a competitive procurement process approved by the MDPSC and the DPSC. The SOS rates charged recover DPL's wholesale power supply costs. In Delaware, DPL is also entitled to recover a Reasonable Allowance for Retail Margin (RARM). The RARM includes a fixed annual margin of approximately $2.75 million, plus an incremental cost component and a cash working capital allowance. In Maryland, DPL charges an administrative fee intended to allow it to recover its administrative costs. DPL locks in fixed prices for all of its SOS requirements through full requirements contracts. DPL’s price risk related to electric supply procurement is limited. Certain of DPL’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other DPL full requirements contracts are not derivatives.
DPL provides natural gas to its customers under an Annual GCR mechanism approved by the DPSC. Under this mechanism, DPL’s Annual GCR Filing establishes a future GCR for firm bundled sales customers by using a forecast of demand and commodity costs. The actual costs are trued up versus the forecast on a monthly basis and any shortfall or excess is carried forward as a recovery balance in the next GCR filing. The demand portion of the GCR is based upon DPL’s firm transportation and storage contracts. DPL has firm deliverability of swing and seasonal storage; a liquefied natural gas facility and firm transportation capacity to meet customer demand and provide a reserve margin. The commodity portion of the GCR includes a commission approved hedging program which is intended to reduce gas commodity price volatility while limiting the firm natural gas customers’ exposure to adverse changes in the market price of natural gas. The hedge program requires that DPL hedge, on a non-discretionary basis, an amount equal to fifty percent (50%) of estimated purchase requirements for each month, including estimated monthly purchases for storage injections. The fifty percent (50%) hedge monthly target is achieved by hedging 1/12th of the 50% target each month beginning 12-months prior to the month in which the physical gas is to be purchased. Currently, DPL uses only exchange traded futures for its Gas Hedging Program, which are considered derivatives, however, it retains the capability to employ other physical and financial hedges if needed. DPL has not elected hedge accounting for these derivative financial instruments. Because of the DPSC-approved fuel adjustment clause for DPL's derivatives, the change in fair value of the derivatives each period, in addition to all premiums paid and other transaction costs incurred as part of the Gas Hedging Program, are fully recoverable and are recorded by DPL as regulatory assets or liabilities. DPL’s physical gas purchases are currently all daily, monthly or intra-month transactions. From time to time, DPL will enter into seasonal purchase or sale arrangements, however, there are none currently in the portfolio. Certain of DPL's full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other DPL full requirements contracts are not derivatives.
ACE has contracts to procure BGS electric supply that are executed through a competitive procurement process approved by the NJBPU. The BGS rates charged recover ACE's wholesale power supply costs. ACE does not make any profit or incur any loss on the supply component of the BGS it supplies to customers. ACE’s price risk related to electric supply procurement is limited. ACE locks in fixed prices for all of its BGS requirements through full requirements contracts. Certain of ACE’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other ACE full requirements contracts are not derivatives.
Proprietary Trading.    Generation also enters into certain energy-related derivatives for proprietary trading purposes. Proprietary trading includes all contracts entered into with the intent of benefiting from shifts or changes in market prices as opposed to those entered into with the intent of hedging or managing risk. Proprietary trading activities are subject to limits established by Exelon’s RMC. The proprietary trading activities, which included settled physical sales volumes of 1,220 GWhs and 1,808 GWhs for the three months ended March 31, 2016 and 2015, respectively, are a complement to Generation’s energy marketing portfolio but represent a small portion of Generation’s revenue from energy marketing activities. ComEd, PECO, BGE, PHI, Pepco, DPL and ACE do not enter into derivatives for proprietary trading purposes.
Interest Rate and Foreign Exchange Risk (Exelon, Generation, ComEd, PECO, BGE and PHI)
The Registrants use a combination of fixed-rate and variable-rate debt to manage interest rate exposure. The Registrants utilize fixed-to-floating interest rate swaps, which are typically designated as fair value hedges, as a means to manage their interest rate exposure. In addition, the Registrants may utilize interest rate derivatives to lock in rate levels in anticipation of future financings, which are typically designated as cash flow hedges. These strategies are employed to manage interest rate risks. At March 31, 2016, Exelon had $800 million of notional amounts of fixed-to-floating hedges outstanding, and Exelon and Generation had $1,287 million and $687 million of notional amounts of floating-to-fixed hedges outstanding, respectively. Assuming the fair value and cash flow interest rate hedges are 100% effective, a hypothetical 50 bps increase in the interest rates associated with unhedged variable-rate debt (excluding Commercial Paper) and fixed-to-floating swaps would result in an approximately $1 million decrease in Exelon Consolidated pre-tax income for the three months ended March 31, 2016. 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. Below is a summary of the interest rate and foreign exchange hedge balances as of March 31, 2016.
 
 
 
Generation
 
Exelon Corporate
 
Exelon
Description
 
Derivatives
Designated
as Hedging
Instruments
 
Economic
Hedges
 
Proprietary
Trading(a)
 
Collateral
and
Netting(b)
 
Subtotal
 
Derivatives
Designated
as Hedging
Instruments
 
Total
Mark-to-market derivative assets (current assets)
 
$

 
$
10

 
$
8

 
$
(5
)
 
$
13

 
$

 
$
13

Mark-to-market derivative assets (noncurrent assets)
 

 
10

 
5

 
(4
)
 
11

 
42

 
53

Total mark-to-market derivative assets
 

 
20

 
13

 
(9
)
 
24

 
42

 
66

Mark-to-market derivative liabilities (current liabilities)
 
(8
)
 
(3
)
 
(6
)
 
9

 
(8
)
 

 
(8
)
Mark-to-market derivative liabilities (noncurrent liabilities)
 
(12
)
 
(5
)
 
(5
)
 
7

 
(15
)
 
(3
)
 
(18
)
Total mark-to-market derivative liabilities
 
(20
)
 
(8
)
 
(11
)
 
16

 
(23
)
 
(3
)
 
(26
)
Total mark-to-market derivative net assets (liabilities)
 
$
(20
)
 
$
12

 
$
2

 
$
7

 
$
1

 
$
39

 
$
40

 _________
(a)
Generation enters into interest rate derivative contracts to economically hedge risk associated with the interest rate component of commodity positions. The characterization of the interest rate derivative contracts between the proprietary trading activity in the above table is driven by the corresponding characterization of the underlying commodity position that gives rise to the interest rate exposure. Generation does not utilize proprietary trading interest rate derivatives with the objective of benefiting from shifts or changes in market interest rates.
(b)
Exelon and Generation net all available amounts allowed under the derivative accounting guidance on 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 accrued interest, transactions that do not qualify as derivatives, letters of credit and other forms of non-cash collateral. These are not reflected in the table above.

The following table provides a summary of the interest rate and foreign exchange hedge balances recorded by the Registrants as of December 31, 2015:
 
 
Generation
 
Exelon Corporate
 
Exelon
Description
 
Derivatives
Designated
as Hedging
Instruments
 
Economic
Hedges
 
Proprietary
Trading(a)
 
Collateral
and
Netting(b)
 
Subtotal
 
Derivatives
Designated
as Hedging
Instruments
 
Total
Mark-to-market derivative assets (current assets)
 
$

 
$
10

 
$
10

 
$
(5
)
 
$
15

 
$

 
$
15

Mark-to-market derivative assets (noncurrent assets)
 

 
10

 
5

 
(1
)
 
14

 
25

 
39

Total mark-to-market derivative assets
 

 
20

 
15

 
(6
)
 
29

 
25

 
54

Mark-to-market derivative liabilities (current liabilities)
 
(8
)
 
(2
)
 
(9
)
 
11

 
(8
)
 

 
(8
)
Mark-to-market derivative liabilities (noncurrent liabilities)
 
(8
)
 
(1
)
 
(3
)
 
4

 
(8
)
 

 
(8
)
Total mark-to-market derivative liabilities
 
(16
)
 
(3
)
 
(12
)
 
15

 
(16
)
 

 
(16
)
Total mark-to-market derivative net assets (liabilities)
 
$
(16
)
 
$
17

 
$
3

 
$
9

 
$
13

 
$
25

 
$
38

__________
(a)
Generation enters into interest rate derivative contracts to economically hedge risk associated with the interest rate component of commodity positions. The characterization of the interest rate derivative contracts between the proprietary trading activity in the above table is driven by the corresponding characterization of the underlying commodity position that gives rise to the interest rate exposure. Generation does not utilize proprietary trading interest rate derivatives with the objective of benefiting from shifts or changes in market interest rates.
(b)
Exelon and Generation net all available amounts allowed under the derivative accounting guidance on 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 accrued interest, transactions that do not qualify as derivatives, letters of credit and other forms of non-cash collateral. These are not reflected in the table above.
Fair Value Hedges.    For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Exelon includes the gain or loss on the hedged items and the offsetting loss or gain on the related interest rate swaps in interest expense as follows:
  
 
 
Three Months Ended March 31,
 
Income Statement
Location
 
2016
 
2015
 
2016
 
2015
  
 
Gain (Loss) on Swaps
 
Gain (Loss) on Borrowings
Generation
Interest expense(a)
 
$

 
$
(1
)
 
$

 
$

Exelon
Interest expense
 
17

 
9

 
(15
)
 
(7
)
__________
(a)
For the three months ended March 31, 2015, the loss on Generation swaps included $1 million realized in earnings with an immaterial amount excluded from hedge effectiveness testing.
At March 31, 2016, Exelon had total outstanding fixed-to-floating fair value hedges related to interest rate swaps of $800 million, with a derivative asset of $42 million. At December 31, 2015, Exelon had total outstanding fixed-to-floating fair value hedges related to interest rate swaps of $800 million, with a derivative asset of $25 million. During the three months ended March 31, 2016 and 2015, the impact on the results of operations as a result of ineffectiveness from fair value hedges was a $2 million gain for each period.
Cash Flow Hedges. During the first quarter of 2016, Exelon entered into $600 million of floating-to-fixed forward starting interest rate swaps to manage a portion of the interest rate exposure associated with the anticipated issuance of debt. The swaps are designated as cash flow hedges. At March 31, 2016, Exelon had a $3 million derivative liability related to the swaps.
During the first quarter of 2016, Exelon entered into $100 million of floating-to-fixed forward starting interest rate swaps to manage a portion of the interest rate exposure associated with an anticipated debt issuance. The swap is designated as a cash flow hedge. Exelon terminated the swap during the first quarter of 2016 upon issuance of the debt. Exelon did not recognize a gain or loss as a result of the termination of the swap and an immaterial amount of AOCI will be amortized into Other, net in Exelon's Consolidated Statement of Operations and Comprehensive Income over the term of the debt. See Note10 Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements for additional information.
During the third quarter of 2014, ExGen Texas Power, LLC, a subsidiary of Generation, entered into a floating-to-fixed interest rate swap to manage a portion of its interest rate exposure in connection with the long-term borrowing. See Note 14Debt and Credit Agreements of the Exelon 2015 Form 10-K for additional information regarding the financing. The swaps have a notional amount of $499 million as of March 31, 2016 and expire in 2019. The swap was designated as a cash flow hedge in the fourth quarter of 2014. At March 31, 2016, the subsidiary had a $17 million derivative liability related to the swap.
During the first quarter of 2014, ExGen Renewables I, LLC, a subsidiary of Generation, entered into floating-to-fixed interest rate swaps to manage a portion of its interest rate exposure in connection with the long-term borrowings. See Note 14Debt and Credit Agreements of the Exelon 2015 Form 10-K for additional information regarding the financing. The swaps have a notional amount of $189 million as of March 31, 2016 and expire in 2020. The swaps are designated as cash flow hedges. At March 31, 2016, the subsidiary had a $3 million derivative liability related to the swaps.
During the second quarter of 2002, PHI entered into treasury rate lock transactions in anticipation of the issuance of several series of fixed-rate debt commencing in August 2002 to manage a portion of its interest rate exposure. Upon issuance of the fixed-rate debt in August 2002, the treasury rate locks were terminated at a loss and the loss was deferred in AOCI. As a result of the PHI Merger, the remaining unamortized deferred loss recorded in AOCI was adjusted to zero through application of purchase accounting.
During the three months ended March 31, 2015, the impact on the results of operations as a result of ineffectiveness from cash flow hedges in continuing designated hedge relationships was immaterial.
 
Economic Hedges.  During the third quarter of 2011, Sacramento PV Energy, a subsidiary of Generation entered into floating-to-fixed interest rate swaps to manage a portion of its interest rate exposure in connection with the long-term borrowings. See Note 14Debt and Credit Agreements of the Exelon 2015 Form 10-K for additional information regarding the financing. During the first quarter of 2016, upon the issuance of debt, Generation terminated the swaps. The total notional amount of the swaps were $25 million. No gain or loss was recognized as a result of the termination of the swaps.

During the third quarter of 2012, Constellation Solar Horizons, a subsidiary of Generation, entered into a floating-to-fixed interest rate swap to manage a portion of its interest rate exposure in connection with the long-term borrowings. See Note 14Debt and Credit Agreements of the Exelon 2015 Form 10-K for additional information regarding the financing. During the first quarter of 2016, upon the issuance of debt, Generation terminated the swap. The total notional amount of the swap was $24 million. No gain or loss was recognized as a result of the termination of the swap.

During the second quarter 2015, upon the issuance of debt, Exelon terminated $2,400 million of floating-to-fixed forward starting interest rate swaps. As a result of the termination of the swaps, Exelon realized a $64 million loss during the second quarter of 2015.

At March 31, 2016, Generation had immaterial notional amounts of interest rate derivative contracts to economically hedge risk associated with the interest rate component of commodity positions and $137 million in notional amounts of foreign currency exchange rate swaps that are marked-to-market to manage the exposure associated with international commodity transactions in currencies other than U.S. dollars.

Fair Value Measurement and Accounting for the Offsetting of Amounts Related to Certain Contracts (Exelon, Generation, ComEd, PECO, BGE, PHI and DPL)
Fair value accounting guidance and disclosures about offsetting assets and liabilities requires the fair value of derivative instruments to be shown in the Notes to the 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 Sheet. 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 referencing contracts via one payment stream, which takes place as the contracts deliver, when collateral is requested or in the event of default. Generation’s use of cash collateral is generally unrestricted, unless Generation is downgraded below investment grade (i.e. to BB+ or Ba1). In the table below, 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 initial margin on exchange positions, is aggregated in the collateral and netting column. As of March 31, 2016 and December 31, 2015, $1 million and $3 million of cash collateral posted, respectively, was not offset against derivative positions because such collateral was not associated with any energy-related derivatives, were associated with accrual positions, or as of the balance sheet date there were no positions to offset. Excluded from the tables below are economic hedges that qualify for the NPNS scope exception and other non-derivative contracts that are accounted for under the accrual method of accounting.
ComEd’s use of cash collateral is generally unrestricted unless ComEd is downgraded below investment grade (i.e. to BB+ or Ba1).
Cash collateral held by PECO and BGE must be deposited in a non affiliate major U.S. commercial bank or foreign bank with a U.S. branch office that meet certain qualifications.
In the table below, DPL's economic hedges 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, is aggregated in the collateral and netting column.
The following table provides a summary of the derivative fair value balances recorded by the Registrants as of March 31, 2016:
 
 
 
 
 
 
 
 
Successor
 
 
 
 
Generation
 
ComEd
 
DPL
 
PHI
 
Exelon
Derivatives
 
Economic
Hedges
 
Proprietary
Trading
 
Collateral
and
Netting(a)
 
Subtotal(b)
 
Economic
Hedges(c)
 
Economic
Hedges(d)
 
Collateral
and
Netting(a)
 
Subtotal
 
Subtotal
 
Total
Derivatives
Mark-to-market derivative assets (current assets)
 
$
5,851

 
$
113

 
$
(4,792
)
 
$
1,172

 
$

 
$

 
$

 
$

 
$

 
$
1,172

Mark-to-market derivative assets (noncurrent assets)
 
2,377

 
30

 
(1,619
)
 
788

 

 

 

 

 

 
788

Total mark-to-market derivative assets
 
8,228


143

 
(6,411
)
 
1,960

 

 

 

 



 
1,960

Mark-to-market derivative liabilities (current liabilities)
 
(5,570
)
 
(104
)
 
5,505

 
(169
)
 
(26
)
 
(1
)
 
1

 

 

 
(195
)
Mark-to-market derivative liabilities (noncurrent liabilities)
 
(2,056
)
 
(40
)
 
1,945

 
(151
)
 
(239
)
 

 

 

 

 
(390
)
Total mark-to-market derivative liabilities
 
(7,626
)
 
(144
)
 
7,450

 
(320
)
 
(265
)
 
(1
)
 
1

 



 
(585
)
Total mark-to-market derivative net assets (liabilities)
 
$
602

 
$
(1
)
 
$
1,039

 
$
1,640

 
$
(265
)
 
$
(1
)
 
$
1

 
$


$

 
$
1,375

______
(a)
Exelon, Generation, PHI and DPL net all available amounts allowed under the derivative accounting guidance on 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 are not reflected in the table above.
(b)
Current and noncurrent assets are shown net of collateral of $303 million and $146 million, respectively, and current and noncurrent liabilities are shown net of collateral of $410 million and $180 million, respectively. The total cash collateral posted, net of cash collateral received and offset against mark-to-market assets and liabilities was $1,039 million at March 31, 2016.
(c)
Includes current and noncurrent liabilities relating to floating-to-fixed energy swap contracts with unaffiliated suppliers.
(d)
Represents natural gas futures purchased as part by DPL as part of a natural gas hedging program approved by the DPSC.

The following table provides a summary of the derivative fair value balances recorded by the Registrants as of December 31, 2015:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Predecessor
 
 
Generation
 
ComEd
 
Exelon
 
DPL
 
PHI Corporate
 
PHI
Description
 
Economic
Hedges
 
Proprietary
Trading
 
Collateral
and
Netting(a)
 
Subtotal(b)
 
Economic
Hedges(c)
 
Total
Derivatives
 
Economic
Hedges(e)
 
Collateral and
Netting(a)
 
Subtotal
 
Other(d)
 
Total
Derivatives
Mark-to-market derivative assets (current assets)
 
$
5,236

 
$
108

 
$
(3,994
)
 
$
1,350

 
$

 
$
1,350

 
$

 
$

 
$

 
$
18

 
$
18

Mark-to-market derivative assets (noncurrent assets)
 
1,860

 
22

 
(1,163
)
 
719

 

 
719

 

 

 

 

 

Total mark-to-market derivative assets
 
7,096

 
130

 
(5,157
)
 
2,069

 

 
2,069

 

 

 

 
18

 
18

Mark-to-market derivative liabilities (current liabilities)
 
(4,907
)
 
(94
)
 
4,827

 
(174
)
 
(23
)
 
(197
)
 
(2
)
 
2

 

 

 

Mark-to-market derivative liabilities (noncurrent liabilities)
 
(1,673
)
 
(33
)
 
1,564

 
(142
)
 
(224
)
 
(366
)
 

 

 

 

 

Total mark-to-market derivative liabilities
 
(6,580
)
 
(127
)
 
6,391

 
(316
)
 
(247
)
 
(563
)
 
(2
)
 
2

 

 

 

Total mark-to-market derivative net assets (liabilities)
 
$
516

 
$
3

 
$
1,234

 
$
1,753

 
$
(247
)
 
$
1,506

 
$
(2
)
 
$
2

 
$

 
$
18


$
18

________ 
(a)
Exelon, Generation, PHI and DPL net all available amounts allowed under the derivative accounting guidance on 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, and letters of credit and other forms of non-cash collateral. These are not reflected in the table above.
(b)
Current and noncurrent assets are shown net of collateral of $352 million and $180 million, respectively, and current and noncurrent liabilities are shown net of collateral of $480 million and $222 million, respectively. The total cash collateral posted, net of cash collateral received and offset against mark-to-market assets and liabilities was $1,234 million at December 31, 2015.
(c)
Includes current and noncurrent liabilities relating to floating-to-fixed energy swap contracts with unaffiliated suppliers.
(d)
Prior to the PHI Merger, PHI recorded derivative assets for the embedded call and redemption features on the shares of Preferred Stock outstanding as of December 31, 2015. See Note 16 - Mezzanine Equity for additional information. As a result of the PHI Merger, the PHI preferred stock derivative was reduced to zero as of March 23, 2016.
(e)
Represents natural gas futures purchased as part by DPL as part of a natural gas hedging program approved by the DPSC.
Cash Flow Hedges (Exelon and Generation). The tables below provide the activity of AOCI related to cash flow hedges for the three months ended March 31, 2016 and 2015, containing information about the changes in the fair value of cash flow hedges and the reclassification from AOCI into results of operations. The amounts reclassified from AOCI, when combined with the impacts of the hedged transactions, result in the ultimate recognition of net revenues or expenses at the contractual price.
 
 
 
 
 
 
 
 
 
 
Total Cash Flow Hedge OCI Activity, Net of Income Tax                   
Generation
 
Exelon
 
Three Months Ended March 31, 2016
 
Income Statement
Location
 
Total Cash 
Flow Hedges
 
Total Cash 
Flow Hedges
 
Accumulated OCI derivative loss at December 31, 2015
 
 
 
$
(21
)
 
$
(19
)
 
Effective portion of changes in fair value
 
 
 
(8
)
  
(10
)
 
Reclassifications from AOCI to net income
 
Interest Expense
 
3

(a)  
3

(a)  
Accumulated OCI derivative loss at March 31, 2016
 
 
 
$
(26
)
 
$
(26
)
 
 
 
 
 
 
 
 
 
 
 
 
Total Cash
Flow Hedge OCI Activity,
Net of Income Tax                   
 
Generation
 
Exelon
 
Three Months Ended March 31, 2015
 
Income Statement
Location
 
Total Cash
Flow Hedges
 
Total Cash
Flow Hedges
 
Accumulated OCI derivative loss at December 31, 2014
 
 
 
$
(18
)
 
$
(28
)
 
Effective portion of changes in fair value
 
 
 
(6
)
  
(11
)
 
Reclassifications from AOCI to net income
 
Other, net
 

 
16

(b) 
Reclassifications from AOCI to net income
 
Interest Expense
 
3

 
3

  
Reclassifications from AOCI to net income
 
Operating Revenues
 
(2
)
 
(2
)
 
Accumulated OCI derivative loss at March 31, 2015
 
 
 
$
(23
)
 
$
(22
)
 

______
(a)
Amount is net of related income tax expense of $2 million for both the three months ended March 31, 2016.
(b)
Amount is net of related income tax benefit of $10 million for the three months ended March 31, 2015.

The effect of Exelon’s and Generation's former energy-related cash flow hedge activity on pre-tax earnings based on the reclassification adjustment from AOCI to earnings was a $2 million pre-tax gain for the three months ended March 31, 2015. Neither Exelon nor Generation will incur changes in cash flow hedge ineffectiveness in future periods relating to energy-related hedges positions as all were de-designated prior to the Constellation merger date.
Economic Hedges (Exelon and Generation). These instruments represent hedges that economically mitigate exposure to fluctuations in commodity prices and include financial options, futures, swaps, physical forward sales and purchases, but for which the fair value or cash flow hedge elections were not made. Additionally, Generation enters into interest rate derivative contracts and foreign exchange currency swaps ("treasury") to manage the exposure related to the interest rate component of commodity positions and international purchases of commodities in currencies other than U.S. Dollars. For the three months ended March 31, 2016 and 2015, the following net pre-tax mark-to-market gains (losses) of certain purchase and sale contracts were reported in Operating revenues or Purchased power and fuel expense, or Interest expense at Exelon and Generation in the Consolidated Statements of Operations and Comprehensive Income and are included in “Net fair value changes related to derivatives” in Exelon’s and Generation’s Consolidated Statements of Cash Flows. In the tables below, “Change in fair value” represents the change in fair value of the derivative contracts held at the reporting date. The “Reclassification to realized at settlement” represents the recognized change in fair value that was reclassified to realized due to settlement of the derivative during the period. 
 
 
 
 
 
 
 
 
 
 
 
 
Generation
 
Exelon
Three Months Ended March 31, 2016
Operating
Revenues
 
Purchased
Power 
and Fuel
 
Total
 
Total
Change in fair value of commodity positions
$
279

 
$
(127
)
 
$
152

 
$
152

Reclassification to realized at settlement of commodity positions
(211
)
 
167

 
(44
)
 
(44
)
Net commodity mark-to-market gains (losses)
68

 
40

 
108

 
108

Change in fair value of treasury positions
(3
)
 

 
(3
)
 
(3
)
Reclassification to realized at settlement of treasury positions
(2
)
 

 
(2
)
 
(2
)
Net treasury mark-to-market gains (losses)
(5
)
 

 
(5
)
 
(5
)
     Net mark-to-market gains (losses)
$
63

 
$
40

 
$
103

 
$
103


 
 
 
 
 
 
 
 
 
 
 
 
 

 
Generation
 
Exelon Corporate
 
Exelon
Three Months Ended March 31, 2015
Operating
Revenues
 
Purchased
Power
and Fuel
 
Total
 
Interest
Expense
 
Total
Change in fair value of commodity positions
$
164

 
$
(79
)
 
$
85

 
$

 
$
85

Reclassification to realized at settlement of commodity positions
(21
)
 
87

 
66

 

 
66

Net commodity mark-to-market gains (losses)
143

 
8

 
151

 

 
151

Change in fair value of treasury positions
13

 

 
13

 
(78
)
 
(65
)
Reclassification to realized at settlement of treasury positions
(2
)
 

 
(2
)
 

 
(2
)
Net treasury mark-to-market gains (losses)
11

 

 
11

 
(78
)
 
(67
)
      Net mark-to-market gains (losses)
$
154

 
$
8

 
$
162

 
$
(78
)
 
$
84

Proprietary Trading Activities (Exelon and Generation).    For the three months ended March 31, 2016 and 2015, Exelon and Generation recognized the following net unrealized mark-to-market gains (losses), net realized mark-to-market gains (losses) and total net mark-to-market gains (losses) (before income taxes) relating to mark-to-market activity on commodity derivative instruments entered into for proprietary trading purposes and interest rate and foreign exchange derivative contracts to hedge risk associated with the interest rate and foreign exchange components of underlying commodity positions. Gains and losses associated with proprietary trading are reported as operating revenue in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income and are included in “Net fair value changes related to derivatives” in Exelon’s and Generation’s Consolidated Statements of Cash Flows. In the tables below, “Change in fair value” represents the change in fair value of the derivative contracts held at the reporting date. The “Reclassification to realized at settlement” represents the recognized change in fair value that was reclassified to realized due to settlement of the derivative during the period.
  
Location on Income
Statement
Three Months Ended March 31,
  
2016
 
2015
Change in fair value of commodity positions
Operating Revenues
$
7

 
$
1

Reclassification to realized at settlement of commodity positions
Operating Revenues
(3
)
 
2

Net commodity mark-to-market gains (losses)
Operating Revenues
4

 
3

Change in fair value of treasury positions
Operating Revenues
(2
)
 
4

Reclassification to realized at settlement of treasury positions
Operating Revenues
1

 
(4
)
Net treasury mark-to-market gains (losses)
Operating Revenues
(1
)
 

Total net mark-to-market gains (losses)
Operating Revenues
$
3

 
$
3

Credit Risk (All Registrants)
The Registrants would be exposed to credit-related losses in the event of non-performance by counterparties that enter into derivative instruments. The credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts at the reporting date. For energy-related derivative instruments, 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.

The following tables provide information on Generation’s credit exposure for all derivative instruments, NPNS and applicable payables and receivables, net of collateral and instruments that are subject to master netting agreements, as of March 31, 2016. 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 and Nodal commodity exchanges, further discussed in ITEM 3. — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Additionally, the figures in the tables below exclude exposures with affiliates, including net receivables with ComEd, PECO, BGE, Pepco, DPL and ACE of $19 million, $37 million,$35 million, $36 million, $11 million, and $8 million as of March 31, 2016, respectively.
 
Rating as of March 31, 2016
Total Exposure Before Credit Collateral
 
Credit Collateral(a)
 
Net Exposure
 
Number of Counterparties Greater than 10% of Net Exposure
 
Net Exposure of Counterparties Greater than 10% of Net Exposure
Investment grade
$
1,276

 
$
58

 
$
1,218

 
1

 
$
436

Non-investment grade
71

 
32

 
39

 

 

No external ratings
 
 
 
 
 
 
 
 
 
Internally rated — investment grade
516

 
1

 
515

 

 

Internally rated — non-investment grade
101

 
4

 
97

 

 

Total
$
1,964

 
$
95

 
$
1,869

 
1

 
$
436

 
Net Credit Exposure by Type of Counterparty
As of March 31, 2016
Financial institutions
$
116

Investor-owned utilities, marketers, power producers
781

Energy cooperatives and municipalities
909

Other
63

Total
$
1,869

_____ 
(a)
As of March 31, 2016, credit collateral held from counterparties where Generation had credit exposure included $8 million of cash and $87 million of letters of credit.
ComEd’s power procurement contracts provide suppliers with a certain amount of unsecured credit. The credit position is based on forward market prices compared to the benchmark prices. The benchmark prices are the forward prices of energy projected through the contract term and are set at the point of supplier bid submittals. If the forward market price of energy exceeds the benchmark price, the suppliers are required to post collateral for the secured credit portion after adjusting for any unpaid deliveries and unsecured credit allowed under the contract. The unsecured credit used by the suppliers represents ComEd’s net credit exposure. As of March 31, 2016, ComEd’s net credit exposure to suppliers was immaterial .
ComEd is permitted to recover its costs of procuring energy through the Illinois Settlement Legislation. ComEd’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates. See Note 3Regulatory Matters of the Exelon 2015 Form 10-K for additional information.
PECO’s supplier master agreements that govern the terms of its electric supply procurement contracts, which define a supplier’s performance assurance requirements, allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s lowest credit rating from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day a transaction is executed, compared to the current forward price curve for energy. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. The unsecured credit used by the suppliers represents PECO’s net credit exposure. As of March 31, 2016, PECO had no net credit exposure to suppliers.
PECO is permitted to recover its costs of procuring electric supply through its PAPUC-approved DSP Program. PECO’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates. See Note 5Regulatory Matters for additional information.
PECO’s natural gas procurement plan is reviewed and approved annually on a prospective basis by the PAPUC. PECO’s counterparty credit risk under its natural gas supply and asset management agreements is mitigated by its ability to recover its natural gas costs through the PGC, which allows PECO to adjust rates quarterly to reflect realized natural gas prices. PECO does not obtain collateral from suppliers under its natural gas supply and asset management agreements. As of March 31, 2016, PECO had no credit exposure under its natural gas supply and asset management agreements with investment grade suppliers.
BGE is permitted to recover its costs of procuring energy through the MDPSC-approved procurement tariffs. BGE’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates. See Note 3Regulatory Matters of the Exelon 2015 Form 10-K for additional information.
BGE’s full requirement wholesale electric power agreements that govern the terms of its electric supply procurement contracts, which define a supplier’s performance assurance requirements, allow a supplier, or its guarantor, to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s lowest credit rating from the major credit rating agencies and the supplier’s tangible net worth, subject to an unsecured credit cap. The credit position is based on the initial market price, which is the forward price of energy on the day a transaction is executed, compared to the current forward price curve for energy. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. The unsecured credit used by the suppliers represents BGE’s net credit exposure. The seller’s credit exposure is calculated each business day. As of March 31, 2016, BGE had no net credit exposure to suppliers.
BGE’s regulated gas business is exposed to market-price risk. This market-price risk is mitigated by BGE’s recovery of its costs to procure natural gas through a gas cost adjustment clause approved by the MDPSC. BGE does make off-system sales after BGE has satisfied its customers’ demands, which are not covered by the gas cost adjustment clause. At March 31, 2016, BGE had credit exposure of $2 million related to off-system sales which is mitigated by parental guarantees, letters of credit or right to offset clauses within other contracts with those third-party suppliers.
Pepco’s, DPL's and ACE's power procurement contracts provide suppliers with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s lowest credit rating from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day a transaction is executed, compared to the current forward price curve for energy. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. The unsecured credit used by the suppliers represents Pepco’s, DPL's and ACE's net credit exposure. As of March 31, 2016, Pepco’s, DPL's and ACE's net credit exposures to suppliers were immaterial.
Pepco is permitted to recover its costs of procuring energy through the MDPSC-approved and DCPSC-approved procurement tariffs. DPL is permitted to recover its costs of procuring energy through the MDPSC-approved and DPSC-approved procurement tariffs. ACE is permitted to recover its costs of procuring energy through the NJBPU-approved procurement tariffs. Pepco’s, DPL's and ACE's counterparty credit risks are mitigated by their ability to recover realized energy costs through customer rates. See Note 6 — Regulatory Matters of the PHI 2015 Form 10-K for additional information.
DPL’s natural gas procurement plan is reviewed and approved annually on a prospective basis by the DPSC. DPL’s counterparty credit risk under its natural gas supply and asset management agreements is mitigated by its ability to recover its natural gas costs through the GCR, which allows DPL to adjust rates annually to reflect realized natural gas prices. To the extent that the fair value of the transactions in a net loss position exceeds the unsecured credit threshold, then collateral is required to be posted in an amount equal to the amount by which the unsecured credit threshold is exceeded. Exchange-traded contracts are required to be fully collateralized without regard to the credit rating of the holder. As of March 31, 2016, DPL had no credit exposure under its natural gas supply and asset management agreements with investment grade suppliers.
Collateral and Contingent-Related Features (All Registrants)
As part of the normal course of business, Generation routinely enters into physical or financially settled contracts for the purchase and sale of electric capacity, energy, 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 (i.e. NYMEX, ICE). 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.
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:
Credit-Risk Related Contingent Feature
March 31, 2016
 
December 31, 2015
Gross Fair Value of Derivative Contracts Containing this Feature(a)
$
(979
)
 
$
(932
)
Offsetting Fair Value of In-the-Money Contracts Under Master Netting Arrangements(b)
728

 
684

       Net Fair Value of Derivative Contracts Containing This Feature(c)
$
(251
)
 
$
(248
)
 _______
(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 a Registrant 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.
Generation had cash collateral posted of $1,063 million and letters of credit posted of $519 million and cash collateral held of $16 million and letters of credit held of $96 million as of March 31, 2016 for external counterparties with derivative positions. Generation had cash collateral posted of $1,267 million and letters of credit posted of $497 million and cash collateral held of $21 million and letters of credit held of $78 million at December 31, 2015 for external counterparties with derivative positions. In the event of a credit downgrade below investment grade (i.e. to BB+ by S&P or Ba1 by Moody’s), Generation would have been required to post additional collateral of $1.9 billion and $2.0 billion as of March 31, 2016 and December 31, 2015, respectively. These amounts represent the potential additional collateral required after giving consideration to offsetting derivative and non-derivative positions under master netting agreements.
Generation’s and Exelon’s interest rate swaps contain provisions that, in the event of a merger, if Generation’s debt ratings were to materially weaken, it would be in violation of these provisions, resulting in the ability of the counterparty to terminate the agreement prior to maturity. Collateralization would not be required under any circumstance. Termination of the agreement could result in a settlement payment by Exelon or the counterparty on any interest rate swap in a net liability position. The settlement amount would be equal to the fair value of the swap on the termination date. As of March 31, 2016, Generation and Exelon's swaps were in an asset position, with a fair value of $1 million and $40 million, respectively.
See Note 25Segment Information of the Exelon 2015 Form 10-K for further information regarding the letters of credit supporting the cash collateral.
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. Under the terms of ComEd’s standard block energy contracts, collateral postings are one-sided from suppliers, including Generation, should exposures between market prices and benchmark prices exceed established unsecured credit limits outlined in the contracts. As of March 31, 2016, ComEd held no collateral from suppliers in association with energy procurement contracts. Under the terms of ComEd's annual renewable energy contracts, collateral postings are required to cover a fixed value for RECs only. In addition, under the terms of ComEd’s long-term renewable energy contracts, collateral postings are required from suppliers for both RECs and energy. The REC portion is a fixed value and the energy portion is one-sided from suppliers should the forward market prices exceed contract prices. As of March 31, 2016, ComEd held approximately $19 million in the form of cash and letters of credit as margin for both the annual and long-term REC obligations. If ComEd lost its investment grade credit rating as of March 31, 2016, it would have been required to post approximately $17 million of collateral to its counterparties. See Note 3Regulatory Matters of the Exelon 2015 Form 10-K for additional information.
PECO’s natural gas procurement contracts contain provisions that could require PECO to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon PECO’s credit rating from the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. As of March 31, 2016, PECO was not required to post collateral for any of these agreements. If PECO lost its investment grade credit rating as of March 31, 2016, PECO could have been required to post approximately $22 million of collateral to its counterparties.
PECO’s supplier master agreements that govern the terms of its DSP Program contracts do not contain provisions that would require PECO to post collateral.
BGE’s full requirements wholesale power agreements that govern the terms of its electric supply procurement contracts do not contain provisions that would require BGE to post collateral.
BGE’s natural gas procurement contracts contain provisions that could require BGE to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon BGE’s credit rating from the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. As of March 31, 2016, BGE was not required to post collateral for any of these agreements. If BGE lost its investment grade credit rating as of March 31, 2016, BGE could have been required to post approximately $28 million of collateral to its counterparties.
Pepco’s full requirements wholesale power agreements that govern the terms of its electric supply procurement contracts do not contain provisions that would require Pepco to post collateral.
DPL’s full requirements wholesale power agreements that govern the terms of its electric supply procurement contracts do not contain provisions that would require DPL to post collateral.
DPL's natural gas derivative contracts contain provisions that could require DPL to post collateral in an amount equal to the unsecured credit threshold if exceeded when the aggregate fair value of the transactions is in a net loss position. The obligations of DPL are standalone obligations without the guaranty of PHI. Exchange-traded contracts are required to be fully collateralized without regard to the credit rating of the holder.
ACE’s full requirements wholesale power agreements that govern the terms of its electric supply procurement contracts do not contain provisions that would require ACE to post collateral.