Merger and Acquisitions (Exelon and Generation)

6 Months Ended

Jun. 30, 2012

Acquisitions [Line Items]

Acquisitions (Exelon and Generation)

3.Merger and Acquisitions

Merger with Constellation (Exelon, Generation and BGE)

Description of Transaction

On March 12, 2012, Exelon completed the merger contemplated by the Merger Agreement, among Exelon, Bolt Acquisition Corporation, a wholly owned subsidiary of Exelon (Merger Sub) and Constellation.As a result of that merger, Merger Sub was merged into Constellation (the Initial Merger) and Constellation became a whollyowned subsidiary of Exelon.Following the completion of the Initial Merger, Exelon and Constellation completed a series of internal corporate organizational restructuring transactions. Constellation merged with and into Exelon, with Exelon continuing as the surviving corporation (the Upstream Merger). Simultaneously with the Upstream Merger, Constellation's interest in RF HoldCo LLC, which holds Constellation's interest in BGE, was transferred to Exelon Energy Delivery Company, LLC, a wholly owned subsidiary of Exelon that also owns Exelon's interests in ComEd and PECO. Following the Upstream Merger and the transfer of RF HoldCo LLC, Exelon contributed to Generation certain subsidiaries, including the customer supply and generation businesses that were acquired from Constellation as a result of the Initial Merger and the Upstream Merger.

Constellation's shareholders received 0.930 shares of Exelon common stock in exchange for each share of Constellation common stock outstanding as of March 12, 2012.Generally, all outstanding Constellation equity-based compensation awards were converted into Exelon equity-based compensation awards using the same ratio. See Note 14 - Stock-Based Compensation Plans for further information.

Regulatory Matters

In December 2011, Exelon and Constellation reached a settlement with the State of Maryland and the City of Baltimore and other interested parties in connection with the regulatory proceedings related to the merger that were pending before the MDPSC. As part of this settlement and the application for approval of the merger by MDPSC, Exelon agreed to provide a package of benefits to BGE customers, the City of Baltimore and the State of Maryland, resulting in an estimated direct investment in the State of Maryland of more than $1 billion.

On February 17, 2012, the MDPSC approved the merger with conditions. Many of the conditions were reflective of the settlement agreements described above. The following costs were recognized after the closing of the merger and are included in Exelon's, Generation's and BGE's Consolidated Statements of Operations and Comprehensive Income for the six months ended June 30, 2012:

Description		Payment Period	BGE		Generation		Exelon		Statement of Operations Location
BGE rate credit of $100 per residential customer (a)		Q2 2012	$	113	$	0	$	113	Revenues
Customer investment fund to invest in energy efficiency
	and low-income energy assistance to BGE customers	2012 to 2014		0		0		113.5	O&M Expense
Contribution for renewable energy, energy efficiency
	or related projects in Baltimore	2012 to 2014		0		0		2	O&M Expense
Charitable contributions at $7 million per year for 10 years		2012 to 2021		28		35		70	O&M Expense
State funding for offshore wind development projects		Q2 2012		0		0		32	O&M Expense
Miscellaneous tax benefits		Q2 2012		(2)		0		(2)	Taxes Other Than Income
	Total		$	139	$	35	$	328.5

• Exelon made a $66 million equity contribution to BGE in the second quarter of 2012 to fund the after-tax amount of the rate credit as directed in the MDPSC order approving the merger transaction.

In addition to these costs, the estimate of $1 billion of direct investment includes $95 million to $120 million for the requirement to cause construction of a headquarters building in Baltimore for Generation's competitive energy businesses. The construction is expected to be completed in 2 to 3 years. The $1 billion estimate also includes $625 million for Exelon and Generation's commitment to develop 285 – 300 MW of newgeneration in Maryland, expected to be completed over a period of 10 years. As of June 30, 2012, amounts reflected in the Exelon and Generation consolidated financial statements for these expenditure commitments were immaterial. Such costs, which are expected to be primarily capital in nature, will be recognized as incurred.

Pursuant to the MDPSC merger approval conditions, BGE is restricted from paying any dividend on its common shares through the end of 2014, is required to maintain specified minimum capital and O&M expenditure levels in 2012 and 2013, and is not permitted to reduce employment levels due to involuntary attrition associated with the merger integration process.

Associated with certain of the regulatory approvals required for the merger, Exelon and Constellation agreed to enter into contracts to sell three Constellation generating stations located in PJMwithin 150 days (subsequently extended 30 days by DOJ) following the merger completion and will be required tocomplete the divestitures within 30 days after receipt of regulatory approvals. These stations, BrandonShores and H.A. Wagner in Anne Arundel County, Maryland, and C.P. Crane in BaltimoreCounty,Maryland, include base-load, coal-fired generation units plus associated gas/oil units located at the samesites, and total 2,648 MW of generation capacity. In October 2011, Exelon and Constellation reached asettlement with the PJM Independent Market Monitor, who had previously raised market power concernsregarding the merger. The settlement contains a number of commitments by Exelon, including limiting theuniverse of potential buyers of the divested assets to entities without significant market shares in therelevant PJM markets. The settlement also includes assurances about how Generation will bid its unitsinto the PJM markets. The proposed divestiture and the settlement with the PJM Market Monitor werefiled with FERC and the MDPSC and were included in their final orders approving the merger.

As ofJune 30, 2012, these assets are classified as held for sale assets and included in the other current assets balance on Exelon's and Generation's Consolidated Balance Sheets.In accordance with ASC 820, these assets are valued at estimated fair value less costs to sell, whereby fair value is defined as the price that would be received to sell the assets in an orderly transaction between market participants. 

On August 8, 2012, a subsidiary of Generation reached an agreement to sell these three Maryland generating stations and associated assets to Raven Power Holdings LLC, a subsidiary of Riverstone Holdings LLC. The transaction, which is subject to approval by FERC and DOJ, is expected to close in the fourth quarter 2012. The agreement includes a base price with purchase price adjustments based on fuel inventory, working capital, capital expenditures, and timing of the closing, resulting in an estimated sales price of approximately $400 million. Decisions by certain market participants to remove themselves from the bidding process, combined with the deadlines and limitations on the pool of potential buyers imposed by the merger approval orders, resulted in realized sales proceeds below the estimated fair value of the Maryland generating stations than would have been achieved in an orderly transaction. Therefore, Exelon and Generation will record a pre-tax loss estimated to be approximately $275 million in the third quarter of 2012 to reflect the difference between the estimated sales price and carrying value.

Subsequent to the merger, Generation discovered that, for the first two weeks following merger close, due to a software error Generation inadvertently bid certain generating units into the PJM energy market at prices that slightly exceeded the cost-based caps to which it had agreed. This error was a violation of the commitments made in connection with merger approvals by DOJ, FERC and the MDPSC. Generation reported the error to the DOJ, FERC and the MDPSC and committed to remedy the impacts of its error. The MDPSC held a hearing to review the error, and accepted Generation's proposed remediation. Subsequent close examination by Generation of its cost-based bids also revealed the need for some minor adjustments to the cost build up for certain of its PJM units. Generation is coordinating with PJM to determine the impact on Generation's revenues and the market from this error and these adjustments, and Generation will work with PJM to reverse the financial impacts. Generation cannot predict what final action DOJ, FERC or the MDPSC might take in connection with this error and these adjustments.

In addition, in January 2012, Exelon and Constellation reached an agreement with EDF under whichEDF withdrew its opposition to the Exelon-Constellation merger. The terms of the agreement addressCENG, a joint venture between Constellation and EDF that owns and operates a total of three nuclear facilities witha total of five generating units in Maryland and New York. The agreement reaffirms the terms of the joint venture.The agreement did not include any exchange of monetary consideration, and Exelon does not expect theagreement will have a material effect on Exelon's and Generation's future results of operations, financialposition and cash flows. 

Exelon was named in suits filed in the Circuit Court of Baltimore City, Maryland alleging that individual directors of Constellation breached their fiduciary duties by entering into the proposed merger transaction and Exelon aided and abetted the individual directors' breaches. Similar suits were also filed in the United States District Court for the District of Maryland. The suits sought to enjoin a Constellation shareholder vote on the proposed merger until all material information was disclosed and sought rescission of the proposed merger. During the third quarter of 2011, the parties to the suits reached an agreement in principle to settle the suits through additional disclosures to Constellation shareholders. On June 26, 2012, the court approved the settlement and entered final judgment.

Accounting for the Merger Transaction

The total consideration in the merger was based on the opening price of a share of Exelon common stock on March 12, 2012 (in millions):

	Number of Shares/ Awards Issued	Total Fair Value
Issuance of Exelon common stock to Constellation shareholders and equity award holders at the exchange ratio of 0.930 shares for each share of Constellation common stock; based on the opening price of Exelon common stock on March 12, 2012 of $38.91 (a)	187.45	$	7,294
Issuance of Exelon equity awards to replace existing Constellation equity awards (b)	11.30		71
Total purchase price		$	7,365

• The number of shares issued excludes0.7 million shares of stock that are held in a custodian account specifically for the settlement of unvested share-based restricted stock awards. The related share value is excluded from the estimated fair value as these awards have not vested and therefore are not in the purchase price.
• Includes vested Constellation stock options and restricted stock units converted at fair value to Exelon awards on March 12, 2012. The fair value of the stock options was determined using the Black-Scholes model.

All options to purchase Constellation common stock under various equity agreements were converted into options to acquire a number of shares of Exelon common stock (as adjusted for the exchange ratio) at an option price. All Constellation unvested restricted stock awards granted prior to April 28, 2011, that were outstanding immediately prior to the consummation of the Merger, became vested on a pro rata basis (determined based upon the number of months from the start of the applicable restricted period to the closing of the Initial Merger) and converted into Exelon common stock at the exchange ratio in accordance with the applicable stock plan and award agreement terms. All Constellation restricted stock awards that remained unvested on a pro rata basis pursuant to the foregoing formula, and any Constellation unvested restricted stock awards granted after April 28, 2011, have been assumed by Exelon and automatically converted into shares of unvested restricted stock of Exelon at the exchange ratio. Likewise, all restricted stock units granted prior to April 28, 2011 under the Constellation Plans and outstanding immediately prior to the completion of the Initial Merger became vested on a pro rata basis (determined based upon the number of months from the start of the applicable restricted period to the closing of the Initial Merger) and have been assumed by Exelon and automatically converted into a number of shares of Exelon common stock at the exchange ratio.

The fair value of Constellation's non-regulated business assets acquired and liabilities assumed was determined based on significant estimates and assumptions that are judgmental in nature, including projected future cash flows (including timing); discount rates reflecting risk inherent in the future cash flows; and future market prices. There were also judgments made to determine the expected useful lives assigned to each class of assets acquired and duration of liabilities assumed.

The financial statements of BGE do not include fair value adjustments for assets or liabilities subject to rate-setting provisions for BGE. BGE is subject to the rate-setting authority of FERC and the MDPSC and is accounted for pursuant to the accounting guidance for regulated operations. The rate-setting and cost recovery provisions currently in place for BGE provide revenue derived from costs including a return on investment of assets and liabilities included in rate base. Except for debt, fuel supply contracts and regulatory assets not earning a return, the fair values of BGE's tangible and intangible assets and liabilities subject to these rate-setting provisions are assumed to approximate their carrying values and therefore do not reflect any net adjustments related to these amounts. For BGE's debt, fuel supply contracts and regulatory assets not earning a return, the difference between fair value and book value of BGE's assets acquired and liabilities assumed is recorded as a regulatory asset at Exelon Corporate as Exelon did not apply push-down accounting to BGE. See Note 1 – Basis of Presentation for additional information on BGE's push-down accounting treatment. Also see Note 4 – Regulatory Mattersfor additional information on BGE's regulatory assets.

The preliminary valuations performed in the first quarter of 2012 to assess the fair values of certain assets acquired and liabilities assumed were considered preliminary as a result of the short time period between the closing of the merger and the end of the first quarter of 2012. The allocation of the purchase price may be modified up to one year from the date of the merger as more information is obtained about the fair value of assets acquired and liabilities assumed; however, Exelon expects to finalize these amounts by the end of 2012, if not sooner. The preliminary valuations performed in the first quarter of 2012 were updated in the second quarter of 2012, withthe most significant adjustments to the preliminary valuation amounts made to the fair values assigned to the acquired power supply contracts and fuel contracts, unregulated property, plant and equipment and investments in affiliates.The preliminary amounts recognized are subject to further revision until the valuations are completed and to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date. Any changes to the fair value assessments may affect the purchase price allocation and material changes could require the financial statements to be retroactively amended.

The updated preliminary purchase priceallocation of the Initial Merger of Exelon with Constellation and Exelon's contribution of certain subsidiaries of Constellation to Generationat June 30, 2012was as follows:

Preliminary Purchase Price Allocation	Exelon		Generation
Current assets	$	4,944	$	3,649
Property, plant and equipment		9,249		3,930
Unamortized energy contracts		3,171		3,171
Other intangibles, trade name and retail relationships		472		472
Investment in affiliates		1,942		1,942
Pension and OPEB regulatory asset		740		0
Other assets		2,644		1,266
Total assets		23,162		14,430
Current liabilities		3,409		2,798
Unamortized energy contracts		1,718		1,512
Long-term debt, including current maturities		6,038		2,972
Noncontrolling interest		95		95
Deferred credits and other liabilities and preferred securities		4,537		1,781
Total liabilities, preferred securities and noncontrolling interest		15,797		9,158
Total purchase price	$	7,365	$	5,272

Intangible Assets Recorded

For the power supply and fuel contracts acquired from Constellation, the difference between the contract price and the market price at the date of the merger was recognized as either an intangible asset or liability based on whether the contracts were in or out-of-the-money. The valuation of the acquired intangible assets and liabilities was estimated by applying either the market approach or the income approach depending on the nature of the underlying contract. The market approach was utilized when prices and other relevant information generated by market transactions involving comparable transactions were available. Otherwise the income approach, which is based upon discounted projected future cash flows associated with the underlying contracts, was utilized. The measure is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance. Key estimates and inputs include forecasted power and fuel prices and the discount rate. The fair value amountsare amortized over the life of the contract in relation to the present value of the underlying cash flows as of the merger date. Amortization expense and incomeare recorded through purchased power and fuel expense or operating revenues.Exelon and Generation present separately in its Consolidated Balance Sheets the unamortized energy contract assets and liabilities for these contracts. The weighted-average amortization period is approximately 1.5 years.

The fair value of the Constellation trade name intangible asset was determined based on the relief from royalty method of the income approach whereby fair value is the present value of the license fees avoided by owning the assets. The measure is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance.  Key assumptions include the hypothetical royalty rate and the discount rate.  The intangible assetsare amortized on a straight line basis over an estimated 10 year useful life as amortization expense.  The trade name intangible asset is included in deferred debits and other assets within Exelon'sand Generation's Consolidated Balance Sheets.

The fair value of the retail relationships was determined based on a“multi-period excess method” of the income approach.  Under this method, the intangible asset's fair value is equal to the estimated future cash flows that will be earned on the current customer base, taking into account expected contract renewals based on customer attrition rates and costs to retain those customers.  The measure is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance.  Key assumptions include the customer attrition rate and the discount rate.  The intangible assets are amortized on a straight line basis over the useful life of the underlying assets averaging approximately12years as amortization expense. Theretail relationships intangible assets are included in deferred debits and other assets within Exelon's and Generation's Consolidated Balance Sheets.

Exelon's intangible assets and liabilities acquired through the merger with Constellation included in its Consolidated Balance Sheets, along with the future estimated amortization, were as follows as of June 30, 2012:

								Estimated amortization expense
Description	Weighted Average Amortization	Gross		Accumulated Amortization		Net		Remainder of 2012		2013		2014		2015		2016
Unamortized energy contracts, net (a)	1.5	$	1,453	$	(489)	$	964	$	481	$	382	$	70	$	15	$	(33)
Trade name	10.0		243		(8)		235		17		24		24		24		24
Retail relationships	11.8		229		(7)		222		15		23		22		21		21
Total, net		$	1,925	$	(504)	$	1,421	$	513	$	429	$	116	$	60	$	12

(a) Includes the fair value of BGE's power and gas supply contracts for which an offsetting regulatory asset was also recorded.

Impact of Merger

It is impracticable to determine the current quarter and year-to-date overall financial statementimpact for the Constellation subsidiaries contributed down to Generation following the Upstream Merger.  Upon closing of the merger, the operations of these Constellation subsidiaries were integrated into Generation's operations and are therefore notfully distinguishable after the merger. 

The impact of BGE on Exelon's Consolidated Statement of Operations and Comprehensive Income includes operating revenues of $616 million and net income of $16 million during three months ended June 30, 2012, and operating revenues of $668 million and net loss of $49 million during the six months ended June 30, 2012.

During the three months ended June 30, 2012, Exelon, Generation, PECO and BGE incurred merger and integration-related costs of $111 million, $94 million, $4 million and $2 million, respectively. During the six months ended June 30, 2012, Exelon, Generation, ComEd, PECO and BGE incurred merger and integration-related costs of $584 million, $204 million, $2 million, $11 million and $154 million, respectively. These costs are classified primarily within Operating and Maintenance Expense in the Registrants' respective Consolidated Statements of Operations and Comprehensive Income, with the exception of the $113 millionBGE customer rate credit, which is included as a reduction to operating revenues for the six months ended June 30, 2012.

Severance Costs

The Registrants have an ongoing severance plan under which, in general, the longer a terminated employee worked prior to termination the greater the amount of severance benefits. The Registrants record a liability and expense or regulatory asset for severance once terminations are probable of occurrence and the related severance benefits can be reasonably estimated. For severance benefits that are incremental to its ongoing severance plan (“one-time termination benefits”), the Registrants measure the obligation and record the expense at its fair value at the communication date if there are no future service requirements, or, if future service is required to receive the termination benefit, ratably over the required service period.

Upon closing the merger with Constellation, Exelon recorded a severance accrual for the anticipated employee position reductions as a result of the post-merger integration. The majority of these positions are corporate and Generation support positions. Exelon recorded a pre-tax charge for estimated salary continuance, health and welfare severance benefits, and other benefits costs of $83 million in March 2012 as a result of the planned job reductions. During the three months ended June 30, 2012, Exelon identified specific employees to be severed pursuant to a merger-related staffing and selection process. As a result, Exelon recorded an additional pre-tax charge of $36 million to reflect the estimated severance costs associated with the specifically identified employees.The estimated amount of severance costs associated with the post-merger integration, including those costs to be incurredafter June 30, 2012, for Exelon is $121 million, which includes $72 million, $16 million, $7 million and $18 million for Generation, ComEd, PECO and BGE, respectively. In addition, certain employees identified during the staffing and selection process also receive pension and other postretirement benefits that are deemed contractual termination benefits. See Note 12 – Retirement Benefits for additional information on the contractual termination benefits.

For the three and six months ended June 30, 2012, the Registrants recorded the following severance benefits costs associated with the identified job reductions within operating and maintenance expense in their Consolidated Statements of Operations, except for ComEd and BGE:

Severance Benefits (a)		Exelon		Generation		ComEd (b)		PECO		BGE (c)
Expense recorded - three months	$	36	$	25	$	5	$	2	$	2
Expense recorded - six months		119		70		16		7		18

_________________

• The amounts above include $10 million and $40 million at Generation, $3 million and $14 million at ComEd, $2 million and $7 million at PECO, and $1 million and $6 million at BGE, for amounts billed byBSC through intercompany allocations for the three and six months ended June 30, 2012, respectively.
• ComEd established regulatory assets of $16 million, as of June 30, 2012, for severance benefits costs. The majority of these costs are expected to be recovered over a five-year period.
• Consistent with MDPSC precedent, BGE established a regulatory asset of $18 million, as of June 30, 2012, for severance benefits costs. The majority of these costs are expected to be recovered over a five-year period.

Amounts included in the table below represent the severance liability recorded by Exelon, Generation, ComEd, PECO and BGE for employees of those Registrants and exclude amounts billed through intercompany allocations:

Three Months Ended June 30, 2012
Severance liability		Exelon		Generation		ComEd		PECO		BGE
Balance at March 31, 2012	$	83	$	16	$	0	$	0	$	10
Severance charges (a)		40		12		2		0		1
Stock compensation		(5)		1		0		0		0
One-time termination benefits (b)		2		0		0		0		0
Other charges (c)		(1)		1		0		0		1
Payments		(1)		0		0		0		0
Balance at June 30, 2012	$	118	$	30	$	2	$	0	$	12
Six Months Ended June 30, 2012
Severance liability		Exelon		Generation		ComEd		PECO		BGE
Balance at December 31, 2011	$	0	$	0	$	0	$	0	$	0
Severance charges (a)		107		27		2		0		11
Stock compensation		3		1		0		0		0
One-time termination benefits (b)		2		0		0		0		0
Other charges (c)		7		2		0		0		1
Payments		(1)		0		0		0		0
Balance at June 30, 2012	$	118	$	30	$	2	$	0	$	12

• Includes salary continuance and health and welfare severance benefits. Amounts represent ongoing severance plan benefits.
• One-time termination benefits began to be recognized in the second quarter of 2012.
• Primarily includes life insurance, employer payroll taxes, educational assistance, and outplacement services.

Cash payments under the plan began in the second quarter of 2012 and will continue through 2016. Substantially all cash payments under the plan are expected to be made by the end of 2016 resulting in the completion of the merger restructuring plan.

Pro-forma Impact of the Merger

The following unaudited pro forma financial information reflects the consolidated results of operations of Exelon and Generation as if the merger with Constellation had taken place on January 1, 2011. The unaudited pro forma information was calculated after applying Exelon's and Generation's accounting policies and adjusting Constellation's results to reflect purchase accounting adjustments.

The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the merger events taken place on the dates indicated, or the future consolidated results of operations of the combined company.

	Generation				Exelon
		Three Months Ended June 30,				Three Months Ended June 30,
		2012		2011 (a)		2012		2011 (b)
Total Revenues	$	4,051	$	4,782	$	6,256	$	7,425
Net income attributable to Exelon		397		221		528		401
Basic Earnings Per Share		n.a.		n.a.	$	0.62	$	0.47
Diluted Earnings Per Share		n.a.		n.a.		0.62		0.47
	Generation				Exelon
		Six Months Ended June 30,				Six Months Ended June 30,
		2012		2011 (a)		2012		2011 (b)
Total Revenues	$	8,523	$	9,789	$	13,284	$	15,493
Net income attributable to Exelon		567		442		979		644
Basic Earnings Per Share		n.a.		n.a.	$	1.26	$	0.76
Diluted Earnings Per Share		n.a.		n.a.		1.25		0.76

_________________

• The amounts above includenon-recurring costs directly related to the merger of $94 million and $204 million for the three and six months ended June 30, 2011, respectively.
• The amounts above include non-recurring costs directly related to the merger of $111 millionand $584 million for the three and six months ended June 30, 2011, respectively.

Exelon Generation Co L L C [Member]

Acquisitions [Line Items]

Acquisitions (Exelon and Generation)

Other Acquisitions (Exelon and Generation)

Antelope Valley Solar Ranch One. On September 30, 2011, Generation acquired all of the interests in Antelope Valley Solar Ranch One (Antelope Valley), a 230-MW solar PV project under development in northern Los Angeles County, California, from First Solar, Inc., which developed and will build, operate and maintain the project. On April 5, 2012, AntelopeValley received the firstDOE-guaranteedloan advance of $69 million and terminated the put option that Generation had on the AntelopeValley project.  See Note 9 - Debt and Credit Agreements for additional information.

Wind Development.As part of its plan to construct multiple wind facilities in 2012, Generation has acquired several project entities.  The acquisitions are not considered material individually or in the aggregate for disclosure.