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Investment in Constellation Energy Nuclear Group, LLC (Exelon and Generation)

9 Months Ended

Sep. 30, 2013

Equity Method Investments and Joint Ventures [Line Items]

Investment in Constellation Energy Nuclear Group, LLC (Exelon and Generation)

6. Investment in Constellation Energy Nuclear Group, LLC (Exelon and Generation)

As a result of the Constellation merger, Generation owns a 50.01% interest in CENG, a nuclear generation business. Generation's total equity in earnings (losses) on the investment in CENG is as follows:

	Three Months			Three Months
	Ended September 30,			Ended September 30,
	2013		2012
Equity investment income	$	68	$	58
Amortization of basis difference in CENG		(31)		(57)
Total equity in earnings - CENG	$	37	$	1

	Nine Months			For the Period March 12,
	Ended September 30,			through September 30,
	2013		2012
Equity investment income (loss)	$	93	$	53
Amortization of basis difference in CENG		(88)		(131)
Total equity in earnings (losses) - CENG	$	5	$	(78)

As of March 12, 2012, Generation had an initial basis difference of approximately $204 million between the initial carrying value of its investment in CENG and its underlying equity in CENG. This basis difference resulted from the requirement to record the investment in CENG at fair value under purchase accounting while the underlying assets and liabilities within CENG continue to be accounted for on a historical cost basis. Generation is amortizing this basis difference over the respective useful lives of the assets and liabilities of CENG or as those assets and liabilities affect the earnings of CENG.

Based on tax sharing provisions contained in the operating agreement for CENG, Generation may be eligible for distributions from its investment in CENG in excess of its 50.01% ownership interest. Through purchase accounting, Generation has recorded the fair value of expected future distributions. When these distributions are realized, Generation will record a reduction in its investment in CENG. Any distributions in excess of Generation's investment in CENG would be recorded in earnings.

Related Party Transactions (Exelon and Generation)

CENG

Generation has an agreement under which it is purchasing 85% of the output of CENG's nuclear plants that is not sold to third parties under pre-existing firm and unit contingent PPAs through 2014. Beginning on January 1, 2015 and continuing to the end of the life of the respective plants, Generation will purchase on a unit contingent basis 50.01% of the output of CENG's nuclear plants, and EDF will purchase on a unit contingent basis 49.99% of the output.

In addition to the PPA, Generation has a power services agency agreement (PSAA) with the CENG plants, which expires on December 31, 2014. The PSAA is a five-year agreement under which Generation provides scheduling, asset management and billing services to the CENG plants for a specified monthly fee. The charges for services reflect the cost of the services.

In addition to the PSAA, Exelon has a shared services agreement (SSA) with CENG, which expires in 2017. Pursuant to an agreement between Exelon and EDF, the pricing in the SSA for services reflect actual costs determined on the same basis that BSC charges its affiliates for similar services subject to an annual cap for most SSA services provided.

The affect of transactions under these agreements on Exelon's and Generation's Consolidated Financial Statements is summarized below:


	Income/(Expense)		Income/(Expense)			Accounts
	Three Months		Nine Months		Income	Receivable/
	Ended		Ended		Statement	(Accounts Payable)
Agreement	September 30, 2013		September 30, 2013		Classification	At September 30, 2013
PPA	$	(269)	$	(748)	Purchased power and fuel	$	(76)
PSAA		1		3	Operating revenues		-
SSA		10		32	Operating revenues		4

	Income/(Expense)		Income/(Expense)			Accounts
	Three Months		For the Period		Income	Receivable/
	Ended		March 12 through		Statement	(Accounts Payable)
Agreement	September 30, 2012		September 30, 2012		Classification	At September 30, 2012
PPA	$	(282)	$	(541)	Purchased power and fuel	$	(86)
PSAA		1		2	Operating revenues		-
SSA		14		30	Operating revenues		5

The valuation techniques, unobservable inputs and ranges are the same for the asset and liability positions.

Exelon Generation Co L L C [Member]

Equity Method Investments and Joint Ventures [Line Items]

Investment in Constellation Energy Nuclear Group, LLC (Exelon and Generation)

6. Investment in Constellation Energy Nuclear Group, LLC (Exelon and Generation)

	Three Months			Three Months
	Ended September 30,			Ended September 30,
	2013		2012
Equity investment income	$	68	$	58
Amortization of basis difference in CENG		(31)		(57)
Total equity in earnings - CENG	$	37	$	1

	Nine Months			For the Period March 12,
	Ended September 30,			through September 30,
	2013		2012
Equity investment income (loss)	$	93	$	53
Amortization of basis difference in CENG		(88)		(131)
Total equity in earnings (losses) - CENG	$	5	$	(78)

Related Party Transactions (Exelon and Generation)

CENG

The affect of transactions under these agreements on Exelon's and Generation's Consolidated Financial Statements is summarized below:


	Income/(Expense)		Income/(Expense)			Accounts
	Three Months		Nine Months		Income	Receivable/
	Ended		Ended		Statement	(Accounts Payable)
Agreement	September 30, 2013		September 30, 2013		Classification	At September 30, 2013
PPA	$	(269)	$	(748)	Purchased power and fuel	$	(76)
PSAA		1		3	Operating revenues		-
SSA		10		32	Operating revenues		4

	Income/(Expense)		Income/(Expense)			Accounts
	Three Months		For the Period		Income	Receivable/
	Ended		March 12 through		Statement	(Accounts Payable)
Agreement	September 30, 2012		September 30, 2012		Classification	At September 30, 2012
PPA	$	(282)	$	(541)	Purchased power and fuel	$	(86)
PSAA		1		2	Operating revenues		-
SSA		14		30	Operating revenues		5

On July 29, 2013, Exelon, Generation and subsidiaries of Generation entered into a Master Agreement with EDF, EDF Inc. (EDFI) (a subsidiary of EDF) and CENG. The Master Agreement contemplates that the parties will execute a series of additional agreements at a closing that will occur following the receipt of regulatory approvals and the satisfaction of other customary closing conditions. Exelon currently expects that the closing will occur late in the first quarter or early in the second quarter of 2014.

At the closing, Generation, CENG and subsidiaries of CENG will execute a Nuclear Operating Services Agreement pursuant to which Generation will operate the CENG nuclear generation fleet owned by CENG subsidiaries and provide corporate and administrative services for the remaining life of the CENG nuclear plants as if they were a part of the Generation nuclear fleet, subject to EDFI's rights as a member of CENG. CENG will reimburse Generation for its direct and allocated costs for such services. The Nuclear Operating Services Agreement will replace the SSA. In addition, at the closing the PSAA will be amended and extended until the complete and permanent cessation of operation of the CENG generation plants.

At closing, Generation will make a $400 million loan to CENG bearing interest at 5.25% per annum, payable out of specified available cash flows of CENG. Immediately following receipt of the proceeds of such loan, CENG will make a $400 million special distribution to EDFI. The parties will also execute a Fourth Amended and Restated Operating Agreement for CENG, pursuant to which, among other things, CENG will commit to make preferred distributions to Generation (after repayment of the $400 million loan) quarterly out of specified available cash flows, until Generation has received aggregate distributions of $400 million plus a return of 8.5% per annum from the date of the special distribution to EDFI.

Generation and EDFI will also enter into a Put Option Agreement at closing pursuant to which EDFI will have the option, exercisable beginning in 2016 and thereafter until June 30, 2022, to sell its 49.99% interest in CENG to Generation for a fair market value price determined by agreement of the parties, or absent agreement, a third party arbitration process. The appraisers determining fair market value of EDF's 49.99% interest in CENG under the Put Option Agreement are instructed to take into account all rights and obligations under the CENG Operating Agreement, including Generation's rights with respect to any unpaid aggregate preferred distributions and the related return, and the value of Generation's rights to other distributions. The beginning of the exercise period will be accelerated if Exelon's affiliates cease to own a majority of CENG and exercise a related right to terminate the Nuclear Operating Services Agreement. In addition, under limited circumstances, the period for exercise of the put option may be extended for 18 months.

Generation will execute an Indemnity Agreement pursuant to which Generation will indemnify EDF and its affiliates against third party claims that may arise from any future nuclear incident (as defined in the Price Anderson Act) in connection with the CENG nuclear plants or their operations. Exelon will guarantee Generation's obligations under this indemnity.

Currently, Exelon and Generation account for its investment in CENG under the equity method of accounting. The transfer of the operating licenses and corresponding operational control to Exelon and Generation will result in Exelon and Generation being required to consolidate the financial position and results of operations of CENG. When that accounting change occurs, Exelon and Generation will derecognize its equity method investment in CENG and will record all assets, liabilities and the non-controlling interest in CENG at fair value on Exelon and Generation's balance sheets. Any difference between the former carrying value and newly recorded fair value at that date will be recognized as a gain or loss upon consolidation, which could be material to Exelon's and Generation's results of operations.

- Definition

The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.

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