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Variable Interest Entities (Exelon, Generation, ComEd, PECO and BGE)
 9 Months Ended
Sep. 30, 2013
Variable Interest Entities Disclosure [Line Items]  
Variable Interest Entities (Exelon, Generation, ComEd, PECO and BGE)

3. Variable Interest Entities (Exelon, Generation, ComEd, PECO and BGE)

 

Under the applicable authoritative guidance, a VIE is a legal entity that possesses any of the following characteristics: an insufficient amount of equity at risk to finance its activities, equity owners who do not have the power to direct the significant activities of the entity (or have voting rights that are disproportionate to their ownership interest), or equity owners who do not have the obligation to absorb expected losses or the right to receive the expected residual returns of the entity. Companies are required to consolidate a VIE if they are its primary beneficiary, which is the enterprise that has the power to direct the activities that most significantly impact the entity's economic performance.

 

As of September 30, 2013 and December 31, 2012, the Registrants' consolidated four and five VIEs or VIE groups, respectively, for which the Registrants were the primary beneficiary and the Registrants had significant interests in seven and nine other VIEs for which the Registrants do not have the power to direct the entities' activities, respectively, and, accordingly, were not the primary beneficiary.

       

Consolidated Variable Interest Entities

 

Exelon, Generation and BGE's consolidated VIEs consist of:

  • BondCo, a special purpose bankruptcy remote limited liability company formed by BGE to acquire, hold, and issue and service bonds secured by rate stabilization property;
  • a retail gas group formed to enter into a collateralized gas supply agreement with a third-party gas supplier;
  • a group of solar project limited liability companies formed to build, own and operate solar power facilities, and,
  • several wind project companies designed to develop, construct and operate wind generation facilities.

 

As of September 30, 2013, ComEd and PECO do not have any consolidated VIEs.

 

For each of the consolidated VIEs, except as otherwise noted:

  • The assets of the VIEs are restricted and can only be used to settle obligations of the respective VIE. In the case of BondCo, BGE is required to remit all payments it receives from all residential customers through non-bypassable, rate stabilization charges to BondCo. During the three and nine months ended September 30, 2013, BGE remitted $24 million and $63 million, respectively, to BondCo. During the three and nine months ended September 30, 2012, BGE remitted $27 million and $62 million, respectively, to BondCo.
  • Except for providing capital funding to the solar entities for ongoing construction of the solar power facilities and a $75 million parental guarantee to the third-party gas supplier in support of the retail gas group, during the nine months ended September 30, 2013 and year ended December 31, 2012:

  • Exelon, Generation and BGE did not provide any additional financial support to the VIEs;
  • Exelon, Generation and BGE did not have any contractual commitments or obligations to provide financial support to the VIEs; and
  • the creditors of the VIEs did not have recourse to Exelon's, Generation's or BGE's general credit.

The carrying amounts and classification of the consolidated VIEs' assets and liabilities included in Exelon's, Generation's, and BGE's consolidated financial statements at September 30, 2013 and December 31, 2012 are as follows:

 September 30, 2013  December 31, 2012
  Exelon (a)(b) Generation (b) BGE  Exelon (a)(b)(c) Generation (b)(c) BGE
Current assets$ 391 $ 330 $ 50 $ 550 $ 519 $ 30
Noncurrent assets  1,900   1,877   3   1,802   1,762   -
 Total assets$ 2,291 $ 2,207 $ 53 $ 2,352 $ 2,281 $ 30
                   
Current liabilities$ 453 $ 366 $ 77 $ 685 $ 613 $ 71
Noncurrent liabilities  859   608   230   837   532   265
 Total liabilities$ 1,312 $ 974 $ 307 $ 1,522 $ 1,145 $ 336

_______________________

  • Includes certain purchase accounting adjustments not pushed down to the BGE standalone entity.
  • Includes total liabilities of $53 million as of September 30, 2013 and total assets of $116 million and total liabilities of $62 million as of December 31, 2012 related to deferred and accrued taxes that have been recorded and are not restricted for use by three of the consolidated VIEs.
  • Includes total assets of $146 million and total liabilities of $42 million as of December 31, 2012 related to a retail power supply company that is no longer a consolidated VIE as of September 30, 2013.

In August 2013, Generation executed an agreement to terminate its energy supply contract with a retail power supply company that was previously a consolidated VIE. Generation did not have an ownership interest in the entity, but was the primary beneficiary through the energy supply contract. As a result of the termination, Generation no longer has a variable interest in the retail power supply company and ceased consolidation of the entity during the third quarter of 2013. Upon deconsolidation, there was no gain or loss recognized. The assets, liabilities, and non-controlling interest were removed from Generation's balance sheet and the change in non-controlling interest is also reflected on the Statement of Changes in Shareholders' Equity.

Unconsolidated Variable Interest Entities

Exelon's and Generation's variable interests in unconsolidated VIEs generally include three transaction types: (1) equity method investments, (2) energy purchase and sale contracts, and (3) fuel purchase commitments. For the equity method investments, the carrying amount of the investments is reflected on their Consolidated Balance Sheets in Investments in affiliates. For the energy purchase and sale contracts and the fuel purchase commitments (commercial agreements), the carrying amount of assets and liabilities in Exelon's and Generation's Consolidated Balance Sheets that relate to their involvement with the VIEs are predominately related to working capital accounts and generally represent the amounts owed by, or owed to, Exelon and Generation for the deliveries associated with the current billing cycles under the commercial agreements. Further, Exelon and Generation have not provided material debt or equity support, liquidity arrangements or performance guarantees associated with these commercial agreements.

The Registrants' unconsolidated VIEs consist of:

  • Energy purchase and sale agreements with VIEs for which Generation has concluded that consolidation is not required.
  • ZionSolutions, LLC asset sale agreement with EnergySolutions, Inc. and certain subsidiaries in which Generation has a variable interest but has concluded that consolidation is not required.
  • Fuel purchase commitments where Generation has a variable interest, but the variable interest is not significant and Generation is not the primary beneficiary, thus consolidation is not required.
  • ComEd's, PECO's and BGE's retail operations frequently include the purchase of electricity and RECs through procurement contracts of varying durations. None of ComEd, PECO or BGE considers itself the primary beneficiary of any VIEs as a result of these commercial arrangements.
  • Investment in energy development projects for which Generation has concluded that consolidation is not required.

As of September 30, 2013 and December 31, 2012, Exelon and Generation had significant unconsolidated variable interests in seven and nine, respectively, VIEs for which they were not the primary beneficiary; including certain equity method investments and certain commercial agreements. The change in the number of unconsolidated variable interests is driven by the completion of certain obligations which cause the entities to no longer be unconsolidated variable interests. The following tables present summary information about the significant unconsolidated VIE entities:

 

    Equity   
  Commercial Method   
  Agreement Investment   
September 30, 2013VIEs VIEs Total
Total assets (a)$115 $366 $481
Total liabilities (a) 3  126  129
Registrants' ownership interest (a) 0  97  97
Other ownership interests (a) 112  143  255
Registrants' maximum exposure to loss:        
 Carrying amount of equity method investments 0  78  78
 Contract intangible asset 9  0  9
 Debt and payment guarantees 0  5  5
 Net assets pledged for Zion Station decommissioning (b) 43  0  43
          
    Equity   
  Commercial Method   
  Agreement Investment   
December 31, 2012VIEs VIEs Total
Total assets (a)$386 $354 $740
Total liabilities (a) 219  114  333
Registrants' ownership interest (a) 0  97  97
Other ownership interests (a) 167  143  310
Registrants' maximum exposure to loss:        
 Letters of credit 5  0  5
 Carrying amount of equity method investments 0  77  77
 Contract intangible asset 8  0  8
 Debt and payment guarantees 0  5  5
 Net assets pledged for Zion Station decommissioning (b) 50  0  50

  • These items represent amounts on the unconsolidated VIE balance sheets, not on Exelon's or Generation's Consolidated Balance Sheets. These items are included to provide information regarding the relative size of the unconsolidated VIEs.
  • These items represent amounts on Exelon's and Generation's Consolidated Balance Sheets related to the asset sale agreement with ZionSolutions, LLC. The net assets pledged for Zion Station decommissioning includes gross pledged assets of $486 million and $614 million as of September 30, 2013 and December 31, 2012, respectively; offset by payables to ZionSolutions LLC of $443 million and $564 million as of September 30, 2013 and December 31, 2012, respectively. These items are included to provide information regarding the relative size of the ZionSolutions LLC unconsolidated VIE.

For each unconsolidated VIE, Exelon and Generation assess the risk of a loss equal to their maximum exposure to be remote and, accordingly Exelon and Generation have not recognized a liability associated with any portion of the maximum exposure to loss. In addition, there are no agreements with, or commitments by, third parties that would affect the fair value or risk of their variable interests in these variable interest entities.