(14) FAIR VALUE DISCLOSURES

Financial Instruments Measured at Fair Value on a Recurring Basis

PHI has adopted FASB guidance on fair value measurement and disclosures (ASC 820) that established a framework for measuring fair value and expanded disclosures about fair value measurements. As defined in the guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). PHI utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. Accordingly, PHI utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). PHI classifies its fair value balances in the fair value hierarchy based on the observability of the inputs used in the fair value calculation as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis, such as the New York Mercantile Exchange (NYMEX).

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using broker quotes in liquid markets and other observable data. Level 2 also includes those financial instruments that are valued using internally developed methodologies that have been corroborated by observable market data through correlation or by other means. Significant assumptions are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

PHI's level 2 derivative instruments primarily consist of electricity derivatives at June 30, 2011. Level 2 power swaps are priced at liquid trading hub prices or valued using the liquid hub prices plus a congestion adder that is calculated using historical regression analysis.

Executive deferred compensation plan assets consist of life insurance policies that are categorized as level 2 assets because they are priced based on the assets underlying the policies, which consist of short-term cash equivalents and fixed income securities that are priced using observable market data. The level 2 liability associated with the life insurance policies represents a deferred compensation obligation, the value of which is tracked via underlying insurance sub-accounts. The sub-accounts are designed to mirror existing mutual funds and money market funds that are observable and actively traded.

Level 3 – Pricing inputs include significant inputs that are generally less observable than those from objective sources. Level 3 includes those financial instruments that are valued using models or other valuation methodologies.

Derivative instruments categorized as Level 3 include natural gas options purchased by DPL as part of a natural gas hedging program approved by the DPSC and natural gas physical basis contracts held by Pepco Energy Services. The valuation of the options is based, in part, on internal volatility assumptions extracted from historical NYMEX prices over a certain period of time. The physical basis contracts are valued using liquid hub prices plus a congestion adder that is calculated using historical regression analysis.

Executive deferred compensation plan assets and liabilities that are classified as level 3 include certain life insurance policies that are valued using the cash surrender value of the policies, net of loans against those policies, which does not represent a quoted price in an active market.

The following tables set forth, by level within the fair value hierarchy, PHI's financial assets and liabilities (excluding Conectiv Energy assets and liabilities held for sale) that were accounted for at fair value on a recurring basis as of June 30, 2011 and December 31, 2010. As required by the guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. PHI's assessment of the significance of a particular input to the fair value measurement requires the exercise of judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


	Fair Value Measurements at June 30, 2011
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)(a)		Significant Other Observable Inputs (Level 2)(a)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
ASSETS
Derivative instruments (b)
Electricity (c)	$	11	$	—	$	11	$	—
Cash equivalents
Treasury Fund		62		62		—		—
Executive deferred compensation plan assets
Money Market Funds		16		16		—		—
Life Insurance Contracts		64		—		45		19

	$	153	$	78	$	56	$	19

LIABILITIES
Derivative instruments (b)
Electricity (c)	$	55	$	—	$	55	$	—
Natural Gas (d)		68		47		—		21
Executive deferred compensation plan liabilities
Life Insurance Contracts		30		—		30		—

	$	153	$	47	$	85	$	21

(a)	There were no significant transfers of instruments between level 1 and level 2 valuation categories.

(b)	The fair value of derivative assets and liabilities reflect netting by counterparty before the impact of collateral.

(c)	Represents wholesale electricity futures and swaps that are used mainly as part of Pepco Energy Service's retail energy supply business.

(d)	Level 1 instruments represent wholesale gas futures and swaps that are used mainly as part of Pepco Energy Service's retail energy supply business and level 3 instruments represent natural gas options purchased by DPL as part of a natural gas hedging program approved by the DPSC.


	Fair Value Measurements at December 31, 2010
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)(a)		Significant Other Observable Inputs (Level 2)(a)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
ASSETS
Derivative instruments (b)
Electricity (c)	$	22	$	—	$	22	$	—
Cash equivalents
Treasury Fund		17		17		—		—
Executive deferred compensation plan assets
Money Market Funds		9		9		—		—
Life Insurance Contracts		66		—		47		19

	$	114	$	26	$	69	$	19

LIABILITIES
Derivative instruments (b)
Electricity (c)	$	88	$	—	$	88	$	—
Natural Gas (d)		98		75		—		23
Executive deferred compensation plan liabilities
Life Insurance Contracts		30		—		30		—

	$	216	$	75	$	118	$	23

(a)	There were no significant transfers of instruments between level 1 and level 2 valuation categories.

(b)	The fair value of derivative assets and liabilities reflect netting by counterparty before the impact of collateral.

(c)	Represents wholesale electricity futures and swaps that are used mainly as part of Pepco Energy Service's retail energy supply business.

(d)	Level 1 instruments represent wholesale gas futures and swaps that are used mainly as part of Pepco Energy Service's retail energy supply business and level 3 instruments represent natural gas options purchased by DPL as part of a natural gas hedging program approved by the DPSC.

Reconciliations of the beginning and ending balances of PHI's fair value measurements using significant unobservable inputs (level 3) for the six months ended June 30, 2011 and 2010 are shown below:


	Six Months Ended June 30, 2011
	Natural Gas			Life Insurance Contracts
	*(millions of dollars)*
Beginning balance as of January 1	$	(23	)	$	19
Total gains or (losses) (realized and unrealized)
Included in income		—			5
Included in accumulated other comprehensive loss		—			—
Included in regulatory liabilities		(2	)		—
Purchases		—			—
Issuances		—			(1	)
Settlements		8			(4	)
Transfers in (out) of level 3		(4	)		—

Ending balance as of June 30	$	(21	)	$	19


	Six Months Ended June 30, 2010
	Natural Gas			Life Insurance Contracts
	*(millions of dollars)*
Beginning balance as of January 1	$	(29	)	$	19
Total gains or (losses) (realized and unrealized)
Included in income		—			2
Included in accumulated other comprehensive loss		—			—
Included in regulatory liabilities		(10	)		—
Purchases		—			—
Issuances		—			(1	)
Settlements		10			—
Transfers in (out) of level 3		—			—

Ending balance as of June 30	$	(29	)	$	20

The breakdown of realized and unrealized gains or (losses) on level 3 instruments included in income as a component of "Other income" or "Other operation and maintenance" expense for the periods below were as follows:


	Six Months Ended June 30,
	2011		2010
	*(millions of dollars)*
Total gains included in income for the period	$	5	$	2

Change in unrealized gains relating to assets still held at reporting date	$	2	$	2

Other Financial Instruments

The estimated fair values of PHI's issued debt and equity instruments at June 30, 2011 and December 31, 2010 are shown below:


	June 30, 2011				December 31, 2010
	*(millions of dollars)*
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-Term Debt	$	3,866	$	4,317	$	3,665	$	4,045
Transition Bonds issued by ACE Funding		350		390		367		406
Long-Term Project Funding		18		18		19		19
Redeemable Serial Preferred Stock		—		—		6		5

The fair value of Long-Term Debt issued by PHI and its utility subsidiaries was based on actual trade prices as of June 30, 2011 and December 31, 2010. Where trade prices were not available, PHI used a discounted cash flow model to estimate fair value. The fair value of Transition Bonds issued by ACE Funding, including amounts due within one year, were derived based on bid prices obtained from brokers and validated by PHI because actual trade prices were not available.

The fair value of the Redeemable Serial Preferred Stock was derived based on quoted market prices.

The carrying amounts of all other financial instruments in the accompanying financial statements approximate fair value.

Fair Value Disclosures

(9) FAIR VALUE DISCLOSURES

Financial Instruments Measured at Fair Value on a Recurring Basis

Pepco has adopted FASB guidance on fair value measurement and disclosures (ASC 820) that established a framework for measuring fair value and expanded disclosures about fair value measurements. As defined in the guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Pepco utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. Accordingly, Pepco utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). Pepco classifies its fair value balances in the fair value hierarchy based on the observability of the inputs used in the fair value calculation as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using broker quotes in liquid markets and other observable data. Level 2 also includes those financial instruments that are valued using internally developed methodologies that have been corroborated by observable market data through correlation or by other means. Significant assumptions are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Executive deferred compensation plan assets consist of life insurance policies that are categorized as level 2 assets because they are priced based on the assets underlying the policies, which consist of short-term cash equivalents and fixed income securities that are priced using observable market data. The level 2 liability associated with the life insurance policies represents a deferred compensation obligation, the value of which is tracked via underlying insurance sub-accounts. The sub-accounts are designed to mirror existing mutual funds and money market funds that are observable and actively traded.

Level 3 – Pricing inputs include significant inputs that are generally less observable than those from objective sources. Level 3 includes those financial instruments that are valued using models or other valuation methodologies.

Executive deferred compensation plan assets and liabilities that are classified as level 3 include certain life insurance policies that are valued using the cash surrender value of the policies, net of loans against those policies, which does not represent a quoted price in an active market.

The following tables set forth, by level within the fair value hierarchy, Pepco's financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2011 and December 31, 2010. As required by the guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Pepco's assessment of the significance of a particular input to the fair value measurement requires the exercise of judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


	Fair Value Measurements at June 30, 2011
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)(a)		Significant Other Observable Inputs (Level 2)(a)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
ASSETS
Executive deferred compensation plan assets
Money Market Funds	$	13	$	13	$	—	$	—
Life Insurance Contracts		57		—		39		18

	$	70	$	13	$	39	$	18

LIABILITIES
Executive deferred compensation plan liabilities
Life Insurance Contracts	$	11	$	—	$	11	$	—

	$	11	$	—	$	11	$	—

(a)	There were no significant transfers of instruments between level 1 and level 2 valuation categories.


	Fair Value Measurements at December 31, 2010
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)(a)		Significant Other Observable Inputs (Level 2)(a)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
ASSETS
Executive deferred compensation plan assets
Money Market Funds	$	6	$	6	$	—	$	—
Life Insurance Contracts		59		—		41		18

	$	65	$	6	$	41	$	18

LIABILITIES
Executive deferred compensation plan liabilities
Life Insurance Contracts	$	11	$	—	$	11	$	—

	$	11	$	—	$	11	$	—

(a)	There were no significant transfers of instruments between level 1 and level 2 valuation categories.

Reconciliations of the beginning and ending balances of Pepco's fair value measurements using significant unobservable inputs (level 3) for the six months ended June 30, 2011 and 2010 are shown below:


	Life Insurance Contracts
	Six Months Ended June 30,
	2011			2010
	*(millions of dollars)*
Beginning balance as of January 1	$	18		$	18
Total gains or (losses) (realized and unrealized)
Included in income		5			2
Included in accumulated other comprehensive loss		—			—
Purchases		—			—
Issuances		(1	)		(1	)
Settlements		(4	)		—
Transfers in (out) of level 3		—			—

Ending balance as of June 30	$	18		$	19

The breakdown of realized and unrealized gains on level 3 instruments included in income as a component of "Other income" or "Other operation and maintenance" expense for the periods below were as follows:


	Six Months Ended June 30,
	2011		2010
	*(millions of dollars)*
Total gains included in income for the period	$	5	$	2

Change in unrealized gains relating to assets still held at reporting date	$	2	$	2

Other Financial Instruments

The estimated fair values of Pepco's issued debt instruments at June 30, 2011 and December 31, 2010 are shown below:


	June 30, 2011				December 31, 2010
	*(millions of dollars)*
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-Term Debt	$	1,540	$	1,765	$	1,540	$	1,722

The fair value of long-term debt issued by Pepco was based on actual trade prices as of June 30, 2011 and December 31, 2010. Where trade prices were not available, Pepco used a discounted cash flow model to estimate fair value.

The carrying amounts of all other financial instruments in the accompanying financial statements approximate fair value.

Fair Value Disclosures

(11) FAIR VALUE DISCLOSURES

Financial Instruments Measured at Fair Value on a Recurring Basis

DPL has adopted FASB guidance on fair value measurement and disclosures (ASC 820) that established a framework for measuring fair value and expanded disclosures about fair value measurements. As defined in the guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). DPL utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. Accordingly, DPL utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). DPL classifies its fair value balances in the fair value hierarchy based on the observability of the inputs used in the fair value calculation as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis, such as the New York Mercantile Exchange (NYMEX).

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using broker quotes in liquid markets and other observable data. Level 2 also includes those financial instruments that are valued using internally developed methodologies that have been corroborated by observable market data through correlation or by other means. Significant assumptions are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 – Pricing inputs include significant inputs that are generally less observable than those from objective sources. Level 3 includes those financial instruments that are valued using models or other valuation methodologies.

Derivative instruments categorized as Level 3 include natural gas options purchased by DPL as part of a natural gas hedging program approved by the DPSC. The valuation of the options is based, in part, on internal volatility assumptions extracted from historical NYMEX prices over a certain period of time.

Executive deferred compensation plan assets and liabilities that are classified as level 3 include certain life insurance policies that are valued using the cash surrender value of the policies, net of loans against those policies, which does not represent a quoted price in an active market.

The following tables set forth, by level within the fair value hierarchy, DPL's financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2011 and December 31, 2010. As required by the guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. DPL's assessment of the significance of a particular input to the fair value measurement requires the exercise of judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


	Fair Value Measurements at June 30, 2011
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)(a)		Significant Other Observable Inputs (Level 2)(a)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
ASSETS
Executive deferred compensation plan assets
Money Market Funds	$	2	$	2	$	—	$	—
Life Insurance Contracts		1		—		—		1

	$	3	$	2	$	—	$	1

LIABILITIES
Derivative instruments (b)
Natural Gas	$	20	$	3	$	—	$	17

	$	20	$	3	$	—	$	17

(a)	There were no significant transfers of instruments between level 1 and level 2 valuation categories.

(b)	The fair value of derivative liabilities reflects netting by counterparty before the impact of collateral.


	Fair Value Measurements at December 31, 2010
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)(a)		Significant Other Observable Inputs (Level 2)(a)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
ASSETS
Executive deferred compensation plan assets
Money Market Funds	$	2	$	2	$	—	$	—
Life Insurance Contracts		1		—		—		1

	$	3	$	2	$	—	$	1

LIABILITIES
Derivative instruments (b)
Natural Gas	$	29	$	6	$	—	$	23

	$	29	$	6	$	—	$	23

(a)	There were no significant transfers of instruments between level 1 and level 2 valuation categories.

(b)	The fair value of derivative liabilities reflects netting by counterparty before the impact of collateral.

Reconciliations of the beginning and ending balances of DPL's fair value measurements using significant unobservable inputs (level 3) for the six months ended June 30, 2011 and 2010 are shown below:


	Six Months Ended June 30, 2011
	Natural Gas			Life Insurance Contracts
	*(millions of dollars)*
Beginning balance as of January 1	$	(23	)	$	1
Total gains or (losses) (realized and unrealized):
Included in income		—			—
Included in accumulated other comprehensive loss		—			—
Included in regulatory liabilities		(2	)		—
Purchases		—			—
Issuances		—			—
Settlements		8			—
Transfers in (out) of level 3		—			—

Ending balance as of June 30	$	(17	)	$	1


	Six Months Ended June 30, 2010
	Natural Gas			Life Insurance Contracts
	*(millions of dollars)*
Beginning balance as of January 1	$	(29	)	$	1
Total gains or (losses) (realized and unrealized):
Included in income		—			—
Included in accumulated other comprehensive loss		—			—
Included in regulatory liabilities		(10	)		—
Purchases		—			—
Issuances		—			—
Settlements		10			—
Transfers in (out) of level 3		—			—

Ending balance as of June 30	$	(29	)	$	1

Other Financial Instruments

The estimated fair values of DPL's issued debt instruments as of June 30, 2011 and December 31, 2010 are shown below:


	June 30, 2011				December 31, 2010
	*(millions of dollars)*
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-Term Debt	$	765	$	827	$	765	$	822

The fair value of long-term debt issued by DPL was based on actual trade prices as of June 30, 2011 and December 31, 2010. Where trade prices were not available, DPL used a discounted cash flow model to estimate fair value.

The carrying amounts of all other financial instruments in the accompanying financial statements approximate fair value.

Fair Value Disclosures

(10) FAIR VALUE DISCLOSURES

Financial Instruments Measured at Fair Value on a Recurring Basis

ACE has adopted FASB guidance on fair value measurement and disclosures (ASC 820) that established a framework for measuring fair value and expanded disclosures about fair value measurements. As defined in the guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ACE utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. Accordingly, ACE utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The guidance establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to unobservable inputs (level 3). ACE classifies its fair value balances in the fair value hierarchy based on the observability of the inputs used in the fair value calculation as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using broker quotes in liquid markets and other observable data. Level 2 also includes those financial instruments that are valued using internally developed methodologies that have been corroborated by observable market data through correlation or by other means. Significant assumptions are observable in the marketplace throughout the full term of the instrument and can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

The level 2 liability associated with the life insurance policies represents a deferred compensation obligation, the value of which is tracked via underlying insurance sub-accounts. The sub-accounts are designed to mirror existing mutual funds and money market funds that are observable and actively traded.

Level 3 – Pricing inputs include significant inputs that are generally less observable than those from objective sources. Level 3 includes those financial instruments that are valued using models or other valuation methodologies.

The following tables set forth, by level within the fair value hierarchy, ACE's financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2011 and December 31, 2010. As required by the guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. ACE's assessment of the significance of a particular input to the fair value measurement requires the exercise of judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.


	Fair Value Measurements at June 30, 2011
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)(a)		Significant Other Observable Inputs (Level 2)(a)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
ASSETS
Cash equivalents
Treasury Fund	$	20	$	20	$	—	$	—

	$	20	$	20	$	—	$	—

LIABILITIES
Executive deferred compensation plan liabilities
Life Insurance Contracts	$	1	$	—	$	1	$	—

	$	1	$	—	$	1	$	—

(a)	There were no significant transfers of instruments between level 1 and level 2 valuation categories.


	Fair Value Measurements at December 31, 2010
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)(a)		Significant Other Observable Inputs (Level 2)(a)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
ASSETS
Cash equivalents
Treasury Fund	$	17	$	17	$	—	$	—

	$	17	$	17	$	—	$	—

LIABILITIES
Executive deferred compensation plan liabilities
Life Insurance Contracts	$	1	$	—	$	1	$	—

	$	1	$	—	$	1	$	—

(a)	There were no significant transfers of instruments between level 1 and level 2 valuation categories.

Other Financial Instruments

The estimated fair values of ACE's issued debt and equity instruments at June 30, 2011 and December 31, 2010 are shown below:


	June 30, 2011				December 31, 2010
	*(millions of dollars)*
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-Term Debt	$	833	$	921	$	633	$	710
Transition Bonds issued by ACE Funding		350		390		367		406
Redeemable Serial Preferred Stock		—		—		6		5

The fair value of long-term debt issued by ACE was based on actual trade prices as of June 30, 2011 and December 31, 2010. Where trade prices were not available, ACE used a discounted cash flow model to estimate fair value. The fair value of Transition Bonds issued by ACE Funding, including amounts due within one year, were derived based on bid prices obtained from brokers and validated by ACE because actual trade prices were not available.

The fair value of the Redeemable Serial Preferred Stock was derived based on quoted market prices.

The carrying amounts of all other financial instruments in the accompanying financial statements approximate fair value.