Fair Value Disclosures (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value of Financial Assets and Liabilities Measured on Recurring Basis

The following tables set forth, by level within the fair value hierarchy, PHI’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 and 2012. 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 December 31, 2013
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)
Natural gas (c)	$	1	$	1	$	—	$	—
Restricted cash and cash equivalents
Treasury fund		34		34		—		—
Executive deferred compensation plan assets
Money market funds		15		15		—		—
Life insurance contracts		66		—		47		19

	$	116	$	50	$	47	$	19

LIABILITIES
Executive deferred compensation plan liabilities
Life insurance contracts	$	30	$	—	$	30	$	—

	$	30	$	—	$	30	$

(a)	There were no transfers of instruments between level 1 and level 2 valuation categories during the year ended December 31, 2013.

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

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


	Fair Value Measurements at December 31, 2012
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)
Capacity (d)	$	8	$	—	$	—	$	8
Restricted cash equivalents
Treasury fund		27		27		—		—
Executive deferred compensation plan assets
Money market funds		17		17		—		—
Life insurance contracts		60		—		42		18

	$	112	$	44	$	42	$	26

LIABILITIES
Derivative instruments (b)
Natural gas (c)	$	4	$	—	$	—	$	4
Capacity (d)		11		—		—		11
Executive deferred compensation plan liabilities
Life insurance contracts		28		—		28		—

	$	43	$	—	$	28	$	15

(a)	There were no transfers of instruments between level 1 and level 2 valuation categories during the year ended December 31, 2012.

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

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

(d)	Represents derivatives associated with the ACE SOCAs.

Summary of Primary Unobservable Inputs Used to Determine Fair Value of Level 3 Instruments and Range of Values that Could be Used for Those Inputs

The tables below summarize the primary unobservable inputs used to determine the fair value of PHI’s level 3 instruments and the range of values that could be used for those inputs as of December 31, 2012:

Type of Instrument

Fair Value at
December 31,
2012

Valuation Technique

Unobservable Input

Range

(millions of dollars)

Natural gas options

)

Option model

Volatility factor

1.57 - 2.00

Capacity contracts, net

)

Discounted cash flow

Discount rate

5% - 9%

Reconciliations of Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Reconciliations of the beginning and ending balances of PHI’s fair value measurements using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012 are shown below:


	Year Ended December 31, 2013									Year Ended December 31, 2012
	Natural Gas			Life Insurance Contracts			Capacity			Natural Gas			Life Insurance Contracts			Capacity
	*(millions of dollars)*									*(millions of dollars)*
Balance as of January 1	$	(4	)	$	18		$	(3	)	$	(15	)	$	17		$	—
Total gains (losses) (realized and unrealized):
Included in income		—			4			—			—			4			—
Included in accumulated other comprehensive loss		—			—			—			—			—			—
Included in regulatory liabilities		—			—			3			(2	)		—			(3	)
Purchases		—			—			—			—			—			—
Issuances		—			(3	)		—			—			(3	)		—
Settlements		4			—			—			13			—			—
Transfers in (out) of level 3		—			—			—			—			—			—

Balance as of December 31	$	—		$	19		$	—		$	(4	)	$	18		$	(3	)

Gains or (Losses) on Level 3 Instruments Included in Income

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:


	Year Ended December 31,
	2013		2012
	*(millions of dollars)*
Total net gains included in income for the period	$	4	$	4

Change in unrealized gains relating to assets still held at reporting date	$	4	$	4

Fair Value of Financial Liabilities Measured on Recurring Basis


	Fair Value Measurements at December 31, 2013
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
LIABILITIES

Debt instruments
Long-term debt (a)	$	4,850	$	0	$	4,289	$	561
Transition Bonds (b)		284		0		284		0
Long-term project funding		12		0		0		12

	$	5,146	$	0	$	4,573	$	573

(a)	The carrying amount for Long-term debt is $4,456 million as of December 31, 2013.

(b)	The carrying amount for Transition Bonds, including amounts due within one year, is $255 million as of December 31, 2013.


	Fair Value Measurements at December 31, 2012
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)*
LIABILITIES

Debt instruments
Long-term debt (b)	$	5,004	$	—	$	4,517	$	487
Transition Bonds (c)		341		—		341		—
Long-term project funding		13		—		—		13

	$	5,358	$	—	$	4,858	$	500

(a)	Certain debt instruments that were categorized as level 1 at December 31, 2012, have been reclassified as level 2 to conform to the current period presentation.

(b)	The carrying amount for Long-term debt is $4,177 million as of December 31, 2012.

(c)	The carrying amount for Transition Bonds, including amounts due within one year, is $295 million as of December 31, 2012.

Potomac Electric Power Co [Member]

Fair Value of Financial Assets and Liabilities Measured on Recurring Basis

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 December 31, 2013 and 2012. 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 December 31, 2013
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
Restricted cash equivalents
Treasury fund	$	3	$	3	$	—	$	—
Executive deferred compensation plan assets
Money market funds		13		13		—		—
Life insurance contracts		61		—		43		18

	$	77	$	16	$	43	$	18

LIABILITIES
Executive deferred compensation plan liabilities
Life insurance contracts	$	7	$	—	$	7	$	—

	$	7	$	—	$	7	$	—

(a)	There were no transfers of instruments between level 1 and level 2 valuation categories during the year ended December 31, 2013.


	Fair Value Measurements at December 31, 2012
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	$	15	$	15	$	—	$	—
Life insurance contracts		56		—		38		18

	$	71	$	15	$	38	$	18

LIABILITIES
Executive deferred compensation plan liabilities
Life insurance contracts	$	9	$	—	$	9	$	—

	$	9	$	—	$	9	$	—

(a)	There were no transfers of instruments between level 1 and level 2 valuation categories during the year ended December 31, 2012.

Reconciliations of Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Reconciliations of the beginning and ending balances of Pepco’s fair value measurements using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012 are shown below.


	Life Insurance Contracts
	Year Ended December 31,
	2013			2012
	*(millions of dollars)*
Balance as of January 1	$	18		$	17
Total gains (losses) (realized and unrealized):
Included in income		4			4
Included in accumulated other comprehensive loss		—			—
Purchases		—			—
Issuances		(3	)		(3	)
Settlements		(1	)		—
Transfers in (out) of level 3		—			—

Balance as of December 31	$	18		$	18

Gains or (Losses) on Level 3 Instruments Included in Income

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


	Year Ended December 31,
	2013		2012
	*(millions of dollars)*
Total gains included in income for the period	$	4	$	4

Change in unrealized gains relating to assets still held at reporting date	$	4	$	4

Fair Value of Financial Liabilities Measured on Recurring Basis


	Fair Value Measurements at December 31, 2013
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
LIABILITIES
Debt instruments
Long-term debt (a)	$	2,127	$	—	$	2,127	$	—

	$	2,127	$	—	$	2,127	$	—

(a)	The carrying amount for Long-term debt is $1,899 million as of December 31, 2013.


	Fair Value Measurements at December 31, 2012
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)*
LIABILITIES
Debt instruments
Long-term debt (b)	$	2,160	$	—	$	2,160	$	—

	$	2,160	$	—	$	2,160	$	—

(a)	Certain debt instruments that were categorized as level 1 at December 31, 2012, have been reclassified as level 2 to conform to the current period presentation.

(b)	The carrying amount for Long-term debt is $1,701 million as of December 31, 2012.

Delmarva Power & Light Co/De [Member]

Fair Value of Financial Assets and Liabilities Measured on Recurring Basis

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 December 31, 2013 and 2012. 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 December 31, 2013
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)
Natural gas (c)	$	1	$	1	$	—	$	—
Executive deferred compensation plan assets
Money market funds		1		1		—		—
Life insurance contracts		1		—		—		1

	$	3	$	2	$	—	$	1

LIABILITIES
Executive deferred compensation plan assets
Life insurance contracts	$	1	$	—	$	1	$	—

	$	1	$	—	$	1	$	—

(a)	There were no transfers of instruments between level 1 and level 2 valuation categories during the year ended December 31, 2013.

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

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


	Fair Value Measurements at December 31, 2012
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 (c)	$	4	$	—	$	—	$	4

	$	4	$	—	$	—	$	4

(a)	There were no transfers of instruments between level 1 and level 2 valuation categories during the year ended December 31, 2012.

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

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

Summary of Primary Unobservable Inputs Used to Determine Fair Value of Level 3 Instruments and Range of Values that Could be Used for Those Inputs

The table below summarizes the primary unobservable input used to determine the fair value of DPL’s level 3 instruments and the range of values that could be used for the input as of December 31, 2012:

Type of Instrument

Fair Value at
December 31, 2012

Valuation Technique

Unobservable Input

Range

(millions of dollars)

Natural gas options

)

Option model

Volatility factor

1.57 – 2.00

Reconciliations of Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Reconciliations of the beginning and ending balances of DPL’s fair value measurements using significant unobservable inputs (Level 3) for the years ended December 31, 2013 and 2012 are shown below:


	Year Ended December 31, 2013					Year Ended December 31, 2012
	Natural Gas			Life Insurance Contracts		Natural Gas			Life Insurance Contracts
	*(millions of dollars)*
Balance as of January 1	$	(4	)	$	1	$	(15	)	$	1
Total gains (losses) (realized and unrealized):
Included in income		—			—		—			—
Included in accumulated other comprehensive loss		—			—		—			—
Included in regulatory liabilities		—			—		(2	)		—
Purchases		—			—		—			—
Issuances		—			—		—			—
Settlements		4			—		13			—
Transfers in (out) of Level 3		—			—		—			—

Balance as of December 31	$	—		$	1	$	(4	)	$	1

Fair Value of Financial Liabilities Measured on Recurring Basis


	Fair Value Measurements at December 31, 2013
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
LIABILITIES
Debt instruments
Long-term debt (a)	$	960	$	—	$	850	$	110

	$	960	$	—	$	850	$	110

(a)	The carrying amount for Long-term debt is $967 million as of December 31, 2013.


	Fair Value Measurements at December 31, 2012
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
LIABILITIES
Debt instruments
Long-term debt (a)	$	990	$	—	$	877	$	113

	$	990	$	—	$	877	$	113

(a)	The carrying amount for Long-term debt is $917 million as of December 31, 2012.

Atlantic City Electric Co [Member]

Fair Value of Financial Assets and Liabilities Measured on Recurring Basis

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 December 31, 2013 and 2012. 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 December 31, 2013
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
Restricted cash equivalents
Treasury fund	$	24	$	24	$	—	$	—

	$	24	$	24	$	—	$	—

(a)	There were no transfers of instruments between level 1 and level 2 valuation categories during the year ended December 31, 2013.


	Fair Value Measurements at December 31, 2012
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)
Capacity (c)	$	8	$	—	$	—	$	8
Restricted cash equivalents
Treasury fund		27		27		—		—

	$	35	$	27	$	—	$	8

LIABILITIES
Derivative instruments (b)
Capacity (c)	$	11	$	—	$	—	$	11
Executive deferred compensation plan liabilities
Life insurance contracts		1		—		1		—

	$	12	$	—	$	1	$	11

(a)	There were no transfers of instruments between level 1 and level 2 valuation categories during the year ended December 31, 2012.

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

(c)	Represents derivatives associated with ACE SOCAs.

Summary of Primary Unobservable Inputs Used to Determine Fair Value of Level 3 Instruments and Range of Values that Could be Used for Those Inputs

The table below summarizes the primary unobservable input used to determine the fair value of ACE’s level 3 instruments and the range of values that could be used for the input as of December 31, 2012:

Type of Instrument

Fair Value at
December 31, 2012

Valuation Technique

Unobservable Input

Range

(millions of dollars)

Capacity contracts, net

)

Discounted cash flow

Discount rate

5% - 9%

Reconciliations of Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

A reconciliation of the beginning and ending balances of ACE’s fair value measurements using significant unobservable inputs (level 3) for the years ended December 31, 2013 and 2012 are shown below:


	Capacity
	Year Ended December 31,
	2013			2012
	*(millions of dollars)*			*(millions of dollars)*
Balance as of January 1	$	(3	)	$	—
Total gains (losses) (realized and unrealized):
Included in income		—			—
Included in accumulated other comprehensive loss		—			—
Included in regulatory liabilities and regulatory assets		3			(3	)
Purchases		—			—
Issuances		—			—
Settlements		—			—
Transfers in (out) of level 3		—			—

Balance as of December 31	$	—		$	(3	)

Fair Value of Financial Liabilities Measured on Recurring Basis


	Fair Value Measurements at December 31, 2013
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
LIABILITIES
Debt instruments
Long-term debt (a)	$	959	$	—	$	744	$	215
Transition Bonds (b)		285		—		285		—

	$	1,244	$	—	$	1,029	$	215

(a)	The carrying amount for Long-term debt is $860 million as of December 31, 2013.

(b)	The carrying amount for Transition Bonds, including amounts due within one year, is $255 million as of December 31, 2013.


	Fair Value Measurements at December 31, 2012
Description	Total		Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	*(millions of dollars)*
LIABILITIES
Debt instruments
Long-term debt (a)	$	1,016	$	—	$	884	$	132
Transition Bonds (b)		341		—		341		—

	$	1,357	$	—	$	1,225	$	132

(a)	The carrying amount for Long-term debt is $829 million as of December 31, 2012.

(b)	The carrying amount for Transition Bonds, including amounts due within one year, is $295 million as of December 31, 2012.

- Definition

Tabular disclosure of liabilities, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

+ References+ Details

- Definition

Tabular disclosure of the fair value measurement of liabilities using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and gains or losses recognized in other comprehensive income (loss) and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs) by class of liability.

+ References+ Details