12. Fair Value of Financial Assets and Liabilities (All Registrants)

Fair Value of Financial Liabilities Recorded at the Carrying Amount

The following tables present the carrying amounts and fair values of the Registrants’ short-term liabilities, long-term debt, SNF obligation, and trust preferred securities (long-term debt to financing trusts or junior subordinated debentures) as of December 31, 2016 and 2015:

Exelon



	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	1,267	$	—	$	1,267	$	—	$	1,267
Long-term debt (including amounts due within one year) ^(a)	34,005		1,113		31,741		1,959		34,813
Long-term debt to financing trusts ^(b)	641		—		—		667		667
SNF obligation	1,024		—		732		—		732



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	536	$	3	$	533	$	—	$	536
Long-term debt (including amounts due within one year) ^(a)	25,145		931		23,644		1,349		25,924
Long-term debt to financing trusts ^(b)	641		—		—		673		673
SNF obligation	1,021		—		818		—		818

Generation



	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	699	$	—	$	699	$	—	$	699
Long-term debt (including amounts due within one year) ^(a)	9,241		—		7,482		1,670		9,152
SNF obligation	1,024		—		732		—		732



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	29	$	—	$	29	$	—	$	29
Long-term debt (including amounts due within one year) ^(a)	8,959		—		7,767		1,349		9,116
SNF obligation	1,021		—		818		—		818

ComEd



	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year) ^(a)	$	7,033	$	—	$	7,585	$	—	$	7,585
Long-term debt to financing trusts ^(b)	205		—		—		215		215



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	294	$	—	$	294	$	—	$	294
Long-term debt (including amounts due within one year) ^(a)	6,509		—		7,069		—		7,069
Long-term debt to financing trusts ^(b)	205		—		—		213		213

PECO



	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year) ^(a)	$	2,580	$	—	$	2,794	$	—	$	2,794
Long-term debt to financing trusts	184		—		—		192		192



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year) ^(a)	$	2,580	$	—	$	2,786	$	—	$	2,786
Long-term debt to financing trusts	184		—		—		195		195

BGE



	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	45	$	—	$	45	$	—	$	45
Long-term debt (including amounts due within one year) ^(a)	2,322		—		2,467		—		2,467
Long-term debt to financing trusts ^(b)	252		—		—		260		260



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	213	$	3	$	210	$	—	$	213
Long-term debt (including amounts due within one year) ^(a)	1,858		—		2,044		—		2,044
Long-term debt to financing trusts ^(b)	252		—		—		264		264

PHI



	December 31, 2016
	Carrying Amount		Fair Value
Successor	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	522	$	—	$	522	$	—	$	522
Long-term debt (including amounts due within one year) ^(a)	5,898		—		5,520		289		5,809



	December 31, 2015
	Carrying Amount		Fair Value
Predecessor	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	958	$	—	$	958	$	—	$	958
Long-term debt (including amounts due within one year) ^(a)	5,279		—		5,231		586		5,817
Preferred stock	183		—		—		183		183

Pepco



	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	23	$	—	$	23	$	—	$	23
Long-term debt (including amounts due within one year) ^(a)	2,349		—		2,788		8		2,796



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	64	$	—	$	64	$	—	$	64
Long-term debt (including amounts due within one year) ^(a)	2,351		—		2,673		—		2,673

DPL



	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year) ^(a)	$	1,340	$	—	$	1,383	$	—	$	1,383



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	105	$	—	$	105	$	—	$	105
Long-term debt (including amounts due within one year) ^(a)	1,265		—		1,185		103		1,288

ACE



	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year) ^(a)	$	1,155	$	—	$	1,007	$	280	$	1,287



	December 31, 2015
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	5	$	—	$	5	$	—	$	5
Long-term debt (including amounts due within one year) ^(a)	1,201		—		1,044		280		1,324

________

(a)

Includes unamortized debt issuance costs, which are not fair valued, of $200 million, $64 million, $46 million, $15 million, $15 million, $2 million, $30 million, $11 million, and $6 million for Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE respectively, as of December 31, 2016. Includes unamortized debt issuance costs, which are not fair valued, of $180 million, $70 million, $38 million, $15 million, $9 million, $49 million, $31 million, $10 million, and $6 million for Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL, and ACE respectively, as of December 31, 2015.


(b)	Includes unamortized debt issuance costs which are not fair valued of $7 million, $1 million and $6 million for Exelon, ComEd and BGE, respectively, as of December 31, 2016 and December 31, 2015.

Short-Term Liabilities. The short-term liabilities included in the tables above are comprised of dividends payable (included in other current liabilities) (Level 1) and short-term borrowings (Level 2). The Registrants’ carrying amounts of the short-term liabilities are representative of fair value because of the short-term nature of these instruments.

Long-Term Debt. The fair value amounts of Exelon’s taxable debt securities (Level 2) and private placement taxable debt securities (Level 3) are determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. In order to incorporate the credit risk of the Registrants into the discount rates, Exelon obtains pricing (i.e., U.S. Treasury rate plus credit spread) based on trades of existing Exelon debt securities as well as debt securities of other issuers in the utility sector with similar credit ratings in both the primary and secondary market, across the Registrants’ debt maturity spectrum. The credit spreads of various tenors obtained from this information are added to the appropriate benchmark U.S. Treasury rates in order to determine the current market yields for the various tenors. The yields are then converted into discount rates of various tenors that are used for discounting the respective cash flows of the same tenor for each bond or note. Due to low trading volume of private placement debt, qualitative factors such as market conditions, low volume of investors and investor demand, this debt is classified as Level 3. The fair value of Exelon's equity units (Level 1) are valued based on publicly traded securities issued by Exelon.

The fair value of Generation’s, Pepco's and PHI's non-government-backed fixed rate nonrecourse debt (Level 3) is based on market and quoted prices for its own and other nonrecourse debt with similar risk profiles. Given the low trading volume in the nonrecourse debt market, the price quotes used to determine fair value will reflect certain qualitative factors, such as market conditions, investor demand, new developments that might significantly impact the project cash flows or off-taker credit, and other circumstances related to the project (e.g., political and regulatory environment). The fair value of Generation’s government-backed fixed rate project financing debt (Level 3) is largely based on a discounted cash flow methodology that is similar to the taxable debt securities methodology described above. Due to the lack of market trading data on similar debt, the discount rates are derived based on the original loan interest rate spread to the applicable Treasury rate as well as a current market curve derived from government-backed securities. Variable rate project financing debt resets on a monthly or quarterly basis and the carrying value approximates fair value (Level 2). When trading data is available on variable rate project financing debt, the fair value is based on market and quoted prices for its own and other nonrecourse debt with similar risk profiles (Level 2). Generation, Pepco, DPL and ACE also have tax-exempt debt (Level 2). Due to low trading volume in this market, qualitative factors, such as market conditions, investor demand, and circumstances related to the issuer (e.g., conduit issuer political and regulatory environment), may be incorporated into the credit spreads that are used to obtain the fair value as described above. Variable rate tax-exempt debt (Level 2) resets on a regular basis and the carrying value approximates fair value.

SNF Obligation. The carrying amount of Generation’s SNF obligation (Level 2) is derived from a contract with the DOE to provide for disposal of SNF from Generation’s nuclear generating stations. When determining the fair value of the obligation, the future carrying amount of the SNF obligation is calculated by compounding the current book value of the SNF obligation at the 13-week Treasury rate. The compounded obligation amount is discounted back to present value using Generation’s discount rate, which is calculated using the same methodology as described above for the taxable debt securities, and an estimated maturity date of 2030 and 2025 as of December 31, 2016 and 2015, respectively. See Note 24 - Commitments and Contingencies for additional information regarding the change in estimated settlement date.

Long-Term Debt to Financing Trusts. Exelon’s long-term debt to financing trusts is valued based on publicly traded securities issued by the financing trusts. Due to low trading volume of these securities, qualitative factors, such as market conditions, investor demand, and circumstances related to each issue, this debt is classified as Level 3.

Preferred Stock. The fair value of these securities is determined based on the carrying value of the shares per the Subscription Agreement between PHI and Exelon. See Note 19 - Mezzanine Equity for further details.

Recurring Fair Value Measurements

Exelon records the fair value of assets and liabilities in accordance with the hierarchy established by the authoritative guidance for fair value measurements. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:


•	Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the Registrants have the ability to liquidate as of the reporting date.


•	Level 2 — inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.


•	Level 3 — unobservable inputs, such as internally developed pricing models or third-party valuations for the asset or liability due to little or no market activity for the asset or liability.

Transfers in and out of levels are recognized as of the end of the reporting period when the transfer occurred. Given derivatives categorized within Level 1 are valued using exchange-based quoted prices within observable periods, transfers between Level 2 and Level 1 were not material. Additionally, there were no significant transfers between Level 1 and Level 2 during the year ended December 31, 2016 for cash equivalents, nuclear decommissioning trust fund investments, pledged assets for Zion Station decommissioning, Rabbi trust investments, and deferred compensation obligations. For derivative contracts, transfers into Level 2 from Level 3 generally occur when the contract tenor becomes more observable and due to changes in market liquidity or assumptions for certain commodity contracts.

Generation and Exelon

In accordance with the applicable guidance on fair value measurement, certain investments that are measured at fair value using the NAV per share as a practical expedient are no longer classified within the fair value hierarchy and are included under "Not subject to leveling" in the table below. See Note 1 - Significant Accounting Policies for additional information.

The following tables present assets and liabilities measured and recorded at fair value on Exelon's and Generation’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2016 and 2015:



	Generation										Exelon
As of December 31, 2016	Level 1		Level 2		Level 3		Not subject to leveling		Total		Level 1		Level 2		Level 3		Not subject to leveling			Total
Assets
Cash equivalents ^(a)	$	39	$	—	$	—	$	—	$	39	$	373	$	—	$	—	$	—		$	373
NDT fund investments
Cash equivalents ^(b)	110		19		—		—		129		110		19		—		—			129
Equities	3,551		452		—		2,011		6,014		3,551		452		—		2,011			6,014
Fixed income
Corporate debt	—		1,554		250		—		1,804		—		1,554		250		—			1,804
U.S. Treasury and agencies	1,291		29		—		—		1,320		1,291		29		—		—			1,320
Foreign governments	—		37		—		—		37		—		37		—		—			37
State and municipal debt	—		264		—		—		264		—		264		—		—			264
Other ^(c)	—		59		—		493		552		—		59		—		493		—	552
Fixed income subtotal	1,291		1,943		250		493		3,977		1,291		1,943		250		493			3,977
Middle market lending	—		—		427		71		498		—		—		427		71			498
Private equity	—		—		—		148		148		—		—		—		148			148
Real estate	—		—		—		326		326		—		—		—		326			326
NDT fund investments subtotal ^(d)	4,952		2,414		677		3,049		11,092		4,952		2,414		677		3,049			11,092
Pledged assets for Zion Station decommissioning
Cash equivalents	11		—		—		—		11		11		—		—		—			11
Equities	—		2		—		—		2		—		2		—		—			2
Fixed Income - U.S. Treasury and agencies	16		1		—		—		17		16		1		—		—			17
Middle market lending	—		—		19		64		83		—		—		19		64			83
Pledged assets for Zion Station decommissioning subtotal ^(e)	27		3		19		64		113		27		3		19		64			113
Rabbi trust investments
Cash equivalents	2		—		—		—		2		74		—		—		—			74
Mutual funds	19		—		—		—		19		50		—		—		—			50



	Generation														Exelon
As of December 31, 2016	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Fixed income	—			—			—			—		—			—			16			—			—		16
Life insurance contracts	—			18			—			—		18			—			64			20			—		84
Rabbi trust investments subtotal	21			18			—			—		39			124			80			20			—		224
Commodity derivative assets
Economic hedges	1,356			2,505			1,229			—		5,090			1,358			2,505			1,229			—		5,092
Proprietary trading	3			50			23			—		76			3			50			23			—		76
Effect of netting and allocation of collateral ^(f)	(1,162		)	(2,142		)	(481		)	—		(3,785		)	(1,164		)	(2,142		)	(481		)	—		(3,787		)
Commodity derivative assets subtotal	197			413			771			—		1,381			197			413			771			—		1,381
Interest rate and foreign currency derivative assets
Derivatives designated as hedging instruments	—			—			—			—		—			—			16			—			—		16
Economic hedges	—			28			—			—		28			—			28			—			—		28
Proprietary trading	3			2			—			—		5			3			2			—			—		5
Effect of netting and allocation of collateral	(2		)	(19		)	—			—		(21		)	(2		)	(19		)	—			—		(21		)
Interest rate and foreign currency derivative assets subtotal	1			11			—			—		12			1			27			—			—		28
Other investments	—			—			42			—		42			—			—			42			—		42
Total assets	5,237			2,859			1,509			3,113		12,718			5,674			2,937			1,529			3,113		13,253
Liabilities
Commodity derivative liabilities
Economic hedges	(1,267		)	(2,378		)	(794		)	—		(4,439		)	(1,267		)	(2,378		)	(1,052		)	—		(4,697		)
Proprietary trading	(3		)	(50		)	(26		)	—		(79		)	(3		)	(50		)	(26		)	—		(79		)
Effect of netting and allocation of collateral ^(f)	1,233			2,339			542			—		4,114			1,233			2,339			542			—		4,114
Commodity derivative liabilities subtotal	(37		)	(89		)	(278		)	—		(404		)	(37		)	(89		)	(536		)	—		(662		)
Interest rate and foreign currency derivative liabilities
Derivatives designated as hedging instruments	—			(10		)	—			—		(10		)	—			(10		)	—			—		(10		)
Economic hedges	—			(21		)	—			—		(21		)	—			(21		)	—			—		(21		)
Proprietary trading	(4		)	—			—			—		(4		)	(4		)	—			—			—		(4		)
Effect of netting and allocation of collateral	4			19			—			—		23			4			19			—			—		23
Interest rate and foreign currency derivative liabilities subtotal	—			(12		)	—			—		(12		)	—			(12		)	—			—		(12		)
Deferred compensation obligation	—			(34		)	—			—		(34		)	—			(136		)	—					(136		)
Total liabilities	(37		)	(135		)	(278		)	—		(450		)	(37		)	(237		)	(536		)	—		(810		)
Total net assets	$	5,200		$	2,724		$	1,231		$	3,113	$	12,268		$	5,637		$	2,700		$	993		$	3,113	$	12,443



	Generation										Exelon
As of December 31, 2015	Level 1		Level 2		Level 3		Not subject to leveling		Total		Level 1		Level 2		Level 3		Not subject to leveling		Total
Assets
Cash equivalents ^(a)	$	104	$	—	$	—	$	—	$	104	$	5,766	$	—	$	—	$	—	$	5,766
NDT fund investments
Cash equivalents ^(b)	219		92		—		—		311		219		92		—		—		311
Equities	3,008		—		—		1,894		4,902		3,008		—		—		1,894		4,902



	Generation									Exelon
As of December 31, 2015	Level 1		Level 2		Level 3		Not subject to leveling	Total		Level 1		Level 2		Level 3		Not subject to leveling	Total
Fixed income
Corporate debt	—		1,824		242		—	2,066		—		1,824		242		—	2,066
U.S. Treasury and agencies	1,323		15		—		—	1,338		1,323		15		—		—	1,338
Foreign governments	—		61		—		—	61		—		61		—		—	61
State and municipal debt	—		326		—		—	326		—		326		—		—	326
Other ^(c)	—		147		—		390	537		—		147		—		390	537
Fixed income subtotal	1,323		2,373		242		390	4,328		1,323		2,373		242		390	4,328
Middle market lending	—		—		428		—	428		—		—		428		—	428
Private equity	—		—		—		125	125		—		—		—		125	125
Real estate	—		—		—		35	35		—		—		—		35	35
Other	—		—		—		216	216		—		—		—		216	216
Nuclear decommissioning trust fund investments subtotal ^(d)	4,550		2,465		670		2,660	10,345		4,550		2,465		670		2,660	10,345
Pledged assets for Zion Station decommissioning
Cash equivalents	—		17		—		—	17		—		17		—		—	17
Equities	1		5		—		—	6		1		5		—		—	6
Fixed income
U.S. Treasury and agencies	6		2		—		—	8		6		2		—		—	8
Corporate debt	—		46		—		—	46		—		46		—		—	46
Other	—		1		—		—	1		—		1		—		—	1
Fixed income subtotal	6		49		—		—	55		6		49		—		—	55
Middle market lending	—		—		22		105	127		—		—		22		105	127
Pledged assets for Zion Station decommissioning subtotal ^(e)	7		71		22		105	205		7		71		22		105	205
Rabbi trust investments
Mutual funds	17		—		—		—	17		48		—		—		—	48
Life insurance contracts	—		13		—		—	13		—		36		—		—	36
Rabbi trust investments subtotal	17		13		—		—	30		48		36		—		—	84
Commodity derivative assets
Economic hedges	1,922		3,467		1,707		—	7,096		1,922		3,467		1,707		—	7,096
Proprietary trading	36		64		30		—	130		36		64		30		—	130
Effect of netting and allocation of collateral ^(f)	(1,964	)	(2,629	)	(564	)	—	(5,157	)	(1,964	)	(2,629	)	(564	)	—	(5,157	)
Commodity derivative assets subtotal	(6	)	902		1,173		—	2,069		(6	)	902		1,173		—	2,069
Interest rate and foreign currency derivative assets
Derivatives designated as hedging instruments	—		—		—		—	—		—		25		—		—	25
Economic hedges	—		20		—		—	20		—		20		—		—	20
Proprietary trading	10		5		—		—	15		10		5		—		—	15
Effect of netting and allocation of collateral	(3	)	(3	)	—		—	(6	)	(3	)	(3	)	—		—	(6	)
Interest rate and foreign currency derivative assets subtotal	7		22		—		—	29		7		47		—		—	54
Other investments	—		—		33		—	33		—		—		33		—	33
Total assets	4,679		3,473		1,898		2,765	12,815		10,372		3,521		1,898		2,765	18,556
Liabilities
Commodity derivative liabilities



	Generation														Exelon
As of December 31, 2015	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Economic hedges	(2,382		)	(3,348		)	(850		)	—		(6,580		)	(2,382		)	(3,348		)	(1,097		)	—		(6,827		)
Proprietary trading	(33		)	(57		)	(37		)	—		(127		)	(33		)	(57		)	(37		)	—		(127		)
Effect of netting and allocation of collateral ^(f)	2,440			3,186			765			—		6,391			2,440			3,186			765			—		6,391
Commodity derivative liabilities subtotal	25			(219		)	(122		)	—		(316		)	25			(219		)	(369		)	—		(563		)
Interest rate and foreign currency derivative liabilities
Derivatives designated as hedging instruments	—			(16		)	—			—		(16		)	—			(16		)	—			—		(16		)
Economic hedges	—			(3		)	—			—		(3		)	—			(3		)	—			—		(3		)
Proprietary trading	(12		)	—			—			—		(12		)	(12		)	—			—			—		(12		)
Effect of netting and allocation of collateral	12			3			—			—		15			12			3			—			—		15
Interest rate and foreign currency derivative liabilities subtotal	—			(16		)	—			—		(16		)	—			(16		)	—			—		(16		)
Deferred compensation obligation	—			(30		)	—			—		(30		)	—			(99		)	—			—		(99		)
Total liabilities	25			(265		)	(122		)	—		(362		)	25			(334		)	(369		)	—		(678		)
Total net assets	$	4,704		$	3,208		$	1,776		$	2,765	$	12,453		$	10,397		$	3,187		$	1,529		$	2,765	$	17,878

_________________________

(a)

Generation excludes cash of $252 million and $329 million at December 31, 2016 and 2015 and restricted cash of $157 million and $121 million at December 31, 2016 and 2015. Exelon excludes cash of $360 million and $763 million at December 31, 2016 and 2015 and restricted cash of $180 million and $178 million at December 31, 2016 and 2015 and includes long term restricted cash of $25 million at December 31, 2016, which is reported in other deferred debits on the balance sheet.


(b)	Includes $29 million and $52 million of cash received from outstanding repurchase agreements at December 31, 2016 and 2015, respectively, and is offset by an obligation to repay upon settlement of the agreement as discussed in (d) below.

(c)

Includes derivative instruments of $(2) million and $(8) million, which have a total notional amount of $933 million and $1,236 million at December 31, 2016 and 2015, respectively. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of the fiscal years ended and do not represent the amount of the company's exposure to credit or market loss.

(d)

Excludes net liabilities of $(31) million and $(3) million at December 31, 2016 and 2015, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables, repurchase agreement obligations, and payables related to pending securities purchases. The repurchase agreements are generally short-term in nature with durations generally of 30 days or less.


(e)	Excludes net assets of less than $1 million and $1 million at December 31, 2016 and 2015, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables, and payables related to pending securities purchases.

(f)

Collateral posted to/(received from) counterparties totaled $71 million, $197 million and $61 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2016. Collateral posted to/(received from) counterparties totaled $476 million, $557 million and $201 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2015.

ComEd, PECO and BGE

The following tables present assets and liabilities measured and recorded at fair value on ComEd's, PECO's and BGE's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2016 and 2015:



	ComEd											PECO										BGE
As of December 31, 2016	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents ^(a)	$	20	$	—		$	—		$	20		$	45	$	—		$	—	$	45		$	36	$	—		$	—	$	36
Rabbi trust investments
Mutual funds	—		—			—			—			7		—			—		7			4		—			—		4
Life insurance contracts	—		—			—			—			—		10			—		10			—		—			—		—
Rabbi trust investments subtotal	—		—			—			—			7		10			—		17			4		—			—		4
Total assets	20		—			—			20			52		10			—		62			40		—			—		40
Liabilities
Deferred compensation obligation	—		(8		)	—			(8		)	—		(11		)	—		(11		)	—		(4		)	—		(4		)
Mark-to-market derivative liabilities ^(b)	—		—			(258		)	(258		)	—		—			—		—			—		—			—		—
Total liabilities	—		(8		)	(258		)	(266		)	—		(11		)	—		(11		)	—		(4		)	—		(4		)
Total net assets (liabilities)	$	20	$	(8	)	$	(258	)	$	(246	)	$	52	$	(1	)	$	—	$	51		$	40	$	(4	)	$	—	$	36



	ComEd											PECO										BGE
As of December 31, 2015	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents ^(a)	$	29	$	—		$	—		$	29		$	271	$	—		$	—	$	271		$	25	$	—		$	—	$	25
Rabbi trust investments
Mutual funds	—		—			—			—			8		—			—		8			4		—			—		4
Life insurance contracts	—		—			—			—			—		12			—		12			—		—			—		—
Rabbi trust investments subtotal	—		—			—			—			8		12			—		20			4		—			—		4
Total assets	29		—			—			29			279		12			—		291			29		—			—		29
Liabilities
Deferred compensation obligation	—		(8		)	—			(8		)	—		(12		)	—		(12		)	—		(4		)	—		(4		)
Mark-to-market derivative liabilities ^(b)	—		—			(247		)	(247		)	—		—			—		—			—		—			—		—
Total liabilities	—		(8		)	(247		)	(255		)	—		(12		)	—		(12		)	—		(4		)	—		(4		)
Total net assets (liabilities)	$	29	$	(8	)	$	(247	)	$	(226	)	$	279	$	—		$	—	$	279		$	29	$	(4	)	$	—	$	25

_________________________

(a)

ComEd excludes cash of $36 million and $38 million at December 31, 2016 and 2015 and restricted cash of $2 million and $2 million at December 31, 2016 and 2015. PECO excludes cash of $22 million and $27 million at December 31, 2016 and 2015. BGE excludes cash of $13 million and $6 million at December 31, 2016 and 2015 and restricted cash of less than $1 million and $2 million at December 31, 2016 and 2015 and includes long term restricted cash of $2 million at December 31, 2016, which is reported in other deferred debits on the balance sheet.


(b)	The Level 3 balance consists of the current and noncurrent liability of $19 million and $239 million, respectively, at December 31, 2016, and $23 million and $224 million, respectively, at December 31, 2015, related to floating-to-fixed energy swap contracts with unaffiliated suppliers.

PHI, Pepco, DPL and ACE

The following tables present assets and liabilities measured and recorded at fair value on PHI's, Pepco's, DPL's and ACE's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2016 and December 31, 2015:



	Successor											Predecessor
	As of December 31, 2016											As of December 31, 2015
PHI	Level 1			Level 2			Level 3		Total			Level 1			Level 2			Level 3		Total
Assets
Cash equivalents ^(a)	$	217		$	—		$	—	$	217		$	42		$	—		$	—	$	42
Mark-to-market derivative assets ^(b)(c)	2			—			—		2			—			—			18		18
Effect of netting and allocation of collateral	(2		)	—			—		(2		)	—			—			—		—
Mark-to-market derivative assets subtotal	—			—			—		—			—			—			18		18
Rabbi trust investments
Cash equivalents	73			—			—		73			12			—			—		12
Fixed income	—			16			—		16			—			15			—		15
Life insurance contracts	—			22			20		42			—			27			19		46
Rabbi trust investments subtotal	73			38			20		131			12			42			19		73
Total assets	290			38			20		348			54			42			37		133
Liabilities
Deferred compensation obligation	—			(28		)	—		(28		)	—			(30		)	—		(30		)
Mark-to-market derivative liabilities ^(b)	—			—			—		—			(2		)	—			—		(2		)
Effect of netting and allocation of collateral	—			—			—		—			2			—			—		2
Mark-to-market derivative liabilities subtotal	—			—			—		—			—			—			—		—
Total liabilities	—			(28		)	—		(28		)	—			(30		)	—		(30		)
Total net assets	$	290		$	10		$	20	$	320		$	54		$	12		$	37	$	103



	Pepco										DPL											ACE
As of December 31, 2016	Level 1		Level 2			Level 3		Total			Level 1			Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total
Assets
Cash equivalents ^(a)	$	33	$	—		$	—	$	33		$	42		$	—		$	—	$	42		$	130	$	—	$	—	$	130
Mark-to-market derivative assets ^(b)	—		—			—		—			2			—			—		2			—		—		—		—
Effect of netting and allocation of collateral	—		—			—		—			(2		)	—			—		(2		)	—		—		—		—
Mark-to-market derivative assets subtotal	—		—			—		—			—			—			—		—			—		—		—		—
Rabbi trust investments
Cash equivalents	43		—			—		43			—			—			—		—			—		—		—		—
Fixed income	—		16			—		16			—			—			—		—			—		—		—		—
Life insurance contracts	—		22			19		41			—			—			—		—			—		—		—		—
Rabbi trust investments subtotal	43		38			19		100			—			—			—		—			—		—		—		—
Total assets	76		38			19		133			42			—			—		42			130		—		—		130
Liabilities
Deferred compensation obligation	—		(5		)	—		(5		)	—			(1		)	—		(1		)	—		—		—		—
Total liabilities	—		(5		)	—		(5		)	—			(1		)	—		(1		)	—		—		—		—
Total net assets (liabilities)	$	76	$	33		$	19	$	128		$	42		$	(1	)	$	—	$	41		$	130	$	—	$	—	$	130



	Pepco										DPL											ACE
As of December 31, 2015	Level 1		Level 2			Level 3		Total			Level 1			Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total
Assets
Cash equivalents ^(a)	$	2	$	—		$	—	$	2		$	—		$	—		$	—	$	—		$	30	$	—	$	—	$	30
Rabbi trust investments
Cash equivalents	11		—			—		11			—			—			—		—			—		—		—		—
Fixed income	—		15			—		15			—			—			—		—			—		—		—		—
Life insurance contracts	—		23			19		42			—			—			—		—			—		—		—		—
Rabbi trust investments subtotal	11		38			19		68			—			—			—		—			—		—		—		—
Total assets	13		38			19		70			—			—			—		—			30		—		—		30
Liabilities
Deferred compensation obligation	—		(6		)	—		(6		)	—			(1		)	—		(1		)	—		—		—		—
Mark-to-market derivative liabilities ^(b)	—		—			—		—			(2		)	—			—		(2		)	—		—		—		—
Effect of netting and allocation of collateral	—		—			—		—			2			—			—		2			—		—		—		—
Mark-to-market derivative liabilities subtotal	—		—			—		—			—			—			—		—			—		—		—		—
Total liabilities	—		(6		)	—		(6		)	—			(1		)	—		(1		)	—		—		—		—
Total net assets (liabilities)	$	13	$	32		$	19	$	64		$	—		$	(1	)	$	—	$	(1	)	$	30	$	—	$	—	$	30

_______

(a)

PHI excludes cash of $19 million and $16 million at December 31, 2016 and 2015 and includes long term restricted cash of $23 million and $18 million at December 31, 2016 and 2015 which is reported in other deferred debits on the balance sheet. Pepco excludes cash of $9 million and $5 million at December 31, 2016 and 2015. DPL excludes cash of $4 million and $5 million at December 31, 2016 and 2015. ACE excludes cash of $3 million and $3 million at December 31, 2016 and 2015 and includes long term restricted cash of $23 million and $18 million at December 31, 2016 and 2015 which is reported in other deferred debits on the balance sheet.


(b)	Represents natural gas futures purchased by DPL as part of a natural gas hedging program approved by the DPSC.


(c)	Prior to the PHI Merger, PHI recorded derivative assets for the embedded call and redemption features on the shares of Preferred Stock outstanding as of December 31, 2015. See Note 19 - Mezzanine Equity for additional information. As a result of the PHI Merger, the PHI preferred stock derivative was reduced to zero as of March 23, 2016.

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the year ended December 31, 2016 and 2015:



																			Successor
	Generation															ComEd			PHI ^(c)						Exelon
For the year ended December 31, 2016	NDT Fund Investments			Pledged Assets for Zion Station Decommissioning			Mark-to-Market Derivatives				Other Investments		Total Generation			Mark-to-Market Derivatives^(a)			Life Insurance Contracts			Eliminated in Consolidation			Total
Balance as of January 1, 2016	$	670		$	22		$	1,051			$	33	$	1,776		$	(247	)	$	—		$	—		$	1,529
Included due to merger	—			—			—				—		—			—			20			—			20
Total realized / unrealized gains (losses)
Included in net income	7			—			(568		)	^(b)	1		(560		)	—			3			—			(557		)
Included in noncurrent payables to affiliates	16			—			—				—		16			—			—			(16		)	—
Included in regulatory assets/liabilities	—			—			—				—		—			(11		)	—			16			5
Change in collateral	—			—			(141		)		—		(141		)	—			—			—			(141		)
Purchases, sales, issuances and settlements																			—
Purchases	143			2			342			^(d)	7		494			—			—			—			494
Sales	(1		)	(5		)	(9		)		—		(15		)	—			—			—			(15		)
Issuances	—			—			—				—		—			—			(3		)	—			(3		)
Settlements	(144		)	—			—				—		(144		)	—			—			—			(144		)
Transfers into Level 3	—			—			1				1		2			—			—			—			2
Transfers out of Level 3	(14		)	—			(183		)		—		(197		)	—			—			—			(197		)
Balance as of December 31, 2016	$	677		$	19		$	493			$	42	$	1,231		$	(258	)	$	20		$	—		$	993
The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of December 31, 2016	$	5		$	—		$	109			$	—	$	114		$	—		$	2		$	—		$	116




	Generation																ComEd						Exelon
For the year ended December 31, 2015	NDT Fund Investments			Pledged Assets for Zion Station Decommissioning			Mark-to-Market Derivatives ^(d)				Other Investments			Total Generation			Mark-to-Market Derivatives^(a)			Eliminated in Consolidation			Total
Balance as of January 1, 2015	$	605		$	50		$	1,050			$	3		$	1,708		$	(207	)	$	—		$	1,501
Total realized / unrealized gains (losses)
Included in net income	4			—			22			^(b)	1			27			—			—			27
Included in noncurrent payables to affiliates	18			—			—				—			18			—			(18		)	—
Included in payable for Zion Station decommissioning	—			(2		)	—				—			(2		)	—			—			(2		)
Included in regulatory assets/liabilities	—			—			—				—			—			(40		)	18			(22		)
Change in collateral	—			—			29				—			29			—			—			29
Purchases, sales, issuances and settlements
Purchases	146			2			144				30			322			—			—			322
Sales	(8		)	(28		)	(25		)		—			(61		)	—			—			(61		)
Settlements	(95		)	—			—				—			(95		)	—			—			(95		)
Transfers into Level 3	4			—			80				—			84			—			—			84
Transfers out of Level 3	(4		)	—			(249		)		(1		)	(254		)	—			—			(254		)
Balance as of December 31, 2015	$	670		$	22		$	1,051			$	33		$	1,776		$	(247	)	$	—		$	1,529
The amount of total gains included in income attributed to the change in unrealized gains (losses) related to assets and liabilities held as of December 31, 2015	$	2		$	—		$	856			$	—		$	858		$	—		$	—		$	858

_________________________

(a)

Includes $29 million of decreases in fair value and an increase for realized losses due to settlements of $18 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2016. Includes $55 million of decreases in fair value and a reduction for realized losses due to settlements of $(15) million for the year ended December 31, 2015.


(b)	Includes a reduction for the reclassification of $677 million and $834 million of realized gains due to the settlement of derivative contracts for the years ended December 31, 2016 and 2015, respectively.


(c)	Successor period represents activity from March 24, 2016 to December 31, 2016. See tables below for PHI's predecessor periods, as well as activity for Pepco and DPL for the year ended December 31, 2016.


(d)	Includes $168 million of fair value from contracts acquired as a result of portfolio acquisitions.



	Successor			Predecessor
	March 24, 2016 to December 31, 2016			January 1, 2016 to March 23, 2016					December 31, 2015
PHI	Life Insurance Contracts			Preferred Stock			Life Insurance Contracts		Preferred Stock		Life Insurance Contracts
Beginning Balance	$	20		$	18		$	19	$	3	$	19
Total realized / unrealized gains (losses)
Included in net income	3			(18		)	1		15		5
Purchases, sales, issuances and settlements
Issuances	(3		)	—			—		—		(3		)
Settlements	—			—			—		—		(2		)
Ending Balance	$	20		$	—		$	20	$	18	$	19
The amount of total gains included in income attributed to the change in unrealized gains (losses) related to assets and liabilities for the period	$	2		$	—		$	1	$	15	$	3



	December 31, 2016					December 31, 2015
	Pepco			DPL		Pepco			DPL
	Life Insurance Contracts			Life Insurance Contracts		Life Insurance Contracts			Life Insurance Contracts
Balance as of December 31	$	19		$	—	$	18		$	1
Total realized / unrealized gains (losses)
Included in net income	3			—		5			—
Purchases, sales, issuances and settlements
Issuances	(3		)	—		(3		)	—
Settlements	—			—		(1		)	(1		)
Balance as of December 31	$	19		$	—	$	19		$	—
The amount of total gains included in income attributed to the change in unrealized gains related to assets and liabilities for the period	$	3		$	—	$	3		$	—

The following tables present the income statement classification of the total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2016 and 2015:



	Generation								Exelon
	Operating Revenues			Purchased Power and Fuel			Other, net ^(a)		Operating Revenues			Purchased Power and Fuel			Other, net ^(a)
Total gains (losses) included in net income for the year ended December 31, 2016	$	(477	)	$	(91	)	$	7	$	(477	)	$	(91	)	$	10
Change in the unrealized gains (losses) relating to assets and liabilities held for the year ended December 31, 2016	$	154		$	(45	)	$	5	$	154		$	(45	)	$	7



	Generation							Exelon
	Operating Revenues		Purchased Power and Fuel			Other, net ^(a)		Operating Revenues		Purchased Power and Fuel			Other, net ^(a)
Total gains (losses) included in net income for the year ended December 31, 2015	$	67	$	(45	)	$	4	$	67	$	(45	)	$	4
Change in the unrealized gains (losses) relating to assets and liabilities held for the year ended December 31, 2015	$	858	$	(2	)	$	2	$	858	$	(2	)	$	2



	Successor		Predecessor
	PHI		PHI					Pepco
	March 24, 2016 to December 31, 2016		January 1, 2016 to March 23, 2016			December 31, 2015		December 31, 2016		December 31, 2015
	Other, net		Other, net					Other, net
Total (losses) gains included in net income	$	3	$	(17	)	$	20	$	3	$	5
Change in the unrealized gains (losses) relating to assets and liabilities held	2		1			18		3		3

________________________


(a)	Other, net activity consists of realized and unrealized gains (losses) included in income for the NDT funds held by Generation and the life insurance contracts held by Pepco.

Valuation Techniques Used to Determine Fair Value

The following describes the valuation techniques used to measure the fair value of the assets and liabilities shown in the tables above.

Cash Equivalents (Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE). The Registrants’ cash equivalents include investments with maturities of three months or less when purchased. The cash equivalents shown in the fair value tables are comprised of investments in mutual and money market funds. The fair values of the shares of these funds are based on observable market prices and, therefore, have been categorized in Level 1 in the fair value hierarchy.

Preferred Stock Derivative (PHI). In connection with entering into the PHI Merger Agreement, as further described in Note 19 - Mezzanine Equity, PHI entered into a Subscription Agreement with Exelon dated April 29, 2014, pursuant to which PHI issued to Exelon shares of Preferred stock. The Preferred stock contained embedded features requiring separate accounting consideration to reflect the potential value to PHI that any issued and outstanding Preferred stock could be called and redeemed at a nominal par value upon a termination of the merger agreement under certain circumstances due to the failure to obtain required regulatory approvals. The embedded call and redemption features on the shares of the Preferred stock in the event of such a termination were separately accounted for as derivatives. These Preferred stock derivatives were valued quarterly using quantitative and qualitative factors, including management’s assessment of the likelihood of a Regulatory Termination and therefore, were categorized in Level 3 in the fair value hierarchy. As a result of the PHI Merger, the PHI Preferred stock derivative was reduced to zero as of March 23, 2016. The write-off was charged to Other, net on the PHI Consolidated Statement of Operations and Comprehensive Income.

Nuclear Decommissioning Trust Fund Investments and Pledged Assets for Zion Station Decommissioning (Exelon and Generation). The trust fund investments have been established to satisfy Generation’s and CENG's nuclear decommissioning obligations as required by the NRC. The NDT funds hold debt and equity securities directly and indirectly through commingled funds and mutual funds, which are included in Equities, Fixed Income and Other. Generation’s and CENG's NDT fund investments policies outline investment guidelines for the trusts and limit the trust funds’ exposures to investments in highly illiquid markets and other alternative investments. Investments with maturities of three months or less when purchased, including certain short-term fixed income securities are considered cash equivalents and included in the recurring fair value measurements hierarchy as Level 1 or Level 2.

With respect to individually held equity securities, the trustees obtain prices from pricing services, whose prices are generally obtained from direct feeds from market exchanges, which Generation is able to independently corroborate. The fair values of equity securities held directly by the trust funds which are based on quoted prices in active markets are categorized in Level 1. Certain equity securities have been categorized as Level 2 because they are based on evaluated prices that reflect observable market information, such as actual trade information or similar securities. Equity securities held individually are primarily traded on the New York Stock Exchange and NASDAQ-Global Select Market, which contain only actively traded securities due to the volume trading requirements imposed by these exchanges.

For fixed income securities, multiple prices from pricing services are obtained whenever possible, which enables cross-provider validations in addition to checks for unusual daily movements. A primary price source is identified based on asset type, class or issue for each security. With respect to individually held fixed income securities, the trustees monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given security if the portfolio managers challenge an assigned price and the trustees determine that another price source is considered to be preferable. Generation has obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Generation selectively corroborates the fair values of securities by comparison to other market-based price sources. U.S. Treasury securities are categorized as Level 1 because they trade in a highly liquid and transparent market. The fair values of fixed income securities, excluding U.S. Treasury securities, are based on evaluated prices that reflect observable market information, such as actual trade information or similar securities, adjusted for observable differences and are categorized in Level 2. The fair values of private placement fixed income securities, which are included in Corporate debt, are determined using a third party valuation that contains significant unobservable inputs and are categorized in Level 3.

Equity and fixed income commingled funds and mutual funds are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives such as holding short term fixed income securities or tracking the performance of certain equity indices by purchasing equity securities to replicate the capitalization and characteristics of the indices. The values of some of these funds are publicly quoted. For mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. For commingled funds and mutual funds, which are not publicly quoted, the funds are valued using NAV as a practical expedient for fair value, which is primarily derived from the quoted prices in active markets on the underlying securities, and are not classified within the fair value hierarchy. These investments typically can be redeemed monthly with 30 or less days of notice and without further restrictions.

Derivative instruments consisting primarily of futures and interest rate swaps to manage risk are recorded at fair value. Over the counter derivatives are valued daily based on quoted prices in active markets and trade in open markets, and have been categorized as Level 1. Derivative instruments other than over the counter derivatives are valued based on external price data of comparable securities and have been categorized as Level 2.

Middle market lending are investments in loans or managed funds which lend to private companies. Generation elected the fair value option for its investments in certain limited partnerships that invest in middle market lending managed funds. The fair value of these loans is determined using a combination of valuation models including cost models, market models, and income models. Investments in loans are categorized as Level 3 because the fair value of these securities is based largely on inputs that are unobservable and utilize complex valuation models. Managed funds are valued using NAV or its equivalent as a practical expedient, and therefore, are not classified within the fair value hierarchy. Investments in middle market lending typically cannot be redeemed until maturity of the term loan.

Private equity and real estate investments include those in limited partnerships that invest in operating companies and real estate holding companies that are not publicly traded on a stock exchange, such as, leveraged buyouts, growth capital, venture capital, distressed investments, investments in natural resources, and direct investments in pools of real estate properties. The fair value of private equity and real estate investments is determined using NAV or its equivalent as a practical expedient, and therefore, are not classified within the fair value hierarchy. These investments typically cannot be redeemed and are generally liquidated over a period of 8 to 10 years from the initial investment date. Private equity and real estate valuations are reported by the fund manager and are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted future cash flows, market based comparable data, and independent appraisals from sources with professional qualifications. These valuation inputs are not highly observable.

As of December 31, 2016, Generation has outstanding commitments to invest in middle market lending, private equity investments and real estate investments of approximately $284 million, $65 million, and $205 million, respectively. These commitments will be funded by Generation’s existing nuclear decommissioning trust funds.

Concentrations of Credit Risk. Generation evaluated its NDT portfolios for the existence of significant concentrations of credit risk as of December 31, 2016. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of December 31, 2016, there were no significant concentrations (generally defined as greater than 10 percent) of risk in Generation's NDT assets.

See Note 16—Asset Retirement Obligations for further discussion on the NDT fund investments.

Rabbi Trust Investments (Exelon, Generation, PECO, BGE, PHI, Pepco, DPL and ACE). The Rabbi trusts were established to hold assets related to deferred compensation plans existing for certain active and retired members of Exelon’s executive management and directors. The Rabbi trusts assets are included in investments in the Registrants’ Consolidated Balance Sheets and consist primarily of money market funds, mutual funds, fixed income securities and life insurance policies. The mutual funds are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives, which are consistent with Exelon’s overall investment strategy. Money market funds and mutual funds are publicly quoted and have been categorized as Level 1 given the clear observability of the prices. The fair values of fixed income securities are based on evaluated prices that reflect observable market information, such as actual trade information or similar securities, adjusted for observable differences and are categorized in Level 2. The life insurance policies are valued using the cash surrender value of the policies, net of loans against those policies, which is provided by a third-party. Certain life insurance policies, which consist primarily of mutual funds that are priced based on observable market data, have been categorized as Level 2 because the life insurance policies can be liquidated at the reporting date for the value of the underlying assets. Life insurance policies that are valued using unobservable inputs have been categorized as Level 3.

Mark-to-Market Derivatives (Exelon, Generation, ComEd, PHI and DPL). Derivative contracts are traded in both exchange-based and non-exchange-based markets. Exchange-based derivatives that are valued using unadjusted quoted prices in active markets are categorized in Level 1 in the fair value hierarchy. Certain derivatives’ pricing is verified using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask, mid-point prices and are obtained from sources that the Registrants believe provide the most liquid market for the commodity. The price quotations are reviewed and corroborated to ensure the prices are observable and representative of an orderly transaction between market participants. This includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. The remainder of derivative contracts are valued using the Black model, an industry standard option valuation model. The Black model takes into account inputs such as contract terms, including maturity, and market parameters, including assumptions of the future prices of energy, interest rates, volatility, credit worthiness and credit spread. For derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs are generally observable. Such instruments are categorized in Level 2. The Registrants’ derivatives are predominately at liquid trading points. For derivatives that trade in less liquid markets with limited pricing information model inputs generally would include both observable and unobservable inputs. These valuations may include an estimated basis adjustment from an illiquid trading point to a liquid trading point for which active price quotations are available. Such instruments are categorized in Level 3.

Exelon may utilize fixed-to-floating interest rate swaps, which are typically designated as fair value hedges, as a means to achieve its targeted level of variable-rate debt as a percent of total debt. In addition, the Registrants may utilize interest rate derivatives to lock in interest rate levels in anticipation of future financings. These interest rate derivatives are typically designated as cash flow hedges. Exelon determines the current fair value by calculating the net present value of expected payments and receipts under the swap agreement, based on and discounted by the market's expectation of future interest rates. Additional inputs to the net present value calculation may include the contract terms, counterparty credit risk and other market parameters. As these inputs are based on observable data and valuations of similar instruments, the interest rate swaps are categorized in Level 2 in the fair value hierarchy. See Note 13—Derivative Financial Instruments for further discussion on mark-to-market derivatives.

Deferred Compensation Obligations (Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE). The Registrants’ deferred compensation plans allow participants to defer certain cash compensation into a notional investment account. The Registrants include such plans in other current and noncurrent liabilities in their Consolidated Balance Sheets. The value of the Registrants’ deferred compensation obligations is based on the market value of the participants’ notional investment accounts. The underlying notional investments are comprised primarily of equities, mutual funds, commingled funds, and fixed income securities which are based on directly and indirectly observable market prices. Since the deferred compensation obligations themselves are not exchanged in an active market, they are categorized as Level 2 in the fair value hierarchy.

The value of certain employment agreement obligations (which are included with the Deferred Compensation Obligation in the tables above) are based on a known and certain stream of payments to be made over time and are categorized as Level 2 within the fair value hierarchy.

Additional Information Regarding Level 3 Fair Value Measurements (Exelon, Generation, ComEd, PHI, Pepco and DPL)

Mark-to-Market Derivatives (Exelon, Generation and ComEd). For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations whose contract tenure extends into unobservable periods. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 as the model inputs generally are not observable. Exelon’s RMC approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval, and the monitoring and reporting of risk exposures. The RMC is chaired by the chief executive officer and includes the chief risk officer, chief strategy officer, chief executive officer of Exelon Utilities, chief commercial officer, chief financial officer and chief executive officer of Constellation. The RMC reports to the Finance and Risk Committee of the Exelon Board of Directors on the scope of the risk management activities. Forward price curves for the power market utilized by the front office to manage the portfolio, are reviewed and verified by the middle office, and used for financial reporting by the back office. The Registrants consider credit and nonperformance risk in the valuation of derivative contracts categorized in Level 2 and 3, including both historical and current market data in its assessment of credit and nonperformance risk by counterparty. Due to master netting agreements and collateral posting requirements, the impacts of credit and nonperformance risk were not material to the financial statements.

Disclosed below is detail surrounding the Registrants’ significant Level 3 valuations. The calculated fair value includes marketability discounts for margining provisions and other attributes. Generation’s Level 3 balance generally consists of forward sales and purchases of power and natural gas and certain transmission congestion contracts. Generation utilizes 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 include forward commodity prices, commodity price volatility, contractual volumes, delivery location, interest rates, credit quality of counterparties and credit enhancements.

For commodity derivatives, the primary input to the valuation models is the forward commodity price curve for each instrument. Forward commodity price curves are derived by risk management for liquid locations and by the traders and portfolio managers for illiquid locations. All locations are reviewed and verified by risk management considering published exchange transaction prices, executed bilateral transactions, broker quotes, and other observable or public data sources. The relevant forward commodity curve used to value each of the derivatives depends on a number of factors, including commodity type, delivery location, and delivery period. Price volatility varies by commodity and location. When appropriate, Generation discounts future cash flows using risk free interest rates with adjustments to reflect the credit quality of each counterparty for assets and Generation’s own credit quality for liabilities. The level of observability of a forward commodity price varies generally due to the delivery location and delivery period. Certain delivery locations including PJM West Hub (for power) and Henry Hub (for natural gas) are more liquid and prices are observable for up to three years in the future. The observability period of volatility is generally shorter than the underlying power curve used in option valuations. The forward curve for a less liquid location is estimated by using the forward curve from the liquid location and applying a spread to represent the cost to transport the commodity to the delivery location. This spread does not typically represent a majority of the instrument’s market price. As a result, the change in fair value is closely tied to liquid market movements and not a change in the applied spread. The change in fair value associated with a change in the spread is generally immaterial. An average spread calculated across all Level 3 power and gas delivery locations is approximately $2.65 and $0.34 for power and natural gas, respectively. Many of the commodity derivatives are short term in nature and thus a majority of the fair value may be based on observable inputs even though the contract as a whole must be classified as Level 3.

On December 17, 2010, ComEd entered into several 20-year floating to fixed energy swap contracts with unaffiliated suppliers for the procurement of long-term renewable energy and associated RECs. See Note 13—Derivative Financial Instruments for more information. The fair value of these swaps has been designated as a Level 3 valuation due to the long tenure of the positions and internal modeling assumptions. The modeling assumptions include using natural gas heat rates to project long term forward power curves adjusted by a renewable factor that incorporates time of day and seasonality factors to reflect accurate renewable energy pricing. In addition, marketability reserves are applied to the positions based on the tenor and supplier risk.

The table below discloses the significant inputs to the forward curve used to value these positions.



Type of trade	Fair Value at December 31, 2016			Valuation Technique	Unobservable Input	Range
Mark-to-market derivatives—Economic hedges (Exelon and Generation) ^(a)(c)	$	435		Discounted Cash Flow	Forward power price	$11	-	$130
					Forward gas price	$1.72	-	$9.20
				Option Model	Volatility percentage	8%	-	173%

Mark-to-market derivatives—Proprietary trading (Exelon and Generation) ^(a)(c)	$	(3	)	Discounted Cash Flow	Forward power price	$19	-	$79

Mark-to-market derivatives (Exelon and ComEd)	$	(258	)	Discounted Cash Flow	Forward heat rate ^(b)	8x	-	9x
					Marketability reserve	3%	-	8%
					Renewable factor	89%	-	121%

_________________________


(a)	The valuation techniques, unobservable inputs and ranges are the same for the asset and liability positions.


(b)	Quoted forward natural gas rates are utilized to project the forward power curve for the delivery of energy at specified future dates. The natural gas curve is extrapolated beyond its observable period to the end of the contract’s delivery.


(c)	The fair values do not include cash collateral posted on level three positions of $61 million as of December 31, 2016.



Type of trade	Fair Value at December 31, 2015			Valuation Technique	Unobservable Input	Range
Mark-to-market derivatives—Economic hedges (Exelon and Generation) ^(a)(c)	$	857		Discounted Cash Flow	Forward power price	$11	-	$88
					Forward gas price	$1.18	-	$8.95
				Option Model	Volatility percentage	5%	-	152%

Mark-to-market derivatives— Proprietary trading (Exelon and Generation) ^(a)(c)	$	(7	)	Discounted Cash Flow	Forward power price	$13	-	$78

Mark-to-market derivatives (Exelon and ComEd)	$	(247	)	Discounted Cash Flow	Forward heat rate ^(b)	9x	-	10x
					Marketability reserve	3.5%	-	7%
					Renewable factor	87%	-	128%

__________________________


(a)	The valuation techniques, unobservable inputs and ranges are the same for the asset and liability positions.


(b)	Quoted forward natural gas rates are utilized to project the forward power curve for the delivery of energy at specified future dates. The natural gas curve is extrapolated beyond its observable period to the end of the contract’s delivery.


(c)	The fair values do not include cash collateral posted on level three positions of $201 million as of December 31, 2015

The inputs listed above would have a direct impact on the fair values of the above instruments if they were adjusted. The significant unobservable inputs used in the fair value measurement of Generation’s commodity derivatives are forward commodity prices and for options is price volatility. Increases (decreases) in the forward commodity price in isolation would result in significantly higher (lower) fair values for long positions (contracts that give Generation the obligation or option to purchase a commodity), with offsetting impacts to short positions (contracts that give Generation the obligation or right to sell a commodity). Increases (decreases) in volatility would increase (decrease) the value for the holder of the option (writer of the option). Generally, a change in the estimate of forward commodity prices is unrelated to a change in the estimate of volatility of prices. An increase to the reserves listed above would decrease the fair value of the positions. An increase to the heat rate or renewable factors would increase the fair value accordingly. Generally, interrelationships exist between market prices of natural gas and power. As such, an increase in natural gas pricing would potentially have a similar impact on forward power markets.

Nuclear Decommissioning Trust Fund Investments and Pledged Assets for Zion Station Decommissioning (Exelon and Generation). For middle market lending and certain corporate debt securities investments, the fair value is determined using a combination of valuation models including cost models, market models and income models. The valuation estimates are based on discounting the forecasted cash flows, market-based comparable data, credit and liquidity factors, as well as other factors that may impact value. Significant judgment is required in the application of discounts or premiums applied for factors such as size, marketability, credit risk and relative performance.

Because Generation relies on third-party fund managers to develop the quantitative unobservable inputs without adjustment for the valuations of its Level 3 investments, quantitative information about significant unobservable inputs used in valuing these investments is not reasonably available to Generation. This includes information regarding the sensitivity of the fair values to changes in the unobservable inputs. Generation gains an understanding of the fund managers’ inputs and assumptions used in preparing the valuations. Generation performed procedures to assess the reasonableness of the valuations.

Rabbi Trust Investments - Life insurance contracts (Exelon, PHI, Pepco, DPL and ACE) For life insurance policies categorized as Level 3, the fair value is determined based on the cash surrender value of the policy, which contains unobservable inputs and assumptions. Because Exelon relies on its third-party insurance provider to develop the inputs without adjustment for the valuations of its Level 3 investments, quantitative information about significant unobservable inputs used in valuing these investments is not reasonably available to Exelon. Exelon gains an understanding of the types of inputs and assumptions used in preparing the valuations and performs procedures to assess the reasonableness of the valuations.