Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements

Fair Value Measurements

Fair Value Measurements

Recurring Measurements

Our assets and liabilities measured at fair value on a recurring basis consist of the following (immaterial for BGE assets):

			As of September 30, 2011						As of December 31, 2010
			Assets			Liabilities			Assets			Liabilities
			(In millions)
Cash equivalents			$	625.6		$	—		$	1,545.4		$	—
Equity securities				51.2			—			43.7			—
Derivative instruments:
	Classified as derivative assets and liabilities:
		Current		233.8			(487.8	)		534.4			(622.3	)
		Noncurrent		258.2			(239.7	)		258.9			(353.0	)
		Total classified as derivative assets and liabilities		492.0			(727.5	)		793.3			(975.3	)
	Classified as accounts receivable1			(198.6	)		—			(16.4	)		—
	Total derivative instruments			293.4			(727.5	)		776.9			(975.3	)
Total recurring fair value measurements			$	970.2		$	(727.5	)	$	2,366.0		$	(975.3	)

1 Represents the unrealized fair value of exchange traded derivatives, exclusive of cash margin posted.

        Cash equivalents represent money market funds included in "Cash and cash equivalents" in the Consolidated Balance Sheets. Equity securities primarily represent mutual fund investments and common shares in public companies included in "Other assets" in the Consolidated Balance Sheets. Derivative instruments represent unrealized amounts related to all derivatives. We classify exchange-listed derivatives as part of "Accounts Receivable" in our Consolidated Balance Sheets. We classify the remainder of our derivatives as "Derivative assets" or "Derivative liabilities" in our Consolidated Balance Sheets.

        The table below sets forth by level within the fair value hierarchy the gross components of the Company's assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010. We disaggregate our net derivative assets and liabilities by separating each individual derivative contract that is in-the-money from each contract that is out-of-the-money regardless of master netting agreements and collateral. As a result, the gross "asset" and "liability" amounts in each of the three fair value levels far exceed our actual economic exposure to commodity price risk and credit risk. The objective of this table is to provide information about how each individual derivative contract is valued within the fair value hierarchy, regardless of whether a particular contract is eligible for netting against other contracts or whether it has been collateralized. Therefore, these gross balances are intended solely to provide information on sources of inputs to fair value and proportions of fair value involving objective versus subjective valuations and do not represent either our actual credit exposure or net economic exposure.

At September 30, 2011		Level 1			Level 2			Level 3			Netting and Cash Collateral1			Total Net Fair Value
		(In millions)
Cash equivalents		$	625.6		$	—		$	—		$	—		$	625.6
Equity securities			51.2			—			—			—			51.2
Derivative assets:
	Power contracts		—			3,987.0			658.3
	Gas contracts		182.6			4,115.9			518.6
	Coal contracts		—			136.9			0.5
	Other commodity contracts		28.0			163.3			347.6
	Interest rate contracts		50.3			54.4			—
	Foreign exchange contracts		—			14.4			—
	Equity contracts		—			—			0.4
	Total derivative assets		260.9			8,471.9			1,525.4			(9,964.8	)		293.4
Derivative liabilities:
	Power contracts		—			(4,100.9	)		(905.3	)
	Gas contracts		(172.6	)		(4,359.7	)		(365.3	)
	Coal contracts		—			(119.0	)		(0.1	)
	Other commodity contracts		(28.2	)		(154.8	)		(346.2	)
	Interest rate contracts		(50.6	)		(1.3	)		(3.3	)
	Foreign exchange contracts		—			(5.5	)		—
Total derivative liabilities			(251.4	)		(8,741.2	)		(1,620.2	)		9,885.3			(727.5	)
	Net derivative position		9.5			(269.3	)		(94.8	)		(79.5	)		(434.1	)
Total		$	686.3		$	(269.3	)	$	(94.8	)	$	(79.5	)	$	242.7

1 We present our derivative assets and liabilities in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral, when a legally enforceable master netting agreement exists between us and the counterparty to a derivative contract. At September 30, 2011, we included $81.4 million of cash collateral held and $1.9 million of cash collateral posted (excluding margin posted on exchange traded derivatives) in netting amounts in the above table.

At December 31, 2010		Level 1			Level 2			Level 3			Netting and Cash Collateral1			Total Net Fair Value
		(In millions)
Cash equivalents		$	1,545.4		$	—		$	—		$	—		$	1,545.4
Equity securities			43.7			—			—			—			43.7
Derivative assets:
	Power contracts		—			7,509.6			453.3
	Gas contracts		63.9			5,113.3			115.2
	Coal contracts		—			355.6			7.4
	Other commodity contracts		6.6			54.8			—
	Interest rate contracts		33.1			37.0			—
	Foreign exchange contracts		—			11.0			—
	Total derivative assets		103.6			13,081.3			575.9			(12,983.9	)		776.9
Derivative liabilities:
	Power contracts		—			(7,758.2	)		(771.1	)
	Gas contracts		(72.7	)		(4,910.3	)		(5.1	)
	Coal contracts		—			(307.4	)		(0.9	)
	Other commodity contracts		(7.1	)		(54.5	)		—
	Interest rate contracts		(35.7	)		—			—
	Foreign exchange contracts		—			(8.4	)		—
Total derivative liabilities			(115.5	)		(13,038.8	)		(777.1	)		12,956.1			(975.3	)
	Net derivative position		(11.9	)		42.5			(201.2	)		(27.8	)		(198.4	)
Total		$	1,577.2		$	42.5		$	(201.2	)	$	(27.8	)	$	1,390.7

1 We present our derivative assets and liabilities in our Consolidated Balance Sheets on a net basis. We net derivative assets and liabilities, including cash collateral, when a legally enforceable master netting agreement exists between us and the counterparty to a derivative contract. At December 31, 2010, we included $28.4 million of cash collateral held and $0.6 million of cash collateral posted (excluding margin posted on exchange traded derivatives) in netting amounts in the above table.

        We discuss our valuation techniques and inputs used to develop those measurements in greater detail in Note 13 of our 2010 Annual Report of Form 10-K. There have not been significant changes to our valuation techniques nor to their inputs during 2011.

        During the quarter and nine months ended September 30, 2011, there were no significant transfers of derivatives between Level 1 and Level 2 of the fair value hierarchy.

        During the quarters and nine months ended September 30, 2011 and 2010, our Level 3 fair value measurements, predominantly power contracts, changed as follows:

		Quarter Ended September 30,						Nine Months Ended September 30,
		2011			2010			2011			2010
		(In millions)
Balance at beginning of period		$	(40.1	)	$	(175.7	)	$	(201.2	)	$	(291.5	)
Realized and unrealized (losses) gains:
	Recorded in income		(50.3	)		(145.8	)		(70.7	)		(203.4	)
	Recorded in other comprehensive income		(10.4	)		14.1			19.1			87.6
Purchases			0.6						(3.0	)
Sales			—						—
Issuances			2.3						3.4
Settlements			—						—
	Net purchases, sales, issuances, and settlements1		2.9			28.9			0.4			24.5
Transfers into Level 32			(30.4	)		(105.3	)		115.3			102.7
Transfers out of Level 32			33.5			(41.1	)		42.3			(144.8	)
Balance at end of period		$	(94.8	)	$	(424.9	)	$	(94.8	)	$	(424.9	)
Change in unrealized gains recorded in income relating to derivatives still held at end of period		$	44.4		$	(75.3	)	$	(19.4	)	$	(96.9	)

1 Effective January 1, 2011, we are required to present separately purchases, sales, issuances, and settlements.

2 For purposes of this reconciliation, we assumed transfers into and out of Level 3 occurred on the last day of the quarter. All transfers are predominantly the result of changes in the observability of the forward commodity price curves.

        We have defined the categories of purchases, sales, issuances, and settlements to include the inflow or outflow of value as follows:

• -

  purchases—includes the acquisition of pre-existing derivative contracts,

  -

  sales—includes the sale or assignment of pre-existing derivative contracts,

  -

  issuances—includes the acquisition of derivative contracts at inception, and

  -

  settlements—includes the termination of existing derivative contracts prior to normal maturity or settlement.

        During the quarter and nine months ended September 30, 2011, we had purchases related to our business acquisitions and issuances related to premiums paid for option contracts and payments for transmission congestion contracts.

        We discuss the financial statement classification for realized and unrealized gains and losses related to cash-flow hedges for our various hedging relationships in Note 1 to our 2010 Annual Report on Form 10-K.