Variable Interest Entities (Exelon, Generation, PHI and ACE)

9 Months Ended

Sep. 30, 2019

Variable Interest Entites (Exelon, Generation, PHI and ACE)

Variable Interest Entities (Exelon, Generation, PHI and ACE)

At September 30, 2019 and December 31, 2018, Exelon, Generation, PHI and ACE collectively consolidated several VIEs or VIE groups for which the applicable Registrant was the primary beneficiary (see Consolidated VIEs below) and had significant interests in several other VIEs for which the applicable Registrant does not have the power to direct the entities’ activities and, accordingly, was not the primary beneficiary (see Unconsolidated VIEs below). Consolidated and unconsolidated VIEs are aggregated to the extent that the entities have similar risk profiles.

Consolidated VIEs

The table below shows the carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the consolidated financial statements of Exelon, Generation, PHI and ACE as of September 30, 2019 and December 31, 2018. The assets, except as noted in the footnotes to the table below, can only be used to settle obligations of the VIEs. The liabilities, except as noted in the footnote to the table below, are such that creditors, or beneficiaries, do not have recourse to the general credit of Exelon, Generation, PHI and ACE.



	September 30, 2019								December 31, 2018
	Exelon		Generation		PHI ^(a)		ACE		Exelon		Generation		PHI ^(a)		ACE
Cash and cash equivalents	$	168	$	168	$	—	$	—	$	414	$	414	$	—	$	—
Restricted cash and cash equivalents	76		73		3		3		66		62		4		4
Accounts receivable, net
Customer	163		163		—		—		146		146		—		—
Other	43		43		—		—		23		23		—		—
Unamortized energy contract asset ^(b)	23		23		—		—		25		25		—		—
Inventory, net
Materials and supplies	222		222		—		—		212		212		—		—
Other current assets	50		48		2		—		52		49		3		—
Total current assets	745		740		5		3		938		931		7		4
Property, plant and equipment, net ^(c)	6,079		6,079		—		—		6,188		6,188		—		—
NDT funds	2,636		2,636		—		—		2,351		2,351		—		—
Unamortized energy contract asset ^(b)	258		258		—		—		274		274		—		—
Other noncurrent assets	69		52		17		15		258		232		26		19
Total noncurrent assets	9,042		9,025		17		15		9,071		9,045		26		19
Total assets	$	9,787	$	9,765	$	22	$	18	$	10,009	$	9,976	$	33	$	23
Long-term debt due within one year	$	556	$	535	$	21	$	19	$	87	$	66	$	21	$	18
Accounts payable	148		148		—		—		96		96		—		—
Accrued expenses	58		57		1		1		73		72		1		1
Unamortized energy contract liabilities	10		10		—		—		15		15		—		—
Other current liabilities	30		30		—		—		3		3		—		—
Total current liabilities	802		780		22		20		274		252		22		19
Long-term debt	532		504		28		26		1,072		1,025		47		40
Asset retirement obligations ^(d)	2,103		2,103		—		—		2,165		2,165		—		—
Unamortized energy contract liabilities	1		1		—		—		1		1		—		—
Other noncurrent liabilities	84		84		—		—		42		42		—		—
Total noncurrent liabilities	2,720		2,692		28		26		3,280		3,233		47		40
Total liabilities	$	3,522	$	3,472	$	50	$	46	$	3,554	$	3,485	$	69	$	59

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(a)	Includes certain purchase accounting adjustments not pushed down to the ACE standalone entity.


(b)	These are unrestricted assets to Exelon and Generation.


(c)	Exelon’s and Generation’s balances include unrestricted assets of $41 million and $43 million as of September 30, 2019 and December 31, 2018, respectively.


(d)	Exelon’s and Generation’s balances include liabilities with recourse of $5 million as of September 30, 2019 and December 31, 2018.

As of September 30, 2019 and December 31, 2018, Exelon's and Generation's consolidated VIEs consist of:



Consolidated VIE or VIE groups:	Reason entity is a VIE:	Reason Generation is primary beneficiary:
CENG - A joint venture between Generation and EDF. Generation has a 50.01% equity ownership in CENG. See additional discussion below.	Disproportionate relationship between equity interest and operational control as a result of the Nuclear Operating Services Agreement (NOSA) described further below.	Generation conducts the operational activities.
EGRP - A collection of wind and solar project entities. Generation has a 51% equity ownership in EGRP. See additional discussion below.	Similar structure to a limited partnership and the limited partners do not have kick out rights with respect to the general partner.	Generation conducts the operational activities.
Bluestem Wind Energy Holdings, LLC - A Tax Equity structure which is consolidated by EGRP. Generation is a minority interest holder.	Similar structure to a limited partnership and the limited partners do not have kick out rights with respect to the general partner.	Generation conducts the operational activities.
Antelope Valley - A solar generating facility, which is 100% owned by Generation. Antelope Valley sells all of its output to PG&E through a PPA.	The PPA contract absorbs variability through a performance guarantee.	Generation conducts all activities.
Equity investment in distributed energy company - Generation has a 31% equity ownership. This distributed energy company has an interest in an unconsolidated VIE (see Unconsolidated VIEs disclosure below). Generation fully impaired this investment in the third quarter of 2019. See Note 7— Asset Impairments for additional information.	Similar structure to a limited partnership and the limited partners do not have kick out rights with respect to the general partner.	Generation conducts the operational activities.

CENG - On April 1, 2014, Generation, CENG, and subsidiaries of CENG executed the NOSA pursuant to which Generation conducts all activities associated with the operations of the CENG fleet and provides corporate and administrative services to CENG and the CENG fleet for the remaining life of the CENG nuclear plants as if they were a part of the Generation nuclear fleet, subject to the CENG member rights of EDF.

Exelon and Generation, where indicated, provide the following support to CENG:


•	Generation provided a $400 million loan to CENG. The loan balance was fully repaid by CENG in January 2019.

•

Generation executed an Indemnity Agreement pursuant to which Generation agreed to indemnify EDF against third-party claims that may arise from any future nuclear incident (as defined in the Price-Anderson Act) in connection with the CENG nuclear plants or their operations. Exelon guarantees Generation’s obligations under this Indemnity Agreement. See Note 22 — Commitments and Contingencies of the Exelon 2018 Form 10-K for additional information.


•	Generation and EDF share in the $688 million of contingent payment obligations for the payment of contingent retrospective premium adjustments for the nuclear liability insurance.


•	Exelon has executed an agreement to provide up to $245 million to support the operations of CENG as well as a $165 million guarantee of CENG’s cash pooling agreement with its subsidiaries.

EGRP - EGRP is a collection of wind and solar project entities and some of these project entities are VIEs that are consolidated by EGRP. Generation owns a number of limited liability companies that build, own, and operate solar and wind power facilities some of which are owned by EGRP. While Generation or EGRP owns 100% of the solar entities and 100% of the majority of the wind entities, it has been determined that certain of the solar and wind entities are VIEs because the entities require additional subordinated financial support in the form of a parental guarantee of debt, loans from the customers in order to obtain the necessary funds for construction of the solar facilities, or the customers absorb price variability from the entities through the fixed price power and/or REC purchase agreements. Generation is the primary beneficiary of these solar and wind entities that qualify as VIEs because Generation controls the design, construction, and operation of the facilities. Generation provides operating and capital funding to the solar and wind entities for ongoing construction, operations and maintenance and there is limited recourse related to Generation related to certain solar and wind entities.

In 2017, Generation’s interests in EGRP were contributed to and are pledged for the EGR IV non-recourse debt project financing structure. Refer to Note 11— Debt and Credit Agreements for additional information.

As of September 30, 2019 and December 31, 2018, Exelon's, PHI's and ACE's consolidated VIE consists of:



Consolidated VIEs:	Reason entity is a VIE:	Reason ACE is the primary beneficiary:
ACE Transition Funding - A special purpose entity formed by ACE for the purpose of securitizing authorized portions of ACE’s recoverable stranded costs through the issuance and sale of transition bonds. Proceeds from the sale of each series of transition bonds by ATF were transferred to ACE in exchange for the transfer by ACE to ATF of the right to collect a non-bypassable Transition Bond Charge from ACE customers pursuant to bondable stranded costs rate orders issued by the NJBPU in an amount sufficient to fund the principal and interest payments on transition bonds and related taxes, expenses and fees.	ACE’s equity investment is a variable interest as, by design, it absorbs any initial variability of ACETF. The bondholders also have a variable interest for the investment made to purchase the transition bonds.	ACE controls the servicing activities.

Unconsolidated VIEs

Exelon’s and Generation’s variable interests in unconsolidated VIEs generally include equity investments and energy purchase and sale contracts. For the equity investments, the carrying amount of the investments is reflected in Exelon’s and Generation’s Consolidated Balance Sheets in Investments. For the energy purchase and sale contracts (commercial agreements), the carrying amount of assets and liabilities in Exelon’s and Generation’s Consolidated Balance Sheets that relate to their involvement with the VIEs are predominately related to working capital accounts and generally represent the amounts owed by, or owed to, Exelon and Generation for the deliveries associated with the current billing cycles under the commercial agreements.

As of September 30, 2019 and December 31, 2018, Exelon and Generation had significant unconsolidated variable interests in several VIEs for which Exelon or Generation, as applicable, was not the primary beneficiary. These interests include certain equity method investments and certain commercial agreements.

The following table presents summary information about Exelon's and Generation’s unconsolidated VIE entities:



	September 30, 2019						December 31, 2018
	Commercial Agreement VIEs		Equity Investment VIEs		Total		Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	614	$	453	$	1,067	$	597	$	472	$	1,069
Total liabilities^(a)	36		224		260		37		222		259
Exelon's ownership interest in VIE^(a)	—		201		201		—		223		223
Other ownership interests in VIE^(a)	587		28		615		560		27		587
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments	—		12		12		—		223		223

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(a)	These items represent amounts in the unconsolidated VIE balance sheets, not in Exelon’s or Generation’s Consolidated Balance Sheets. These items are included to provide information regarding the relative size of the unconsolidated VIEs.

For each of the unconsolidated VIEs, Exelon and Generation have assessed the risk of a loss equal to their maximum exposure to be remote and, accordingly, Exelon and Generation have not recognized a liability associated with any portion of the maximum exposure to loss.

As of September 30, 2019 and December 31, 2018, Exelon's and Generation's unconsolidated VIEs consist of:



Unconsolidated VIE groups:	Reason entity is a VIE:	Reason Generation is not the primary beneficiary:
Equity investments in distributed energy companies - 1) Generation has a 90% equity ownership in a distributed energy company. 2) Generation, via a consolidated VIE, has a 90% equity ownership in another distributed energy company (See Consolidated VIEs disclosure above). Generation fully impaired these investments in the third quarter of 2019. See Note 7— Asset Impairments for additional information.	Similar structures to a limited partnership and the limited partners do not have kick out rights with respect to the general partner.	Generation does not conduct the operational activities.
Energy Purchase and Sale agreements - Generation has several energy purchase and sale agreements with generating facilities.	PPA contracts that absorb variability through fixed pricing.	Generation does not conduct the operational activities.