8. Fair Value of Financial Assets and Liabilities (Exelon, Generation, ComEd and PECO)

Non-Derivative Financial Assets and Liabilities. As of December 31, 2011 and 2010, the Registrants' carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, short term notes payable and accrued liabilities are representative of fair value because of the short-term nature of these instruments.

The carrying amounts and fair values of Exelon's long-term debt, SNF obligation and preferred securities of subsidiary as of December 31, 2011 and 2010 were as follows:

The fair value of long-term debt is determined using a valuation model, which is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. The fair value of preferred securities of subsidiaries is determined using observable market prices as these securities are actively traded. The carrying amount of Exelon and Generation's SNF obligation resulted from a contract with the DOE to provide for disposal of SNF from Generation's nuclear generating stations. Exelon and Generation's obligation to the DOE accrues at the 13-week Treasury rate. When determining the fair value of the obligation, the future carrying amount of the SNF obligation in 2020 is calculated by compounding the current book value of the SNF obligation at the 13-week Treasury rate. The future compounded obligation amount is discounted back to present using the prevailing Treasury rate for a long-term obligation with an estimated maturity date of 2020 (after being adjusted for Generation's credit risk).

The carrying amounts and fair values of Generation's long-term debt and SNF obligation as of December 31, 2011 and 2010 were as follows:

The carrying amounts and fair values of ComEd's long-term debt as of December 31, 2011 and 2010 were as follows:

The carrying amounts and fair values of PECO's long-term debt and preferred securities as of December 31, 2011 and 2010 were as follows:

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 access as of the reporting date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded equity securities, exchange-based derivatives, and money market funds.

• 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. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, commingled and mutual investment funds priced at NAV per fund share and fair value hedges.

• Level 3 — unobservable inputs, such as internally developed pricing models for the asset or liability due to little or no market activity for the asset or liability. Financial assets and liabilities utilizing Level 3 inputs include infrequently traded non-exchange-based derivatives and investments priced using an alternative pricing mechanism.

There were no significant transfers between Level 1 and Level 2 during the years ended December 31, 2011 and 2010. See Note 13 — Retirement Benefits for further information regarding the fair value and related valuation techniques for pension and postretirement plan assets.

The following tables present assets and liabilities measured and recorded at fair value on Exelon's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2011 and 2010:

As of December 31, 2011	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents(a)	$	861	$	-	$	-	$	861
Nuclear decommissioning trust fund investments
Cash equivalents		504		-		-		504
Equity
Equity securities		1,275		-		-		1,275
Commingled funds		-		1,822		-		1,822
Equity funds subtotal		1,275		1,822		-		3,097
Fixed income
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies		774		345		-		1,119
Debt securities issued by states of the United States
and political subdivisions of the states		-		541		-		541
Corporate debt securities		-		779		-		779
Federal agency mortgage-backed securities		-		357		-		357
Commercial mortgage-backed securities (non-agency)		-		83		-		83
Residential mortgage-backed securities (non-agency)		-		5		-		5
Mutual funds		-		47		-		47
Fixed income subtotal		774		2,157		-		2,931
Other debt obligations		-		19		13		32
Nuclear decommissioning trust fund investments subtotal(b)		2,553		3,998		13		6,564

Pledged assets for Zion decommissioning
Cash equivalents		-		-		-		-
Equity								-
Equity securities		35		-		-		35
Commingled funds		-		30		-		30
Equity funds subtotal		35		30		-		65
Fixed income
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies		54		26		-		80
Debt securities issued by states of the United States
and political subdivisions of the states		-		65		-		65
Corporate debt securities		-		311		-		311
Federal agency mortgage-backed securities		-		121		-		121
Commercial mortgage-backed securities (non-agency)		-		10		-		10
Commingled funds		-		20		-		20
Fixed income subtotal		54		553		-		607
Direct lending funds		-		-		37		37
Other debt obligations		-		16		-		16


Pledged assets for Zion decommissioning subtotal(c)		89		599		37		725

Rabbi trust investments
Cash equivalents		2		-		-		2
Mutual funds(d)		-		34		-		34

Rabbi trust investments subtotal		2		34		-		36

Commodity mark-to-market derivative assets
Cash flow hedges		-		857		-		857
Other derivatives		-		1,653		124		1,777
Proprietary trading		-		240		48		288
Interest rate mark-to-market derivative assets		-		15		-		15
Effect of netting and allocation of collateral(e)		-		(1,827)		(28)		(1,855)

Mark-to-market assets(f)		-		938		144		1,082

Total assets		3,505		5,569		194		9,268

Liabilities
Commodity mark-to-market derivative liabilities
Cash flow hedges		-		(13)		-		(13)
Other derivatives		(1)		(1,137)		(119)		(1,257)
Proprietary trading		-		(236)		(28)		(264)
Interest rate mark-to-market derivative liabilities		-		(19)		-		(19)
Effect of netting and allocation of collateral(e)		-		1,295		20		1,315

Mark-to-market liabilities(f)		(1)		(110)		(127)		(238)

Deferred compensation		-		(73)		-		(73)

Total liabilities		(1)		(183)		(127)		(311)

Total net assets	$	3,504	$	5,386	$	67	$	8,957

As of December 31, 2010	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents(a)	$	1,473	$	-	$	-	$	1,473
Nuclear decommissioning trust fund investments
Cash equivalents		45		-		-		45
Equity
Equity securities		1,513		-		-		1,513
Commingled funds		-		2,081		-		2,081
Equity funds subtotal		1,513		2,081		-		3,594
Fixed income
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies		504		96		-		600
Debt securities issued by states of the United States
and political subdivisions of the states		-		451		-		451
Corporate debt securities		-		619		-		619
Federal agency mortgage-backed securities		-		804		-		804
Commercial mortgage-backed securities (non-agency)		-		114		-		114
Residential mortgage-backed securities (non-agency)		-		14		-		14
Commingled funds		-		47		-		47
Mutual funds		-		40		-		40
Fixed income subtotal		504		2,185		-		2,689
Other debt obligations		-		48		-		48

Nuclear decommissioning trust fund investments
subtotal(b)		2,062		4,314		-		6,376

Pledged assets for Zion decommissioning
Equity
Equity securities		84		-		-		84
Commingled funds		-		82		-		82
Equity funds subtotal		84		82		-		166
Fixed income
Debt securities issued by the U.S. Treasury and other
U.S. government corporations and agencies		166		12		-		178
Debt securities issued by states of the United States
and political subdivisions of the states		-		45		-		45
Corporate debt securities		-		263		-		263
Federal agency mortgage-backed securities		-		102		-		102
Commercial mortgage-backed securities (non-agency)		-		14		-		14
Commingled funds		-		50		-		50
Fixed income subtotal		166		486		-		652
Other debt obligations		-		2		-		2
Pledged assets for Zion decommissioning
subtotal(c)		250		570		-		820

Rabbi trust investments
Mutual funds(d)		-		36		-		36

Rabbi trust investments subtotal		-		36		-		36

Mark-to-market derivative assets
Cash flow hedges		-		724		12		736
Other derivatives		2		1,709		57		1,768
Proprietary trading		-		235		46		281
Effect of netting and allocation of collateral(e)		(3)		(1,848)		(38)		(1,889)
Mark-to-market assets(f)		(1)		820		77		896

Total assets		3,784		5,740		77		9,601

Liabilities
Mark-to-market derivative liabilities
Cash flow hedges		-		(45)		-		(45)
Other derivatives		(2)		(667)		(29)		(698)
Proprietary trading		-		(233)		(21)		(254)
Effect of netting and allocation of collateral(e)		1		914		23		938
Mark-to-market liabilities(f)		(1)		(31)		(27)		(59)
Deferred compensation		-		(76)		-		(76)

Total liabilities		(1)		(107)		(27)		(135)

Total net assets	$	3,783	$	5,633	$	50	$	9,466

(a) Excludes certain cash equivalents considered to be held-to-maturity and not reported at fair value.

(b) Excludes net (liabilities) assets of $(57) million and $32 million at December 31, 2011 and 2010, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables and payables related to pending securities purchases.

(c) Excludes net assets of $9 million and $4 million at December 31, 2011 and 2010. These items consist of receivables related to pending securities sales, interest and dividend receivables and payables related to pending securities purchases.

(d) Excludes $25 million of the cash surrender value of life insurance investments at December 31, 2011 and 2010.

(e) Includes collateral postings received from counterparties. Collateral received from counterparties, net of collateral paid to counterparties, totaled $532 million and $8 million allocated to Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2011. Collateral received from counterparties, net of collateral paid to counterparties, totaled $2 million, $934 million and $15 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2010.

(f) The Level 3 balance does not include current and noncurrent assets for Generation and current and noncurrent liabilities for ComEd of $503 million and $191 million at December 31, 2011 and $450 million and $525 million at December 31, 2010, respectively, related to the fair value of Generation's financial swap contract with ComEd; and current assets of $5 million at December 31, 2010, related to the fair value of Generation's block contracts with PECO, which eliminate upon consolidation in Exelon's Consolidated Financial Statements. Generation's block contracts with PECO ended December 31, 2011.

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2011 and 2010:

(a) Includes the reclassification of $32 million of realized losses due to settlements of derivative contracts recorded in results of operations for the year ended December 31, 2011.

(b) Excludes $170 million of increases in fair value and $451 million of realized losses reclassified from OCI due to settlements of associated with Generation's financial swap contract with ComEd for the year ended December 31, 2011 and $5 million of decreases in fair value due to settlement of Generation's block contracts with PECO for the year ended December 31, 2011. All items eliminate upon consolidation in Exelon's Consolidated Financial Statements.

(a) Includes the reclassification of $8 million of realized losses due to settlements of derivative contracts recorded in results of operations.

(b) Excludes increases in fair value of $375 million and realized losses reclassified from OCI due to settlements of $371 million associated with Generation's financial swap contract with ComEd for the year ended December 31, 2010. The PECO block contracts were designated as normal sales as of May 31, 2010. As such, there were no effective changes in the fair value of the block contracts with PECO after that point, as the mark-to-market balances previously recorded will be amortized over the term of the contracts. The increase in fair value was $3 million through May 31, 2010. Generation's block contracts with PECO ended December 31, 2011. All items eliminate upon consolidation in Exelon's Consolidated Financial Statements.

(c) The servicing liability related to PECO's accounts receivable agreement was released in accordance with new guidance on accounting for transfers of financial assets that was adopted on January 1, 2010. See Note 10 - Debt and Credit Agreements for additional information.

The following table presents 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, 2011 and 2010:

The following table presents assets and liabilities measured and recorded at fair value on Generation's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2011 and 2010:

As of December 31, 2011	Level 1		Level 2		Level 3			Total
Assets
Cash equivalents(a)	$	466	$	-	$	-	$	466
Nuclear decommissioning trust fund investments
Cash equivalents		504		-		-		504
Equity
Equity securities		1,275		-		-		1,275
Commingled funds		-		1,822		-		1,822
Equity funds subtotal		1,275		1,822		-		3,097
Fixed income
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies		774		345		-		1,119
Debt securities issued by states of the United States and
political subdivisions of the states		-		541		-		541
Corporate debt securities		-		779		-		779
Federal agency mortgage-backed securities		-		357		-		357
Commercial mortgage-backed securities (non-agency)		-		83		-		83
Residential mortgage-backed securities (non-agency)		-		5		-		5
Mutual funds		-		47		-		47
Fixed income subtotal		774		2,157		-		2,931
Other debt obligations		-		19		13		32
Nuclear decommissioning trust fund investments subtotal(b)		2,553		3,998		13		6,564

Pledged assets for Zion Station decommissioning
Equity
Equity securities		35		-		-		35
Commingled funds		-		30		-		30
Equity funds subtotal		35		30		-		65
Fixed income
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies		54		26		-		80
Debt securities issued by states of the United States and
political subdivisions of the states		-		65		-		65
Corporate debt securities		-		311		-		311
Federal agency mortgage-backed securities		-		121		-		121
Commercial mortgage-backed securities (non-agency)		-		10		-		10
Commingled funds		-		20				20
Fixed income subtotal		54		553		-		607
Direct lending funds		-		-		37		37
Other debt obligations		-		16		-		16
Pledged assets for Zion Station decommissioning subtotal(c)		89		599		37		725
Rabbi trust investments(d)(e)		-		4		-		4
Commodity mark-to-market derivative assets
Cash flow hedges		-		857		694		1,551
Other derivatives		-		1,653		124		1,777
Proprietary trading		-		240		48		288
Effect of netting and allocation of collateral(f)		-		(1,827)		(28)		(1,855)
Mark-to-market assets(g)		-		923		838		1,761
									.
Total assets		3,108		5,524		888		9,520

Liabilities
Commodity mark-to-market derivative liabilities
Cash flow hedges		-		(13)		-		(13)
Other derivatives		(1)		(1,137)		(13)		(1,151)
Proprietary trading		-		(236)		(28)		(264)
Interest rate mark-to-market derivative liabilities		-		(19)		-		(19)
Effect of netting and allocation of collateral(f)		-		1,295		20		1,315
Mark-to-market liabilities		(1)		(110)		(21)		(132)
Deferred compensation		-		(18)		-		(18)

Total liabilities		(1)		(128)		(21)		(150)

Total net assets	$	3,107	$	5,396	$	867	$	9,370

As of December 31, 2010	Level 1		Level 2		Level 3			Total
Assets
Cash equivalents(a)	$	419	$	-	$	-	$	419
Nuclear decommissioning trust fund investments
Cash equivalents		45		-		-		45
Equity
Equity securities		1,513		-		-		1,513
Commingled funds		-		2,081		-		2,081
Equity funds subtotal		1,513		2,081		-		3,594
Fixed income
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies		504		96		-		600
Debt securities issued by states of the United States and
political subdivisions of the states		-		451		-		451
Corporate debt securities		-		619		-		619
Federal agency mortgage-backed securities		-		804		-		804
Commercial mortgage-backed securities (non-agency)		-		114		-		114
Residential mortgage-backed securities (non-agency)		-		14		-		14
Commingled funds		-		47		-		47
Mutual funds		-		40		-		40
Fixed income subtotal		504		2,185		-		2,689
Other debt obligations		-		48		-		48
Nuclear decommissioning trust fund investments subtotal(b)		2,062		4,314		-		6,376

Pledged assets for Zion Station decommissioning
Equity
Equity securities		84		-		-		84
Commingled funds		-		82		-		82
Equity funds subtotal		84		82		-		166
Fixed income
Debt securities issued by the U.S. Treasury and other U.S.
government corporations and agencies		166		12		-		178
Debt securities issued by states of the United States and
political subdivisions of the states		-		45		-		45
Corporate debt securities		-		263		-		263
Federal agency mortgage-backed securities		-		102		-		102
Commercial mortgage-backed securities (non-agency)		-		14		-		14
Residential mortgage-backed securities (non-agency)		-		-		-		-
Commingled funds		-		50		-		50
Fixed income subtotal		166		486		-		652
Other debt obligations		-		2		-		2
Pledged assets for Zion Station decommissioning
subtotal(c)		250		570		-		820
Rabbi trust investments(d)(e)		-		4		-		4
Mark-to-market derivative assets
Cash flow hedges		-		724		992		1,716
Other derivatives		2		1,695		53		1,750
Proprietary trading		-		235		46		281
Effect of netting and allocation of collateral(f)		(3)		(1,848)		(38)		(1,889)
Mark-to-market derivative net assets(g)		(1)		806		1,053		1,858

Total assets		2,730		5,694		1,053		9,477

Liabilities
Mark-to-market derivative liabilities
Cash flow hedges		-		(45)		-		(45)
Other derivatives		(2)		(667)		(25)		(694)
Proprietary trading		-		(233)		(21)		(254)
Effect of netting and allocation of collateral(f)		1		914		23		938
Mark-to-market liabilities		(1)		(31)		(23)		(55)
Deferred compensation		-		(20)		-		(20)

Total liabilities		(1)		(51)		(23)		(75)

Total net assets	$	2,729	$	5,643	$	1,030	$	9,402

(a) Excludes certain cash equivalents considered to be held-to-maturity and not reported at fair value.

(b) Excludes net (liabilities) assets of $(57) million and $32 million at December 31, 2011 and 2010, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables, and payables related to pending securities purchases.

(c) Excludes net assets of $9 million and $4 million at December 31, 2011 and 2010, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables, and payables related to pending securities purchases.

(d) The mutual funds held by the Rabbi trusts that are invested in common stock of Standard and Poor's 500 companies and Pennsylvania municipal bonds are primarily rated as investment grade.

(e) Excludes $7 million of the cash surrender value of life insurance investments at December 31, 2011 and 2010.

(f) Includes collateral postings received from counterparties. Collateral received from counterparties, net of collateral paid to counterparties, totaled $532 million and $8 million allocated to Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2011. Collateral received from counterparties, net of collateral paid to counterparties, totaled $2 million, $934 million and $15 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2010.

(g) The Level 3 balance includes current and noncurrent assets for Generation of $503 million and $191 million at December 31, 2011 and $450 million and $525 million at December 31, 2010, respectively, related to the fair value of Generation's financial swap contract with ComEd; and current assets of $5 million at December 31, 2010 related to the fair value of Generation's block contracts with PECO. All of the mark-to-market balances Generation carries associated with the financial swap contract with ComEd and the block contracts with PECO eliminate upon consolidation in Exelon's Consolidated Financial Statements. Generation's block contracts with PECO ended December 31, 2011.

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2011 and 2010:

(a) Includes the reclassification of $8 million of realized losses due to settlements of derivative contracts recorded in results of operations.

(b) Includes increases in fair value of $375 million and realized losses reclassified from OCI due to settlements of $371 million associated with Generation's financial swap contract with ComEd for the year ended December 31, 2010. The PECO block contracts were designated as normal sales as of May 31, 2010. As such, there were no effective changes in fair value of the block contracts with PECO after that point, as the mark-to-market balances previously recorded will be amortized over the term of the contracts. The increase in fair value was $3 million through May 31, 2010. All items eliminate upon consolidation in Exelon's Consolidated Financial Statements.

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

The following table presents assets measured and recorded at fair value on ComEd's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2011 and 2010:

(a) Excludes certain cash equivalents considered to be held-to-maturity and not reported at fair value.

(b) The Level 3 balance includes a current and noncurrent liability of $503 million and $191 million at December 31, 2011, respectively, and $450 million and $525 million at December 31, 2010, respectively, related to the fair value of ComEd's financial swap contract with Generation which eliminates upon consolidation in Exelon's Consolidated Financial Statements.

(c) The Level 3 balance includes a current and noncurrent liability of $9 million and $ 97 million at December 31, 2011, respectively, and a noncurrent asset of $4 million at December 31, 2010 related to floating-to-fixed energy swap contracts with unaffiliated suppliers.

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2011 and 2010:

(a) Includes decreases in fair value of $170 million and realized gains due to settlements of $451 million associated with ComEd's financial swap contract with Generation. All items eliminated upon consolidated in Exelon's Consolidated Financial Statements.

(b) Includes a decrease in fair value of $110 million associated with floating-to-fixed energy swap contracts with unaffiliated suppliers

The following table presents assets and liabilities measured and recorded at fair value on PECO's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2011 and 2010:

(a) Excludes certain cash equivalents considered to be held-to-maturity and not reported at fair value.

(b) Excludes $13 million of the cash surrender value of life insurance investments at December 31, 2011 and 2010.

(c) The Level 3 balances include a current liability of $5 million at the December 31, 2010, related to the fair value of PECO's block contracts with Generation that eliminate upon consolidation in Exelon's Consolidated Financial Statements. Generation's block contracts with PECO expired on December 31, 2011.

The following tables present the fair value reconciliation of Level 3 assets measured at fair value on a recurring basis during the years ended December 31, 2011 and 2010:

(a) Includes an increase of $5 million related to the settlement of PECO's block contracts with Generation, which eliminates upon consolidation in Exelon's Consolidated Financial Statements. Generation's block contracts with PECO expired on December 31, 2011.

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 and PECO). 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.

Nuclear Decommissioning Trust Fund Investments and Pledged Assets for Zion Station Decommissioning (Exelon and Generation). The trust fund investments have been established to satisfy Exelon's and Generation's nuclear decommissioning obligations as required by the NRC. The NDT funds hold debt and equity securities directly and indirectly through commingled funds. Generation's investment policies place limitations on the types and investment grade ratings of the securities that may be held by the trusts. These policies 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.

With respect to individually held equity securities, the trustees obtain prices from pricing services, whose prices are 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 are based on quoted prices in active markets and are categorized in Level 1. 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. 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.

Equity and fixed income commingled funds and fixed income mutual funds are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives. The fair values of fixed income commingled and mutual funds held within the trust funds, which generally hold short-term fixed income securities and are not subject to restrictions regarding the purchase or sale of shares, are derived from observable prices. The objectives of the remaining equity commingled funds in which Exelon and Generation invest primarily seek to track the performance of certain equity indices by purchasing equity securities to replicate the capitalization and characteristics of the indices. In general, equity commingled funds are redeemable on the 15th of the month and the last business day of the month; however, the fund manager may designate any day as a valuation date for the purpose of purchasing or redeeming units. Commingled and mutual funds are categorized in Level 2 because the fair value of the funds are based on NAVs per fund share (the unit of account), primarily derived from the quoted prices in active markets on the underlying equity securities. See Note 12 — Nuclear Decommissioning for further discussion on the NDT fund investments.

Direct lending funds are investments in managed funds which invest in private companies for long-term capital appreciation. The fair value of these securities is determined using either an enterprise value model or a bond valuation model. Investments in direct lending funds 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.

Rabbi Trust Investments (Exelon, Generation, ComEd and PECO). 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 investments in the Rabbi trusts are included in investments in the Registrants' Consolidated Balance Sheets. The investments are in fixed-income commingled funds and mutual funds, including short-term investment funds. These 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. The values of some of these funds are publicly quoted. For fixed-income commingled funds and mutual funds which are not publicly quoted, the fund administrators value the funds using the net asset value per fund share, derived from the quoted prices in active markets of the underlying securities. These funds have been categorized as Level 2. Fixed-income commingled funds which are publicly quoted, such as money market funds, have been categorized as Level 1 given the clear observability of the prices.

Mark-to-Market Derivatives (Exelon, Generation, ComEd and PECO). 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 non-exchange-based derivatives are valued 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 non-exchange-based derivative contracts is 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 non-exchange-based 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' non-exchange-based derivatives are predominately at liquid trading points. For non-exchange-based derivatives that trade in less liquid markets with limited pricing information, such as the financial swap contract between Generation and ComEd, 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. 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. 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. The impacts of credit and nonperformance risk were not material to the financial statements. Transfers in and out of levels are recognized as of the beginning of the month 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 generally do not occur. Transfers into and out of Level 2 and Level 3, respectively, generally occur when the contract tenure becomes more observable.

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. 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 9—Derivative Financial Instruments for further discussion on mark-to-market derivatives.

Deferred Compensation Obligations (Exelon, Generation, ComEd and PECO). 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 notional investments are comprised primarily of mutual funds, which are based on observable market prices. However, since the deferred compensation obligations themselves are not exchanged in an active market, they are categorized in Level 2 in the fair value hierarchy.

Servicing Liability (Exelon and PECO). PECO is party to an agreement with a financial institution under which it transferred an undivided interest, adjusted daily, in customer accounts receivables designated under the agreement in exchange for proceeds of $225 million, which PECO accounted for as a sale under previous guidance on accounting for transfers of financial assets. A servicing liability was recorded for the agreement in accordance with the applicable authoritative guidance for servicing of financial assets. The servicing liability was included in other current liabilities in Exelon's and PECO's Consolidated Balance Sheets. The fair value of the liability was determined using internal estimates based on provisions in the agreement, which were categorized as Level 3 inputs in the fair value hierarchy. The servicing liability was released in accordance with new guidance on accounting for transfers of financial assets that was adopted on January 1, 2010. See Note 10 – Debt and Credit Agreements for additional information

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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