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 September 30, 2017 and December 31, 2016, Exelon, Generation, BGE, PHI and ACE collectively consolidated six and nine VIEs or VIE groups, respectively, for which the applicable Registrant was the primary beneficiary (see Consolidated Variable Interest Entities below). As of September 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

In July 2017, Generation entered into an arrangement to sell a 49% interest in ExGen Renewables Partners, LLC (the Renewable JV) to an outside investor for $400 million of cash plus immaterial working capital and other customary post-closing adjustments. The Renewable JV meets the definition of a VIE because the Renewable JV has a similar structure to a limited partnership and the limited partners do not have kick out rights with respect to the general partner. Additionally, under the VIE guidance Generation is the primary beneficiary because Generation maintains the controlling financial interest; therefore, Generation will continue to consolidate the Renewable JV.

Generation owned 90% of a biomass fueled, combined heat and power company. In the second quarter of 2015, the entity was deemed to be a VIE because the entity required additional subordinated financial support in the form of a parental guarantee provided by Generation for up to $275 million in support of the payment obligations related to the Engineering, Procurement and Construction (EPC) contract (see Note 14 - Debt and Credit Agreements for additional details on Albany Green Energy, LLC). During the third quarter of 2017, the ownership of the entity increased to 99%, all payment obligations related to the EPC contract were satisfied, and the parental guarantee provided by Generation was terminated. As a result, the entity is now sufficiently capitalized and no longer meets the definition of a VIE. The entity was previously disclosed in “a group of companies formed by Generation to build, own and operate other generating facilities” as of December 31, 2016. However, the biomass facility will continue to be consolidated by Generation under the voting interest model.

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. In the second quarter of 2017 the rate stabilization bonds were fully redeemed and BGE remitted its final payment to BondCo. During the nine months ended September 30, 2017, BGE remitted $22 million to BondCo. During the three and nine months ended September 30, 2016, BGE remitted $27 million and $64 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.

During 2009, Constellation formed a retail gas group to enter into a collateralized gas supply agreement with a third-party gas supplier. 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 met the definition of a VIE and was removed from the list of consolidated VIEs noted below. However, the retail gas group continues to be consolidated by Generation under the voting interest model.

As of September 30, 2017, Exelon's and Generation's consolidated VIEs consist of:


•	Renewable energy project companies formed by Generation to build, own and operate renewable power facilities, which were previously separated into two separate VIE groups for solar project limited liability companies and wind project companies as of December 31, 2016,


•	Constellation EG, LLC (a company that operates back-up generation for a third-party), which was previously included in a group of companies formed by Generation to build, own and operate other generating facilities as of December 31, 2016,


•	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

As of September 30, 2017, Exelon's, PHI's and ACE's consolidated VIE consists of:


•	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 September 30, 2017 and December 31, 2016, ComEd, PECO, Pepco and DPL did not have any material consolidated VIEs.

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


•	Generation provides operating and capital funding to the renewable energy project companies and there is limited recourse to Generation related to certain renewable energy project companies.


•	Generation provides operating and capital funding to Constellation EG, LLC.


•	Generation provides approximately $31 million in credit support for the retail power and gas companies for which Generation is the sole supplier of energy.


•	Exelon and Generation, 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 September 30, 2017, the remaining obligation is $328 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 18 — 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 18 — 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.

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

•

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 nine months ended September 30, 2017, ACE transferred $11 million and $39 million to ATF, respectively. During the three and nine months ended September 30, 2016, ACE transferred $20 million and $47 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 September 30, 2017 and December 31, 2016 are as follows:



	September 30, 2017								December 31, 2016
					Successor										Successor
	Exelon^(a)		Generation		PHI ^(a)		ACE		Exelon^(a)(b)		Generation		BGE		PHI^(a)		ACE
Current assets	$	657	$	644	$	13	$	9	$	954	$	916	$	23	$	14	$	9
Noncurrent assets	9,252		9,222		30		22		8,563		8,525		3		35		23
Total assets	$	9,909	$	9,866	$	43	$	31	$	9,517	$	9,441	$	26	$	49	$	32
Current liabilities	$	404	$	367	$	37	$	33	$	885	$	802	$	42	$	42	$	37
Noncurrent liabilities	3,290		3,215		75		67		2,713		2,612		—		101		89
Total liabilities	$	3,694	$	3,582	$	112	$	100	$	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 September 30, 2017 and December 31, 2016, these assets and liabilities primarily consisted of the following:



	September 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	$	130	$	130	$	—	$	—	$	150	$	150	$	—	$	—	$	—
Restricted cash	85		76		9		9		59		27		23		9		9
Accounts receivable, net
Customer	139		139		—		—		371		371		—		—		—
Other	25		25		—		—		48		48		—		—		—
Mark-to-market derivatives assets	—		—		—		—		31		31		—		—		—
Inventory
Materials and supplies	196		196		—		—		199		199		—		—		—
Other current assets	56		52		4		—		50		44		—		5		—
Total current assets	631		618		13		9		908		870		23		14		9
Property, plant and equipment, net	6,213		6,213		—		—		5,415		5,415		—		—		—
Nuclear decommissioning trust funds	2,415		2,415		—		—		2,185		2,185		—		—		—
Goodwill	—		—		—		—		47		47		—		—		—
Mark-to-market derivative assets	—		—		—		—		23		23		—		—		—
Other noncurrent assets	261		231		30		22		315		277		3		35		23
Total noncurrent assets	8,889		8,859		30		22		7,985		7,947		3		35		23
Total assets	$	9,520	$	9,477	$	43	$	31	$	8,893	$	8,817	$	26	$	49	$	32
Long-term debt due within one year	$	182	$	146	$	36	$	32	$	181	$	99	$	41	$	40	$	35
Accounts payable	104		104		—		—		269		269		—		—		—
Accrued expenses	90		89		1		1		119		116		1		2		2
Mark-to-market derivative liabilities	—		—		—		—		60		60		—		—		—
Unamortized energy contract liabilities	17		17		—		—		15		15		—		—		—
Other current liabilities	11		11		—		—		30		30		—		—		—
Total current liabilities	404		367		37		33		674		589		42		42		37
Long-term debt	1,172		1,097		75		67		641		540		—		101		89
Asset retirement obligations	2,009		2,009		—		—		1,904		1,904		—		—		—
Pension obligation^(c)	—		—		—		—		9		9		—		—		—
Unamortized energy contract liabilities	9		9		—		—		22		22		—		—		—
Other noncurrent liabilities	94		94		—		—		106		106		—		—		—
Total noncurrent liabilities	3,284		3,209		75		67		2,682		2,581		—		101		89
Total liabilities	$	3,688	$	3,576	$	112	$	100	$	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 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 14 - 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.

As of September 30, 2017, Exelon's and Generation's 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 September 30, 2017 and December 31, 2016, ComEd, PECO, BGE, PHI, Pepco, ACE, and DPL did not have any material unconsolidated VIEs.

As of September 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 $17 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 $17 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:



September 30, 2017	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	635	$	519	$	1,154
Total liabilities^(a)	39		229		268
Exelon's ownership interest in VIE^(a)	—		259		259
Other ownership interests in VIE^(a)	596		31		627
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments	—		259		259
Contract intangible asset	9		—		9
Debt and payment guarantees	—		—		—
Net assets pledged for Zion Station decommissioning^(b)	4		—		4



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 $57 million and $113 million as of September 30, 2017 and December 31, 2016, respectively; offset by payables to ZionSolutions LLC of $53 million and $104 million as of September 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 13 - 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.

BGE

The financing trust of BGE, BGE Capital Trust II, was created in 2003 for the purpose of issuing mandatorily redeemable trust preferred securities. In the third quarter of 2017, BGE redeemed the securities pursuant to the optional redemption provisions of the Indenture, under which the subordinated debt securities were issued, and dissolved BGE Capital Trust II. Prior to dissolution the BGE Capital Trust II was not consolidated in Exelon's or BGE's financial statements. BGE concluded it did not have a significant variable interest in BGE Capital Trust II as BGE financed its equity interest in the financing trust through the issuance of subordinated debt and, therefore, had no equity at risk. See Note 14 - Debt and Credit Agreements of the Exelon 2016 Form 10-K for additional information.