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Variable Interest Entities (Exelon, Generation, ComEd, PECO and BGE)
 3 Months Ended
Mar. 31, 2014
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 affect the entity's economic performance.

 

At March 31, 2014 and December 31, 2013, Exelon, Generation, and BGE collectively consolidated five and four VIEs or VIE groups, respectively, for which the applicable Registrant was the primary beneficiary. As of March 31, 2014 and December 31, 2013, the Registrants had significant interests in eight other VIEs for which the Registrants do not have the power to direct the entities' activities 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 by Generation to enter into a collateralized gas supply agreement with a third-party gas supplier;
  • a group of solar project limited liability companies formed by Generation to build, own and operate solar power facilities,
  • several wind project companies designed by Generation to develop, construct and operate wind generation facilities, and
  • certain retail power companies for which Generation is the sole supplier of energy.

 

As of March 31, 2014 and December 31, 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 months ended March 31, 2014 and 2013, BGE remitted $21 million and $22 million, respectively, to BondCo.
  • Except for providing capital funding to the solar entities for ongoing construction of the solar power facilities, including the solar entities limited recourse to Generation with respect to the remaining equity contributions necessary to complete the Antelope Valley project, immaterial parental guarantees posted to electric distribution companies for the retail power companies, and a $75 million parental guarantee to the third-party gas supplier in support of the retail gas group, during the three months ended March 31, 2014 and year ended December 31, 2013:

  • Exelon, Generation and BGE did not provide any additional material financial support to the VIEs;
  • Exelon, Generation and BGE did not have any material 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.

For additional information on these project-specific financing arrangements refer to Note 8—Debt and Credit Agreements.

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 March 31, 2014 and December 31, 2013 are as follows:

 March 31, 2014  December 31, 2013
  Exelon (a) Generation BGE  Exelon (a) Generation BGE
Current assets$ 738 $ 679 $ 53 $ 484 $ 446 $ 28
Noncurrent assets  1,893   1,870   3   1,905   1,884   3
 Total assets$ 2,631 $ 2,549 $ 56 $ 2,389 $ 2,330 $ 31
                   
Current liabilities$ 608 $ 525 $ 78 $ 566 $ 481 $ 74
Noncurrent liabilities  780   566   195   774   562   195
 Total liabilities$ 1,388 $ 1,091 $ 273 $ 1,340 $ 1,043 $ 269

_______________________

  • Includes certain purchase accounting adjustments not pushed down to the BGE standalone entity.

In March 2014, Generation began consolidating retail power VIEs for which Generation is the primary beneficiary as a result of energy supply contracts that give Generation the power to direct the activities that most significantly affect the economic performance of the entities. Generation does not have an equity ownership interest in these entities. These entities are included in Generation's consolidated financial statements and the consolidation of the VIEs did not have a material impact on Generation's financial results or financial condition.

On April 1, 2014, Generation, CENG, and subsidiaries of CENG executed the Nuclear Operating Services Agreement (NOSA) pursuant to which Generation now conducts all activities associated with the operations of the CENG fleet and provides corporate and administrative services to CENG for the remaining life of the CENG nuclear plants as if they were a part of the Generation nuclear fleet, subject to the CENG member rights of EDFI. As a result of executing the NOSA, Generation has the responsibility to conduct CENG's operating activities pursuant to contractual arrangements rather than through the equity investment; therefore CENG will qualify as a VIE in the second quarter of 2014. Further, since Generation is conducting the operational activities of CENG, Generation qualifies as the primary beneficiary of CENG and, therefore, will be required to consolidate the financial position and results of operations of CENG beginning in the second quarter of 2014. For additional information on this transaction refer to Note – 5 Investment in Constellation Energy Nuclear Group, LLC.

Unconsolidated Variable Interest Entities

Exelon's and Generation's variable interests in unconsolidated VIEs generally include equity investments and energy purchase and sale contracts. For the equity investments, the carrying amount of the investments is reflected on Exelon's and Generation's Consolidated Balance Sheets in Investments in affiliates, Investments, and Other Assets. 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.
  • Equity investments in energy development projects and energy generating facilities for which Generation has concluded that consolidation is not required.

As of March 31, 2014 and December 31, 2013, Exelon and Generation had significant unconsolidated variable interests in eight VIEs for which Exelon or Generation, as applicable, was not the primary beneficiary; including certain equity method investments and certain commercial agreements. The number of unconsolidated VIEs did not change overall, however, during the first quarter of 2014 Generation sold its ownership interest in one unconsolidated VIE and made an investment in another VIE which is unconsolidated. The following tables present summary information about Exelon and Generation's significant unconsolidated VIE entities:

 

        
  Commercial Equity   
  Agreement Investment   
March 31, 2014VIEs VIEs Total
Total assets (a)$113 $344 $457
Total liabilities (a) 2  139  141
Registrants' ownership interest (a) 0  64  64
Other ownership interests (a) 111  143  254
Registrants' maximum exposure to loss:        
 Carrying amount of equity method investments 0  73  73
 Contract intangible asset 9  0  9
 Debt and payment guarantees 0  3  3
 Net assets pledged for Zion Station decommissioning (b) 44  0  44
          
        
  Commercial Equity   
  Agreement Investment   
December 31, 2013VIEs VIEs Total
Total assets (a)$128 $332 $460
Total liabilities (a) 17  123  140
Registrants' ownership interest (a) 0  86  86
Other ownership interests (a) 111  123  234
Registrants' maximum exposure to loss:        
 Carrying amount of equity method investments 7  67  74
 Contract intangible asset 9  0  9
 Debt and payment guarantees 0  5  5
 Net assets pledged for Zion Station decommissioning (b) 44  0  44

  • 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 $429 million and $458 million as of March 31, 2014 and December 31, 2013, respectively; offset by payables to ZionSolutions LLC of $385 million and $414 million as of March 31, 2014 and December 31, 2013, respectively. These items are included to provide information regarding the relative size of the ZionSolutions LLC unconsolidated VIE.

For each of the unconsolidated VIEs, 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 material agreements with, or commitments by, third parties that would affect the fair value or risk of their variable interests in these VIEs.