Variable Interest Entities (All Registrants)

A VIE is a legal entity that possesses any of the following characteristics: an insufficient amount of equity at risk to finance its activities, equity owners who do not have the power to direct the significant activities of the entity (or have voting rights that are disproportionate to their ownership interest) or equity owners who do not have the obligation to absorb expected losses or the right to receive the expected residual returns of the entity. Companies are required to consolidate a VIE if they are its primary beneficiary, which is the enterprise that has the power to direct the activities that most significantly affect the entity’s economic performance.

At June 30, 2017 and December 31, 2016, Exelon, Generation, BGE, PHI and ACE collectively consolidated seven and nine VIEs or VIE groups, respectively, for which the applicable Registrant was the primary beneficiary (see Consolidated Variable Interest Entities below). As of June 30, 2017 and December 31, 2016, Exelon and Generation collectively had significant interests in seven and eight, respectively, other VIEs for which the applicable Registrant does not have the power to direct the entities’ activities and, accordingly, was not the primary beneficiary (see Unconsolidated Variable Interest Entities below).

Consolidated Variable Interest Entities

RSB BondCo LLC (BondCo) is a special purpose bankruptcy remote limited liability company formed by BGE to acquire, hold, issue and service bonds secured by rate stabilization property. BGE is required to remit all payments it receives from all residential customers through non-bypassable, rate stabilization charges to BondCo. On April 3, 2017, the rate stabilization bonds were fully redeemed. During the three and six months ended June 30, 2017, BGE remitted $3 million and $22 million to BondCo, respectively, with all of the final $3 million remitted through June 30, 2017 after the bonds were fully redeemed. During the three and six months ended June 30, 2016, BGE remitted $21 million and $42 million to BondCo, respectively.

Upon the redemption of the bonds, BondCo no longer meets the definition of a variable interest entity and is removed from the list of consolidated VIEs noted below. However, BondCo will continue to be consolidated by BGE under the voting interest model.

During 2009, Constellation formed a retail gas group to enter into a collateralized gas supply agreement with a third-party gas supplier. Upon assessment, the retail gas group was determined to be a VIE because there was not sufficient equity to fund the group’s activities without additional credit support and a $75 million parental guarantee provided by Generation. As the primary beneficiary, Generation consolidated the retail gas group. During the second quarter of 2017, the collateral structure was terminated with the third-party gas supplier except for the $75 million parental guarantee provided by Generation. Although the parental guarantee will remain, this is considered customary and reasonable for the unsecured position Generation has with the third-party gas supplier. As a result of the termination, the retail gas group no longer meets the definition of a VIE and is removed from the list of consolidated VIEs noted below. However, the retail gas group will continue to be consolidated by Generation under the voting interest model.

Exelon's, Generation's, PHI's and ACE's consolidated VIEs consist of:


•	A group of solar project limited liability companies formed by Generation to build, own and operate solar power facilities,


•	several wind project companies designed by Generation to develop, construct and operate wind generation facilities,


•	a group of companies formed by Generation to build, own and operate other generating facilities,


•	certain retail power and gas companies for which Generation is the sole supplier of energy,


•	CENG,


•	2015 ESA Investco, LLC, a company that holds an equity method investment in a distributed energy company, and


•	ATF, a special purpose entity formed by ACE for the purpose of securitizing authorized portions of ACE’s recoverable stranded costs through the issuance and sale of transition bonds.

As of June 30, 2017 and December 31, 2016, ComEd, PECO, Pepco and DPL did not have any material consolidated VIEs.

As of June 30, 2017 and December 31, 2016, Exelon, Generation, PHI and ACE provided the following support to their respective consolidated VIEs:


•	Generation provides operating and capital funding to the solar and wind entities for ongoing construction, operations and maintenance of the solar and wind power facilities and there is limited recourse to Generation related to certain solar and wind entities.


•	Generation provides approximately $30 million in credit support for the retail power and gas companies for which Generation is the sole supplier of energy.


•	Generation provides operating and capital funding to the other generating facilities for ongoing construction, operations and maintenance and provides a parental guarantee of up to $275 million in support of the payment obligations related to the Engineering, Procurement and Construction contract in support of one of its other generating facilities.


•	Generation and Exelon, where indicated, provide the following support to CENG (see Note 5—Investment in Constellation Energy Nuclear Group, LLC and Note 27—Related Party Transactions of the Exelon 2016 Form 10-K for additional information regarding Generation's and Exelon’s transactions with CENG):


•	under the NOSA, Generation conducts all activities related to the operation of the CENG nuclear generation fleet owned by CENG subsidiaries (the CENG fleet) and provides corporate and administrative services for the remaining life and decommissioning of the CENG nuclear plants as if they were a part of the Generation nuclear fleet, subject to the CENG member rights of EDF,


•	under the Power Services Agency Agreement (PSAA), Generation provides scheduling, asset management and billing services to the CENG fleet for the remaining operating life of the CENG nuclear plants,

•

under power purchase agreements with CENG, Generation purchased or will purchase 50.01% of the available output generated by the CENG nuclear plants not subject to other contractual agreements from January 2015 through the end of the operating life of each respective plant. However, pursuant to amendments dated March 31, 2015, the energy obligations under the Ginna Nuclear Power Plant (Ginna) PPAs were suspended during the term of the Reliability Support Services Agreement (RSSA), through the end of March 31, 2017. With the expiration of the RSSA, the PPA was reinstated beginning April 1, 2017 (see Note 5 — Regulatory Matters for additional details),


•	Generation provided a $400 million loan to CENG. As of June 30, 2017, the remaining obligation is $324 million, including accrued interest, which reflects the principal payment made in January 2015,

•

Generation executed an Indemnity Agreement pursuant to which Generation agreed to indemnify EDF against third-party claims that may arise from any future nuclear incident (as defined in the Price-Anderson Act) in connection with the CENG nuclear plants or their operations. Exelon guarantees Generation’s obligations under this Indemnity Agreement. (See Note 17 — Commitments and Contingencies for more details),


•	Generation and EDF share in the $637 million of contingent payment obligations for the payment of contingent retrospective premium adjustments for the nuclear liability insurance,


•	Generation provides a guarantee of approximately $8 million associated with hazardous waste management facilities and underground storage tanks. In addition, EDF executed a reimbursement agreement that provides reimbursement to Exelon for 49.99% of any amounts paid by Generation under this guarantee,


•	Generation and EDF are the members-insured with Nuclear Electric Insurance Limited and have assigned the loss benefits under the insurance and the NEIL premium costs to CENG and guarantee the obligations of CENG under these insurance programs in proportion to their respective member interests (see Note 17 — Commitments and Contingencies for more details), and


•	Exelon has executed an agreement to provide up to $245 million to support the operations of CENG as well as a $165 million guarantee of CENG’s cash pooling agreement with its subsidiaries.

•

In the case of ATF, proceeds from the sale of each series of transition bonds by ATF were transferred to ACE in exchange for the transfer by ACE to ATF of the right to collect a non-bypassable Transition Bond Charge from ACE customers pursuant to bondable stranded costs rate orders issued by the NJBPU in an amount sufficient to fund the principal and interest payments on transition bonds and related taxes, expenses and fees. During the three and six months ended June 30, 2017, ACE transferred $8 million and $27 million to ATF, respectively. During the three and six months ended June 30, 2016, ACE transferred $12 million and $26 million to ATF, respectively.

For each of the consolidated VIEs, except as otherwise noted:


•	the assets of the VIEs are restricted and can only be used to settle obligations of the respective VIE;


•	Exelon, Generation, PHI and ACE did not provide any additional material financial support to the VIEs;


•	Exelon, Generation, PHI and ACE did not have any material contractual commitments or obligations to provide financial support to the VIEs; and


•	the creditors of the VIEs did not have recourse to Exelon’s, Generation’s, PHI's or ACE's general credit.

The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the Registrants' consolidated financial statements at June 30, 2017 and December 31, 2016 are as follows:



	June 30, 2017								December 31, 2016
					Successor										Successor
	Exelon^(a)		Generation		PHI ^(a)		ACE		Exelon^(a)(b)		Generation		BGE		PHI^(a)		ACE
Current assets	$	512	$	501	$	11	$	7	$	954	$	916	$	23	$	14	$	9
Noncurrent assets	8,617		8,585		32		23		8,563		8,525		3		35		23
Total assets	$	9,129	$	9,086	$	43	$	30	$	9,517	$	9,441	$	26	$	49	$	32
Current liabilities	$	573	$	535	$	38	$	34	$	885	$	802	$	42	$	42	$	37
Noncurrent liabilities	2,723		2,640		83		74		2,713		2,612		—		101		89
Total liabilities	$	3,296	$	3,175	$	121	$	108	$	3,598	$	3,414	$	42	$	143	$	126

_______


(a)	Includes certain purchase accounting adjustments not pushed down to the ACE standalone entity.


(b)	Includes certain purchase accounting adjustments not pushed down to the BGE standalone entity.

Assets and Liabilities of Consolidated VIEs

Included within the balances above are assets and liabilities of certain consolidated VIEs for which the assets can only be used to settle obligations of those VIEs, and liabilities that creditors or beneficiaries do not have recourse to the general credit of the Registrants. As of June 30, 2017 and December 31, 2016, these assets and liabilities primarily consisted of the following:



	June 30, 2017								December 31, 2016
					Successor										Successor
	Exelon ^(a)		Generation		PHI ^(a)		ACE		Exelon^(a)(b)		Generation		BGE		PHI^(a)		ACE
Cash and cash equivalents	$	68	$	68	$	—	$	—	$	150	$	150	$	—	$	—	$	—
Restricted cash	55		48		7		7		59		27		23		9		9
Accounts receivable, net
Customer	106		106		—		—		371		371		—		—		—
Other	24		24		—		—		48		48		—		—		—
Mark-to-market derivatives assets	—		—		—		—		31		31		—		—		—
Inventory
Materials and supplies	193		193		—		—		199		199		—		—		—
Other current assets	38		34		4		—		50		44		—		5		—
Total current assets	484		473		11		7		908		870		23		14		9
Property, plant and equipment, net	5,293		5,293		—		—		5,415		5,415		—		—		—
Nuclear decommissioning trust funds	2,341		2,341		—		—		2,185		2,185		—		—		—
Goodwill	—		—		—		—		47		47		—		—		—
Mark-to-market derivative assets	—		—		—		—		23		23		—		—		—
Other noncurrent assets	267		235		32		23		315		277		3		35		23
Total noncurrent assets	7,901		7,869		32		23		7,985		7,947		3		35		23
Total assets	$	8,385	$	8,342	$	43	$	30	$	8,893	$	8,817	$	26	$	49	$	32
Long-term debt due within one year	$	191	$	154	$	37	$	33	$	181	$	99	$	41	$	40	$	35
Accounts payable	80		80		—		—		269		269		—		—		—
Accrued expenses	48		47		1		1		119		116		1		2		2
Mark-to-market derivative liabilities	—		—		—		—		60		60		—		—		—
Unamortized energy contract liabilities	16		16		—		—		15		15		—		—		—
Other current liabilities	5		5		—		—		30		30		—		—		—
Total current liabilities	340		302		38		34		674		589		42		42		37
Long-term debt	616		533		83		74		641		540		—		101		89
Asset retirement obligations	1,954		1,954		—		—		1,904		1,904		—		—		—
Pension obligation^(c)	—		—		—		—		9		9		—		—		—
Unamortized energy contract liabilities	13		13		—		—		22		22		—		—		—
Other noncurrent liabilities	98		98		—		—		106		106		—		—		—
Total noncurrent liabilities	2,681		2,598		83		74		2,682		2,581		—		101		89
Total liabilities	$	3,021	$	2,900	$	121	$	108	$	3,356	$	3,170	$	42	$	143	$	126

_______

(a) Includes certain purchase accounting adjustments not pushed down to the ACE standalone entity.

(b) Includes certain purchase accounting adjustments not pushed down to the BGE standalone entity.

(c) Includes the CNEG retail gas pension obligation, which is presented as a net asset balance within the Prepaid pension asset line item on Generation’s Consolidated Balance Sheets. See Note 13 - Retirement Benefits for additional details.

Unconsolidated Variable Interest Entities

Exelon’s and Generation’s variable interests in unconsolidated VIEs generally include equity investments and energy purchase and sale contracts. For the equity investments, the carrying amount of the investments is reflected on Exelon’s and Generation’s Consolidated Balance Sheets in Investments. For the energy purchase and sale contracts (commercial agreements), the carrying amount of assets and liabilities in Exelon’s and Generation’s Consolidated Balance Sheets that relate to their involvement with the VIEs are predominantly related to working capital accounts and generally represent the amounts owed by, or owed to, Exelon and Generation for the deliveries associated with the current billing cycles under the commercial agreements. Further, Exelon and Generation have not provided material debt or equity support, liquidity arrangements or performance guarantees associated with these commercial agreements.

The Registrants’ unconsolidated VIEs consist of:


•	Energy purchase and sale agreements with VIEs for which Generation has concluded that consolidation is not required.


•	Asset sale agreement with ZionSolutions, LLC and EnergySolutions, Inc. in which Generation has a variable interest but has concluded that consolidation is not required.


•	Equity investments in distributed energy companies and energy generating facilities for which Generation has concluded that consolidation is not required.

As of June 30, 2017 and December 31, 2016, Exelon and Generation had significant unconsolidated variable interests in seven and eight VIEs, respectively, for which Exelon or Generation, as applicable, was not the primary beneficiary; including certain equity investments and certain commercial agreements. The decrease in the number of unconsolidated VIEs is due to the sale of an equity investment in an energy generating facility. Exelon and Generation only include unconsolidated VIEs that are individually material in the tables below. However, Generation has several individually immaterial VIEs that in aggregate represent a total investment of $16 million. These immaterial VIEs are equity and debt securities in energy development companies. The maximum exposure to loss related to these securities is limited to the $16 million included in Investments on Exelon’s and Generation’s Consolidated Balance Sheets. The risk of a loss was assessed to be remote and, accordingly, Exelon and Generation have not recognized a liability associated with any portion of the maximum exposure to loss.

In June 2015, 2015 ESA Investco, LLC, then a wholly owned subsidiary of Generation, entered into an arrangement to purchase a 90% equity interest and 99% of the tax attributes of a distributed energy company, which is an unconsolidated VIE. In November 2015, Generation sold 69% of its equity interest in 2015 ESA Investco, LLC to a tax equity investor. Generation and the tax equity investor contributed a total of $227 million of equity incrementally from inception through the first quarter of 2017 in proportion of their ownership interests. Generation and the tax equity investor provided a parental guarantee of up to $275 million in proportion to their ownership interests in support of 2015 ESA Investco, LLC's obligation to make equity contributions to the distributed energy company. As all equity contributions were made as of the first quarter 2017, there is no further payment obligation under the parental guarantee.

The following tables present summary information about Exelon's and Generation’s significant unconsolidated VIE entities:



June 30, 2017	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	641	$	529	$	1,170
Total liabilities^(a)	64		229		293
Exelon's ownership interest in VIE^(a)	—		268		268
Other ownership interests in VIE^(a)	577		32		609
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments	—		268		268
Contract intangible asset	9		—		9
Debt and payment guarantees	—		—		—
Net assets pledged for Zion Station decommissioning^(b)	6		—		6



December 31, 2016	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	638	$	567	$	1,205
Total liabilities^(a)	215		287		502
Exelon's ownership interest in VIE^(a)	—		248		248
Other ownership interests in VIE^(a)	423		32		455
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments	—		264		264
Contract intangible asset	9		—		9
Debt and payment guarantees	—		3		3
Net assets pledged for Zion Station decommissioning^(b)	9		—		9

_______


(a)	These items represent amounts on the unconsolidated VIE balance sheets, not on Exelon’s or Generation’s Consolidated Balance Sheets. These items are included to provide information regarding the relative size of the unconsolidated VIEs.

(b)

These items represent amounts on Exelon’s and Generation’s Consolidated Balance Sheets related to the asset sale agreement with ZionSolutions, LLC. The net assets pledged for Zion Station decommissioning includes gross pledged assets of $75 million and $113 million as of June 30, 2017 and December 31, 2016, respectively; offset by payables to ZionSolutions LLC of $69 million and $104 million as of June 30, 2017 and December 31, 2016, respectively. These items are included to provide information regarding the relative size of the ZionSolutions LLC unconsolidated VIE. See Note 12 - Nuclear Decommissioning for additional details.

For each of the unconsolidated VIEs, Exelon and Generation have assessed the risk of a loss equal to their maximum exposure to be remote and, accordingly, Exelon and Generation have not recognized a liability associated with any portion of the maximum exposure to loss. In addition, there are no material agreements with, or commitments by, third parties that would affect the fair value or risk of their variable interests in these VIEs.