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Fair Value of Financial Assets and Liabilities (All Registrants)
12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value of Financial Assets and Liabilities (All Registrants) Fair Value of Financial Assets and Liabilities (All Registrants)
Exelon measures and classifies 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 Amortized Cost
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, 2020 and 2019. 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, 2020December 31, 2019
Carrying AmountFair ValueCarrying AmountFair Value
Level 2Level 3TotalLevel 2Level 3Total
Long-Term Debt, including amounts due within one year(a)
Exelon$36,912 $40,688 $3,064 $43,752 $36,039 $37,453 $2,580 $40,033 
Generation6,087 5,648 1,208 6,856 7,974 7,304 1,366 8,670 
ComEd8,983 11,117 — 11,117 8,491 9,848 — 9,848 
PECO3,753 4,553 50 4,603 3,405 3,868 50 3,918 
BGE3,664 4,366 — 4,366 3,270 3,649 — 3,649 
PHI7,006 6,099 1,806 7,905 6,563 5,902 1,164 7,066 
Pepco3,165 3,336 748 4,084 2,864 3,198 388 3,586 
DPL1,677 1,484 455 1,939 1,567 1,408 311 1,719 
ACE1,413 1,018 602 1,620 1,327 1,026 464 1,490 
Long-Term Debt to Financing Trusts(a)
Exelon$390 $— $467 $467 $390 $— $428 $428 
ComEd205 — 246 246 205 — 227 227 
PECO184 — 221 221 184 — 201 201 
SNF Obligation
Exelon$1,208 $909 $— $909 $1,199 $1,055 $— $1,055 
Generation1,208 909 — 909 1,199 1,055 — 1,055 
__________
(a) Includes unamortized debt issuance costs which are not fair valued. Refer to Note 17 — 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:
TypeLevelRegistrantsValuation
Long-Term Debt, including amounts due within one year
Taxable Debt Securities2AllThe 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 Debt2Exelon, Generation, DPLDebt rates are reset on a regular basis and the carrying value approximates fair value.
Taxable Private Placement Debt Securities3Exelon, Pepco, DPL, ACERates 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 Debt3Exelon, GenerationThe 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 Debt3Exelon, Generation, PepcoFair 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
Long Term Debt to Financing Trusts3Exelon, ComEd, PECOFair 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
SNF Obligation2 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 2035 and 2030 for the years ended December 31, 2020 and 2019, respectively.

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, 2020 and 2019:
Exelon and Generation
ExelonGeneration
As of December 31, 2020Level 1Level 2Level 3Not subject to levelingTotalLevel 1Level 2Level 3Not subject to levelingTotal
Assets
Cash equivalents(a)
$686 $— $— $— $686 $124 $— $— $— $124 
NDT fund investments
Cash equivalents(b)
210 95 — — 305 210 95 — — 305 
Equities3,886 2,077 — 1,562 7,525 3,886 2,077 — 1,562 7,525 
Fixed income
Corporate debt(c)
— 1,485 285 — 1,770 — 1,485 285 — 1,770 
U.S. Treasury and agencies1,871 126 — — 1,997 1,871 126 — — 1,997 
Foreign governments— 56 — — 56 — 56 — — 56 
State and municipal debt — 101 — — 101 — 101 — — 101 
Other— 41 — 961 1,002 — 41 — 961 1,002 
Fixed income subtotal1,871 1,809 285 961 4,926 1,871 1,809 285 961 4,926 
Private credit— — 212 629 841 — — 212 629 841 
Private equity— — — 504 504 — — — 504 504 
Real estate — — — 679 679 — — — 679 679 
NDT fund investments subtotal(d)(e)
5,967 3,981 497 4,335 14,780 5,967 3,981 497 4,335 14,780 
Rabbi trust investments
Cash equivalents60 — — — 60 — — — 
Mutual funds91 — — — 91 29 — — — 29 
Fixed income— 11 — — 11 — — — — — 
Life insurance contracts— 87 34 — 121 — 28 — — 28 
Rabbi trust investments subtotal151 98 34 — 283 33 28 — — 61 
Investments in equities(f)
195 — — — 195 195 — — — 195 
Commodity derivative assets
Economic hedges745 1,914 1,599 — 4,258 745 1,914 1,599 — 4,258 
Proprietary trading— 17 27 — 44 — 17 27 — 44 
Effect of netting and allocation of collateral(g)(h)
(607)(1,597)(905)— (3,109)(607)(1,597)(905)— (3,109)
Commodity derivative assets subtotal138 334 721 — 1,193 138 334 721 — 1,193 
DPP consideration— 639 — — 639 — 639 — — 639 
Total assets7,137 5,052 1,252 4,335 17,776 6,457 4,982 1,218 4,335 16,992 
Liabilities
Commodity derivative liabilities
Economic hedges(682)(1,928)(1,655)— (4,265)(682)(1,928)(1,354)— (3,964)
Proprietary trading— (21)(4)— (25)— (21)(4)— (25)
Effect of netting and allocation of collateral(g)(h)
540 1,918 1,067 — 3,525 540 1,918 1,067 — 3,525 
Commodity derivative liabilities subtotal(142)(31)(592)— (765)(142)(31)(291)— (464)
Deferred compensation obligation— (145)— — (145)— (42)— — (42)
Total liabilities(142)(176)(592)— (910)(142)(73)(291)— (506)
Total net assets$6,995 $4,876 $660 $4,335 $16,866 $6,315 $4,909 $927 $4,335 $16,486 
ExelonGeneration
As of December 31, 2019Level 1Level 2Level 3Not subject to levelingTotalLevel 1Level 2Level 3Not subject to levelingTotal
Assets
Cash equivalents(a)
$639 $— $— $— $639 $214 $— $— $— $214 
NDT fund investments
Cash equivalents(b)
365 87 — — 452 365 87 — — 452 
Equities 3,353 1,801 — 1,388 6,542 3,353 1,801 — 1,388 6,542 
Fixed income
Corporate debt(c)
— 1,421 257 — 1,678 — 1,421 257 — 1,678 
U.S. Treasury and agencies1,808 131 — — 1,939 1,808 131 — — 1,939 
Foreign governments— 42 — — 42 — 42 — — 42 
State and municipal debt— 90 — — 90 — 90 — — 90 
Other— 33 — 953 986 — 33 — 953 986 
Fixed income subtotal 1,808 1,717 257 953 4,735 1,808 1,717 257 953 4,735 
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)(e)
5,526 3,605 511 3,858 13,500 5,526 3,605 511 3,858 13,500 
Rabbi trust investments
Cash equivalents50 — — — 50 — — — 
Mutual funds81 — — — 81 25 — — — 25 
Fixed income— 12 — — 12 — — — — — 
Life insurance contracts — 78 41 — 119 — 25 — — 25 
Rabbi trust investments subtotal131 90 41 — 262 29 25 — — 54 
Commodity derivative assets
Economic hedges768 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(g)(h)
(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 assets6,156 4,061 1,509 3,858 15,584 5,629 3,996 1,468 3,858 14,951 
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(g)(h)
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 
__________
(a)Exelon excludes cash of $409 million and $373 million at December 31, 2020 and 2019, respectively, and restricted cash of $59 million and $110 million at December 31, 2020 and 2019, respectively, and includes long-term restricted cash of $53 million and $177 million at December 31, 2020 and 2019, respectively, which is reported in Other deferred debits in
the Consolidated Balance Sheets. Generation excludes cash of $171 million and $177 million at December 31, 2020 and 2019, respectively, and restricted cash of $20 million and $58 million at December 31, 2020 and 2019, respectively. 
(b)Includes $116 million and $90 million of cash received from outstanding repurchase agreements at December 31, 2020 and 2019, respectively, and is offset by an obligation to repay upon settlement of the agreement as discussed in (e) below.
(c)Includes investments in equities sold short of $(62) million and $(48) million as of December 31, 2020 and 2019, respectively, held in an investment vehicle primarily to hedge the equity option component of its convertible debt.
(d)Includes derivative assets of $2 million and $2 million, which have total notional amounts of $1,043 million and $724 million at December 31, 2020 and 2019, respectively. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of the periods ended and do not represent the amount of Exelon and Generation's exposure to credit or market loss.
(e)Excludes net liabilities of $181 million and $147 million at December 31, 2020 and 2019, respectively, which include certain derivative assets that have notional amounts of $104 million and $99 million at December 31, 2020 and 2019, 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.
(f)Reflects equity investments held by Generation which were previously designated as equity investments without readily determinable fair values but are now publicly traded and therefore have readily determinable fair values. Generation recorded the fair value of these investments in Other current assets on Exelon's and Generation's Consolidated Balance Sheets based on the quoted market prices of the stocks at December 31, 2020, which resulted in an unrealized gain of $186 million within Other, net in Exelon's and Generation's Consolidated Statement of Operations and Comprehensive Income for the year ended December 31, 2020.
(g)Collateral posted/(received) from counterparties, net of collateral paid to counterparties, totaled $(67) million, $321 million, and $162 million allocated to Level 1, Level 2, and Level 3 mark-to-market derivatives, respectively, as of December 31, 2020. Collateral posted/(received) from counterparties, net of collateral paid to 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.
(h)Of the collateral posted/(received), $209 million and $511 million represents variation margin on the exchanges as of December 31, 2020 and 2019, respectively.

As of December 31, 2020, Exelon and Generation have outstanding commitments to invest in private credit, private equity, and real estate investments of approximately $195 million, $254 million, and $369 million, respectively. These commitments will be funded by Generation’s existing NDT funds.
Exelon and Generation held investments without readily determinable fair values with carrying amounts of $73 million and $55 million as of December 31, 2020, respectively. Exelon and Generation held investments without readily determinable fair values with carrying amounts of $69 million as of December 31, 2019. Changes in fair value, cumulative adjustments, and impairments were not material for the years ended December 31, 2020 and December 31, 2019.
ComEd, PECO, and BGE
ComEdPECOBGE
As of December 31, 2020Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Cash equivalents(a)
$285 $— $— $285 $$— $— $$120 $— $— $120 
Rabbi trust investments
Mutual funds— — — — — — 10 — — 10 
Life insurance contracts— — — — — 13 — 13 — — — — 
Rabbi trust investments subtotal— — — — 13 — 22 10 — — 10 
Total assets285 — — 285 17 13 — 30 130 — — 130 
Liabilities
Mark-to-market derivative liabilities(b)
— — (301)(301)— — — — — — — — 
Deferred compensation obligation— (8)— (8)— (9)— (9)— (5)— (5)
Total liabilities— (8)(301)(309)— (9)— (9)— (5)— (5)
Total net assets (liabilities)$285 $(8)$(301)$(24)$17 $$— $21 $130 $(5)$— $125 
ComEdPECOBGE
As of December 31, 2019Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Cash equivalents(a)
$280 $— $— $280 $15 $— $— $15 $— $— $— $— 
Rabbi trust investments
Mutual funds— — — — — — — — 
Life insurance contracts— — — — — 11 — 11 — — — — 
Rabbi trust investments subtotal— — — — 11 — 19 — — 
Total assets280 — — 280 23 11 — 34 — — 
Liabilities
Mark-to-market derivative liabilities(b)
— — (301)(301)— — — — — — — — 
Deferred compensation obligation— (8)— (8)— (9)— (9)— (5)— (5)
Total liabilities— (8)(301)(309)— (9)— (9)— (5)— (5)
Total net assets (liabilities)$280 $(8)$(301)$(29)$23 $$— $25 $$(5)$— $
__________
(a)ComEd excludes cash of $83 million and $90 million at December 31, 2020 and 2019, respectively, and restricted cash of $37 million and $33 million at December 31, 2020 and 2019, respectively, and includes long-term restricted cash of $43 million and $163 million at December 31, 2020 and 2019, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. PECO excludes cash of $18 million and $12 million at December 31, 2020 and 2019, respectively. BGE excludes cash of $24 million at both December 31, 2020 and 2019, respectively, and restricted cash of $1 million at both December 31, 2020 and 2019, respectively.
(b)The Level 3 balance consists of the current and noncurrent liability of $33 million and $268 million, respectively, at December 31, 2020 and $32 million and $269 million, respectively, at December 31, 2019 related to floating-to-fixed energy swap contracts with unaffiliated suppliers.
PHI, Pepco, DPL, and ACE
As of December 31, 2020As of December 31, 2019
PHILevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Cash equivalents(a)
$86 $— $— $86 $124 $— $— $124 
Rabbi trust investments
Cash equivalents55 — — 55 44 — — 44 
Mutual funds14 — — 14 14 — — 14 
Fixed income— 11 — 11 — 12 — 12 
Life insurance contracts— 26 34 60 — 24 41 65 
Rabbi trust investments subtotal69 37 34 140 58 36 41 135 
Total assets155 37 34 226 182 36 41 259 
Liabilities
Deferred compensation obligation— (17)— (17)— (19)— (19)
Total liabilities— (17)— (17)— (19)— (19)
Total net assets$155 $20 $34 $209 $182 $17 $41 $240 
PepcoDPLACE
As of December 31, 2020Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Cash equivalents(a)
$35 $— $— $35 $— $— $— $— $13 $— $— $13 
Rabbi trust investments
Cash equivalents53 — — 53 — — — — — — — — 
Fixed income— — — — — — — — — — 
Life insurance contracts— 26 34 60 — — — — — — — — 
Rabbi trust investments subtotal53 28 34 115 — — — — — — — — 
Total assets88 28 34 150 — — — — 13 — — 13 
Liabilities
Deferred compensation obligation— (2)— (2)— — — — — — — — 
Total liabilities— (2)— (2)— — — — — — — — 
Total net assets$88 $26 $34 $148 $— $— $— $— $13 $— $— $13 
PepcoDPLACE
As of December 31, 2019Level 1Level 2Level 3TotalLevel 1Level 2Level 3TotalLevel 1Level 2Level 3Total
Assets
Cash equivalents(a)
$34 $— $— $34 $— $— $— $— $16 $— $— $16 
Rabbi trust investments
Cash equivalents43 — — 43 — — — — — — — — 
Fixed income— — — — — — — — — — 
Life insurance contracts— 24 41 65 — — — — — — — — 
Rabbi trust investments subtotal43 26 41 110 — — — — — — — — 
Total assets77 26 41 144 — — — — 16 — — 16 
Liabilities
Deferred compensation obligation— (2)— (2)— — — — — — — — 
Total liabilities— (2)— (2)— — — — — — — — 
Total net assets$77 $24 $41 $142 $— $— $— $— $16 $— $— $16 
__________
(a)PHI excludes cash of $74 million and $57 million at December 31, 2020 and 2019, respectively, and includes long-term restricted cash of $10 million and $14 million at December 31, 2020 and 2019, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. Pepco excludes cash of $30 million and $29 million at December 31, 2020 and 2019, respectively. DPL excludes cash of $15 million and $13 million at December 31, 2020 and 2019, respectively. ACE excludes cash of $17 million and $12 million at December 31, 2020 and 2019, respectively, and includes long-term restricted cash of $10 million and $14 million at December 31, 2020 and 2019, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets.
Reconciliation of Level 3 Assets and Liabilities
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, 2020 and 2019:
ExelonGenerationComEdPHI and Pepco
For the year ended December 31, 2020Total NDT Fund InvestmentsMark-to-Market
Derivatives
Total GenerationMark-to-Market
Derivatives
Life Insurance ContractsEliminated in Consolidation
Balance as of January 1, 2020$1,068 $511 $817 $1,328 $(301)$41 $— 
Total realized / unrealized gains (losses)
Included in net income(409)(414)
(a)
(412)— — 
Included in noncurrent payables to affiliates— 21 — 21 — — (21)
Included in regulatory assets/liabilities21 — — — — 
(b)
— 21 
Change in collateral(53)— (53)(53)— — — 
Purchases, sales, issuances and settlements
Purchases151 143 151 — — — 
Sales(27)— (27)(27)— — — 
Settlements(55)(45)— 

(45)— (10)— 
Transfers into Level 3(12)— (12)
(c)
(12)— — — 
Transfers out of Level 3(24)— (24)
(c)
(24)— — — 
Balance as of December 31, 2020$660 $497 $430 $927 $(301)$34 $— 
The amount of total gains included in net income attributed to the change in unrealized gains (losses) related to assets and liabilities held as of December 31, 2020$11 $$$$— $$— 
ExelonGenerationComEdPHI and Pepco
For the year ended December 31, 2019Total NDT Fund InvestmentsMark-to-Market
Derivatives
Total GenerationMark-to-Market
Derivatives
Life Insurance ContractsEliminated 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)(31)
(a)
(26)— — 
Included in noncurrent payables to affiliates— 34 — 34 — — (34)
Included in regulatory assets/liabilities(18)— — — (52)
(b)
— 34 
Change in collateral138 — 138 138 — — — 
Purchases, sales, issuances and settlements
Purchases176 44 132 176 — — — 
Sales(23)(21)(2)(23)— — — 
Settlements(89)(94)


(89)— — — 
Transfers into Level 3— 
(c)
— — — 
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 included in net income attributed to the change in unrealized gains (losses) related to assets and liabilities held as of December 31, 2019$359 $$351 $356 $— $$— 
__________
(a)Includes a reduction for the reclassification of $420 million and $377 million of realized gains due to the settlement of derivative contracts for the years ended December 31, 2020 and 2019, respectively.
(b)Includes $33 million of decreases in fair value and an increase for realized losses due to settlements of $33 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2020. Includes $78 million of decreases in fair value and an increase for realized losses due to settlements of $26 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the year ended December 31, 2019.
(c)Transfers into and out of Level 3 generally occur when the contract tenor becomes less and more observable, respectively, primarily due to changes in market liquidity or assumptions for certain commodity contracts.
The following tables present the income statement classification of the total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2020 and 2019:
ExelonGenerationPHI and Pepco
Operating
Revenues
Purchased
Power and
Fuel
Operating and MaintenanceOther, netOperating
Revenues
Purchased
Power and
Fuel
Other, netOperating and
Maintenance
Total (losses) gains included in net income for the year ended December 31, 2020$(404)$(10)$$$(404)$(10)$$
Change in unrealized (losses) gains relating to assets and liabilities held for the year ended December 31, 2020(31)37 (31)37 
ExelonGenerationPHI and Pepco
Operating
Revenues
Purchased
Power and
Fuel
Operating and MaintenanceOther, netOperating
Revenues
Purchased
Power and
Fuel
Other, netOperating and
Maintenance
Total gains (losses) included in net income for the year ended December 31, 2019$219 $(245)$$$219 $(245)$$
Change in unrealized gains (losses) relating to assets and liabilities held for the year ended December 31, 2019546 (195)546 (195)
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 using a combination of valuation models including cost models, market models, and income models and typically cannot be redeemed until maturity of the term loan. 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. For managed private credit funds, the fair value is determined using a combination of valuation models including cost models, market models, and income models and typically cannot be redeemed until maturity of the term loan. Managed private credit fund investments 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. These investments typically cannot be redeemed and are generally liquidated over a period of 8 to 10 years from the initial investment date, which is based on Exelon's understanding of the investment funds. 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. These valuation inputs are unobservable. 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 reported by the fund manager and are generally based on independent appraisals from sources with professional qualifications, typically using a combination of market comparables and discounted cash flows. These valuation inputs are unobservable. 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, 2020. 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, 2020, there were no significant concentrations (generally defined as greater than 10 percent) of risk in Generation's NDT assets.
See Note 10 — Asset Retirement Obligations for additional information on the NDT fund investments. See Note 15 — 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.
Investments in Equities (Exelon and Generation). Exelon and Generation hold certain investments in equity securities with readily determinable fair values in addition to those held within the NDT funds. These equity securities are valued based on quoted prices in active markets and are categorized as Level 1.
Deferred Purchase Price Consideration (Exelon and Generation).  Exelon and Generation have DPP consideration for the sale of certain receivables of retail electricity at Generation. This amount is valued based on the sales price of the receivables net of allowance for credit losses based on accounts receivable aging historical experience coupled with specific identification through a credit monitoring process, which considers current conditions and forward-looking information such as industry trends, macroeconomic factors, changes in the regulatory environment, external credit ratings, publicly available news, payment status, payment history, and the exercise of collateral calls. Since the DPP consideration is based on the sales price of the receivables, it is categorized as Level 2 in the fair value hierarchy. See Note 6 — Accounts Receivable for additional information on the sale of certain receivables.
Mark-to-Market Derivatives (Exelon, Generation, and ComEd). 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 their 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 $2.49 and $0.38 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 16 — 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 16 — 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 tradeFair Value at December 31, 2020Fair Value at December 31, 2019Valuation
Technique
Unobservable
Input
2020 Range & Arithmetic Average2019 Range & Arithmetic Average
Mark-to-market derivatives—Economic hedges (Exelon and Generation)(a)(b)
$245 $558 Discounted Cash FlowForward power
price
$2.25-$163$30$9-$180$29
Forward gas
price
$1.57-$7.88$2.59$0.83-$10.72$2.55
Option 
Model
Volatility
percentage
11%-237%32%8%-236%70%
Mark-to-market derivatives—Proprietary trading (Exelon and Generation)(a)(b)
$23 $45 Discounted Cash FlowForward power
price
$10-$106$27$25-$180$33
Mark-to-market derivatives (Exelon and ComEd)$(301)$(301)Discounted Cash Flow
Forward heat rate(c)
8x-9x8.85x9x-10x9.68x
Marketability
reserve
3%-8%4.93%3%-7%4.95%
Renewable
factor
91%-123%99%91%-123%99%
__________
(a)The valuation techniques, unobservable inputs, ranges, and arithmetic averages are the same for the asset and liability positions.
(b)The fair values do not include cash collateral posted on level three positions of $162 million and $214 million as of December 31, 2020 and December 31, 2019, 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.