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Fair Value of Financial Assets and Liabilities (All Registrants)

12 Months Ended

Dec. 31, 2019

Fair Value of Financial Assets and Liabilities (All Registrants)

Exelon measure and records fair value measurements in accordance with the hierarchy as defined by GAAP. 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.

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 December 31, 2019 and 2018. The Registrants have no financial liabilities classified as Level 1.

The carrying amounts of the Registrants’ short-term liabilities as presented on their Consolidated Balance Sheets are representative of their fair value (Level 2) because of the short-term nature of these instruments.



	December 31, 2019								December 31, 2018
	Carrying Amount		Fair Value						Carrying Amount		Fair Value
	Carrying Amount		Level 2		Level 3		Total		Carrying Amount		Level 2		Level 3		Total
Long-Term Debt, including amounts due within one year^(a)
Exelon	$	36,039	$	37,453	$	2,580	$	40,033	$	35,424	$	33,711	$	2,158	$	35,869
Generation	7,974		7,304		1,366		8,670		8,793		7,467		1,443		8,910
ComEd	8,491		9,848		—		9,848		8,101		8,390		—		8,390
PECO	3,405		3,868		50		3,918		3,084		3,157		50		3,207
BGE	3,270		3,649		—		3,649		2,876		2,950		—		2,950
PHI	6,563		5,902		1,164		7,066		6,259		5,436		665		6,101
Pepco	2,864		3,198		388		3,586		2,719		2,901		196		3,097
DPL	1,567		1,408		311		1,719		1,494		1,303		193		1,496
ACE	1,327		1,026		464		1,490		1,188		987		275		1,262
Long-Term Debt to Financing Trusts^(a)
Exelon	$	390	$	—	$	428	$	428	$	390	$	—	$	400	$	400
ComEd	205		—		227		227		205		—		209		209
PECO	184		—		201		201		184		—		191		191
SNF Obligation
Exelon	$	1,199	$	1,055	$	—	$	1,055	$	1,171	$	949	$	—	$	949
Generation	1,199		1,055		—		1,055		1,171		949		—		949

________

(a) Includes unamortized debt issuance costs which are not fair valued. Refer to Note 16 — Debt and Credit Agreements for each Registrants’ unamortized debt issuance costs.

Exelon uses the following methods and assumptions to estimate fair value of financial liabilities recorded at carrying cost:



Type	Level	Registrants	Valuation
Long-term debt, including amounts due within one year
Taxable Debt Securities	2	All	The fair value is determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. Exelon obtains credit spreads based on trades of existing Exelon debt securities as well as other issuers in the utility sector with similar credit ratings. 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.
Variable Rate Financing Debt	2	Exelon, Generation, DPL	Debt rates are reset on a regular basis and the carrying value approximates fair value.
Taxable Private Placement Debt Securities	3	Exelon, Pepco, DPL, ACE	Rates are obtained similar to the process for taxable debt securities. Due to low trading volume and qualitative factors such as market conditions, low volume of investors and investor demand, these debt securities are Level 3.
Government Backed Fixed Rate Project Financing Debt	3	Exelon, Generation	The fair value is similar to the process for taxable debt securities. 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 U.S. Treasury rate as well as a current market curve derived from government-backed securities.
Non-Government Backed Fixed Rate Nonrecourse Debt	3	Exelon, Generation, Pepco	Fair value 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
Long Term Debt to Financing Trusts	3	Exelon, ComEd, PECO	Fair value is based on publicly traded securities issued by the financing trusts. Due to low trading volume of these securities and qualitative factors, such as market conditions, investor demand, and circumstances related to each issue, this debt is classified as Level 3.
SNF Obligation	2	Exelon, Generation	The carrying amount 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 U.S. 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.

Recurring Fair Value Measurements

The following tables present assets and liabilities measured and recorded at fair value in the Registrants' Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2019 and 2018:



	Exelon														Generation
As of December 31, 2019	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)	$	639		$	—		$	—		$	—	$	639		$	214		$	—		$	—		$	—	$	214
NDT fund investments
Cash equivalents^(b)	365			87			—			—		452			365			87			—			—		452
Equities	3,353			1,753			—			1,388		6,494			3,353			1,753			—			1,388		6,494
Fixed income
Corporate debt	—			1,469			257			—		1,726			—			1,469			257			—		1,726
U.S. Treasury and agencies	1,808			131			—			—		1,939			1,808			131			—			—		1,939
Foreign governments	—			42			—			—		42			—			42			—			—		42
State and municipal debt	—			90			—			—		90			—			90			—			—		90
Other^(c)	—			33			—			953		986			—			33			—			953		986
Fixed income subtotal	1,808			1,765			257			953		4,783			1,808			1,765			257			953		4,783
Private credit	—			—			254			508		762			—			—			254			508		762
Private equity	—			—			—			402		402			—			—			—			402		402
Real estate	—			—			—			607		607			—			—			—			607		607
NDT fund investments subtotal^(d)	5,526			3,605			511			3,858		13,500			5,526			3,605			511			3,858		13,500
Rabbi trust investments
Cash equivalents	50			—			—			—		50			4			—			—			—		4
Mutual funds	81			—			—			—		81			25			—			—			—		25
Fixed income	—			12			—			—		12			—			—			—			—		—
Life insurance contracts	—			78			41			—		119			—			25			—			—		25
Rabbi trust investments subtotal	131			90			41			—		262			29			25			—			—		54
Commodity derivative assets
Economic hedges	768			2,491			1,485			—		4,744			768			2,491			1,485			—		4,744
Proprietary trading	—			37			60			—		97			—			37			60			—		97
Effect of netting and allocation of collateral^(e)(f)	(908		)	(2,162		)	(588		)	—		(3,658		)	(908		)	(2,162		)	(588		)	—		(3,658		)
Commodity derivative assets subtotal	(140		)	366			957			—		1,183			(140		)	366			957			—		1,183
Total assets	6,156			4,061			1,509			3,858		15,584			5,629			3,996			1,468			3,858		14,951



	Exelon														Generation
As of December 31, 2019	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	(1,071		)	(2,855		)	(1,228		)	—		(5,154		)	(1,071		)	(2,855		)	(927		)	—		(4,853		)
Proprietary trading	—			(34		)	(15		)	—		(49		)	—			(34		)	(15		)	—		(49		)
Effect of netting and allocation of collateral^(e)(f)	1,071			2,714			802			—		4,587			1,071			2,714			802			—		4,587
Commodity derivative liabilities subtotal	—			(175		)	(441		)	—		(616		)	—			(175		)	(140		)	—		(315		)
Deferred compensation obligation	—			(147		)	—			—		(147		)	—			(41		)	—			—		(41		)
Total liabilities	—			(322		)	(441		)	—		(763		)	—			(216		)	(140		)	—		(356		)
Total net assets	$	6,156		$	3,739		$	1,068		$	3,858	$	14,821		$	5,629		$	3,780		$	1,328		$	3,858	$	14,595



	Exelon										Generation
As of December 31, 2018	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)	$	1,243	$	—	$	—	$	—	$	1,243	$	581	$	—	$	—	$	—	$	581
NDT fund investments
Cash equivalents^(b)	252		86		—		—		338		252		86		—		—		338
Equities	2,918		1,591		—		1,381		5,890		2,918		1,591		—		1,381		5,890
Fixed income
Corporate debt	—		1,593		230		—		1,823		—		1,593		230		—		1,823
U.S. Treasury and agencies	2,081		99		—		—		2,180		2,081		99		—		—		2,180
Foreign governments	—		50		—		—		50		—		50		—		—		50
State and municipal debt	—		149		—		—		149		—		149		—		—		149
Other^(c)	—		30		—		846		876		—		30		—		846		876
Fixed income subtotal	2,081		1,921		230		846		5,078		2,081		1,921		230		846		5,078
Private credit	—		—		313		367		680		—		—		313		367		680
Private equity	—		—		—		329		329		—		—		—		329		329
Real estate	—		—		—		510		510		—		—		—		510		510
NDT fund investments subtotal^(d)	5,251		3,598		543		3,433		12,825		5,251		3,598		543		3,433		12,825



	Exelon														Generation
As of December 31, 2018	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Rabbi trust investments
Cash equivalents	48			—			—			—		48			5			—			—			—		5
Mutual funds	72			—			—			—		72			24			—			—			—		24
Fixed income	—			15			—			—		15			—			—			—			—		—
Life insurance contracts	—			70			38			—		108			—			22			—			—		22
Rabbi trust investments subtotal	120			85			38			—		243			29			22			—			—		51
Commodity derivative assets
Economic hedges	541			2,760			1,470			—		4,771			541			2,760			1,470			—		4,771
Proprietary trading	—			69			77			—		146			—			69			77			—		146
Effect of netting and allocation of collateral^(e)(f)	(582		)	(2,357		)	(732		)	—		(3,671		)	(582		)	(2,357		)	(732		)	—		(3,671		)
Commodity derivative assets subtotal	(41		)	472			815			—		1,246			(41		)	472			815			—		1,246
Total assets	6,573			4,155			1,396			3,433		15,557			5,820			4,092			1,358			3,433		14,703
Liabilities
Commodity derivative liabilities
Economic hedges	(642		)	(2,963		)	(1,276		)	—		(4,881		)	(642		)	(2,963		)	(1,027		)	—		(4,632		)
Proprietary trading	—			(73		)	(21		)	—		(94		)	—			(73		)	(21		)	—		(94		)
Effect of netting and allocation of collateral^(e)(f)	639			2,581			808			—		4,028			639			2,581			808			—		4,028
Commodity derivative liabilities subtotal	(3		)	(455		)	(489		)	—		(947		)	(3		)	(455		)	(240		)	—		(698		)
Deferred compensation obligation	—			(137		)	—			—		(137		)	—			(35		)	—			—		(35		)
Total liabilities	(3		)	(592		)	(489		)	—		(1,084		)	(3		)	(490		)	(240		)	—		(733		)
Total net assets	$	6,570		$	3,563		$	907		$	3,433	$	14,473		$	5,817		$	3,602		$	1,118		$	3,433	$	13,970

__________

(a)

Exelon excludes cash of $373 million and $458 million at December 31, 2019 and 2018, respectively, and restricted cash of $110 million and $80 million at December 31, 2019 and 2018, respectively, and includes long-term restricted cash of $177 million and $185 million at December 31, 2019 and 2018, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. Generation excludes cash of $177 million and $283 million at December 31, 2019 and 2018, respectively and restricted cash of $58 million and $39 million at December 31, 2019 and 2018, respectively.


(b)	Includes $90 million and $50 million of cash received from outstanding repurchase agreements at December 31, 2019 and 2018, respectively, and is offset by an obligation to repay upon settlement of the agreement as discussed in (d) below.

(c)

Includes derivative instruments of $2 million and $44 million, which have a total notional amount of $724 million and $1,432 million at December 31, 2019 and 2018, 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 $147 million and $130 million at December 31, 2019 and 2018, 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)	Collateral posted/(received) from counterparties totaled $163 million, $551 million and $214 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2019. Collateral posted/(received) from

counterparties totaled $57 million, $224 million and $76 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2018.


(f)	Of the collateral posted/(received), $511 million and $(94) million represents variation margin on the exchanges as of December 31, 2019 and 2018, respectively.

As of December 31, 2019, Generation has outstanding commitments to invest in fixed income, private credit, private equity and real estate investments of approximately $85 million, $166 million, $375 million and $427 million, respectively. These commitments will be funded by Generation’s existing NDT funds.

Exelon and Generation hold investments without readily determinable fair values with carrying amounts of $69 million as of December 31, 2019. Changes were immaterial in fair value, cumulative adjustments and impairments for the year ended December 31, 2019.



	ComEd											PECO										BGE
As of December 31, 2019	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)	$	280	$	—		$	—		$	280		$	15	$	—		$	—	$	15		$	—	$	—		$	—	$	—
Rabbi trust investments
Mutual funds	—		—			—			—			8		—			—		8			8		—			—		8
Life insurance contracts	—		—			—			—			—		11			—		11			—		—			—		—
Rabbi trust investments subtotal	—		—			—			—			8		11			—		19			8		—			—		8
Total assets	280		—			—			280			23		11			—		34			8		—			—		8
Liabilities
Deferred compensation obligation	—		(8		)	—			(8		)	—		(9		)	—		(9		)	—		(5		)	—		(5		)
Mark-to-market derivative liabilities^(b)	—		—			(301		)	(301		)	—		—			—		—			—		—			—		—
Total liabilities	—		(8		)	(301		)	(309		)	—		(9		)	—		(9		)	—		(5		)	—		(5		)
Total net assets (liabilities)	$	280	$	(8	)	$	(301	)	$	(29	)	$	23	$	2		$	—	$	25		$	8	$	(5	)	$	—	$	3



	ComEd											PECO										BGE
As of December 31, 2018	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)	$	209	$	—		$	—		$	209		$	111	$	—		$	—	$	111		$	4	$	—		$	—	$	4
Rabbi trust investments
Mutual funds	—		—			—			—			7		—			—		7			6		—			—		6
Life insurance contracts	—		—			—			—			—		10			—		10			—		—			—		—
Rabbi trust investments subtotal	—		—			—			—			7		10			—		17			6		—			—		6
Total assets	209		—			—			209			118		10			—		128			10		—			—		10
Liabilities
Deferred compensation obligation	—		(6		)	—			(6		)	—		(10		)	—		(10		)	—		(5		)	—		(5		)
Mark-to-market derivative liabilities^(b)	—		—			(249		)	(249		)	—		—			—		—			—		—			—		—
Total liabilities	—		(6		)	(249		)	(255		)	—		(10		)	—		(10		)	—		(5		)	—		(5		)
Total net assets (liabilities)	$	209	$	(6	)	$	(249	)	$	(46	)	$	118	$	—		$	—	$	118		$	10	$	(5	)	$	—	$	5

__________

(a)

ComEd excludes cash of $90 million and $93 million at December 31, 2019 and 2018 and restricted cash of $33 million and $28 million at December 31, 2019 and 2018, respectively, and includes long-term restricted cash of $163 million and $166 million at December 31, 2019 and 2018, respectively which is reported in Other deferred debits in the Consolidated Balance Sheets. PECO excludes cash of $12 million and $24 million at December 31, 2019 and 2018, respectively. BGE excludes cash of $24 million and $7 million at December 31, 2019 and 2018, respectively, and restricted cash of $1 million and $2 million at December 31, 2019 and 2018, respectively.


(b)	The Level 3 balance consists of the current and noncurrent liability of $32 million and $269 million, respectively, at December 31, 2019, and $26 million and $223 million, respectively, at December 31, 2018, related to floating-to-fixed energy swap contracts with unaffiliated suppliers.



	As of December 31, 2019										As of December 31, 2018
PHI	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents^(a)	$	124	$	—		$	—	$	124		$	147	$	—		$	—	$	147
Rabbi trust investments
Cash equivalents	44		—			—		44			42		—			—		42
Mutual Funds	14		—			—		14			13		—			—		13
Fixed income	—		12			—		12			—		15			—		15
Life insurance contracts	—		24			41		65			—		22			38		60
Rabbi trust investments subtotal^(b)	58		36			41		135			55		37			38		130
Total assets	182		36			41		259			202		37			38		277
Liabilities
Deferred compensation obligation	—		(19		)	—		(19		)	—		(21		)	—		(21		)
Total liabilities	—		(19		)	—		(19		)	—		(21		)	—		(21		)
Total net assets	$	182	$	17		$	41	$	240		$	202	$	16		$	38	$	256



	Pepco										DPL								ACE
As of December 31, 2019	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)	$	34	$	—		$	—	$	34		$	—	$	—	$	—	$	—	$	16	$	—	$	—	$	16
Rabbi trust investments
Cash equivalents	43		—			—		43			—		—		—		—		—		—		—		—
Fixed income	—		2			—		2			—		—		—		—		—		—		—		—
Life insurance contracts	—		24			41		65			—		—		—		—		—		—		—		—
Rabbi trust investments subtotal	43		26			41		110			—		—		—		—		—		—		—		—
Total assets	77		26			41		144			—		—		—		—		16		—		—		16
Liabilities
Deferred compensation obligation	—		(2		)	—		(2		)	—		—		—		—		—		—		—		—
Total liabilities	—		(2		)	—		(2		)	—		—		—		—		—		—		—		—
Total net assets	$	77	$	24		$	41	$	142		$	—	$	—	$	—	$	—	$	16	$	—	$	—	$	16



	Pepco										DPL										ACE
As of December 31, 2018	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)	$	38	$	—		$	—	$	38		$	16	$	—		$	—	$	16		$	23	$	—	$	—	$	23
Rabbi trust investments
Cash equivalents	41		—			—		41			—		—			—		—			—		—		—		—
Fixed income	—		5			—		5			—		—			—		—			—		—		—		—
Life insurance contracts	—		22			37		59			—		—			—		—			—		—		—		—
Rabbi trust investments subtotal	41		27			37		105			—		—			—		—			—		—		—		—
Total assets	79		27			37		143			16		—			—		16			23		—		—		23
Liabilities
Deferred compensation obligation	—		(3		)	—		(3		)	—		(1		)	—		(1		)	—		—		—		—
Total liabilities	—		(3		)	—		(3		)	—		(1		)	—		(1		)	—		—		—		—
Total net assets	$	79	$	24		$	37	$	140		$	16	$	(1	)	$	—	$	15		$	23	$	—	$	—	$	23

__________

(a)

PHI excludes cash of $57 million and $39 million at December 31, 2019 and 2018, respectively, and includes long term restricted cash of $14 million and $19 million at December 31, 2019 and 2018, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. Pepco excludes cash of $29 million and $15 million at December 31, 2019 and 2018, respectively. DPL excludes cash of $13 million and $8 million at December 31, 2019 and 2018, respectively. ACE excludes cash of $12 million and $7 million at December 31, 2019 and 2018, respectively, and includes long-term restricted cash of $14 million and $19 million at December 31, 2019 and 2018, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets.

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2019 and 2018:



	Exelon			Generation										ComEd				PHI and Pepco
For the year ended December 31, 2019	Total			NDT Fund Investments			Mark-to-Market Derivatives				Total Generation			Mark-to-Market Derivatives				Life Insurance Contracts		Eliminated in Consolidation
Balance as of January 1, 2019	$	907		$	543		$	575			$	1,118		$	(249	)		$	38	$	—
Total realized / unrealized gains (losses)
Included in net income	(23		)	5			(31		)	^(a)	(26		)	—				3		—
Included in noncurrent payables to affiliates	—			34			—				34			—				—		(34		)
Included in regulatory assets/liabilities	(18		)	—			—				—			(52		)	^(b)	—		34
Change in collateral	138			—			138				138			—				—		—
Purchases, sales, issuances and settlements
Purchases	176			44			132				176			—				—		—
Sales	(23		)	(21		)	(2		)		(23		)	—				—		—
Settlements	(89		)	(94		)	5				(89		)	—				—		—
Transfers into Level 3	5			—			5			^(c)	5			—				—		—
Transfers out of Level 3	(5		)	—			(5		)	^(c)	(5		)	—				—		—
Balance as of December 31, 2019	$	1,068		$	511		$	817			$	1,328		$	(301	)		$	41	$	—
The amount of total gains (losses) included in income attributed to the change in unrealized (losses) gains related to assets and liabilities held as of December 31, 2019	$	359		$	5		$	351			$	356		$	—			$	3	$	—



	Exelon			Generation										ComEd				PHI and Pepco
For the year ended December 31, 2018	Total			NDT Fund Investments			Mark-to-Market Derivatives				Total Generation			Mark-to-Market Derivatives				Life Insurance Contracts		Eliminated in Consolidation
Balance as of January 1, 2018	$	966		$	648		$	552			$	1,200		$	(256	)		$	22	$	—
Total realized / unrealized gains (losses)
Included in net income	(101		)	—			(105		)	^(a)	(105		)	—				4		—
Included in noncurrent payables to affiliates	—			(1		)	—				(1		)	—				—		1
Included in regulatory assets/liabilities	6			—			—				—			7			^(b)	—		(1		)
Change in collateral	(5		)	—			(5		)		(5		)	—				—		—
Purchases, sales, issuances and settlements
Purchases	226			36			190				226			—				—		—
Sales	(4		)	—			(4		)		(4		)	—				—		—
Settlements	(123		)	(140		)	5				(135		)	—				12		—
Transfers into Level 3	(22		)	—			(22		)	^(c)	(22		)	—				—		—
Transfers out of Level 3	(36		)	—			(36		)	^(c)	(36		)	—				—		—
Balance as of December 31, 2018	$	907		$	543		$	575			$	1,118		$	(249	)		$	38	$	—
The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities held as of December 31, 2018	$	160		$	(5	)	$	165			$	160		$	—			$	—	$	—

__________


(a)	Includes a reduction for the reclassification of $377 million and $265 million of realized gains due to the settlement of derivative contracts for the years ended December 31, 2019 and 2018, respectively.

(b)

Includes $78 million of decreases in fair value and an increase for realized losses due to settlements of $26 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2019. Includes $24 million of decreases in fair value and an increase for realized losses due to settlements of $17 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2018.


(c)	Transfers into and out of Level 3 generally occur when the contract tenor becomes less and more observable respectively, primarily due to changes in market liquidity or assumptions for certain commodity contracts.

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 years ended December 31, 2019 and 2018:



	Exelon									Generation							PHI and Pepco
	Operating Revenues		Purchased Power and Fuel			Operating and Maintenance		Other, net		Operating Revenues		Purchased Power and Fuel			Other, net		Operating and Maintenance
Total gains (losses) included in net income for the year ended December 31, 2019	$	219	$	(245	)	$	3	$	5	$	219	$	(245	)	$	5	$	3
Change in the unrealized gains (losses) relating to assets and liabilities held for the year ended December 31, 2019	546		(195		)	3		5		546		(195		)	5		3



	Exelon											Generation									PHI and Pepco
	Operating Revenues			Purchased Power and Fuel			Operating and Maintenance		Other, net			Operating Revenues			Purchased Power and Fuel			Other, net			Operating and Maintenance
Total (losses) gains included in net income for the year ended December 31, 2018	$	(7	)	$	(93	)	$	4	$	3		$	(7	)	$	(93	)	$	3		$	4
Change in the unrealized gains (losses) relating to assets and liabilities held for the year ended December 31, 2018	144			21			—		(2		)	144			21			(2		)	—

Valuation Techniques Used to Determine Fair Value

Cash Equivalents (All Registrants). Investments with original maturities of three months or less when purchased, including mutual and money market funds, are considered cash equivalents. The fair values are based on observable market prices and, therefore, are included in the recurring fair value measurements hierarchy as Level 1.

NDT Fund Investments (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, including private credit, private equity and real estate. 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.

Equities. These investments consist of individually held equity securities, equity mutual funds and equity commingled funds in domestic and foreign markets. 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 Exelon and Generation are able to independently corroborate. Equity securities held individually, including real estate investment trusts, rights and warrants, are primarily traded on exchanges that contain only actively traded securities due to the volume trading requirements imposed by these exchanges. The equity securities that are held directly by the trust funds are valued based on quoted prices in active markets and categorized as 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. Certain private placement equity securities are categorized as Level 3 because they are not publicly traded and are priced using significant unobservable inputs.

Equity commingled funds and mutual funds are maintained by investment companies, and fund investments are held in accordance with a stated set of fund objectives. 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 equity commingled funds and mutual funds which are not publicly quoted, the fund administrators value the funds using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities and are not classified within the fair value hierarchy. These investments typically can be redeemed monthly or more frequently, with 30 or less days of notice and without further restrictions.

Fixed income. For fixed income securities, which consist primarily of corporate debt securities, U.S. government securities, foreign government securities, municipal bonds, asset and mortgage-backed securities, commingled funds, mutual funds and derivative instruments, the trustees obtain multiple prices from pricing vendors 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. Exelon and Generation have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Exelon and Generation selectively corroborate the fair values of securities by comparison to other market-based price sources. Investments in U.S. Treasury securities have been categorized as Level 1 because they trade in highly-liquid and transparent markets. Certain private placement fixed income securities have been categorized as Level 3 because they are priced using certain significant unobservable inputs and are typically illiquid. The remaining fixed income securities, including certain other fixed income investments,

are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized as Level 2.

Other fixed income investments primarily consist of fixed income commingled funds and mutual funds, which are maintained by investment companies and hold fund investments in accordance with a stated set of fund objectives. 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 fixed income commingled funds and mutual funds which are not publicly quoted, the fund administrators value the funds using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities and are not classified within the fair value hierarchy. These investments typically can be redeemed monthly or more frequently, with 30 or less days of notice and without further restrictions.

Derivative instruments. These instruments, consisting primarily of futures and 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.

Private credit. Private credit investments primarily consist of investments in private debt strategies. These investments are generally less liquid assets with an underlying term of 3 to 5 years and are intended to be held to maturity. The fair value of these investments is determined by the fund manager or administrator and include unobservable inputs such as cost, operating results, and discounted cash flows. Private credit investments held directly by Exelon and Generation are categorized as Level 3 because they are based largely on inputs that are unobservable and utilize complex valuation models. Private credit fund investments with multiple investors are not classified within the fair value hierarchy because their fair value is determined using NAV or its equivalent as a practical expedient.

Private equity. These investments include those in limited partnerships that invest in operating companies that are not publicly traded on a stock exchange such as leveraged buyouts, growth capital, venture capital, distressed investments and investments in natural resources. Private equity valuations are reported by the fund manager and are based on the valuation of the underlying investments, which include unobservable inputs such as cost, operating results, discounted future cash flows and market based comparable data. The fair value of private equity investments is determined using NAV or its equivalent as a practical expedient, and therefore, these investments are not classified within the fair value hierarchy.

Real estate. These investments are funds with a direct investment in pools of real estate properties. These funds are valued by investment managers on a periodic basis using pricing models that use independent appraisals from sources with professional qualifications. These valuation inputs are not highly observable. The fair value of real estate investments is determined using NAV or its equivalent as a practical expedient, and therefore, these investments are not classified within the fair value hierarchy.

Generation evaluated its NDT portfolios for the existence of significant concentrations of credit risk as of December 31, 2019. 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 December 31, 2019, there were no significant concentrations (generally defined as greater than 10 percent) of risk in Generation's NDT assets.

See Note 9 — Asset Retirement Obligations for additional information on the NDT fund investments. See Note 14 — Retirement Benefits for the valuation techniques used for hedge 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. 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, where 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. Therefore, Exelon has not disclosed such inputs.

Deferred Compensation Obligations (All Registrants). 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.

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.

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. 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 $2.22 and $0.54 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 15 — Derivative Financial Instruments for additional 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.

See Note 15 — Derivative Financial Instruments for additional information on mark-to-market derivatives.

The following table presents the significant inputs to the forward curve used to value these positions:



Type of trade	Fair Value at December 31, 2019			Fair Value at December 31, 2018			Valuation Technique	Unobservable Input	2019 Range			2018 Range
Mark-to-market derivatives—Economic hedges (Exelon and Generation)^(a)(b)	$	558		$	443		Discounted Cash Flow	Forward power price	$9	-	$180	$12	-	$174
								Forward gas price	$0.83	-	$10.72	$0.78	-	$12.38
							Option Model	Volatility percentage	8%	-	236%	10%	-	277%

Mark-to-market derivatives—Proprietary trading (Exelon and Generation)^(a)(b)	$	45		$	56		Discounted Cash Flow	Forward power price	$25	-	$180	$14	-	$174

Mark-to-market derivatives (Exelon and ComEd)	$	(301	)	$	(249	)	Discounted Cash Flow	Forward heat rate^(c)	9X	-	10X	10X	-	11X
								Marketability reserve	3%	-	7%	4%	-	8%
								Renewable factor	91%	-	123%	86%	-	120%

______


(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 $214 million and $76 million as of December 31, 2019 and December 31, 2018, respectively.


(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, which are as of the balance sheet date, 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details