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Fair Value Disclosures
 3 Months Ended
Mar. 31, 2012
Fair Value Disclosures [Line Items]  
Fair Value Disclosures

9.       FAIR VALUE DISCLOSURES

A.       DEBT AND INVESTMENTS

PROGRESS ENERGY

DEBT

The carrying amount of our long-term debt, including current maturities, was $13.390 billion and $12.941 billion at March 31, 2012 and December 31, 2011, respectively. The estimated fair value of this debt was $15.4 billion and $15.3 billion at March 31, 2012 and December 31, 2011, respectively, and is classified within Level 2 (see further discussion under “B. Fair Value Measurements”).

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 as discussed in Note 5C in the 2011 Form 10-K. Nuclear decommissioning trust (NDT) funds are presented on the Consolidated Balance Sheets at fair value.

The following table summarizes our available-for-sale securities at March 31, 2012 and December 31, 2011:

(in millions)Fair Value Unrealized Losses Unrealized Gains
March 31, 2012        
Common stock equity$ 1,160 $ 16 $ 508
Preferred stock and other equity   43   -   14
Corporate debt  90   -   7
U.S. state and municipal debt  124   2   7
U.S. and foreign government debt   293   -   14
Money market funds and other  55   1   1
 Total$ 1,765 $ 19 $ 551
          
December 31, 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
          

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 table includes the unrealized gains and losses for the NDT funds based on the original cost of the trust investments.

The aggregate fair value of investments that related to the 2012 and 2011 unrealized losses was $155 million and $136 million, respectively.

At March 31, 2012, the fair value of our available-for-sale debt securities by contractual maturity was:

 (in millions)  
 Due in one year or less$34 
 Due after one through five years 217 
 Due after five through 10 years 175 
 Due after 10 years 94 
 Total$520 
     

The following table presents selected information about our sales of available-for-sale securities during the three months ended March 31, 2012 and 2011. Realized gains and losses were determined on a specific identification basis.

 (in millions)20122011 
 Proceeds$ 304$ 1,744 
 Realized gains  7  9 
 Realized losses  3  4 
       

PEC

DEBT

The carrying amount of PEC's long-term debt, including current maturities, was $4.193 billion at March 31, 2012 and December 31, 2011. The estimated fair value of this debt was $4.7 billion at March 31, 2012 and December 31, 2011, and is classified within Level 2 (see further discussion under “B. Fair Value Measurements”).

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 as discussed in Note 5C in the 2011 Form 10-K. NDT funds are presented on the Consolidated Balance Sheets at fair value.

The following table summarizes PEC's available-for-sale securities at March 31, 2012 and December 31, 2011:

(in millions)Fair Value Unrealized Losses Unrealized Gains
March 31, 2012        
Common stock equity$ 755 $ 11 $ 322
Preferred stock and other equity   20   -   9
Corporate debt   75   -   6
U.S. state and municipal debt   53   -   3
U.S. and foreign government debt  229   -   13
Money market funds and other  34   1   1
 Total$ 1,166 $ 12 $ 354
          
December 31, 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
          

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 table includes the unrealized gains and losses for the NDT funds based on the original cost of the trust investments.

The aggregate fair value of investments that related to the March 31, 2012 and December 31, 2011 unrealized losses was $99 million and $98 million, respectively.

At March 31, 2012, the fair value of PEC's available-for-sale debt securities by contractual maturity was:

 (in millions)  
 Due in one year or less$11 
 Due after one through five years 191 
 Due after five through 10 years 100 
 Due after 10 years 65 
 Total$367 
     

The following table presents selected information about PEC's sales of available-for-sale securities during the three months ended March 31, 2012 and 2011. Realized gains and losses were determined on a specific identification basis.

 (in millions)2012 2011 
 Proceeds$130 $131 
 Realized gains 5  3 
 Realized losses 2  1 
        

PEF

DEBT

The carrying amount of PEF's long-term debt, including current maturities, was $4.482 billion at March 31, 2012 and December 31, 2011. The estimated fair value of this debt was $5.3 billion and $5.4 billion at March 31, 2012 and December 31, 2011, respectively, and is classified within Level 2 (see further discussion under “B. Fair Value Measurements”).

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 as discussed in Note 5C in the 2011 Form 10-K. The NDT funds are presented on the Balance Sheets at fair value.

The following table summarizes PEF's available-for-sale securities at March 31, 2012 and December 31, 2011:

(in millions)Fair Value Unrealized Losses Unrealized Gains
March 31, 2012        
Common stock equity $405 $5 $ 186
Preferred stock and other equity  23   -   5
Corporate debt  15   -   1
U.S. state and municipal debt  71   2   4
U.S. and foreign government debt  64   -   1
Money market funds and other 21   -   -
 Total$599 $7 $197
          
December 31, 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
          

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 table includes unrealized gains and losses for the NDT funds based on the original cost of the trust investments.

The aggregate fair value of investments that related to the March 31, 2012 and December 31, 2011 unrealized losses was $56 million and $38 million, respectively.

At March 31, 2012, the fair value of PEF's available-for-sale debt securities by contractual maturity was:

 (in millions)  
 Due in one year or less$23 
 Due after one through five years 26 
 Due after five through 10 years 75 
 Due after 10 years 29 
 Total$153 
     

The following table presents selected information about PEF's sales of available-for-sale securities during the three months ended March 31, 2012 and 2011. Realized gains and losses were determined on a specific identification basis.

 (in millions)2012 2011 
 Proceeds$ 174 $ 1,606 
 Realized gains  2   6 
 Realized losses  1   3 
        

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.

We generally classify our and the Utilities' long-term debt within Level 2. Fair value measurements of long-term debt are obtained from an independent third-party and may take into account a number of factors, including valuations of other comparable financial instruments in terms of rating, structure, maturity and/or covenant protection; comparable trades, where observable; and general interest rate and market conditions. We do not make any adjustments to the long-term debt fair value measurements obtained from the independent third-party and we corroborate the fair value measurements against comparable market data.

The following tables set forth, by level within the fair value hierarchy, our and the Utilities' financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2012 and December 31, 2011. 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
March 31, 2012           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 1,160 $ - $ - $ 1,160
  Preferred stock and other equity  33   10   -   43
  Corporate debt  -   90   -   90
  U.S. state and municipal debt  -   124   -   124
  U.S. and foreign government debt  129   164   -   293
  Money market funds and other  1   51   -   52
 Total nuclear decommissioning trust funds  1,323   439   -   1,762
 Derivatives           
  Commodity forward contracts  -   8   -   8
 Other marketable securities           
  Money market and other  18   -   -   18
  Total assets$ 1,341 $ 447 $ - $ 1,788
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 769 $ 27 $ 796
  Interest rate contracts  -   49   -   49
  Contingent value obligations derivatives  -   3   -   3
  Total liabilities$ - $ 821 $ 27 $ 848
              
              
(in millions) Level 1  Level 2  Level 3  Total
December 31, 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 derivatives  -   14   -   14
  Total liabilities$ - $ 775 $ 24 $ 799
              
              
PEC           
(in millions) Level 1  Level 2  Level 3  Total
March 31, 2012           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 755 $ - $ - $ 755
  Preferred stock and other equity  20   -   -   20
  Corporate debt  -   75   -   75
  U.S. state and municipal debt  -   53   -   53
  U.S. and foreign government debt  105   124   -   229
  Money market funds and other  1   30   -   31
 Total nuclear decommissioning trust funds  881   282   -   1,163
 Derivatives           
  Commodity forward contracts  -   1   -   1
 Other marketable securities  4   -   -   4
  Total assets$ 885 $ 283 $ - $ 1,168
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 208 $ 27 $ 235
  Interest rate contracts  -   41   -   41
  Total liabilities$ - $ 249 $ 27 $ 276
              
              
(in millions) Level 1  Level 2  Level 3  Total
December 31, 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
              
              
PEF           
(in millions) Level 1  Level 2  Level 3  Total
March 31, 2012           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 405 $ - $ - $ 405
  Preferred stock and other equity  13   10   -   23
  Corporate debt  -   15   -   15
  U.S. state and municipal debt  -   71   -   71
  U.S. and foreign government debt  24   40   -   64
  Money market funds and other  -   21   -   21
 Total nuclear decommissioning trust funds  442   157   -   599
 Derivatives           
  Commodity forward contracts  -   7   -   7
 Other marketable securities  1   -   -   1
  Total assets$ 443 $ 164 $ - $ 607
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 561 $ - $ 561
  Interest rate contracts  -   8   -   8
  Total liabilities$ - $ 569 $ - $ 569
              
              
(in millions) Level 1  Level 2  Level 3  Total
December 31, 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
              

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. Such models may be internally developed, but are similar to models commonly used across industries to value derivative contracts. To determine fair value, we utilize various inputs and factors including market data and assumptions that market participants would use in pricing assets or liabilities as well as assumptions about the risks inherent in the inputs to the valuation technique. The inputs and factors may include forward commodity prices and price curves, volumes and notional amounts, location, interest rates and credit quality of us and our counterparties. Certain commodity derivatives are valued utilizing pricing 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 11 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.

We issued Contingent Value Obligations (CVOs) in connection with the acquisition of Florida Progress Corporation (Florida Progress), as discussed in Note 16 in the 2011 Form 10-K. The CVOs are derivatives recorded at fair value based on quoted prices from a less-than-active market and are classified as Level 2.

Transfers into (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. Transfers into and out of each level are measured at the end of the period. There were no transfers into (out of) Levels 1, 2 and 3 during the period.

QUALITATIVE AND QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

A reconciliation of changes in the fair value of our and PEC's commodity derivative liabilities classified as Level 3 in the fair value hierarchy for the three months ended March 31 follows:

PROGRESS ENERGY
(in millions)2012 2011
Derivatives, net at January 1$ 24 $ 36
Total unrealized losses (gains) deferred as regulatory assets and liabilities, net  3   (4)
Derivatives, net at March 31$ 27 $ 32
       
       
PEC
(in millions)2012 2011
Derivatives, net at January 1$ 24 $ 36
Total unrealized losses (gains) deferred as regulatory assets and liabilities, net  3   (4)
Derivatives, net at March 31$ 27 $ 32
       
       

During the three months ended March 31, 2012 and 2011, PEF did not have any assets or liabilities classified as Level 3.

Substantially all unrealized gains and losses on derivatives are deferred as regulatory liabilities or assets consistent with ratemaking treatment. There were no Level 3 realized gains or losses, purchases, sales, issuances or settlements during the period.

For commodity derivative contracts classified as Level 3, we utilize internally-developed financial models based upon the income approach (discounted cash flow method) to measure the fair values. The primary inputs to these models are the forward commodity prices used to develop the forward price curves for the respective instrument. The pricing inputs are derived from published exchange transaction prices and other observable or public data sources. For the commodity derivative contracts classified as Level 3, the pricing inputs for natural gas forward price curves are not observable for the full term of the related contracts. In isolation, increases (decreases) in these unobservable forward natural gas prices would result in favorable (unfavorable) fair value adjustments. In the absence of observable market information that supports the pricing inputs, there is a presumption that the transaction price is equal to the last observable price for a similar period. We regularly evaluate and validate the pricing inputs we use to estimate fair value by a market participant price verification procedure, which provides a comparison of our forward commodity curves to market participant generated curves.

Quantitative information about our and PEC's commodity derivative liabilities classified as Level 3 follows:

PROGRESS ENERGY
(in millions)Fair Value Valuation Technique Unobservable Input  Range (price per MMBtu)
March 31, 2012           
Commodity natural gas hedges$ 27 Discounted cash flow Forward natural gas curves $ 4.111- 4.528
            
            
PEC
(in millions)Fair Value Valuation Technique Unobservable Input  Range (price per MMBtu)
March 31, 2012           
Commodity natural gas hedges$ 27 Discounted cash flow Forward natural gas curves $ 4.111- 4.528
            
PEC
  
Fair Value Disclosures [Line Items]  
Fair Value Disclosures

9.       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 at March 31, 2012 and December 31, 2011. The estimated fair value of this debt was $4.7 billion at March 31, 2012 and December 31, 2011, and is classified within Level 2 (see further discussion under “B. Fair Value Measurements”).

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 as discussed in Note 5C in the 2011 Form 10-K. NDT funds are presented on the Consolidated Balance Sheets at fair value.

The following table summarizes PEC's available-for-sale securities at March 31, 2012 and December 31, 2011:

(in millions)Fair Value Unrealized Losses Unrealized Gains
March 31, 2012        
Common stock equity$ 755 $ 11 $ 322
Preferred stock and other equity   20   -   9
Corporate debt   75   -   6
U.S. state and municipal debt   53   -   3
U.S. and foreign government debt  229   -   13
Money market funds and other  34   1   1
 Total$ 1,166 $ 12 $ 354
          
December 31, 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
          

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 table includes the unrealized gains and losses for the NDT funds based on the original cost of the trust investments.

The aggregate fair value of investments that related to the March 31, 2012 and December 31, 2011 unrealized losses was $99 million and $98 million, respectively.

At March 31, 2012, the fair value of PEC's available-for-sale debt securities by contractual maturity was:

 (in millions)  
 Due in one year or less$11 
 Due after one through five years 191 
 Due after five through 10 years 100 
 Due after 10 years 65 
 Total$367 
     

The following table presents selected information about PEC's sales of available-for-sale securities during the three months ended March 31, 2012 and 2011. Realized gains and losses were determined on a specific identification basis.

 (in millions)2012 2011 
 Proceeds$130 $131 
 Realized gains 5  3 
 Realized losses 2  1 
        

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.

We generally classify our and the Utilities' long-term debt within Level 2. Fair value measurements of long-term debt are obtained from an independent third-party and may take into account a number of factors, including valuations of other comparable financial instruments in terms of rating, structure, maturity and/or covenant protection; comparable trades, where observable; and general interest rate and market conditions. We do not make any adjustments to the long-term debt fair value measurements obtained from the independent third-party and we corroborate the fair value measurements against comparable market data.

The following tables set forth, by level within the fair value hierarchy, our and the Utilities' financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2012 and December 31, 2011. 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
March 31, 2012           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 755 $ - $ - $ 755
  Preferred stock and other equity  20   -   -   20
  Corporate debt  -   75   -   75
  U.S. state and municipal debt  -   53   -   53
  U.S. and foreign government debt  105   124   -   229
  Money market funds and other  1   30   -   31
 Total nuclear decommissioning trust funds  881   282   -   1,163
 Derivatives           
  Commodity forward contracts  -   1   -   1
 Other marketable securities  4   -   -   4
  Total assets$ 885 $ 283 $ - $ 1,168
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 208 $ 27 $ 235
  Interest rate contracts  -   41   -   41
  Total liabilities$ - $ 249 $ 27 $ 276
              
              
(in millions) Level 1  Level 2  Level 3  Total
December 31, 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
              

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. Such models may be internally developed, but are similar to models commonly used across industries to value derivative contracts. To determine fair value, we utilize various inputs and factors including market data and assumptions that market participants would use in pricing assets or liabilities as well as assumptions about the risks inherent in the inputs to the valuation technique. The inputs and factors may include forward commodity prices and price curves, volumes and notional amounts, location, interest rates and credit quality of us and our counterparties. Certain commodity derivatives are valued utilizing pricing 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 11 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.

We issued Contingent Value Obligations (CVOs) in connection with the acquisition of Florida Progress Corporation (Florida Progress), as discussed in Note 16 in the 2011 Form 10-K. The CVOs are derivatives recorded at fair value based on quoted prices from a less-than-active market and are classified as Level 2.

Transfers into (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. Transfers into and out of each level are measured at the end of the period. There were no transfers into (out of) Levels 1, 2 and 3 during the period.

QUALITATIVE AND QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

A reconciliation of changes in the fair value of our and PEC's commodity derivative liabilities classified as Level 3 in the fair value hierarchy for the three months ended March 31 follows:

       
PEC
(in millions)2012 2011
Derivatives, net at January 1$ 24 $ 36
Total unrealized losses (gains) deferred as regulatory assets and liabilities, net  3   (4)
Derivatives, net at March 31$ 27 $ 32
       

During the three months ended March 31, 2012 and 2011, PEF did not have any assets or liabilities classified as Level 3.

Substantially all unrealized gains and losses on derivatives are deferred as regulatory liabilities or assets consistent with ratemaking treatment. There were no Level 3 realized gains or losses, purchases, sales, issuances or settlements during the period.

For commodity derivative contracts classified as Level 3, we utilize internally-developed financial models based upon the income approach (discounted cash flow method) to measure the fair values. The primary inputs to these models are the forward commodity prices used to develop the forward price curves for the respective instrument. The pricing inputs are derived from published exchange transaction prices and other observable or public data sources. For the commodity derivative contracts classified as Level 3, the pricing inputs for natural gas forward price curves are not observable for the full term of the related contracts. In isolation, increases (decreases) in these unobservable forward natural gas prices would result in favorable (unfavorable) fair value adjustments. In the absence of observable market information that supports the pricing inputs, there is a presumption that the transaction price is equal to the last observable price for a similar period. We regularly evaluate and validate the pricing inputs we use to estimate fair value by a market participant price verification procedure, which provides a comparison of our forward commodity curves to market participant generated curves.

Quantitative information about our and PEC's commodity derivative liabilities classified as Level 3 follows:

            
PEC
(in millions)Fair Value Valuation Technique Unobservable Input  Range (price per MMBtu)
March 31, 2012           
Commodity natural gas hedges$ 27 Discounted cash flow Forward natural gas curves $ 4.111- 4.528
            
PEF
  
Fair Value Disclosures [Line Items]  
Fair Value Disclosures

9.       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 March 31, 2012 and December 31, 2011. The estimated fair value of this debt was $5.3 billion and $5.4 billion at March 31, 2012 and December 31, 2011, respectively, and is classified within Level 2 (see further discussion under “B. Fair Value Measurements”).

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 as discussed in Note 5C in the 2011 Form 10-K. The NDT funds are presented on the Balance Sheets at fair value.

The following table summarizes PEF's available-for-sale securities at March 31, 2012 and December 31, 2011:

(in millions)Fair Value Unrealized Losses Unrealized Gains
March 31, 2012        
Common stock equity $405 $5 $ 186
Preferred stock and other equity  23   -   5
Corporate debt  15   -   1
U.S. state and municipal debt  71   2   4
U.S. and foreign government debt  64   -   1
Money market funds and other 21   -   -
 Total$599 $7 $197
          
December 31, 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
          

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 table includes unrealized gains and losses for the NDT funds based on the original cost of the trust investments.

The aggregate fair value of investments that related to the March 31, 2012 and December 31, 2011 unrealized losses was $56 million and $38 million, respectively.

At March 31, 2012, the fair value of PEF's available-for-sale debt securities by contractual maturity was:

 (in millions)  
 Due in one year or less$23 
 Due after one through five years 26 
 Due after five through 10 years 75 
 Due after 10 years 29 
 Total$153 
     

The following table presents selected information about PEF's sales of available-for-sale securities during the three months ended March 31, 2012 and 2011. Realized gains and losses were determined on a specific identification basis.

 (in millions)2012 2011 
 Proceeds$ 174 $ 1,606 
 Realized gains  2   6 
 Realized losses  1   3 
        

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.

We generally classify our and the Utilities' long-term debt within Level 2. Fair value measurements of long-term debt are obtained from an independent third-party and may take into account a number of factors, including valuations of other comparable financial instruments in terms of rating, structure, maturity and/or covenant protection; comparable trades, where observable; and general interest rate and market conditions. We do not make any adjustments to the long-term debt fair value measurements obtained from the independent third-party and we corroborate the fair value measurements against comparable market data.

The following tables set forth, by level within the fair value hierarchy, our and the Utilities' financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2012 and December 31, 2011. 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
March 31, 2012           
Assets           
 Nuclear decommissioning trust funds           
  Common stock equity$ 405 $ - $ - $ 405
  Preferred stock and other equity  13   10   -   23
  Corporate debt  -   15   -   15
  U.S. state and municipal debt  -   71   -   71
  U.S. and foreign government debt  24   40   -   64
  Money market funds and other  -   21   -   21
 Total nuclear decommissioning trust funds  442   157   -   599
 Derivatives           
  Commodity forward contracts  -   7   -   7
 Other marketable securities  1   -   -   1
  Total assets$ 443 $ 164 $ - $ 607
              
Liabilities           
 Derivatives           
  Commodity forward contracts$ - $ 561 $ - $ 561
  Interest rate contracts  -   8   -   8
  Total liabilities$ - $ 569 $ - $ 569
              
              
(in millions) Level 1  Level 2  Level 3  Total
December 31, 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
              

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. Such models may be internally developed, but are similar to models commonly used across industries to value derivative contracts. To determine fair value, we utilize various inputs and factors including market data and assumptions that market participants would use in pricing assets or liabilities as well as assumptions about the risks inherent in the inputs to the valuation technique. The inputs and factors may include forward commodity prices and price curves, volumes and notional amounts, location, interest rates and credit quality of us and our counterparties. Certain commodity derivatives are valued utilizing pricing 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 11 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.

We issued Contingent Value Obligations (CVOs) in connection with the acquisition of Florida Progress Corporation (Florida Progress), as discussed in Note 16 in the 2011 Form 10-K. The CVOs are derivatives recorded at fair value based on quoted prices from a less-than-active market and are classified as Level 2.

Transfers into (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. Transfers into and out of each level are measured at the end of the period. There were no transfers into (out of) Levels 1, 2 and 3 during the period.

QUALITATIVE AND QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

A reconciliation of changes in the fair value of our and PEC's commodity derivative liabilities classified as Level 3 in the fair value hierarchy for the three months ended March 31 follows:

During the three months ended March 31, 2012 and 2011, PEF did not have any assets or liabilities classified as Level 3.

Substantially all unrealized gains and losses on derivatives are deferred as regulatory liabilities or assets consistent with ratemaking treatment. There were no Level 3 realized gains or losses, purchases, sales, issuances or settlements during the period.

For commodity derivative contracts classified as Level 3, we utilize internally-developed financial models based upon the income approach (discounted cash flow method) to measure the fair values. The primary inputs to these models are the forward commodity prices used to develop the forward price curves for the respective instrument. The pricing inputs are derived from published exchange transaction prices and other observable or public data sources. For the commodity derivative contracts classified as Level 3, the pricing inputs for natural gas forward price curves are not observable for the full term of the related contracts. In isolation, increases (decreases) in these unobservable forward natural gas prices would result in favorable (unfavorable) fair value adjustments. In the absence of observable market information that supports the pricing inputs, there is a presumption that the transaction price is equal to the last observable price for a similar period. We regularly evaluate and validate the pricing inputs we use to estimate fair value by a market participant price verification procedure, which provides a comparison of our forward commodity curves to market participant generated curves.

Quantitative information about our and PEC's commodity derivative liabilities classified as Level 3 follows: