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

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 September 30, 2014 and December 31, 2013:

Exelon



	September 30, 2014
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	565	$	3	$	562	$	—	$	565
Long-term debt (including amounts due within one year)	21,264		1,168		20,278		1,297		22,743
Long-term debt to financing trusts	648		—		—		677		677
SNF obligation	1,021		—		849		—		849



	December 31, 2013
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	344	$	3	$	341	$	—	$	344
Long-term debt (including amounts due within one year)	19,132		—		18,672		1,079		19,751
Long-term debt to financing trusts	648		—		—		631		631
SNF obligation	1,021		—		790		—		790

Generation



	September 30, 2014
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	14	$	—	$	14	$	—	$	14
Long-term debt (including amounts due within one year)	8,320		—		7,543		1,297		8,840
SNF obligation	1,021		—		849		—		849



	December 31, 2013
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	22	$	—	$	22	$	—	$	22
Long-term debt (including amounts due within one year)	7,729		—		6,586		1,062		7,648
SNF obligation	1,021		—		790		—		790

ComEd



	September 30, 2014
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	528	$	—	$	528	$	—	$	528
Long-term debt (including amounts due within one year)	5,708		—		6,422		—		6,422
Long-term debt to financing trust	206		—		—		214		214



	December 31, 2013
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	184	$	—	$	184	$	—	$	184
Long-term debt (including amounts due within one year)	5,675		—		6,238		17		6,255
Long-term debt to financing trust	206		—		—		202		202

PECO



	September 30, 2014
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)	$	2,496	$	—	$	2,720	$	—	$	2,720
Long-term debt to financing trusts	184		—		—		204		204



	December 31, 2013
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)	$	2,197	$	—	$	2,358	$	—	$	2,358
Long-term debt to financing trusts	184		—		—		180		180

BGE



	September 30, 2014
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	23	$	3	$	20	$	—	$	23
Long-term debt (including amounts due within one year)	1,976		—		2,196		—		2,196
Long-term debt to financing trusts	258		—		—		259		259



	December 31, 2013
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	138	$	3	$	135	$	—	$	138
Long-term debt (including amounts due within one year)	2,011		—		2,148		—		2,148
Long-term debt to financing trusts	258		—		—		249		249

Short-Term Liabilities. The short-term liabilities included in the tables above are comprised of short-term borrowings (Level 2) and dividends payable (included in other current liabilities) (Level 1). 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) 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 electric 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.

The fair value of Generation’s non-government-backed fixed rate project financing debt (Level 3) is based on market and quoted prices for its own and other project financing debt with similar risk profiles. Given the low trading volume in the project financing 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 quarterly basis and the carrying value approximates fair value (Level 2).

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 estimated to be settled in 2025 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 2025.

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.

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 access as of the reporting date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded corporate units, equity securities and funds, certain 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, 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 or third-party valuations 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 securities and derivatives, and investments priced using an alternative pricing mechanism or third party valuation.

Transfers in and out of levels are recognized as of the end of the reporting period 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. Transfers into Level 2 from Level 3 generally occur when the contract tenure becomes more observable. Transfers into Level 3 from Level 2 generally occur due to changes in market liquidity or assumptions for certain commodity contracts. There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2014 for cash equivalents, nuclear decommissioning trust fund investments, pledged assets for Zion Station decommissioning, Rabbi trust investments, and deferred compensation obligations.

Exelon and Generation

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 September 30, 2014 and December 31, 2013:



	Generation								Exelon
As of September 30, 2014	Level 1		Level 2		Level 3		Total		Level 1			Level 2			Level 3		Total
Assets
Cash equivalents^(a)	$	944	$	—	$	—	$	944	$	1,876		$	—		$	—	$	1,876
Nuclear decommissioning trust fund investments
Cash equivalents	261		62		—		323		261			62			—		323
Equity
Individually held	2,569		—		—		2,569		2,569			—			—		2,569
Exchange traded funds	170		—		—		170		170			—			—		170
Commingled funds	—		2,365		—		2,365		—			2,365			—		2,365
Equity funds subtotal	2,739		2,365		—		5,104		2,739			2,365			—		5,104
Balanced funds - commingled funds	—		273		—		273		—			273			—		273
Fixed income
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	967		—		—		967		967			—			—		967
Debt securities issued by states of the United States and political subdivisions of the states	—		429		—		429		—			429			—		429
Debt securities issued by foreign governments	—		105		—		105		—			105			—		105
Corporate debt securities	—		2,001		235		2,236		—			2,001			235		2,236
Federal agency mortgage-backed securities	—		79		—		79		—			79			—		79
Commercial mortgage-backed securities (non-agency)	—		39		—		39		—			39			—		39
Residential mortgage-backed securities (non-agency)	—		3		—		3		—			3			—		3
Mutual funds	—		21		—		21		—			21			—		21
Commingled funds	—		328		—		328		—			328		—	—		328
Fixed income subtotal	967		3,005		235		4,207		967			3,005			235		4,207
Middle market lending	—		—		354		354		—			—			354		354
Private Equity	—		—		54		54		—			—			54		54
Other debt obligations	—		19		—		19		—			19			—		19
Real Estate	—		—		1		1		—		—	—		—	1		1
Nuclear decommissioning trust fund investments subtotal^(b)	3,967		5,724		644		10,335		3,967			5,724			644		10,335



	Generation												Exelon
As of September 30, 2014	Level 1			Level 2			Level 3			Total			Level 1				Level 2				Level 3				Total
Pledged assets for Zion Station decommissioning
Cash equivalents	—			12			—			12			—				12				—				12
Equity
Individually held	5			2			—			7			5				2				—				7
Equity funds subtotal	5			2			—			7			5				2				—				7
Fixed income
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	13			2			—			15			13				2				—				15
Debt securities issued by states of the United States and political subdivisions of the states	—			19			—			19			—				19				—				19
Corporate debt securities	—			138			—			138			—				138				—				138
Commingled funds	—			4			—			4			—			—	4			—	—			—	4
Fixed income subtotal	13			163			—			176			13				163				—				176
Middle market lending	—			—			166			166			—				—				166				166
Pledged assets for Zion Station decommissioning subtotal^(c)	18			177			166			361			18				177				166				361
Rabbi trust investments^(e)
Mutual funds^(d)	15			—			—			15			46				—				—				46
Rabbi trust investments subtotal	15			—			—			15			46				—				—				46
Commodity derivative assets
Economic hedges	396			2,523			1,683			4,602			396				2,523				1,683				4,602
Proprietary trading	129			537			214			880			129				537				214				880
Effect of netting and allocation of collateral^(f)	(563		)	(2,472		)	(1,213		)	(4,248		)	(563		)		(2,472		)		(1,213		)		(4,248		)
Commodity derivative assets subtotal	(38		)	588			684			1,234			(38		)		588				684				1,234
Interest rate and foreign currency derivative assets
Derivatives designated as hedging instruments	—			13			—			13			—				25				—				25
Economic hedges	—			7			—			7			—				12				—				12
Proprietary trading	18			3			—			21			18				3				—				21
Effect of netting and allocation of collateral	(19		)	(5		)	—			(24		)	(19		)		(5		)		—				(24		)
Interest rate and foreign currency derivative assets subtotal	(1		)	18			—			17			(1		)		35				—				34
Other investments	13			—			3			16			13				—				3				16
Total assets	4,918			6,507			1,497			12,922			5,881				6,524				1,497				13,902
Liabilities
Commodity derivative liabilities
Economic hedges	(458		)	(2,194		)	(1,494		)	(4,146		)	(458		)		(2,194		)		(1,672		)		(4,324		)
Proprietary trading	(133		)	(555		)	(203		)	(891		)	(133		)		(555		)		(203		)		(891		)
Effect of netting and allocation of collateral^(f)	591			2,672			1,444			4,707			591				2,672				1,444				4,707
Commodity derivative liabilities subtotal	—			(77		)	(253		)	(330		)	—				(77		)		(431		)		(508		)
Interest rate and foreign currency derivative liabilities
Derivatives designated as hedging instruments	—			(2		)	—			(2		)	—				(12		)		—				(12		)
Economic hedges	—			(9		)	—			(9		)	—				(22		)		—				(22		)
Proprietary trading	(17		)	(3		)	—			(20		)	(17		)		(3		)		—				(20		)
Effect of netting and allocation of collateral	17			5			—			22			17				5				—				22
Interest rate and foreign currency derivative liabilities subtotal	—			(9		)	—			(9		)	—				(32		)		—				(32		)
Deferred compensation obligation	—			(29		)	—			(29		)	—				(105		)		—				(105		)
Total liabilities	—			(115		)	(253		)	(368		)	—				(214		)		(431		)		(645		)
Total net assets	$	4,918		$	6,392		$	1,244		$	12,554		$	5,881			$	6,310			$	1,066			$	13,257



	Generation								Exelon
As of December 31, 2013	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents^(a)	$	1,006	$	—	$	—	$	1,006	$	1,230	$	—	$	—	$	1,230
Nuclear decommissioning trust fund investments
Cash equivalents	459		—		—		459		459		—		—		459
Equity
Individually held	1,776		—		—		1,776		1,776		—		—		1,776
Exchange traded funds	115		—		—		115		115		—		—		115
Commingled funds	—		2,271		—		2,271		—		2,271		—		2,271
Equity funds subtotal	1,891		2,271		—		4,162		1,891		2,271		—		4,162
Fixed income
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	882		—		—		882		882		—		—		882
Debt securities issued by states of the United States and political subdivisions of the states	—		294		—		294		—		294		—		294
Debt securities issued by foreign governments	—		87		—		87		—		87		—		87
Corporate debt securities	—		1,753		31		1,784		—		1,753		31		1,784
Federal agency mortgage-backed securities	—		10		—		10		—		10		—		10
Commercial mortgage-backed securities (non-agency)	—		40		—		40		—		40		—		40
Residential mortgage-backed securities (non-agency)	—		7		—		7		—		7		—		7
Mutual funds	—		18		—		18		—		18		—		18
Fixed income subtotal	882		2,209		31		3,122		882		2,209		31		3,122
Middle market lending	—		—		314		314		—		—		314		314
Private Equity	—		—		5		5		—		—		5		5
Other debt obligations	—		14		—		14		—		14		—		14
Nuclear decommissioning trust fund investments subtotal^(b)	3,232		4,494		350		8,076		3,232		4,494		350		8,076
Pledged assets for Zion Station decommissioning
Cash equivalents	—		26		—		26		—		26		—		26
Equity
Individually held	16		—		—		16		16		—		—		16
Equity funds subtotal	16		—		—		16		16		—		—		16
Fixed income
Debt securities issued by the U.S. Treasury and other U.S. government corporations and agencies	45		4		—		49		45		4		—		49
Debt securities issued by states of the United States and political subdivisions of the states	—		20		—		20		—		20		—		20
Corporate debt securities	—		227		—		227		—		227		—		227
Fixed income subtotal	45		251		—		296		45		251		—		296
Middle market lending	—		—		112		112		—		—		112		112
Other debt obligations	—		1		—		1		—		1		—		1
Pledged assets for Zion Station decommissioning subtotal^(c)	61		278		112		451		61		278		112		451
Rabbi trust investments^(e)
Cash equivalents	—		—		—		—		2		—		—		2
Mutual funds^(d)	13		—		—		13		54		—		—		54
Rabbi trust investments subtotal	13		—		—		13		56		—		—		56



	Generation												Exelon
As of December 31, 2013	Level 1			Level 2			Level 3			Total			Level 1			Level 2			Level 3			Total
Commodity derivative assets
Economic hedges	493			2,582			885			3,960			493			2,582			885			3,960
Proprietary trading	324			1,315			122			1,761			324			1,315			122			1,761
Effect of netting and allocation of collateral^(f)	(863		)	(3,131		)	(430		)	(4,424		)	(863		)	(3,131		)	(430		)	(4,424		)
Commodity derivative assets subtotal	(46		)	766			577			1,297			(46		)	766			577			1,297
Interest rate and foreign currency derivative assets	30			32			—			62			30			39			—			69
Effect of netting and allocation of collateral	(30		)	(2		)	—			(32		)	(30		)	(2		)	—			(32		)
Interest rate and foreign currency derivative assets subtotal	—			30			—			30			—			37			—			37
Other investments	—			—			15			15			—			—			15			15
Total assets	4,266			5,568			1,054			10,888			4,533			5,575			1,054			11,162
Liabilities
Commodity derivative liabilities
Economic hedges	(540		)	(1,890		)	(397		)	(2,827		)	(540		)	(1,890		)	(590		)	(3,020		)
Proprietary trading	(328		)	(1,256		)	(119		)	(1,703		)	(328		)	(1,256		)	(119		)	(1,703		)
Effect of netting and allocation of collateral^(f)	869			3,007			404			4,280			869			3,007			404			4,280
Commodity derivative liabilities subtotal	1			(139		)	(112		)	(250		)	1			(139		)	(305		)	(443		)
Interest rate and foreign currency derivative liabilities	(31		)	(13		)	—			(44		)	(31		)	(17		)	—			(48		)
Effect of netting and allocation of collateral	31			1			—			32			31			1			—			32
Interest rate and foreign currency derivative liabilities subtotal	—			(12		)	—			(12		)	—			(16		)	—			(16		)
Deferred compensation obligation	—			(29		)	—			(29		)	—			(114		)	—			(114		)
Total liabilities	1			(180		)	(112		)	(291		)	1			(269		)	(305		)	(573		)
Total net assets	$	4,267		$	5,388		$	942		$	10,597		$	4,534		$	5,306		$	749		$	10,589


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


(b)	Excludes net assets (liabilities) of $14 million and $(5) million at September 30, 2014 and December 31, 2013, 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 $4 million and $7 million at September 30, 2014 and December 31, 2013, 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 at Exelon include $45 million related to deferred compensation and $1 million related to Supplemental Executive Retirement Plan at September 30, 2014, and $53 million related to deferred compensation and $1 million related to Supplemental Executive Retirement Plan at December 31, 2013.


(e)	Excludes $11 million and $35 million of cash surrender value of life insurance investment at September 30, 2014 and $10 million and $32 million of cash surrender value of life insurance investment at December 31, 2013 at Generation and Exelon, respectively.

(f)

Includes collateral postings (received) from counterparties. Collateral posted (received) from counterparties for commodity positions, net of collateral paid to counterparties, totaled $28 million, $200 million and $231 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of September 30, 2014. Collateral posted (received) from counterparties, net of collateral paid to counterparties, totaled $6 million, $(124) million and $(26) million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2013.

ComEd, PECO and BGE

The following tables present assets and liabilities measured and recorded at fair value on the ComEd, PECO and BGE Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2014 and December 31, 2013:



	ComEd											PECO										BGE
As of September 30, 2014	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents	$	—	$	—		$	—		$	—		$	304	$	—		$	—	$	304		$	5	$	—		$	—	$	5
Rabbi trust investments
Mutual funds^(a)	—		—			—			—			9		—			—		9			5		—			—		5
Rabbi trust investments subtotal	—		—			—			—			9		—			—		9			5		—			—		5
Total assets	—		—			—			—			313		—			—		313			10		—			—		10
Liabilities
Deferred compensation obligation	—		(8		)	—			(8		)	—		(15		)	—		(15		)	—		(5		)	—		(5		)
Mark-to-market derivative liabilities ^(b)	—		—			(178		)	(178		)	—		—			—		—			—		—			—		—
Total liabilities	—		(8		)	(178		)	(186		)	—		(15		)	—		(15		)	—		(5		)	—		(5		)
Total net assets (liabilities)	$	—	$	(8	)	$	(178	)	$	(186	)	$	313	$	(15	)	$	—	$	298		$	10	$	(5	)	$	—	$	5



	ComEd											PECO										BGE
As of December 31, 2013	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents	$	—	$	—		$	—		$	—		$	175	$	—		$	—	$	175		$	31	$	—		$	—	$	31
Rabbi trust investments
Mutual funds ^(a)	5		—			—			5			9		—			—		9			6		—			—		6
Rabbi trust investments subtotal	5		—			—			5			9		—			—		9			6		—			—		6
Total assets	5		—			—			5			184		—			—		184			37		—			—		37
Liabilities
Deferred compensation obligation	—		(8		)	—			(8		)	—		(17		)	—		(17		)	—		(6		)	—		(6		)
Mark-to-market derivative liabilities ^(b)	—		—			(193		)	(193		)	—		—			—		—			—		—			—		—
Total liabilities	—		(8		)	(193		)	(201		)	—		(17		)	—		(17		)	—		(6		)	—		(6		)
Total net assets (liabilities)	$	5	$	(8	)	$	(193	)	$	(196	)	$	184	$	(17	)	$	—	$	167		$	37	$	(6	)	$	—	$	31


(a)	At PECO, excludes $14 million of the cash surrender value of life insurance investments at both September 30, 2014 and December 31, 2013.


(b)	The Level 3 balance includes the current and noncurrent liability of $14 million and $164 million at September 30, 2014, respectively, and $17 million and $176 million at December 31, 2013, respectively, related to floating-to-fixed energy swap contracts with unaffiliated suppliers.

The following table presents the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the three and nine months ended September 30, 2014 and 2013:



	Generation															ComEd			Exelon
Three Months Ended September 30, 2014	Nuclear Decommissioning Trust Fund Investments			Pledged Assets for Zion Station Decommissioning			Mark-to-Market Derivatives			Other Investments			Total Generation			Mark-to-Market Derivatives ^(b)			Total
Balance as of June 30, 2014	$	592		$	133		$	242		$	10		$	977		$	(134	)	$	843
Total realized / unrealized gains (losses)
Included in net income	1			—			76		^(a)	—			77			—			77
Included in noncurrent payables to affiliates	3			—			—			—			3			—			3
Included in payable for Zion Station decommissioning	—			(2		)	—			—			(2		)	—			(2		)
Included in regulatory assets	—			—			—			—			—			(44		)	(44		)
Change in collateral	—			—			79			—			79			—			79
Purchases, sales, issuances and settlements
Purchases	83			53			12			—			148			—			148
Sales	(8		)	(18		)	—			(7		)	(33		)	—			(33		)
Settlements	(27		)	—			—			—			(27		)	—			(27		)
Transfers into Level 3	—			—			21			—			21			—			21
Transfers out of Level 3	—			—			1			—			1			—			1
Balance as of September 30, 2014	$	644		$	166		$	431		$	3		$	1,244		$	(178	)	$	1,066
The amount of total gains included in income attributed to the change in unrealized gains related to assets and liabilities held for the three months ended September 30, 2014	$	1		$	—		$	163		$	—		$	164		$	—		$	164



	Generation																ComEd			Exelon
Nine Months Ended September 30, 2014	Nuclear Decommissioning Trust Fund Investments			Pledged Assets for Zion Station Decommissioning			Mark-to-Market Derivatives				Other Investments			Total Generation			Mark-to-Market Derivatives ^(b)			Total
Balance as of December 31, 2013	$	350		$	112		$	465			$	15		$	942		$	(193	)	$	749
Total realized / unrealized gains (losses)
Included in net income	5			—			(284		)	^(a)	—			(279		)	—			(279		)
Included in noncurrent payables to affiliates	14			—			—				—			14			—			14
Included in payable for Zion Station decommissioning	—			2			—				—			2			—			2
Included in regulatory assets	—			—			—				—			—			15			15
Change in collateral	—			—			257				—			257			—			257
Purchases, sales, issuances and settlements
Purchases	331			95			27				2			455			—			455
Sales	(10		)	(43		)	(6		)		(7		)	(66		)	—			(66		)
Settlements	(46		)	—			—				—			(46		)	—			(46		)
Transfers into Level 3	—			—			(9		)		—			(9		)	—			(9		)
Transfers out of Level 3	—			—			(19		)		(7		)	(26		)	—			(26		)
Balance as of September 30, 2014	$	644		$	166		$	431			$	3		$	1,244		$	(178	)	$	1,066
The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities held for the nine months ended September 30, 2014	$	3		$	—		$	(264	)		$	—		$	(261	)	$	—		$	(261	)


(a)	Includes an increase for the reclassification of $87 million and $20 million of realized losses due to the settlement of derivative contracts recorded in results of operations for the three and nine months ended September 30, 2014, respectively.


(b)	Includes $45 million of increases and $19 million of decreases in fair value and realized losses due to settlements of $1 million and realized gains due to settlements of $4 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the three and nine months ended September 30, 2014, respectively.



	Generation															ComEd			Exelon
Three Months Ended September 30, 2013	Nuclear Decommissioning Trust Fund Investments			Pledged Assets for Zion Station Decommissioning			Mark-to-Market Derivatives				Other Investments		Total Generation			Mark-to-Market Derivatives^(c)			Total
Balance as of June 30, 2013	$	240		$	111		$	516			$	11	$	878		$	(85	)	$	793
Total realized / unrealized gains (losses)
Included in net income	—			—			(32		)	^(a)	—		(32		)	—			(32		)
Included in noncurrent payables to affiliates	(1		)	—			—				—		(1		)	—			(1		)
Included in payable for Zion Station decommissioning	—			—			—				—		—			—			—
Included in regulatory assets	—			—			—				—		—			(37		)	(37		)
Change in collateral	—			—			(30		)		—		(30		)	—			(30		)
Purchases, sales, issuances and settlements
Purchases	23			10			8				—		41			—			41
Sales	(14		)	(15		)	—				—		(29		)	—			(29		)
Settlements	(3		)	—			—				—		(3		)	—			(3		)
Transfers into Level 3	—			—			4				—		4			—			4
Transfers out of Level 3	—			—			(5		)		—		(5		)	—			(5		)
Balance as of September 30, 2013	$	245		$	106		$	461			$	11	$	823		$	(122	)	$	701
The amount of total gains included in income attributed to the change in unrealized gains related to assets and liabilities held for the three months ended September 30, 2013	$	—		$	—		$	51			$	—	$	51		$	—		$	51



	Generation																ComEd			Exelon
Nine Months Ended September 30, 2013	Nuclear Decommissioning Trust Fund Investments			Pledged Assets for Zion Station Decommissioning			Mark-to-Market Derivatives				Other Investments			Total Generation			Mark-to- Market Derivatives^(c)^(d)			Total
Balance as of December 31, 2012	$	183		$	89		$	660			$	17		$	949		$	(293	)	$	656
Total realized / unrealized gains (losses)
Included in net income	2			—			(8		)	^(a)(b)	—			(6		)	—			(6		)
Included in other comprehensive income	—			—			(219		)	^(b)	—			(219		)	—			(219		)
Included in noncurrent payables to affiliates	8			—			—				—			8			226			234
Included in payable for Zion Station decommissioning	—			1			—				—			1			—			1
Included in regulatory assets	—			—			—				—			—			(55		)	(55		)
Change in collateral	—			—			13				—			13			—			13
Purchases, sales, issuances and settlements
Purchases	90			43			16				2			151			—			151
Sales	(27		)	(27		)	(8		)		(8		)	(70		)	—			(70		)
Settlements	(11		)	—			—				—			(11		)	—			(11		)
Transfers into Level 3	—			—			11				—			11			—			11
Transfers out of Level 3	—			—			(4		)		—			(4		)	—			(4		)
Balance as of September 30, 2013	$	245		$	106		$	461			$	11		$	823		$	(122	)	$	701
The amount of total gains included in income attributed to the change in unrealized gains related to assets and liabilities held for the nine months ended September 30, 2013	$	1		$	—		$	148			$	—		$	149		$	11		$	160


(a)	Includes the reclassification of $83 million and $156 million of realized losses due to the settlement of derivative contracts recorded in results of operations for the three and nine months ended September 30, 2013, respectively.


(b)	Includes $11 million of increases in fair value and realized gains due to settlements of $215 million associated with Generation's financial swap contract with ComEd for the nine months ended September 30, 2013. This position eliminates upon consolidation in Exelon’s Consolidated Financial Statements.


(c)	Includes $11 million of decreases in fair value and realized gains due to settlements of $215 million associated with Generation's financial swap contract with ComEd for the nine months ended September 30, 2013. This position eliminates upon consolidation in Exelon’s Consolidated Financial Statements.


(d)	Includes $37 million and $57 million of increases in fair value and realized losses due to settlements of $1 million and $5 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the three and nine months ended September 30, 2013, respectively.

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 three and nine months ended September 30, 2014 and 2013:



	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 three months ended September 30, 2014	$	70		$	6		$	1	$	70		$	6		$	1
Total gains (losses) included in net income for the nine months ended September 30, 2014	(260		)	(24		)	5		(260		)	(24		)	5
Change in the unrealized gains (losses) relating to assets and liabilities held for the three months ended September 30, 2014	142			21			1		142			21			1
Change in the unrealized gains (losses) relating to assets and liabilities held for the nine months ended September 30, 2014	(293		)	29			3		(293		)	29			3



	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 three months ended September 30, 2013	$	(39	)	$	7	$	—	$	(39	)	$	7	$	—
Total gains (losses) included in net income for the nine months ended September 30, 2013	(67		)	59		2		(61		)	60		2
Change in the unrealized gains (losses) relating to assets and liabilities held for the three months ended September 30, 2013	42			9		—		42			9		—
Change in the unrealized gains (losses) relating to assets and liabilities held for the nine months ended September 30, 2013	71			77		1		81			78		1


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

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 and BGE). 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 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. Generation’s and CENG'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 or Level 2.

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. The fair values of private placement fixed income securities are determined using a third party valuation that contains significant unobservable inputs and are categorized in Level 3.

Equity, balanced 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, Generation, and CENG invest primarily seek to track the performance of certain equity indices by purchasing equity securities to replicate the capitalization and characteristics of the indices. 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.

Middle market lending are investments in loans or managed funds which invest in 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 middle market lending 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. Investments in middle market lending typically cannot be redeemed until maturity of the term loan.

As of September 30, 2014, Generation has outstanding commitments to invest in middle market lending, corporate debt securities, private equity investments, and real estate investments of approximately $344 million. These commitments will be funded by Generation’s existing nuclear decommissioning trust funds.

Rabbi Trust Investments (Exelon, Generation, ComEd, PECO and BGE). 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 and consist primarily of mutual 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. Mutual funds are publicly quoted and have been categorized as Level 1 given the clear observability of the prices.

Mark-to-Market Derivatives (Exelon, Generation, and ComEd). 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 9 - Derivative Financial Instruments for further discussion on mark-to-market derivatives.

Deferred Compensation Obligations (Exelon, Generation, ComEd, PECO and BGE). 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 as Level 2 in the fair value hierarchy.

Additional Information Regarding Level 3 Fair Value Measurements (Exelon, Generation, ComEd)

Mark-to-Market Derivatives (Exelon, Generation, 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 risk officer and includes the chief financial officer, corporate controller, general counsel, treasurer, vice president of strategy, vice president of audit services and officers representing Exelon’s business units. The RMC reports to the Exelon Board of Directors on the scope of the risk management activities and is responsible for approving all valuation procedures at Exelon. 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, coal purchases, certain transmission congestion contracts, and project financing debt. 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 $3.57 and $0.45 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. See ITEM 3. — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK for information regarding the maturity by year of the Registrant’s mark-to-market derivative assets and liabilities.

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 9 —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 September 30, 2014			Valuation Technique	Unobservable Input	Range
Mark-to-market derivatives — Economic Hedges (Generation)^(a)(c)	$	189		Discounted Cash Flow	Forward power price	$13	-	$194	^(d)
					Forward gas price	$2.54	-	$22.15	^(d)
				Option Model	Volatility percentage	8%	-	154%
Mark-to-market derivatives — Proprietary trading (Generation)^(a)(c)	$	11		Discounted Cash Flow	Forward power price	$14	-	$191	^(d)
				Option Model	Volatility percentage	8%	-	154%
Mark-to-market derivatives (ComEd)	$	(178	)	Discounted Cash Flow	Forward heat rate^(b)	8x	-	9x
					Marketability reserve	3.5%	-	8%
					Renewable factor	86%	-	126%


(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 held on level three positions of $231 million as of September 30, 2014.


(d)	The upper ends of the ranges are driven by the winter power and gas prices in the New England region. Without the New England region, the upper ends of the ranges for power and gas economic hedges would be approximately $146 and $10.62, respectively, and would be approximately $104 for power proprietary trading.



Type of trade	Fair Value at December 31, 2013			Valuation Technique	Unobservable Input	Range
Mark-to-market derivatives — Economic Hedges (Generation)^(a)(c)	$	488		Discounted Cash Flow	Forward power price	$8	-	$176	^(d)
					Forward gas price	$2.98	-	$16.63	^(d)
				Option Model	Volatility percentage	15%	-	142%
Mark-to-market derivatives — Proprietary trading (Generation)^(a)(c)	$	3		Discounted Cash Flow	Forward power price	$10	-	$176	^(d)
				Option Model	Volatility percentage	14%	-	19%
Mark-to-market derivatives (ComEd)	$	(193	)	Discounted Cash Flow	Forward heat rate(b)	8x	-	9x
					Marketability reserve	3.5%	-	8%
					Renewable factor	84%	-	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 held on level three positions of $26 million as of December 31, 2013


(d)	The upper ends of the ranges are driven by the winter power and gas prices in the New England region. Without the New England region, the upper ends of the ranges for power and gas would be approximately $100 and $5.70, respectively.

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, certain corporate debt securities, and private equity 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 valuations of comparable companies, discounting the forecasted cash flows of the portfolio company, estimating the liquidation or collateral value of the portfolio company or its assets, considering offers from third parties to buy the portfolio company, its historical and projected financial results, as well as other factors that may impact value. Significant judgment is required in the application of discounts or premiums applied to the prices of comparable companies 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. For a sample of its’ Level 3 investments, Generation reviewed independent valuations and reviewed the assumptions in the detailed pricing models used by the fund managers.