Generation has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. To estimate its decommissioning obligation related to its nuclear generating stations, Generation uses a probability-weighted, discounted cash flow model which, on a unit-by-unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on decommissioning cost studies, cost escalation rates, probabilistic cash flow models and discount rates.

During the third quarter of 2011, Generation recorded a net increase in the ARO of $176 million primarily due to an increase in the estimated costs to decommission the Oyster Creek and Zion nuclear units resulting from the completion of updated decommissioning cost studies received in 2011 and an increase in the expected long-term escalation rates for energy, partially offset by decreases in long-term escalation rates for labor and other costs as compared to prior study periods. The increase in the Zion nuclear unit ARO resulted in $28 million of expense, which is included in Exelon and Generation's Consolidated Statements of Operations and Comprehensive Income, as the Zion nuclear unit is retired, and as such, is unable to record increases to the ARO through an ARC. Additionally, the Zion nuclear unit is not subject to a regulatory agreement that would provide for offset of the expense.

During the third quarter of 2010, Generation's ARO decreased by $205 million, primarily reflecting the ZionSolutions' assumption of decommissioning and other liabilities for Zion Station, offset in part by accretion and by increases for updates to estimated future cash flows across all of Generation's units. Changes in estimated future cash flows increased the ARO by $452 million, including approximately $200 million associated with the accelerated timing of the Zion Station decommissioning. The remainder of the increase is the result of cost study estimate updates and the change in timing of general decommissioning activities at select sites in Generation's nuclear fleet, including revisions to the timing and amount of SNF disposal; partially offset by the impacts of lower escalation rates. This change in the ARO resulted in an immaterial impact to Exelon and Generation's Consolidated Statements of Operations and Comprehensive Income.

The following table provides a rollforward of the nuclear decommissioning ARO reflected on Exelon's and Generation's Consolidated Balance Sheets from December 31, 2010 to September 30, 2011:

		Exelon and Generation
Nuclear decommissioning ARO at December 31, 2010 (a)	$	3,276
Accretion expense		155
Net increase due to changes in estimated cash flows		176
Costs incurred to decommission retired plants		(3)
Nuclear decommissioning ARO at September 30, 2011 (a)	$	3,604

(a) Includes $5 million as the current portion of the ARO at September 30, 2011 and December 31, 2010, which is included in other current liabilities on Exelon's and Generation's Consolidated Balance Sheets.

Generation will pay for its nuclear decommissioning obligations using trust funds that have been established for this purpose. At September 30, 2011 and December 31, 2010, Exelon and Generation had NDT fund investments totaling $6,226 million and $6,408 million, respectively. The following table provides unrealized gains (losses) on NDT funds for the three and nine months ended September 30, 2011 and 2010:

		Exelon and Generation
			Three Months Ended				Nine Months Ended
			September 30,				September 30,
			2011		2010		2011		2010
Net unrealized gains (losses) on decommissioning trust funds
	Regulatory Agreement Units (a)	$	(363)	$	324	$	(223)	$	117
	Non-Regulatory Agreement Units (b)(c)		(141)		107		(88)		48

(a) Net unrealized gains and (losses) related to Generation's NDT funds associated with Regulatory Agreement Units are included in regulatory liabilities on Exelon's Consolidated Balance Sheets and noncurrent payables to affiliates on Generation's Consolidated Balance Sheets.

(b) Excludes $4 million of net unrealized losses and $41 million of net unrealized gains related to the Zion Station pledged assets for the three and nine months ended September 30, 2011, respectively. Unrealized gains and losses related to Zion Station pledged assets are included in the payable for Zion Station decommissioning on Exelon and Generation's Consolidated Balance Sheets.

(c) Gains and (losses) related to Generation's NDT funds associated with Non-Regulatory Agreement Units are included within Other, net in Exelon and Generation's Consolidated Statements of Operations and Comprehensive Income.

Interest and dividends on NDT fund investments are recognized when earned and included in Other, net in Exelon and Generation's Consolidated Statements of Operations. Interest and dividends earned on the NDT fund investments for the Regulatory Agreement Units are eliminated within Other, net in Exelon and Generation's Consolidated Statements of Operations.

See Note 2 of the 2010 Form 10-K for information regarding regulatory liabilities at ComEd and PECO and intercompany balances between Generation, ComEd and PECO reflecting the obligation to refund the customers any decommissioning-related assets in excess of the related decommissioning obligations.

Zion Station Decommissioning. On September 1, 2010, Generation completed an Asset Sale Agreement (ASA) with EnergySolutions Inc. and its wholly owned subsidiaries, EnergySolutions, LLC. (EnergySolutions) and ZionSolutions under which ZionSolutions has assumed responsibility for decommissioning Zion Station, which is located in Zion, Illinois and ceased operation in 1998. See Note 12 of the 2010 Form 10-K for information regarding the specific treatment of assets, including NDT funds, and decommissioning liabilities transferred in the transaction. On July 14, 2011, three people filed a purported class action lawsuit in the United States District Court for the Northern District of Illinois naming ZionSolutions and Bank of New York Mellon as defendants and seeking, among other things, an accounting for use of NDT funds, an injunction against the use of NDT funds, the appointment of a trustee for the NDT funds, and the return of NDT funds to customers of ComEd to the extent legally entitled thereto. ZionSolutions and Bank of New York Mellon filed a motion to dismiss the complaint on September 13, 2011.

ZionSolutions is subject to certain restrictions on its ability to request reimbursements from the Zion Station NDT funds as defined within the ASA. Therefore, the transfer of the Zion Station assets did not qualify for asset sale accounting treatment and, as a result, the related NDT funds were reclassified to pledged assets for Zion Station decommissioning within Generation and Exelon's Consolidated Balance Sheets and will continue to be measured in the same manner as prior to the completion of the transaction. Additionally, the transferred ARO for decommissioning was replaced with a payable to ZionSolutions in Generation and Exelon's Consolidated Balance Sheets. Changes in the value of the Zion Station NDT assets, net of applicable taxes, will be recorded as a change in the payable to ZionSolutions. At no point will the payable to ZionSolutions exceed the project budget of the costs remaining to decommission Zion Station. Any Zion Station NDT funds remaining after the completion of all decommissioning activities will be returned to ComEd customers. Generation has retained its obligation to transfer the SNF at Zion Station to the DOE for ultimate disposal and has a liability of approximately $64 million, which is included within the nuclear decommissioning ARO at September 30, 2011. Generation also has retained NDT assets to fund its obligation to maintain and transfer the SNF at Zion Station. As of September 30, 2011, the carrying value of the Zion Station pledged assets and the payable to Zion Solutions was approximately $763 million and $720 million, respectively. The payable excludes a liability recorded within Generation's Consolidated Balance Sheets related to the tax obligation on the unrealized activity associated with the Zion Station NDT funds. The NDT funds will be utilized to satisfy the tax obligations as gains and losses are realized. The current portion of the payable to ZionSolutions, included in other current liabilities within Generation's Consolidated Balance Sheets at September 30, 2011 and December 31, 2010 was $116 million and $127 million, respectively.

Securities Lending Program. Generation's NDT funds participate in a securities lending program with the trustees of the funds. Under the program, securities loaned to the trustees are required to be collateralized by cash, U.S. Government securities or irrevocable bank letters of credit. Initial collateral levels are no less than 102% and 105% of the market value of the borrowed securities for collateral denominated in U.S. and foreign currency, respectively. Subsequent collateral levels, which are adjusted daily, must be maintained at a level no less than 100% of the market value of borrowed securities. Cash collateral received may not be sold or re-pledged by the trustees unless the borrower defaults.

In 2008, Exelon decided to end its participation in this securities lending program and initiated a gradual withdrawal of the trusts' investments in order to minimize potential losses due to liquidity constraints in the market. Currently, the weighted average maturity of the securities within the collateral pools is approximately 18 months. The fair value of securities on loan was approximately $16 million and $51 million at September 30, 2011 and December 31, 2010, respectively. The fair value of cash and non-cash collateral received for these loaned securities was $15 million at September 30, 2011 and $51 million at December 31, 2010. A portion of the income generated through the investment of cash collateral is remitted to the borrowers, and the remainder is allocated between the trusts and the trustees in their capacity as security agents.

NRC Minimum Funding Requirements. NRC regulations require that licensees of nuclear generating facilities demonstrate reasonable assurance that funds will be available in specified minimum amounts to decommission the facility at the end of its life. On March 10, 2010, Generation notified the NRC that it had remediated the December 31, 2009 underfunded position of its Byron and Braidwood NDT funds with the establishment of approximately $44 million in parent guarantees in accordance with a plan submitted by Generation to the NRC on July 31, 2009. On May 26, 2010, the NRC notified Generation that while the previously established parent guarantees complied with Generation's remediation plan, additional parent guarantees may be required to meet the future value of the underfunded position. During the third quarter of 2010, Generation established approximately $175 million in additional parent guarantees.

On March 31, 2011, Generation, within its NRC-required biennial decommissioning funding assurance submission, notified the NRC that parent guarantees are no longer required as a result of the modest recovery in the financial markets, which has improved decommissioning funding levels for Byron and Braidwood. Generation cancelled these parent guarantees on August 6, 2011. As the future values of trust funds change due to market conditions, the NRC minimum funding status of Generation's units will change. In addition, if changes occur to the regulatory agreement with the PAPUC that currently allows amounts to be collected from PECO customers for decommissioning the former PECO nuclear plants, the NRC minimum funding status of those plants could change at subsequent NRC filing dates. See Note 12 of the 2010 Form 10-K for further information on NRC minimum funding requirements.