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Fair Value Disclosures
 12 Months Ended
Dec. 31, 2011
Fair Value Disclosures [Line Items]  
Fair Value Disclosures

14.       FAIR VALUE DISCLOSURES

A.       DEBT AND INVESTMENTS

PROGRESS ENERGY

DEBT

The carrying amount of our long-term debt, including current maturities, was $12.941 billion and $12.642 billion at December 31, 2011 and 2010, respectively. The estimated fair value of this debt, as obtained from quoted market prices for the same or similar issues, was $15.3 billion and $14.0 billion at December 31, 2011 and 2010, respectively.

INVESTMENTS

Certain investments in debt and equity securities that have readily determinable market values are accounted for as available-for-sale securities at fair value. Our available-for-sale securities include investments in stocks, bonds and cash equivalents held in trust funds, pursuant to NRC requirements, to fund certain costs of decommissioning the Utilities' nuclear plants (See Note 5C). NDT funds are presented on the Consolidated Balance Sheets at fair value. In addition to the NDT funds, we hold other debt investments classified as available-for-sale, which are included in miscellaneous other property and investments on the Consolidated Balance Sheets at fair value.

The following table summarizes our available-for-sale securities at December 31:

          
(in millions) Fair Value  Unrealized Losses  Unrealized Gains
  
2011        
Common stock equity $ 1,033 $ 29 $ 401
Preferred stock and other equity   29   -   11
Corporate debt   86   -   6
U.S. state and municipal debt   128   2   7
U.S. and foreign government debt   284   -   18
Money market funds and other   70   -   1
 Total$ 1,630 $ 31 $ 444
          
2010        
Common stock equity $ 1,021 $ 13 $ 408
Preferred stock and other equity   28   -   11
Corporate debt   90   -   6
U.S. state and municipal debt   132   4   3
U.S. and foreign government debt  264   2   10
Money market funds and other   52   -   1
 Total$ 1,587 $ 19 $ 439
          

The NDT funds and other available-for-sale debt investments held in certain benefit trusts are managed by third-party investment managers who have a right to sell securities without our authorization. Net unrealized gains and losses of the NDT funds that would be recorded in earnings or other comprehensive income by a nonregulated entity are recorded as regulatory assets and liabilities pursuant to ratemaking treatment. Therefore, the preceding tables include the unrealized gains and losses for the NDT funds based on the original cost of the trust investments. All of the unrealized losses and unrealized gains for 2011 and 2010 relate to the NDT funds. There were no material unrealized losses and unrealized gains for the other available-for-sale debt securities held in benefit trusts at December 31, 2011 and 2010.

The aggregate fair value of investments that related to the December 31, 2011 and 2010 unrealized losses was $136 million and $195 million, respectively.

At December 31, 2011, the fair value of our available-for-sale debt securities by contractual maturity was:

     
 (in millions)   
 Due in one year or less$ 44 
 Due after one through five years  231 
 Due after five through 10 years  147 
 Due after 10 years  90 
 Total$ 512 
     

The following table presents selected information about our sales of available-for-sale securities for the years ended December 31. Realized gains and losses were determined on a specific identification basis.

     
(in millions) 2011 2010 2009
Proceeds$ 4,640$ 6,747$ 2,207
Realized gains  30  21  26
Realized losses  33  27  87
       

Proceeds were primarily related to NDT funds. Realized gains and losses for investments in the benefit investment trusts were not material. Other securities are evaluated on an individual basis to determine if a decline in fair value below the carrying value is other-than-temporary. At December 31, 2011 and 2010, our other securities had no investments in a continuous loss position for greater than 12 months.

PEC

DEBT

The carrying amount of PEC's long-term debt, including current maturities, was $4.193 billion and $3.693 billion at December 31, 2011 and 2010, respectively. The estimated fair value of this debt, as obtained from quoted market prices for the same or similar issues, was $4.7 billion and $4.0 billion at December 31, 2011 and 2010, respectively.

INVESTMENTS

Certain investments in debt and equity securities that have readily determinable market values are accounted for as available-for-sale securities at fair value. PEC's available-for-sale securities include investments in stocks, bonds and cash equivalents held in trust funds, pursuant to NRC requirements, to fund certain costs of decommissioning PEC's nuclear plants (See Note 5C). NDT funds are presented on the Consolidated Balance Sheets at fair value.

The following table summarizes PEC's available-for-sale securities at December 31:

          
(in millions) Fair Value  Unrealized Losses  Unrealized Gains
  
2011        
Common stock equity $ 673 $ 20 $ 255
Preferred stock and other equity  17   -   7
Corporate debt  69   -   5
U.S. state and municipal debt  56   -   3
U.S. and foreign government debt  226   -   16
Money market funds and other  60   -   1
 Total$ 1,101 $ 20 $ 287
          
2010        
Common stock equity $ 652 $ 10 $ 256
Preferred stock and other equity   14   -   6
Corporate debt  72   -   5
U.S. state and municipal debt   51   1   1
U.S. and foreign government debt   199   1   9
Money market funds and other  42   -   1
 Total$ 1,030 $ 12 $ 278
          

The NDT funds are managed by third-party investment managers who have a right to sell securities without our authorization. Net unrealized gains and losses of the NDT funds that would be recorded in earnings or other comprehensive income by a nonregulated entity are recorded as regulatory assets and liabilities pursuant to ratemaking treatment. Therefore, the preceding tables include the unrealized gains and losses for the NDT funds based on the original cost of the trust investments. All of the unrealized losses and gains for 2011 and 2010 relate to the NDT funds.

The aggregate fair value of investments that related to the December 31, 2011 and 2010 unrealized losses was $98 million and $104 million, respectively.

At December 31, 2011, the fair value of PEC's available-for-sale debt securities by contractual maturity was:

     
 (in millions)   
 Due in one year or less$ 16 
 Due after one through five years  184 
 Due after five through 10 years  100 
 Due after 10 years  62 
 Total$ 362 
     

The following table presents selected information about PEC's sales of available-for-sale securities for the years ended December 31. Realized gains and losses were determined on a specific identification basis.

   
(in millions) 2011 2010 2009
Proceeds$ 496$ 419$ 622
Realized gains  13  10  9
Realized losses  16  19  36
       

PEC's proceeds were primarily related to NDT funds. Other securities are evaluated on an individual basis to determine if a decline in fair value below the carrying value is other-than-temporary. At December 31, 2011 and 2010, PEC did not have any other securities.

PEF

DEBT

The carrying amount of PEF's long-term debt, including current maturities, was $4.482 billion at December 31, 2011 and 2010. The estimated fair value of this debt, as obtained from quoted market prices for the same or similar issues, was $5.4 billion and $5.0 billion at December 31, 2011 and 2010, respectively.

INVESTMENTS

Certain investments in debt and equity securities that have readily determinable market values are accounted for as available-for-sale securities at fair value. PEF's available-for-sale securities include investments in stocks, bonds and cash equivalents held in trust funds, pursuant to NRC requirements, to fund certain costs of decommissioning PEF's nuclear plant (See Note 5C). The NDT funds are presented on the Balance Sheets at fair value.

The following table summarizes PEF's available-for-sale securities at December 31:

          
(in millions) Fair Value  Unrealized Losses  Unrealized Gains
  
2011        
Common stock equity $ 360 $ 9 $ 146
Preferred stock and other equity  12   -   4
Corporate debt   17   -   1
U.S. state and municipal debt  72   2   4
U.S. and foreign government debt  58   -   2
Money market funds and other  10   -   -
 Total$ 529 $ 11 $ 157
          
2010        
Common stock equity $ 369 $ 3 $ 152
Preferred stock and other equity  14   -   5
Corporate debt  14   -   1
U.S. state and municipal debt  81   3   2
U.S. and foreign government debt   62   1   1
Money market funds and other  10   -   -
 Total$ 550 $ 7 $ 161
          

The NDT funds are managed by third-party investment managers who have a right to sell securities without our authorization. Net unrealized gains and losses of the NDT funds that would be recorded in earnings or other comprehensive income by a nonregulated entity are recorded as regulatory assets and liabilities pursuant to ratemaking treatment. Therefore, the preceding tables include unrealized gains and losses for the NDT funds based on the original cost of the trust investments. All of the unrealized losses and gains for 2011 and 2010 relate to the NDT funds.

The aggregate fair value of investments that related to the December 31, 2011 and 2010 unrealized losses was $38 million and $87 million, respectively.

At December 31, 2011, the fair value of PEF's available-for-sale debt securities by contractual maturity was:

     
 (in millions)   
 Due in one year or less$ 28 
 Due after one through five years  47 
 Due after five through 10 years  47 
 Due after 10 years  28 
 Total$ 150 
     

The following table presents selected information about PEF's sales of available-for-sale securities for the years ended December 31. Realized gains and losses were determined on a specific identification basis.

       
(in millions) 2011 2010 2009
Proceeds$ 4,130$ 6,170$ 1,471
Realized gains  17  10  14
Realized losses  17  8  50
       

PEF's proceeds were related to NDT funds. Other securities are evaluated on an individual basis to determine if a decline in fair value below the carrying value is other-than-temporary. At December 31, 2011 and 2010, PEF did not have any other securities.

B.       FAIR VALUE MEASUREMENTS

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Fair value measurements require the use of market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, corroborated by market data or generally unobservable. Valuation techniques are required to maximize the use of observable inputs and minimize the use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.

GAAP also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, and requires fair value measurements to be categorized based on the observability of those inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The three levels of the fair value hierarchy are as follows:

Level 1 – The pricing inputs are unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives and listed equities.

Level 2 – The pricing inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets.

Level 3 – The pricing inputs include significant inputs generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value. Level 3 instruments may include longer-term instruments that extend into periods in which quoted prices or other observable inputs are not available.

Certain assets and liabilities, including long-lived assets, were measured at fair value on a nonrecurring basis. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported. These fair value measurements fall within Level 3 of the hierarchy discussed above.

The following tables set forth, by level within the fair value hierarchy, our and the Utilities' financial assets and liabilities accounted for at fair value on a recurring basis as of December 31, 2011 and 2010. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

PROGRESS ENERGY           
(in millions) Level 1  Level 2  Level 3  Total
2011           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 1,033 $ - $ - $ 1,033
  Preferred stock and other equity  28   1   -   29
  Corporate debt  -   86   -   86
  U.S. state and municipal debt  -   128   -   128
  U.S. and foreign government debt  87   197   -   284
  Money market funds and other  -   87   -   87
 Total nuclear decommissioning trust funds  1,148   499   -   1,647
 Derivatives           
  Commodity forward contracts  -   5   -   5
 Other marketable securities           
  Money market and other  20   -   -   20
  Total assets$ 1,168 $ 504 $ - $ 1,672
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 668 $ 24 $ 692
  Interest rate contracts  -   93   -   93
  Contingent value obligations  -   14   -   14
  Total liabilities$ - $ 775 $ 24 $ 799
              
              
(in millions) Level 1  Level 2  Level 3  Total
2010           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 1,021 $ - $ - $ 1,021
  Preferred stock and other equity  22   6   -   28
  Corporate debt  -   86   -   86
  U.S. state and municipal debt  -   132   -   132
  U.S. and foreign government debt  79   182   -   261
  Money market funds and other  1   42   -   43
 Total nuclear decommissioning trust funds  1,123   448   -   1,571
 Derivatives           
  Commodity forward contracts  -   15   -   15
  Interest rate contracts  -   4   -   4
 Other marketable securities           
  Corporate debt  -   4   -   4
  U.S. and foreign government debt  -   3   -   3
  Money market and other  18   -   -   18
  Total assets$ 1,141 $ 474 $ - $ 1,615
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 458 $ 36 $ 494
  Interest rate contracts  -   39   -   39
  Contingent value obligations  -   15   -   15
  Total liabilities$ - $ 512 $ 36 $ 548
              
PEC           
(in millions) Level 1  Level 2  Level 3  Total
2011           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 673 $ - $ - $ 673
  Preferred stock and other equity  17   -   -   17
  Corporate debt  -   69   -   69
  U.S. state and municipal debt  -   56   -   56
  U.S. and foreign government debt  81   145   -   226
  Money market funds and other  -   47   -   47
 Total nuclear decommissioning trust funds  771   317   -   1,088
 Other marketable securities  6   -   -   6
  Total assets$ 777 $ 317 $ - $ 1,094
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 177 $ 24 $ 201
  Interest rate contracts  -   47   -   47
  Total liabilities$ - $ 224 $ 24 $ 248
              
              
(in millions) Level 1  Level 2  Level 3  Total
2010           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 652 $ - $ - $ 652
  Preferred stock and other equity  14   -   -   14
  Corporate debt  -   72   -   72
  U.S. state and municipal debt  -   51   -   51
  U.S. and foreign government debt  76   123   -   199
  Money market funds and other  1   28   -   29
 Total nuclear decommissioning trust funds  743   274   -   1,017
 Derivatives           
  Commodity forward contracts  -   2   -   2
  Interest rate contracts  -   3   -   3
 Other marketable securities  4   -   -   4
  Total assets$ 747 $ 279 $ - $ 1,026
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 87 $ 36 $ 123
  Interest rate contracts  -   11   -   11
  Total liabilities$ - $ 98 $ 36 $ 134
              
PEF           
(in millions) Level 1  Level 2  Level 3  Total
2011           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 360 $ - $ - $ 360
  Preferred stock and other equity  11   1   -   12
  Corporate debt  -   17   -   17
  U.S. state and municipal debt  -   72   -   72
  U.S. and foreign government debt  6   52   -   58
  Money market funds and other  -   40   -   40
 Total nuclear decommissioning trust funds  377   182   -   559
 Derivatives           
  Commodity forward contracts  -   5   -   5
 Other marketable securities  1   -   -   1
  Total assets$ 378 $ 187 $ - $ 565
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 491 $ - $ 491
  Interest rate contracts  -   8   -   8
  Total liabilities$ - $ 499 $ - $ 499
              
              
(in millions) Level 1  Level 2  Level 3  Total
2010           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 369 $ - $ - $ 369
  Preferred stock and other equity  8   6   -   14
  Corporate debt  -   14   -   14
  U.S. state and municipal debt  -   81   -   81
  U.S. and foreign government debt  3   59   -   62
  Money market funds and other  -   14   -   14
 Total nuclear decommissioning trust funds  380   174   -   554
 Derivatives           
  Commodity forward contracts  -   13   -   13
 Other marketable securities  1   -   -   1
  Total assets$ 381 $ 187 $ - $ 568
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 371 $ - $ 371
  Interest rate contracts  -   7   -   7
  Total liabilities$ - $ 378 $ - $ 378
              

The determination of the fair values in the preceding tables incorporates various factors, including risks of nonperformance by us or our counterparties. Such risks consider not only the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits or letters of credit), but also the impact of our and the Utilities' credit risk on our liabilities.

Commodity forward contract derivatives and interest rate contract derivatives reflect positions held by us and the Utilities. Most over-the-counter commodity forward contract derivatives and interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified within Level 2. Other derivatives are valued utilizing inputs that are not observable for substantially the full term of the contract, or for which the impact of the unobservable period is significant to the fair value of the derivative. Such derivatives are classified within Level 3. See Note 18 for discussion of risk management activities and derivative transactions.

NDT funds reflect the assets of the Utilities' nuclear decommissioning trusts. The assets of the trusts are invested primarily in exchange-traded equity securities (classified within Level 1) and marketable debt securities, most of which are valued using Level 1 inputs for similar instruments and are classified within Level 2.

Other marketable securities primarily represent available-for-sale debt securities used to fund certain employee benefit costs.

Contingent Value Obligations (CVOs), which are derivatives, are discussed further in Note 16. At September 30, 2011, we determined the fair value of the CVOs based on the purchase price in a negotiated settlement agreement (a Level 3 input) and classified CVOs as Level 3 at that date. Prior to September 30, 2011, the CVOs were recorded at fair value based on observable prices from a less-than-active market and classified as Level 2. In November 2011, we commenced a public tender offer that expired on February 15, 2012. All CVOs not tendered as of December 31, 2011, were classified as Level 2 based on observable prices in the less-than-active market.

Transfers in (out) of Levels 1, 2 or 3 represent existing assets or liabilities previously categorized as a higher level for which the inputs to the estimate became less observable or assets and liabilities that were previously classified as Level 2 or 3 for which the lowest significant input became more observable during the period. There were no significant transfers in (out) of Levels 1, 2 and 3 during the period other than the CVO transfer previously discussed. Transfers into and out of each level are measured at the end of the period.

A reconciliation of changes in the fair value of our and the Utilities' derivatives, net classified as Level 3 in the fair value hierarchy for the years ended December 31 follows:

          
PROGRESS ENERGY   
(in millions) 2011  2010  2009
Derivatives, net at beginning of period$ 36 $ 39 $ 41
Total losses (gains), realized and unrealized – commodities        
 deferred as regulatory assets and liabilities, net  21   44   13
Repurchases of CVOs under settlement and tender offer  (60)   -   -
Transfers into Level 3 – CVOs  74   -   -
Transfers out of Level 3 – CVOs  (14)   -   -
Transfers in (out) of Level 3, net – commodities  (33)   (47)   (15)
Derivatives, net at end of period$ 24 $ 36 $ 39
          
PEC   
(in millions) 2011  2010  2009
Derivatives, net at beginning of period$ 36 $ 27 $ 22
Total losses (gains), realized and unrealized – commodities        
 deferred as regulatory assets and liabilities, net  20   27   7
Transfers in (out) of Level 3, net – commodities  (32)   (18)   (2)
Derivatives, net at end of period$ 24 $ 36 $ 27
          
PEF   
(in millions) 2011  2010  2009
Derivatives, net at beginning of period$ - $ 12 $ 19
Total losses (gains), realized and unrealized – commodities        
 deferred as regulatory assets and liabilities, net  1   17   6
Transfers in (out) of Level 3, net – commodities  (1)   (29)   (13)
Derivatives, net at end of period$ - $ - $ 12
          

Substantially all unrealized gains and losses on the Utilities' derivatives are deferred as regulatory liabilities or assets consistent with ratemaking treatment. Realized and unrealized losses on the change in fair value of our CVOs are discussed in Note 18.

PEC
  
Fair Value Disclosures [Line Items]  
Fair Value Disclosures

14.       FAIR VALUE DISCLOSURES

A.       DEBT AND INVESTMENTS

PEC

DEBT

The carrying amount of PEC's long-term debt, including current maturities, was $4.193 billion and $3.693 billion at December 31, 2011 and 2010, respectively. The estimated fair value of this debt, as obtained from quoted market prices for the same or similar issues, was $4.7 billion and $4.0 billion at December 31, 2011 and 2010, respectively.

INVESTMENTS

Certain investments in debt and equity securities that have readily determinable market values are accounted for as available-for-sale securities at fair value. PEC's available-for-sale securities include investments in stocks, bonds and cash equivalents held in trust funds, pursuant to NRC requirements, to fund certain costs of decommissioning PEC's nuclear plants (See Note 5C). NDT funds are presented on the Consolidated Balance Sheets at fair value.

The following table summarizes PEC's available-for-sale securities at December 31:

          
(in millions) Fair Value  Unrealized Losses  Unrealized Gains
  
2011        
Common stock equity $ 673 $ 20 $ 255
Preferred stock and other equity  17   -   7
Corporate debt  69   -   5
U.S. state and municipal debt  56   -   3
U.S. and foreign government debt  226   -   16
Money market funds and other  60   -   1
 Total$ 1,101 $ 20 $ 287
          
2010        
Common stock equity $ 652 $ 10 $ 256
Preferred stock and other equity   14   -   6
Corporate debt  72   -   5
U.S. state and municipal debt   51   1   1
U.S. and foreign government debt   199   1   9
Money market funds and other  42   -   1
 Total$ 1,030 $ 12 $ 278
          

The NDT funds are managed by third-party investment managers who have a right to sell securities without our authorization. Net unrealized gains and losses of the NDT funds that would be recorded in earnings or other comprehensive income by a nonregulated entity are recorded as regulatory assets and liabilities pursuant to ratemaking treatment. Therefore, the preceding tables include the unrealized gains and losses for the NDT funds based on the original cost of the trust investments. All of the unrealized losses and gains for 2011 and 2010 relate to the NDT funds.

The aggregate fair value of investments that related to the December 31, 2011 and 2010 unrealized losses was $98 million and $104 million, respectively.

At December 31, 2011, the fair value of PEC's available-for-sale debt securities by contractual maturity was:

     
 (in millions)   
 Due in one year or less$ 16 
 Due after one through five years  184 
 Due after five through 10 years  100 
 Due after 10 years  62 
 Total$ 362 
     

The following table presents selected information about PEC's sales of available-for-sale securities for the years ended December 31. Realized gains and losses were determined on a specific identification basis.

   
(in millions) 2011 2010 2009
Proceeds$ 496$ 419$ 622
Realized gains  13  10  9
Realized losses  16  19  36
       

PEC's proceeds were primarily related to NDT funds. Other securities are evaluated on an individual basis to determine if a decline in fair value below the carrying value is other-than-temporary. At December 31, 2011 and 2010, PEC did not have any other securities.

B.       FAIR VALUE MEASUREMENTS

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Fair value measurements require the use of market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, corroborated by market data or generally unobservable. Valuation techniques are required to maximize the use of observable inputs and minimize the use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.

GAAP also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, and requires fair value measurements to be categorized based on the observability of those inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The three levels of the fair value hierarchy are as follows:

Level 1 – The pricing inputs are unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives and listed equities.

Level 2 – The pricing inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets.

Level 3 – The pricing inputs include significant inputs generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value. Level 3 instruments may include longer-term instruments that extend into periods in which quoted prices or other observable inputs are not available.

Certain assets and liabilities, including long-lived assets, were measured at fair value on a nonrecurring basis. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported. These fair value measurements fall within Level 3 of the hierarchy discussed above.

The following tables set forth, by level within the fair value hierarchy, our and the Utilities' financial assets and liabilities accounted for at fair value on a recurring basis as of December 31, 2011 and 2010. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

PEC           
(in millions) Level 1  Level 2  Level 3  Total
2011           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 673 $ - $ - $ 673
  Preferred stock and other equity  17   -   -   17
  Corporate debt  -   69   -   69
  U.S. state and municipal debt  -   56   -   56
  U.S. and foreign government debt  81   145   -   226
  Money market funds and other  -   47   -   47
 Total nuclear decommissioning trust funds  771   317   -   1,088
 Other marketable securities  6   -   -   6
  Total assets$ 777 $ 317 $ - $ 1,094
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 177 $ 24 $ 201
  Interest rate contracts  -   47   -   47
  Total liabilities$ - $ 224 $ 24 $ 248
              
              
(in millions) Level 1  Level 2  Level 3  Total
2010           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 652 $ - $ - $ 652
  Preferred stock and other equity  14   -   -   14
  Corporate debt  -   72   -   72
  U.S. state and municipal debt  -   51   -   51
  U.S. and foreign government debt  76   123   -   199
  Money market funds and other  1   28   -   29
 Total nuclear decommissioning trust funds  743   274   -   1,017
 Derivatives           
  Commodity forward contracts  -   2   -   2
  Interest rate contracts  -   3   -   3
 Other marketable securities  4   -   -   4
  Total assets$ 747 $ 279 $ - $ 1,026
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 87 $ 36 $ 123
  Interest rate contracts  -   11   -   11
  Total liabilities$ - $ 98 $ 36 $ 134
              

The determination of the fair values in the preceding tables incorporates various factors, including risks of nonperformance by us or our counterparties. Such risks consider not only the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits or letters of credit), but also the impact of our and the Utilities' credit risk on our liabilities.

Commodity forward contract derivatives and interest rate contract derivatives reflect positions held by us and the Utilities. Most over-the-counter commodity forward contract derivatives and interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified within Level 2. Other derivatives are valued utilizing inputs that are not observable for substantially the full term of the contract, or for which the impact of the unobservable period is significant to the fair value of the derivative. Such derivatives are classified within Level 3. See Note 18 for discussion of risk management activities and derivative transactions.

NDT funds reflect the assets of the Utilities' nuclear decommissioning trusts. The assets of the trusts are invested primarily in exchange-traded equity securities (classified within Level 1) and marketable debt securities, most of which are valued using Level 1 inputs for similar instruments and are classified within Level 2.

Other marketable securities primarily represent available-for-sale debt securities used to fund certain employee benefit costs.

Contingent Value Obligations (CVOs), which are derivatives, are discussed further in Note 16. At September 30, 2011, we determined the fair value of the CVOs based on the purchase price in a negotiated settlement agreement (a Level 3 input) and classified CVOs as Level 3 at that date. Prior to September 30, 2011, the CVOs were recorded at fair value based on observable prices from a less-than-active market and classified as Level 2. In November 2011, we commenced a public tender offer that expired on February 15, 2012. All CVOs not tendered as of December 31, 2011, were classified as Level 2 based on observable prices in the less-than-active market.

Transfers in (out) of Levels 1, 2 or 3 represent existing assets or liabilities previously categorized as a higher level for which the inputs to the estimate became less observable or assets and liabilities that were previously classified as Level 2 or 3 for which the lowest significant input became more observable during the period. There were no significant transfers in (out) of Levels 1, 2 and 3 during the period other than the CVO transfer previously discussed. Transfers into and out of each level are measured at the end of the period.

A reconciliation of changes in the fair value of our and the Utilities' derivatives, net classified as Level 3 in the fair value hierarchy for the years ended December 31 follows:

PEC   
(in millions) 2011  2010  2009
Derivatives, net at beginning of period$ 36 $ 27 $ 22
Total losses (gains), realized and unrealized – commodities        
 deferred as regulatory assets and liabilities, net  20   27   7
Transfers in (out) of Level 3, net – commodities  (32)   (18)   (2)
Derivatives, net at end of period$ 24 $ 36 $ 27
          

Substantially all unrealized gains and losses on the Utilities' derivatives are deferred as regulatory liabilities or assets consistent with ratemaking treatment. Realized and unrealized losses on the change in fair value of our CVOs are discussed in Note 18.

PEF
  
Fair Value Disclosures [Line Items]  
Fair Value Disclosures

14.       FAIR VALUE DISCLOSURES

A.       DEBT AND INVESTMENTS

PEF

DEBT

The carrying amount of PEF's long-term debt, including current maturities, was $4.482 billion at December 31, 2011 and 2010. The estimated fair value of this debt, as obtained from quoted market prices for the same or similar issues, was $5.4 billion and $5.0 billion at December 31, 2011 and 2010, respectively.

INVESTMENTS

Certain investments in debt and equity securities that have readily determinable market values are accounted for as available-for-sale securities at fair value. PEF's available-for-sale securities include investments in stocks, bonds and cash equivalents held in trust funds, pursuant to NRC requirements, to fund certain costs of decommissioning PEF's nuclear plant (See Note 5C). The NDT funds are presented on the Balance Sheets at fair value.

The following table summarizes PEF's available-for-sale securities at December 31:

          
(in millions) Fair Value  Unrealized Losses  Unrealized Gains
  
2011        
Common stock equity $ 360 $ 9 $ 146
Preferred stock and other equity  12   -   4
Corporate debt   17   -   1
U.S. state and municipal debt  72   2   4
U.S. and foreign government debt  58   -   2
Money market funds and other  10   -   -
 Total$ 529 $ 11 $ 157
          
2010        
Common stock equity $ 369 $ 3 $ 152
Preferred stock and other equity  14   -   5
Corporate debt  14   -   1
U.S. state and municipal debt  81   3   2
U.S. and foreign government debt   62   1   1
Money market funds and other  10   -   -
 Total$ 550 $ 7 $ 161
          

The NDT funds are managed by third-party investment managers who have a right to sell securities without our authorization. Net unrealized gains and losses of the NDT funds that would be recorded in earnings or other comprehensive income by a nonregulated entity are recorded as regulatory assets and liabilities pursuant to ratemaking treatment. Therefore, the preceding tables include unrealized gains and losses for the NDT funds based on the original cost of the trust investments. All of the unrealized losses and gains for 2011 and 2010 relate to the NDT funds.

The aggregate fair value of investments that related to the December 31, 2011 and 2010 unrealized losses was $38 million and $87 million, respectively.

At December 31, 2011, the fair value of PEF's available-for-sale debt securities by contractual maturity was:

     
 (in millions)   
 Due in one year or less$ 28 
 Due after one through five years  47 
 Due after five through 10 years  47 
 Due after 10 years  28 
 Total$ 150 
     

The following table presents selected information about PEF's sales of available-for-sale securities for the years ended December 31. Realized gains and losses were determined on a specific identification basis.

       
(in millions) 2011 2010 2009
Proceeds$ 4,130$ 6,170$ 1,471
Realized gains  17  10  14
Realized losses  17  8  50
       

PEF's proceeds were related to NDT funds. Other securities are evaluated on an individual basis to determine if a decline in fair value below the carrying value is other-than-temporary. At December 31, 2011 and 2010, PEF did not have any other securities.

B.       FAIR VALUE MEASUREMENTS

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Fair value measurements require the use of market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, corroborated by market data or generally unobservable. Valuation techniques are required to maximize the use of observable inputs and minimize the use of unobservable inputs. A midmarket pricing convention (the midpoint price between bid and ask prices) is permitted for use as a practical expedient.

GAAP also establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, and requires fair value measurements to be categorized based on the observability of those inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs). The three levels of the fair value hierarchy are as follows:

Level 1 – The pricing inputs are unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives and listed equities.

Level 2 – The pricing inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category include non-exchange-traded derivatives, such as over-the-counter forwards, swaps and options; certain marketable debt securities; and financial instruments traded in less than active markets.

Level 3 – The pricing inputs include significant inputs generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value. Level 3 instruments may include longer-term instruments that extend into periods in which quoted prices or other observable inputs are not available.

Certain assets and liabilities, including long-lived assets, were measured at fair value on a nonrecurring basis. There were no significant fair value measurement losses recognized for such assets and liabilities in the periods reported. These fair value measurements fall within Level 3 of the hierarchy discussed above.

The following tables set forth, by level within the fair value hierarchy, our and the Utilities' financial assets and liabilities accounted for at fair value on a recurring basis as of December 31, 2011 and 2010. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

PEF           
(in millions) Level 1  Level 2  Level 3  Total
2011           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 360 $ - $ - $ 360
  Preferred stock and other equity  11   1   -   12
  Corporate debt  -   17   -   17
  U.S. state and municipal debt  -   72   -   72
  U.S. and foreign government debt  6   52   -   58
  Money market funds and other  -   40   -   40
 Total nuclear decommissioning trust funds  377   182   -   559
 Derivatives           
  Commodity forward contracts  -   5   -   5
 Other marketable securities  1   -   -   1
  Total assets$ 378 $ 187 $ - $ 565
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 491 $ - $ 491
  Interest rate contracts  -   8   -   8
  Total liabilities$ - $ 499 $ - $ 499
              
              
(in millions) Level 1  Level 2  Level 3  Total
2010           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 369 $ - $ - $ 369
  Preferred stock and other equity  8   6   -   14
  Corporate debt  -   14   -   14
  U.S. state and municipal debt  -   81   -   81
  U.S. and foreign government debt  3   59   -   62
  Money market funds and other  -   14   -   14
 Total nuclear decommissioning trust funds  380   174   -   554
 Derivatives           
  Commodity forward contracts  -   13   -   13
 Other marketable securities  1   -   -   1
  Total assets$ 381 $ 187 $ - $ 568
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 371 $ - $ 371
  Interest rate contracts  -   7   -   7
  Total liabilities$ - $ 378 $ - $ 378
              

The determination of the fair values in the preceding tables incorporates various factors, including risks of nonperformance by us or our counterparties. Such risks consider not only the credit standing of the counterparties involved and the impact of credit enhancements (such as cash deposits or letters of credit), but also the impact of our and the Utilities' credit risk on our liabilities.

Commodity forward contract derivatives and interest rate contract derivatives reflect positions held by us and the Utilities. Most over-the-counter commodity forward contract derivatives and interest rate contract derivatives are valued using financial models which utilize observable inputs for similar instruments and are classified within Level 2. Other derivatives are valued utilizing inputs that are not observable for substantially the full term of the contract, or for which the impact of the unobservable period is significant to the fair value of the derivative. Such derivatives are classified within Level 3. See Note 18 for discussion of risk management activities and derivative transactions.

NDT funds reflect the assets of the Utilities' nuclear decommissioning trusts. The assets of the trusts are invested primarily in exchange-traded equity securities (classified within Level 1) and marketable debt securities, most of which are valued using Level 1 inputs for similar instruments and are classified within Level 2.

Other marketable securities primarily represent available-for-sale debt securities used to fund certain employee benefit costs.

Contingent Value Obligations (CVOs), which are derivatives, are discussed further in Note 16. At September 30, 2011, we determined the fair value of the CVOs based on the purchase price in a negotiated settlement agreement (a Level 3 input) and classified CVOs as Level 3 at that date. Prior to September 30, 2011, the CVOs were recorded at fair value based on observable prices from a less-than-active market and classified as Level 2. In November 2011, we commenced a public tender offer that expired on February 15, 2012. All CVOs not tendered as of December 31, 2011, were classified as Level 2 based on observable prices in the less-than-active market.

Transfers in (out) of Levels 1, 2 or 3 represent existing assets or liabilities previously categorized as a higher level for which the inputs to the estimate became less observable or assets and liabilities that were previously classified as Level 2 or 3 for which the lowest significant input became more observable during the period. There were no significant transfers in (out) of Levels 1, 2 and 3 during the period other than the CVO transfer previously discussed. Transfers into and out of each level are measured at the end of the period.

A reconciliation of changes in the fair value of our and the Utilities' derivatives, net classified as Level 3 in the fair value hierarchy for the years ended December 31 follows:

PEF   
(in millions) 2011  2010  2009
Derivatives, net at beginning of period$ - $ 12 $ 19
Total losses (gains), realized and unrealized – commodities        
 deferred as regulatory assets and liabilities, net  1   17   6
Transfers in (out) of Level 3, net – commodities  (1)   (29)   (13)
Derivatives, net at end of period$ - $ - $ 12
          

Substantially all unrealized gains and losses on the Utilities' derivatives are deferred as regulatory liabilities or assets consistent with ratemaking treatment. Realized and unrealized losses on the change in fair value of our CVOs are discussed in Note 18.