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Fair Value of Financial Assets and Liabilities (All Registrants)
9 Months Ended
Sep. 30, 2017
Fair Value Disclosures [Abstract]  
Fair Value of Financial Assets and Liabilities (All Registrants)
9.    Fair Value of Financial Assets and Liabilities (All Registrants)
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, 2017 and December 31, 2016:
Exelon
 
September 30, 2017
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
710

 
$

 
$
710

 
$

 
$
710

Long-term debt (including amounts due within one year)(a)
34,865

 

 
34,686

 
1,949

 
36,635

Long-term debt to financing trusts(b)
389

 

 

 
423

 
423

SNF obligation
1,142

 

 
857

 

 
857

 
December 31, 2016
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
1,267

 
$

 
$
1,267

 
$

 
$
1,267

Long-term debt (including amounts due within one year)(a)
34,005

 
1,113

 
31,741

 
1,959

 
34,813

Long-term debt to financing trusts(b)
641

 

 

 
667

 
667

SNF obligation
1,024

 

 
732

 

 
732


Generation
 
September 30, 2017
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
92

 
$

 
$
92

 
$

 
$
92

Long-term debt (including amounts due within one year)(a)
9,528

 

 
7,915

 
1,652

 
9,567

SNF obligation
1,142

 

 
857

 

 
857

 
December 31, 2016
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
699

 
$

 
$
699

 
$

 
$
699

Long-term debt (including amounts due within one year)(a)
9,241

 

 
7,482

 
1,670

 
9,152

SNF obligation
1,024

 

 
732

 

 
732


ComEd
 
September 30, 2017
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt (including amounts due within one year)(a)
$
7,600

 
$

 
$
8,353

 
$

 
$
8,353

Long-term debt to financing trusts(b)
205

 

 

 
226

 
226

 
December 31, 2016
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt (including amounts due within one year)(a)
$
7,033

 
$

 
$
7,585

 
$

 
$
7,585

Long-term debt to financing trusts(b)
205

 

 

 
215

 
215


PECO
 
September 30, 2017
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt (including amounts due within one year)(a)
$
2,902

 
$

 
$
3,181

 
$

 
$
3,181

Long-term debt to financing trusts
184

 

 

 
197

 
197

 
December 31, 2016
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt (including amounts due within one year)(a)
$
2,580

 
$

 
$
2,794

 
$

 
$
2,794

Long-term debt to financing trusts
184

 

 

 
192

 
192


BGE
 
September 30, 2017
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt (including amounts due within one year)(a)
$
2,577

 
$

 
$
2,817

 
$

 
$
2,817

 
December 31, 2016
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
45

 
$

 
$
45

 
$

 
$
45

Long-term debt (including amounts due within one year)(a)
2,322

 

 
2,467

 

 
2,467

Long-term debt to financing trusts(b)
252

 

 

 
260

 
260


PHI (Successor)
 
September 30, 2017
 
Carrying Amount
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
118

 
$

 
$
118

 
$

 
$
118

Long-term debt (including amounts due within one year)(a)
5,930

 

 
5,729

 
297

 
6,026

 
December 31, 2016
 
Carrying Amount
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
522

 
$

 
$
522

 
$

 
$
522

Long-term debt (including amounts due within one year)(a)
5,898

 

 
5,520

 
289

 
5,809


Pepco
 
September 30, 2017
 
Carrying Amount
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt (including amounts due within one year)(a)
$
2,546

 
$

 
$
3,087

 
$
9

 
$
3,096

 
December 31, 2016
 
Carrying Amount
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
23

 
$

 
$
23

 
$

 
$
23

Long-term debt (including amounts due within one year)(a)
2,349

 

 
2,788

 
8

 
2,796


DPL
 
September 30, 2017
 
Carrying Amount
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
54

 
$

 
$
54

 
$

 
$
54

Long-term debt (including amounts due within one year)(a)
1,326

 

 
1,407

 

 
1,407

 
December 31, 2016
 
Carrying Amount
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt (including amounts due within one year)(a)
$
1,340

 
$

 
$
1,383

 
$

 
$
1,383


ACE
 
September 30, 2017
 
Carrying Amount
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Short-term liabilities
$
65

 
$

 
$
65

 
$

 
$
65

Long-term debt (including amounts due within one year)(a)
1,130

 

 
969

 
288

 
1,257

 
December 31, 2016
 
Carrying Amount
 
Fair Value
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Long-term debt (including amounts due within one year)(a)
$
1,155

 
$

 
$
1,007

 
$
280

 
$
1,287


_________
(a)
Includes unamortized debt issuance costs which are not fair valued of $196 million, $51 million, $53 million, $17 million, $17 million, $6 million, $32 million, $11 million, and $5 million for Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE, respectively, as of September 30, 2017. Includes unamortized debt issuance costs which are not fair valued of $200 million, $64 million, $46 million, $15 million, $15 million, $2 million, $30 million, $11 million, and $6 million for Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE, respectively, as of December 31, 2016.
(b)
Includes unamortized debt issuance costs which are not fair valued of $1 million and $1 million for Exelon and ComEd, respectively, as of September 30, 2017. Includes unamortized debt issuance costs which are not fair valued of $7 million, $1 million, and $6 million for Exelon, ComEd and BGE, respectively, as of December 31, 2016.
Short-Term Liabilities. The short-term liabilities included in the tables above are comprised of dividends payable (included in other current liabilities) (Level 1) and short-term borrowings (Level 2). 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) and private placement taxable debt securities (Level 3) 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 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. Due to low trading volume of private placement debt, qualitative factors such as market conditions, low volume of investors and investor demand, this debt is classified as Level 3. The fair value of Exelon's equity units (Level 1) are valued based on publicly traded securities issued by Exelon.
The fair value of Generation’s and Pepco's non-government-backed fixed rate nonrecourse debt (Level 3) is based on market and quoted prices for its own and other nonrecourse debt with similar risk profiles. Given the low trading volume in the nonrecourse 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 financing debt resets on a monthly or quarterly basis and the carrying value approximates fair value (Level 2). When trading data is available on variable rate financing debt, the fair value is based on market and quoted prices for its own and other nonrecourse debt with similar risk profiles (Level 2).  Generation, Pepco, DPL and ACE also have tax-exempt debt (Level 2). Due to low trading volume in this market, qualitative factors, such as market conditions, investor demand, and circumstances related to the issuer (e.g., conduit issuer political and regulatory environment), may be incorporated into the credit spreads that are used to obtain the fair value as described above. Variable rate tax-exempt debt (Level 2) resets on a regular basis and the carrying value approximates fair value.
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 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 2030. The carrying amount also includes $112 million as of September 30, 2017 for the one-time fee obligation associated with closing of the FitzPatrick acquisition on March 31, 2017. The fair value was determined using a similar methodology, however the New York Power Authority's (NYPA) discount rate is used in place of Generation's given the contractual right to reimbursement from NYPA for the obligation; see Note 4 - Mergers, Acquisitions and Dispositions for additional information on Generation's acquisition of FitzPatrick.
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 liquidate as of the reporting date.
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.
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.
Transfers in and out of levels are recognized as of the end of the reporting period when 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. Additionally, there were no material transfers between Level 1 and Level 2 during the nine months ended September 30, 2017 for cash equivalents, nuclear decommissioning trust fund investments, pledged assets for Zion Station decommissioning, Rabbi trust investments, and deferred compensation obligations. For derivative contracts, transfers into Level 2 from Level 3 generally occur when the contract tenor becomes more observable and due to changes in market liquidity or assumptions for certain commodity contracts.
Generation and Exelon
In accordance with the applicable guidance on fair value measurement, certain investments that are measured at fair value using the NAV per share as a practical expedient are no longer classified within the fair value hierarchy and are included under "Not subject to leveling" in the table below.
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, 2017 and December 31, 2016:
 
Generation
 
Exelon
As of September 30, 2017
Level 1
 
Level 2
 
Level 3
 
Not subject to leveling
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Not subject to leveling
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents(a)
$
80

 
$

 
$

 
$

 
$
80

 
$
944

 
$

 
$

 
$

 
$
944

NDT fund investments
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 

Cash equivalents(b)
149

 
86

 

 

 
235

 
149

 
86

 

 

 
235

Equities
3,935

 
840

 


2,088

 
6,863

 
3,935

 
840

 


2,088

 
6,863

Fixed income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt

 
1,651

 
255

 

 
1,906

 

 
1,651

 
255

 

 
1,906

U.S. Treasury and agencies
1,951

 
28

 

 

 
1,979

 
1,951

 
28

 

 

 
1,979

Foreign governments

 
70

 

 

 
70

 

 
70

 

 

 
70

State and municipal debt

 
246

 

 

 
246

 

 
246

 

 

 
246

Other(c)

 
46

 

 
509

 
555

 

 
46

 

 
509

 
555

Fixed income subtotal
1,951


2,041


255

 
509


4,756


1,951


2,041


255

 
509


4,756

Middle market lending

 

 
416

 
87

 
503

 

 

 
416

 
87

 
503

Private equity

 

 

 
212

 
212

 

 

 

 
212

 
212

Real estate

 

 

 
449

 
449

 

 

 

 
449

 
449

NDT fund investments subtotal(d)
6,035


2,967


671

 
3,345


13,018


6,035


2,967


671

 
3,345


13,018

Pledged assets for Zion Station decommissioning
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
15

 

 

 

 
15

 
15

 

 

 

 
15

 
Generation
 
Exelon
As of September 30, 2017
Level 1
 
Level 2
 
Level 3
 
Not subject to leveling
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Not subject to leveling
 
Total
Middle market lending

 

 
17

 
25

 
42

 

 

 
17

 
25

 
42

Pledged assets for Zion Station
decommissioning subtotal
(e)
15




17

 
25


57


15




17

 
25


57

Rabbi trust investments
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 

Cash equivalents
5

 

 

 

 
5

 
77

 

 

 

 
77

Mutual funds
22

 

 

 

 
22

 
56

 

 

 

 
56

Fixed income

 

 

 

 

 

 
13

 

 

 
13

Life insurance contracts

 
21

 

 

 
21

 

 
68

 
21

 

 
89

Rabbi trust investments subtotal
27


21



 


48


133


81


21

 


235

Commodity derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic hedges
487

 
2,076

 
1,628

 

 
4,191

 
487

 
2,076

 
1,628

 

 
4,191

Proprietary trading
2

 
41

 
42

 

 
85

 
2

 
41

 
42

 

 
85

Effect of netting and allocation of collateral(f) (g)
(501
)
 
(1,828
)
 
(837
)
 

 
(3,166
)
 
(501
)
 
(1,828
)
 
(837
)
 

 
(3,166
)
Commodity derivative assets subtotal
(12
)

289


833

 


1,110


(12
)

289


833

 


1,110

Interest rate and foreign currency derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments

 

 

 

 

 

 
10

 

 

 
10

Economic hedges
3

 
13

 

 

 
16

 
3

 
13

 

 

 
16

Effect of netting and allocation of collateral
(3
)
 
(8
)
 

 

 
(11
)
 
(3
)
 
(8
)
 

 

 
(11
)
Interest rate and foreign currency derivative assets subtotal


5



 


5




15



 


15

Other investments

 

 
43

 

 
43

 

 

 
43

 

 
43

Total assets
6,145


3,282


1,564


3,370


14,361


7,115


3,352


1,585


3,370


15,422

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic hedges
(559
)
 
(2,062
)
 
(1,189
)
 

 
(3,810
)
 
(559
)
 
(2,062
)
 
(1,466
)
 

 
(4,087
)
Proprietary trading
(3
)
 
(43
)
 
(27
)
 

 
(73
)
 
(3
)
 
(43
)
 
(27
)
 

 
(73
)
Effect of netting and allocation of collateral(f) (g)
560

 
2,043

 
978

 

 
3,581

 
560

 
2,043

 
978

 

 
3,581

Commodity derivative liabilities subtotal
(2
)
 
(62
)
 
(238
)
 

 
(302
)
 
(2
)
 
(62
)
 
(515
)
 

 
(579
)
Interest rate and foreign currency derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic hedges
(2
)
 
(17
)
 

 

 
(19
)
 
(2
)
 
(17
)
 

 

 
(19
)
Effect of netting and allocation of collateral
2

 
8

 

 

 
10

 
2

 
8

 

 

 
10

Interest rate and foreign currency derivative liabilities subtotal


(9
)


 


(9
)



(9
)


 


(9
)
Deferred compensation obligation

 
(35
)
 

 

 
(35
)
 

 
(137
)
 

 

 
(137
)
Total liabilities
(2
)

(106
)

(238
)
 


(346
)

(2
)

(208
)

(515
)
 


(725
)
Total net assets
$
6,143


$
3,176


$
1,326

 
$
3,370


$
14,015


$
7,113


$
3,144


$
1,070

 
$
3,370


$
14,697

 
Generation
 
Exelon
As of December 31, 2016
Level 1
 
Level 2
 
Level 3
 
Not subject to leveling
 
Total
 
Level 1

Level 2

Level 3
 
Not subject to leveling

Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents(a)
$
39

 
$

 
$

 
$

 
$
39

 
$
373

 
$

 
$

 
$

 
$
373

NDT fund investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Cash equivalents(b)
110

 
19

 

 

 
129

 
110

 
19

 

 

 
129

Equities
3,551


452




2,011


6,014


3,551


452




2,011


6,014

Fixed income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt

 
1,554

 
250

 

 
1,804

 

 
1,554

 
250

 

 
1,804

U.S. Treasury and agencies
1,291

 
29

 

 

 
1,320

 
1,291

 
29

 

 

 
1,320

Foreign governments

 
37

 

 

 
37

 

 
37

 

 

 
37

State and municipal debt

 
264

 

 

 
264

 

 
264

 

 

 
264

Other(c)

 
59

 

 
493

 
552

 

 
59

 

 
493

 
552

Fixed income subtotal
1,291


1,943


250

 
493


3,977


1,291


1,943


250

 
493


3,977

Middle market lending

 

 
427

 
71

 
498

 

 

 
427

 
71

 
498

Private equity

 

 

 
148

 
148

 

 

 

 
148

 
148

Real estate

 

 

 
326

 
326

 

 

 

 
326

 
326

NDT fund investments subtotal(d)
4,952


2,414


677

 
3,049


11,092


4,952


2,414


677

 
3,049

 
11,092

Pledged assets for Zion Station decommissioning
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
11

 

 

 

 
11

 
11

 

 

 

 
11

Equities

 
2

 

 

 
2

 

 
2

 

 

 
2

Fixed Income - U.S. Treasury and agencies
16

 
1

 

 

 
17

 
16

 
1

 

 

 
17

Middle market lending

 

 
19

 
64

 
83

 

 

 
19

 
64

 
83

Pledged assets for Zion Station decommissioning subtotal(e)
27


3


19

 
64


113


27


3


19

 
64


113

Rabbi trust investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
2

 

 

 

 
2

 
74

 

 

 

 
74

Mutual funds
19

 

 

 

 
19

 
50

 

 

 

 
50

Fixed income

 

 

 

 

 

 
16

 

 

 
16

Life insurance contracts

 
18

 

 

 
18

 

 
64

 
20

 

 
84

Rabbi trust investments subtotal
21


18



 


39


124


80


20

 


224

Commodity derivative assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic hedges
1,356

 
2,505

 
1,229

 

 
5,090

 
1,358

 
2,505

 
1,229

 

 
5,092

Proprietary trading
3

 
50

 
23

 

 
76

 
3

 
50

 
23

 

 
76

Effect of netting and allocation of collateral(f) (g)
(1,162
)
 
(2,142
)
 
(481
)
 

 
(3,785
)
 
(1,164
)
 
(2,142
)
 
(481
)
 

 
(3,787
)
Commodity derivative assets subtotal
197


413


771

 


1,381


197


413


771

 


1,381

Interest rate and foreign currency derivative assets
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 


Derivatives designated as hedging instruments

 

 

 

 

 

 
16

 

 

 
16

Economic hedges

 
28

 

 

 
28

 

 
28

 

 

 
28

Proprietary trading
3

 
2

 

 

 
5

 
3

 
2

 

 

 
5

Effect of netting and allocation of collateral
(2
)
 
(19
)
 

 

 
(21
)
 
(2
)
 
(19
)
 

 

 
(21
)
Interest rate and foreign currency derivative assets subtotal
1


11



 


12


1


27



 


28

Other investments

 

 
42

 

 
42

 

 

 
42

 

 
42

Total assets
5,237


2,859


1,509

 
3,113


12,718


5,674


2,937


1,529

 
3,113


13,253

 
Generation
 
Exelon
As of December 31, 2016
Level 1
 
Level 2
 
Level 3
 
Not subject to leveling
 
Total
 
Level 1

Level 2

Level 3
 
Not subject to leveling

Total
Liabilities
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 

Commodity derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Economic hedges
(1,267
)
 
(2,378
)
 
(794
)
 

 
(4,439
)
 
(1,267
)
 
(2,378
)
 
(1,052
)
 

 
(4,697
)
Proprietary trading
(3
)
 
(50
)
 
(26
)
 

 
(79
)
 
(3
)
 
(50
)
 
(26
)
 

 
(79
)
Effect of netting and allocation of collateral(f) (g)
1,233

 
2,339

 
542

 

 
4,114

 
1,233

 
2,339

 
542

 

 
4,114

Commodity derivative liabilities subtotal
(37
)

(89
)

(278
)
 


(404
)

(37
)

(89
)

(536
)
 


(662
)
Interest rate and foreign currency derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives designated as hedging instruments

 
(10
)
 

 

 
(10
)
 

 
(10
)
 

 

 
(10
)
Economic hedges

 
(21
)
 

 

 
(21
)
 

 
(21
)
 

 

 
(21
)
Proprietary trading
(4
)
 

 

 

 
(4
)
 
(4
)
 

 

 

 
(4
)
Effect of netting and allocation of collateral
4

 
19

 

 

 
23

 
4

 
19

 

 

 
23

Interest rate and foreign currency derivative liabilities subtotal


(12
)


 


(12
)



(12
)


 


(12
)
Deferred compensation obligation

 
(34
)
 

 

 
(34
)
 

 
(136
)
 

 

 
(136
)
Total liabilities
(37
)

(135
)

(278
)
 


(450
)

(37
)

(237
)

(536
)
 


(810
)
Total net assets
$
5,200


$
2,724


$
1,231

 
$
3,113


$
12,268


$
5,637


$
2,700


$
993

 
$
3,113


$
12,443

_________
(a)
Generation excludes cash of $282 million and $252 million at September 30, 2017 and December 31, 2016 and restricted cash of $184 million and $157 million at September 30, 2017 and December 31, 2016.  Exelon excludes cash of $382 million and $360 million at September 30, 2017 and December 31, 2016 and restricted cash of $219 million and $180 million at September 30, 2017 and December 31, 2016 and includes long-term restricted cash of $22 million and $25 million at September 30, 2017 and December 31, 2016, which is reported in other deferred debits on the balance sheet.
(b)
Includes $75 million and $29 million of cash received from outstanding repurchase agreements at September 30, 2017 and December 31, 2016, respectively, and is offset by an obligation to repay upon settlement of the agreement as discussed in (d) below.
(c)
Includes derivative instruments of less than $1 million and $(2) million, which have a total notional amount of $885 million and $933 million at September 30, 2017 and December 31, 2016, respectively. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of the fiscal years ended and do not represent the amount of the company's exposure to credit or market loss.
(d)
Excludes net liabilities of $52 million and $31 million at September 30, 2017 and December 31, 2016, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables, repurchase agreement obligations, and payables related to pending securities purchases. The repurchase agreements are generally short-term in nature with durations generally of 30 days or less.
(e)
Excludes net assets of less than $1 million at September 30, 2017 and December 31, 2016. These items consist of receivables related to pending securities sales, interest and dividend receivables, and payables related to pending securities purchases.
(f)
Collateral posted/(received) from counterparties totaled $59 million, $215 million and $141 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of September 30, 2017. Collateral posted/(received) from counterparties, net of collateral paid to counterparties, totaled $71 million, $197 million and $61 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2016.
(g)
Of the collateral posted/(received), $27 million represents variation margin on the exchanges as of September 30, 2017. Of the collateral posted/(received), $(158) million represents variation margin on the exchanges as of December 31, 2016.
ComEd, PECO and BGE
The following tables present assets and liabilities measured and recorded at fair value on ComEd's, PECO's and BGE's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2017 and December 31, 2016:
 
ComEd
 
PECO
 
BGE
As of September 30, 2017
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents(a)
$
273

 
$

 
$

 
$
273

 
$
314

 
$

 
$

 
$
314

 
$
18

 
$

 
$

 
$
18

Rabbi trust investments
 
 
 
 
 
 

 
 
 
 
 
 
 

 
 
 
 
 
 
 

Mutual funds

 

 

 

 
7

 

 

 
7

 
5

 

 

 
5

Life insurance contracts

 

 

 

 

 
10

 

 
10

 

 

 

 

Rabbi trust investments subtotal








7


10




17


5






5

Total assets
273






273


321


10




331


23






23

Liabilities
 
 
 
 
 
 

 
 
 
 
 
 
 

 
 
 
 
 
 
 

Deferred compensation obligation

 
(7
)
 

 
(7
)
 

 
(10
)
 

 
(10
)
 

 
(4
)
 

 
(4
)
Mark-to-market derivative liabilities(b)

 

 
(277
)
 
(277
)
 

 

 

 

 

 

 

 

Total liabilities

 
(7
)
 
(277
)
 
(284
)
 

 
(10
)
 

 
(10
)
 

 
(4
)
 

 
(4
)
Total net assets (liabilities)
$
273

 
$
(7
)
 
$
(277
)
 
$
(11
)
 
$
321

 
$

 
$

 
$
321

 
$
23

 
$
(4
)
 
$

 
$
19

 
ComEd
 
PECO
 
BGE
As of December 31, 2016
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents(a)
$
20

 
$

 
$

 
$
20

 
$
45

 
$

 
$

 
$
45

 
$
36

 
$

 
$

 
$
36

Rabbi trust investments
 
 
 
 
 
 

 
 
 
 
 
 
 

 
 
 
 
 
 
 

Mutual funds

 

 

 

 
7

 

 

 
7

 
4

 

 

 
4

Life insurance contracts

 

 

 

 

 
10

 

 
10

 

 

 

 

Rabbi trust investments subtotal








7


10




17


4






4

Total assets
20






20


52


10




62


40






40

Liabilities
 
 
 
 
 
 

 
 
 
 
 
 
 

 
 
 
 
 
 
 

Deferred compensation obligation

 
(8
)
 

 
(8
)
 

 
(11
)
 

 
(11
)
 

 
(4
)
 

 
(4
)
Mark-to-market derivative liabilities(b)

 

 
(258
)
 
(258
)
 

 

 

 

 

 

 

 

Total liabilities

 
(8
)
 
(258
)
 
(266
)
 

 
(11
)
 

 
(11
)
 

 
(4
)
 

 
(4
)
Total net assets (liabilities)
$
20

 
$
(8
)
 
$
(258
)
 
$
(246
)
 
$
52

 
$
(1
)
 
$

 
$
51

 
$
40

 
$
(4
)
 
$

 
$
36


_________
(a)
ComEd excludes cash of $36 million at September 30, 2017 and December 31, 2016 and restricted cash of $2 million at December 31, 2016.  PECO excludes cash of $20 million and $22 million at September 30, 2017 and December 31, 2016.  BGE excludes cash of $11 million and $13 million at September 30, 2017 and December 31, 2016 and restricted cash of $1 million at September 30, 2017 and includes long-term restricted cash of $2 million at December 31, 2016, which is reported in other deferred debits on the balance sheet.
(b)
The Level 3 balance consists of the current and noncurrent liability of $20 million and $257 million, respectively, at September 30, 2017, and $19 million and $239 million, respectively, at December 31, 2016, related to floating-to-fixed energy swap contracts with unaffiliated suppliers.
PHI, Pepco, DPL and ACE
The following tables present assets and liabilities measured and recorded at fair value on PHI's, Pepco's, DPL's and ACE's Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2017 and December 31, 2016:
 
Successor
 
As of September 30, 2017
 
As of December 31, 2016
PHI
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents(a)
$
184

 
$

 
$

 
$
184

 
$
217

 
$

 
$

 
$
217

Mark-to-market derivative assets(b)

 

 

 

 
2

 

 

 
2

Effect of netting and allocation of collateral

 

 

 

 
(2
)
 

 

 
(2
)
Mark-to-market derivative assets subtotal

 

 

 

 

 

 

 

Rabbi trust investments
 
 
 
 
 
 

 
 
 
 
 
 
 

Cash equivalents
72

 

 

 
72

 
73

 

 

 
73

Fixed income

 
13

 

 
13

 

 
16

 

 
16

Life insurance contracts

 
23

 
21

 
44

 

 
22

 
20

 
42

Rabbi trust investments subtotal
72


36


21


129


73


38


20


131

Total assets
256


36


21


313

 
290


38


20


348

Liabilities
 
 
 
 
 
 

 
 
 
 
 
 
 

Deferred compensation obligation

 
(24
)
 

 
(24
)
 

 
(28
)
 

 
(28
)
Total liabilities


(24
)



(24
)



(28
)



(28
)
Total net assets
$
256


$
12


$
21


$
289

 
$
290


$
10


$
20


$
320

 
Pepco
 
DPL
 
ACE
As of September 30, 2017
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents(a)
$
144

 
$

 
$

 
$
144

 
$

 
$

 
$

 
$

 
$
31

 
$

 
$

 
$
31

Rabbi trust investments

 

 

 
 
 

 

 

 
 
 

 

 

 
 
Cash equivalents
43

 

 

 
43

 

 

 

 

 

 

 

 

Fixed income

 
13

 

 
13

 

 

 

 

 

 

 

 

Life insurance contracts

 
23

 
21

 
44

 

 

 

 

 

 

 

 

Rabbi trust investments subtotal
43


36


21


100

















Total assets
187


36


21


244










31






31

Liabilities

 

 

 


 

 

 

 

 

 

 

 

Deferred compensation obligation

 
(4
)
 

 
(4
)
 

 
(1
)
 

 
(1
)
 

 

 

 

Total liabilities


(4
)



(4
)



(1
)



(1
)








Total net assets (liabilities)
$
187

 
$
32

 
$
21

 
$
240

 
$

 
$
(1
)
 
$

 
$
(1
)
 
$
31

 
$

 
$

 
$
31


Pepco
 
DPL
 
ACE
As of December 31, 2016
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents(a)
$
33

 
$

 
$

 
$
33

 
$
42

 
$

 
$

 
$
42

 
$
130

 
$

 
$

 
$
130

Mark-to-market derivative assets(b)

 

 

 

 
2

 

 

 
2

 

 

 

 

Effect of netting and allocation of collateral

 

 

 

 
(2
)
 

 

 
(2
)
 

 

 

 

Mark-to-market derivative assets subtotal

 

 

 

 

 

 

 

 

 

 

 

Rabbi trust investments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
43

 

 

 
43

 

 

 

 

 

 

 

 

Fixed income

 
16

 

 
16

 

 

 

 

 

 

 

 

Life insurance contracts

 
22

 
19

 
41

 

 

 

 

 

 

 

 

Rabbi trust investments subtotal
43


38


19


100

















Total assets
76


38


19


133


42






42


130






130

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation obligation

 
(5
)
 

 
(5
)
 

 
(1
)
 

 
(1
)
 

 

 

 

Total liabilities

 
(5
)
 

 
(5
)
 

 
(1
)
 

 
(1
)
 

 

 

 

Total net assets (liabilities)
$
76

 
$
33

 
$
19


$
128

 
$
42

 
$
(1
)
 
$

 
$
41

 
$
130

 
$

 
$

 
$
130

_________
(a)
PHI excludes cash of $18 million and $19 million at September 30, 2017 and December 31, 2016 and includes long-term restricted cash of $22 million and $23 million at September 30, 2017 and December 31, 2016 which is reported in other deferred debits on the balance sheet.  Pepco excludes cash of $7 million and $9 million at September 30, 2017 and December 31, 2016. DPL excludes cash of $3 million and $4 million at September 30, 2017 and December 31, 2016. ACE excludes cash of $5 million and $3 million at September 30, 2017 and December 31, 2016 and includes long-term restricted cash of $22 million and $23 million at September 30, 2017 and December 31, 2016 which is reported in other deferred debits on the balance sheet.
(b)
Represents natural gas futures purchased by DPL as part of a natural gas hedging program approved by the DPSC.
The following tables present 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, 2017 and 2016:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
Generation
 
ComEd
 
PHI
 
 
 
Exelon
Three Months Ended September 30, 2017
NDT Fund
Investments
 
Pledged Assets
for Zion Station
Decommissioning
 
Mark-to-Market
Derivatives
 
Other
Investments
 
Total Generation
 
Mark-to-Market
Derivatives
 
Life Insurance Contracts
 
Eliminated in Consolidation
 
Total
Balance as of June 30, 2017
$
683

 
$
21

 
$
589

 
$
41

 
$
1,334

 
$
(256
)
 
$
20

 
$

 
$
1,098

Total realized / unrealized gains (losses)
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 

Included in net income

 

 
(82
)
(a) 
1

 
(81
)
 

 
1

 

 
(80
)
Included in payable for Zion Station decommissioning

 
(4
)
 

 

 
(4
)
 

 

 

 
(4
)
Included in regulatory assets

 

 

 

 

 
(21
)
(b) 

 

 
(21
)
Change in collateral

 

 
11

 

 
11

 

 

 

 
11

Purchases, sales, issuances and settlements
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 


Purchases
19

 

 
57

 
1

 
77

 

 

 

 
77

Settlements
(31
)
 

 
10

(c) 

 
(21
)
 

 

 

 
(21
)
Transfers out of Level 3

 

 
10

 

 
10

 

 

 

 
10

Balance at September 30, 2017
$
671

 
$
17

 
$
595

 
$
43

 
$
1,326

 
$
(277
)
 
$
21

 
$

 
$
1,070

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of September 30, 2017
$

 
$

 
$
24

 
$
1

 
$
25

 
$

 
$
1

 
$

 
$
26

 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
Generation
 
ComEd
 
PHI
 
 
 
Exelon
Nine Months Ended September 30, 2017
NDT Fund
Investments
 
Pledged Assets
for Zion Station
Decommissioning
 
Mark-to-Market
Derivatives
 
Other
Investments
 
Total Generation
 
Mark-to-Market
Derivatives
 
Life Insurance Contracts
 
Eliminated in Consolidation
 
Total
Balance as of December 31, 2016
$
677

 
$
19

 
$
493

 
$
42

 
$
1,231

 
$
(258
)
 
$
20

 
$

 
$
993

Total realized / unrealized gains (losses)
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 


Included in net income
4

 

 
(110
)
(a) 
2

 
(104
)
 

 
2

 

 
(102
)
Included in noncurrent payables to affiliates
13

 

 

 

 
13

 

 

 
(13
)
 

Included in payable for Zion Station decommissioning

 
(3
)
 

 

 
(3
)
 

 

 

 
(3
)
Included in regulatory assets

 

 

 

 

 
(19
)
(b) 

 
13

 
(6
)
Change in collateral

 

 
81

 

 
81

 

 

 

 
81

Purchases, sales, issuances and settlements
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 


Purchases
54

 
1

 
146

 
4

 
205

 

 

 

 
205

Sales

 

 
(15
)
 

 
(15
)
 

 

 

 
(15
)
Issuances

 

 

 

 

 

 
(1
)
 

 
(1
)
Settlements
(77
)
 

 
(8
)
(c) 

 
(85
)
 

 

 

 
(85
)
Transfers into Level 3

 

 
(9
)
 

 
(9
)
 

 

 

 
(9
)
Transfers out of Level 3

 

 
17

 
(5
)
 
12

 

 

 

 
12

Balance as of September 30, 2017
$
671

 
$
17


$
595

 
$
43

 
$
1,326

 
$
(277
)
 
$
21

 
$

 
$
1,070

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of September 30, 2017
$
2

 
$

 
$
161

 
$
2

 
$
165

 
$

 
$
2

 
$

 
$
167

_________
(a)
Includes a reduction for the reclassification of $96 million and $279 million of realized gains due to the settlement of derivative contracts for the three and nine months ended September 30, 2017.
(b)
Includes $24 million of decreases in fair value and an increase for realized losses due to settlements of $3 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the three months ended September 30, 2017. Includes $32 million of decreases in fair value and an increase for realized losses due to settlements of $13 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the nine months ended September 30, 2017.
(c)
Exelon includes the settlement value for any open contracts that were net settled prior to their scheduled maturity within this line item.
 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
Generation
 
ComEd
 
PHI
 
 
 
Exelon
Three Months Ended September 30, 2016
NDT Fund
Investments
 
Pledged Assets
for Zion Station
Decommissioning
 
Mark-to-Market
Derivatives
 
Other
Investments
 
Total Generation
 
Mark-to-Market
Derivatives
 
Life Insurance Contracts
 
Eliminated in Consolidation
 
Total
Balance as of June 30, 2016
$
715

 
$
25

 
$
609

 
$
37

 
$
1,386

 
$
(221
)
 
$
20

 
$

 
$
1,185

Total realized / unrealized gains (losses)
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
Included in net income
(4
)
 

 
95

(a) 
1

 
92

 

 
1

 

 
93

Included in noncurrent payables to affiliates
6

 

 

 

 
6

 

 

 
(6
)
 

Included in payable for Zion Station decommissioning

 
(1
)
 

 

 
(1
)
 

 

 

 
(1
)
Included in regulatory assets

 

 

 

 

 
(23
)
(b) 

 
6

 
(17
)
Change in collateral

 

 
31

 

 
31

 

 

 

 
31

Purchases, sales, issuances and settlements
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
Purchases
4

 

 
207

(c) 
3

 
214

 

 

 

 
214

Sales

 
(5
)
 
(2
)
 

 
(7
)
 

 

 

 
(7
)
Issuances

 

 

 

 

 

 

 

 

Settlements
(28
)
 

 

 

 
(28
)
 

 

 

 
(28
)
Transfers into Level 3

 

 
(1
)
 
1

 

 

 

 

 

Transfers out of Level 3

 

 
(4
)
 

 
(4
)
 

 

 

 
(4
)
Balance as of September 30, 2016
$
693


$
19


$
935


$
42


$
1,689


$
(244
)

$
21

 
$


$
1,466

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of September 30, 2016
$
3

 
$

 
$
285

 
$

 
$
288

 
$

 
$

 
$

 
$
288


 
 
 
 
 
 
 
 
 
 
 
 
 
Successor
 
 
 
 
 
Generation
 
ComEd
 
PHI(d)
 
 
 
Exelon
Nine Months Ended September 30, 2016
NDT Fund
Investments
 
Pledged Assets
for Zion Station
Decommissioning
 
Mark-to-Market
Derivatives
 
Other
Investments
 
Total Generation
 
Mark-to-Market
Derivatives
 
Life Insurance Contracts
 
Eliminated in Consolidation
 
Total
Balance as of December 31, 2015
$
670

 
$
22

 
$
1,051

 
$
33

 
$
1,776

 
$
(247
)
 
$

 
$

 
$
1,529

Included due to merger

 

 

 

 

 

 
20

 

 
20

Total realized / unrealized gains (losses)
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 

Included in net income
2

 

 
(339
)
(a) 
1

 
(336
)
 

 
2

 

 
(334
)
Included in noncurrent payables to affiliates
18

 

 

 

 
18

 

 

 
(18
)
 

Included in payable for Zion Station decommissioning

 
1

 

 

 
1

 

 

 

 
1

Included in regulatory assets

 

 

 

 

 
3

(b) 

 
18

 
21

Change in collateral

 

 
(51
)
 

 
(51
)
 

 

 

 
(51
)
Purchases, sales, issuances and settlements
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 

Purchases
123

 
1

 
289

(c) 
7

 
420

 

 

 

 
420

Sales
(1
)
 
(5
)
 
(5
)
 

 
(11
)
 

 

 

 
(11
)
Issuances

 

 

 

 

 

 
(1
)
 

 
(1
)
Settlements
(119
)
 

 

 

 
(119
)
 

 

 

 
(119
)
Transfers into Level 3

 

 
1

 
1

 
2

 

 

 

 
2

Transfers out of Level 3

 

 
(11
)
 

 
(11
)
 

 

 

 
(11
)
Balance as of September 30, 2016
$
693

 
$
19

 
$
935

 
$
42

 
$
1,689


$
(244
)
 
$
21

 
$

 
$
1,466

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of September 30, 2016
$
7

 
$

 
$
240

 
$

 
$
247

 
$

 
$
1

 
$

 
$
248

_________
(a)
Includes a reduction for the reclassification of $190 million and $579 million of realized gains due to the settlement of derivative contracts recorded in results of operations for the three and nine months ended September 30, 2016.
(b)
Includes $25 million of decreases in fair value and an increase for realized losses due to settlements of $2 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the three months ended September 30, 2016. Includes $10 million of decreases in fair value and an increase for realized losses due to settlements of $13 million for the nine months ended September 30, 2016.
(c)
Includes $168 million of fair value from contracts acquired as a result of portfolio acquisitions.
(d)
Successor period represents activity from March 24, 2016 through September 30, 2016. See tables below for PHI's predecessor periods, as well as activity for Pepco for the three and nine months ended September 30, 2017 and 2016.

 
 
Predecessor
 
 
January 1, 2016 to March 23, 2016
PHI
 
Preferred Stock
 
Life Insurance Contracts
Beginning Balance
 
$
18

 
$
19

Total realized / unrealized gains (losses)
 
 
 
 
Included in net income
 
(18
)
 
1

Ending Balance

$

 
$
20

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities for the period
 
$

 
$
1


 
Life Insurance Contracts
 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
Pepco
2017
 
2016
 
2017
 
2016
Beginning balance
$
20

 
$
20

 
$
20

 
$
19

Total realized / unrealized gains (losses)
 
 
 
 
 
 
 
Included in net income
1

 
1

 
2

 
3

Purchases, sales, issuances and settlements
 
 
 
 
 
 
 
Issuances

 

 
(1
)
 
(1
)
Ending balance
$
21


$
21

 
$
21


$
21

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities for the period
$
1

 
$

 
$
2

 
$
2


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, 2017 and 2016:
 
 
 
 
 
 
 
Successor
 
 
 
 
 
 
 
Generation
 
PHI
 
Exelon
 
Operating
Revenues
 
Purchased
Power and
Fuel
 
Other, net(a)
 
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, 2017
$
(3
)
 
$
(69
)
 
$
1

 
$
1

 
$
(3
)
 
$
(69
)
 
$
2

Total gains (losses) included in net income for the nine months ended September 30, 2017
34

 
(152
)
 
6

 
2

 
34

 
(152
)
 
8

Change in the unrealized gains (losses) relating to assets and liabilities held for the three months ended September 30, 2017
47

 
(23
)
 
1

 
1

 
47

 
(23
)
 
2

Change in the unrealized gains (losses) relating to assets and liabilities held for the nine months ended September 30, 2017
222

 
(61
)
 
4

 
2

 
222

 
(61
)
 
6

 
 
 
 
 
 
 
Successor
 
 
 
 
 
 
 
Generation
 
PHI
 
Exelon
 
Operating
Revenues
 
Purchased
Power and
Fuel
 
Other, net(a)
 
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, 2016
$
180

 
$
(85
)
 
$
(4
)
 
$
1

 
$
180

 
$
(85
)
 
$
(3
)
Total gains (losses) included in net income for the nine months ended September 30, 2016
(232
)
 
(107
)
 
2

 
2

 
(232
)
 
(107
)
 
4

Change in the unrealized gains (losses) relating to assets and liabilities held for the three months ended September 30, 2016
323

 
(38
)
 
3

 

 
323

 
(38
)
 
3

Change in the unrealized gains (losses) relating to assets and liabilities held for the nine months ended September 30, 2016
303

 
(63
)
 
7

 
1

 
303

 
(63
)
 
8

 
Predecessor
 
 
 
 
 
 
 
 
 
PHI
 
Pepco
 
January 1, 2016 to March 23, 2016
 
Three Months Ended  
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2017
 
2016
 
2017
 
2016
 
Other, net(a)

 
Other, net(a)

Total gains (losses) included in net income
$
(17
)
 
$
1

 
$
1

 
$
2

 
$
3

Change in the unrealized gains (losses) relating to assets and liabilities held
1

 
1

 

 
2

 
2


_________
(a)
Other, net activity consists of realized and unrealized gains (losses) included in income for the NDT funds held by Generation, accrued interest on a convertible promissory note at Generation and the life insurance contracts held by PHI and Pepco.
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, BGE, PHI, Pepco, DPL and ACE). The Registrants’ cash equivalents include investments with original 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.
Preferred Stock Derivative (PHI). In connection with entering into the PHI Merger Agreement, PHI entered into a Subscription Agreement with Exelon dated April 29, 2014, pursuant to which PHI issued to Exelon shares of Preferred stock. The Preferred stock contained embedded features requiring separate accounting consideration to reflect the potential value to PHI that any issued and outstanding Preferred stock could be called and redeemed at a nominal par value upon a termination of the merger agreement under certain circumstances due to the failure to obtain required regulatory approvals. The embedded call and redemption features on the shares of the Preferred stock in the event of such a termination were separately accounted for as derivatives. These Preferred stock derivatives were valued quarterly using quantitative and qualitative factors, including management’s assessment of the likelihood of a Regulatory Termination and therefore, were categorized in Level 3 in the fair value hierarchy. As a result of the PHI Merger, the PHI Preferred stock derivative was reduced to zero as of March 23, 2016. The write-off was charged to Other, net on the PHI Consolidated Statement of Operations and Comprehensive Income.
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 and mutual funds, which are included in Equities and Fixed Income. Generation’s and CENG's NDT fund investments policies outline investment guidelines for the trusts and 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 generally 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 which are based on quoted prices in active markets are categorized in Level 1. Certain equity securities have been categorized as Level 2 because they are based on evaluated prices that reflect observable market information, such as actual trade information or similar securities. 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. With respect to individually held fixed income securities, 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, which are included in Corporate debt, are determined using a third party valuation that contains significant unobservable inputs and are categorized in Level 3.
Equity and fixed income commingled funds and mutual funds are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives such as holding short-term fixed income securities or tracking the performance of certain equity indices by purchasing equity securities to replicate the capitalization and characteristics of the indices. The values of some of these funds are publicly quoted. For mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. For commingled funds and mutual funds, which are not publicly quoted, the funds are valued using NAV as a practical expedient for fair value, which is primarily derived from the quoted prices in active markets on the underlying securities, and are not classified within the fair value hierarchy. These investments typically can be redeemed monthly with 30 or less days of notice and without further restrictions.
Derivative instruments consisting primarily of futures and interest rate swaps to manage risk are recorded at fair value. Over the counter derivatives are valued daily based on quoted prices in active markets and trade in open markets, and have been categorized as Level 1. Derivative instruments other than over the counter derivatives are valued based on external price data of comparable securities and have been categorized as Level 2.
Middle market lending are investments in loans or managed funds which lend to 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 loans 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. Managed funds are valued using NAV or its equivalent as a practical expedient, and therefore, are not classified within the fair value hierarchy. Investments in middle market lending typically cannot be redeemed until maturity of the term loan.
Private equity and real estate investments include those in limited partnerships that invest in operating companies and real estate holding companies that are not publicly traded on a stock exchange, such as, leveraged buyouts, growth capital, venture capital, distressed investments, investments in natural resources, and direct investments in pools of real estate properties. The fair value of private equity and real estate investments is determined using NAV or its equivalent as a practical expedient, and therefore, are not classified within the fair value hierarchy. These investments typically cannot be redeemed and are generally liquidated over a period of 8 to 10 years from the initial investment date. Private equity and real estate valuations are reported by the fund manager and are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted future cash flows, market based comparable data, and independent appraisals from sources with professional qualifications. These valuation inputs are unobservable.
As of September 30, 2017, Generation has outstanding commitments to invest in fixed income, middle market lending, private equity and real estate investments of approximately $75 million, $285 million, $240 million, and $95 million, respectively. These commitments will be funded by Generation’s existing nuclear decommissioning trust funds.
Concentrations of Credit Risk. Generation evaluated its NDT portfolios for the existence of significant concentrations of credit risk as of September 30, 2017. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of September 30, 2017, there were no significant concentrations (generally defined as greater than 10 percent) of risk in Generation's NDT assets.
See Note 13Nuclear Decommissioning for further discussion on the NDT fund investments.
Rabbi Trust Investments (Exelon, Generation, PECO, BGE, PHI, Pepco, DPL and ACE). 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 Rabbi trusts assets are included in investments in the Registrants’ Consolidated Balance Sheets and consist primarily of money market funds, mutual funds, fixed income securities and life insurance policies. The mutual 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. Money market funds and mutual funds are publicly quoted and have been categorized as Level 1 given the clear observability of the prices. The fair values of fixed income 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 life insurance policies are valued using the cash surrender value of the policies, net of loans against those policies, which is provided by a third-party. Certain life insurance policies, which consist primarily of mutual funds that are priced based on observable market data, have been categorized as Level 2 because the life insurance policies can be liquidated at the reporting date for the value of the underlying assets. Life insurance policies that are valued using unobservable inputs have been categorized as Level 3.
Mark-to-Market Derivatives (Exelon, Generation, ComEd, PHI and DPL). 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 predominantly 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 10 - Derivative Financial Instruments for further discussion on mark-to-market derivatives.
Deferred Compensation Obligations (Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE). 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 underlying notional investments are comprised primarily of equities, mutual funds, commingled funds, and fixed income securities which are based on directly and indirectly observable market prices. Since the deferred compensation obligations themselves are not exchanged in an active market, they are categorized as Level 2 in the fair value hierarchy.
The value of certain employment agreement obligations (which are included with the Deferred Compensation Obligation in the tables above) are based on a known and certain stream of payments to be made over time and are categorized as Level 2 within the fair value hierarchy.
Additional Information Regarding Level 3 Fair Value Measurements (Exelon, Generation, ComEd, PHI, Pepco, DPL and ACE)
Mark-to-Market Derivatives (Exelon, Generation and 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 executive officer and includes the chief risk officer, chief strategy officer, chief executive officer of Exelon Utilities, chief commercial officer, chief financial officer and chief executive officer of Constellation. The RMC reports to the Finance and Risk Committee of the Exelon Board of Directors on the scope of the risk management activities. 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 and certain transmission congestion contracts. 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 $2.93 and $0.41 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.
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 10Derivative 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, 2017
 
Valuation
Technique
 
Unobservable
Input
 
Range
Mark-to-market derivatives — Economic Hedges (Exelon and Generation)(a)(b)
 
$
439

 
Discounted
Cash Flow
 
Forward power
price
 
$7
-
$124
 
 


 

 
Forward gas
price
 
$1.84
-
$9.43
 
 


 
Option Model
 
Volatility
percentage
 
9%
-
114%
 
 
 
 
 
 
 
 
 
 
 
Mark-to-market derivatives — Proprietary trading (Exelon and Generation)(a)(b)
 
$
15

 
Discounted
Cash Flow
 
Forward power
price
 
$12
-
$69
 
 
 
 
 
 
 
 
 
 
 
Mark-to-market derivatives (Exelon and ComEd)
 
$
(277
)
 
Discounted
Cash Flow
 
Forward heat
rate
(c)
 
9x
-
10x
 
 
 
 
 
 
Marketability
reserve
 
3%
-
8%
 
 
 
 
 
 
Renewable
factor
 
88%
-
125%
_________
(a)
The valuation techniques, unobservable inputs and ranges are the same for the asset and liability positions.
(b)
The fair values do not include cash collateral posted on level three positions of $141 million as of September 30, 2017.
(c)
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.
Type of trade
 
Fair Value at December 31, 2016
 
Valuation
Technique
 
Unobservable
Input
 
Range
Mark-to-market derivatives — Economic Hedges (Exelon and Generation)(a)(b)
 
$
435

 
Discounted
Cash Flow
 
Forward power price
 
$11
-
$130
 
 


 

 
Forward gas price
 
$1.72
-
$9.20
 
 


 
Option Model
 
Volatility percentage
 
8%
-
173%
 
 
 
 
 
 
 
 
 
 
 
Mark-to-market derivatives — Proprietary trading (Exelon and Generation)(a)(b)
 
$
(3
)
 
Discounted
Cash Flow
 
Forward power price
 
$19
-
$79
 
 
 
 
 
 
 
 
 
 
 
Mark-to-market derivatives (Exelon and ComEd)
 
$
(258
)
 
Discounted Cash Flow
 
Forward heat
rate
(c)
 
8x
-
9x
 
 
 
 
 
 
Marketability reserve
 
3%
-
8%
 
 
 
 
 
 
Renewable factor
 
89%
-
121%
_________
(a)
The valuation techniques, unobservable inputs and ranges are the same for the asset and liability positions.
(b)
The fair values do not include cash collateral posted on level three positions of $61 million as of December 31, 2016.
(c)
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.
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 and certain corporate debt securities 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 discounting the forecasted cash flows, market-based comparable data, credit and liquidity factors, as well as other factors that may impact value. Significant judgment is required in the application of discounts or premiums applied 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.
Rabbi Trust Investments - Life insurance contracts (Exelon, PHI, Pepco, DPL and ACE). For life insurance policies categorized as Level 3, the fair value is determined based on the cash surrender value of the policy, which contains unobservable inputs and assumptions. Because Exelon relies on its third-party insurance provider to develop the 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 Exelon. Exelon gains an understanding of the types of inputs and assumptions used in preparing the valuations and performs procedures to assess the reasonableness of the valuations.