XML 96 R11.htm IDEA: XBRL DOCUMENT

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

6 Months Ended

Jun. 30, 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 June 30, 2014 and December 31, 2013, Exelon, Generation, and BGE collectively consolidated six and four VIEs or VIE groups, respectively, for which the applicable Registrant was the primary beneficiary (see detail by Registrant below). As of June 30, 2014 and December 31, 2013, the Registrants had significant interests in nine and eight other VIEs, respectively, for which the Registrants do not have the power to direct the entities' activities and, accordingly, were not the primary beneficiary.

Through March 31, 2014, CENG was operated as a joint venture with EDFI and was governed by a board of ten directors, five of which were appointed by Generation and five by EDF. CENG was designed to operate under joint and equal control of Generation and EDFI; therefore, CENG was not subject to VIE guidance. Accordingly, Generation's 50.01% interest in CENG was accounted for as an equity method investment. On April 1, 2014, Generation, CENG, and subsidiaries of CENG executed the 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, CENG now qualifies as a VIE due to the disproportionate relationship between Generation's 50.01% equity ownership interest and its role in conducting the operational activities of CENG conveyed through the NOSA. Further, since Generation is conducting the operational activities of CENG, Generation qualifies as the primary beneficiary of CENG and, therefore, is required to consolidate the financial position and results of operations of CENG. On April 1, 2014, Exelon and Generation derecognized Generation's equity method investment in CENG and reflected all assets, liabilities, and the EDFI non-controlling interest in CENG at fair value on the consolidated balance sheets of Exelon and Generation, resulting in the recognition of a $261 million gain in their respective consolidated statements of operations and comprehensive income for the three and six months ended June 30, 2014. For additional information on this transaction refer to Note 6 – Investment in Constellation Energy Nuclear Group, LLC.

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.

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,
certain retail power companies for which Generation is the sole supplier of energy, and
Constellation Energy Nuclear Group, Inc. (CENG).

As of June 30, 2014 and December 31, 2013, ComEd and PECO do not have any material consolidated VIEs.

As of June 30, 2014 and December 31, 2013, Exelon, Generation, and BGE provided the following support to the consolidated VIEs:

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 six months ended June 30, 2014, BGE remitted $21 million and $42 million, respectively, to BondCo. During the three and six months ended June 30, 2013, BGE remitted $17 million and $39 million, respectively, to BondCo.
Generation provides operating and capital funding to the solar entities for ongoing construction, operations and maintenance of the solar power facilities and provides limited recourse related to the Antelope Valley project.
Generation and Exelon, where indicated, provide the following support to CENG (see Note 25 – Related Party Transactions of the Exelon 2013 Form 10-K and Note 6 – Investment in Constellation Energy Nuclear Group, LLC for additional information regarding Generation and Exelon's transactions with CENG).

under the Nuclear Operating Services Agreement (NOSA), Generation conducts all activities related to the operation of the CENG nuclear generation fleet owned by CENG subsidiaries (the CENG fleet) and provides 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 the CENG member rights of EDF Inc. (EDFI) (a subsidiary of EDF),
under the Power Services Agency Agreement (PSAA), Generation provides scheduling, asset management, and billing services to CENG fleet for the remaining life of the CENG nuclear plants,
under power purchase agreements with CENG, Generation will purchase 85% of the available output generated by CENG nuclear plants for the remainder of 2014 and 50.01% from 2015 through the end of the life of each respective plant under power purchase agreements with CENG,
Generation provided a $400 million loan to CENG,
Generation executed an Indemnity Agreement pursuant to which Generation agreed to 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 guarantees Generation's obligations under this indemnity. (See Note 18 – Commitments and Contingencies for more details),
in connection with CENG's severance obligations, Generation has agreed to reimburse CENG for a total of approximately $6 million of the severance benefits paid or to be paid in 2013 through 2016. As of June 30, 2014, the remaining obligation is approximately $4 million (see Integration-Related Severance under Note 14 – Severance for additional details),
Generation and EDFI share in the $637 million of contingent payment obligations for the payment of contingent retrospective premium adjustments for the nuclear liability insurance (See Note 18 Commitments and Contingencies for more details),
Generation provides a $7 million guarantee associated with hazardous waste management facilities and underground storage tanks. In addition, EDFI executed a reimbursement agreement that provides reimbursement to Exelon for 49.99% of any amounts paid by Generation under this guarantee,
Generation and EDFI are the members-insured with Nuclear Electric Insurance Limited and have assigned the loss benefits under the insurance and the NEIL premium costs to CENG and guarantee the obligations of CENG under these insurance programs in proportion to their respective member interests (See Note 18 Commitments and Contingencies for more details), and
Exelon has executed an agreement to provide up to $245 million to support the operations of CENG as well as a $165 million guarantee of CENG's cash pooling agreement with its subsidiaries.

Generation provides approximately $4 million in credit support for the retail power companies, and
Generation provides a $75 million parental guarantee to the third-party gas supplier in support of its retail gas group.

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;
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.

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 June 30, 2014 and December 31, 2013 are as follows:

		June 30, 2014						December 31, 2013
		Exelon (a) (b)		Generation (b)		BGE		Exelon (a)		Generation		BGE
Current assets		$	991	$	956	$	28	$	484	$	446	$	28
Noncurrent assets			7,426		7,407		3		1,905		1,884		3
	Total assets	$	8,417	$	8,363	$	31	$	2,389	$	2,330	$	31

Current liabilities		$	815	$	732	$	76	$	566	$	481	$	74
Noncurrent liabilities			2,911		2,738		158		774		562		195
	Total liabilities	$	3,726	$	3,470	$	234	$	1,340	$	1,043	$	269

		June 30, 2014						December 31, 2013
		Exelon		Generation		BGE		Exelon		Generation		BGE
Cash and cash equivalents		$	126	$	126	$	-	$	62	$	62	$	-
Restricted cash			75		47		28		80		52		28
Accounts receivable, net
	Customer		296		296		-		260		260		-
	Other		133		133		-		-		-		-
Inventory
	Fossil fuel		103		103		-		2		2		-
	Materials and supplies		165		165		-		-		-		-
Other current assets			61		54		-		53		42		-
	Total current assets		959		924		28		457		418		28

Property, plant and equipment, net			4,603		4,603		-		1,171		1,171		-
Nuclear decommissioning trust funds			2,030		2,030		-		-		-		-
Goodwill			48		48		-		-		-		-
Other noncurrent assets			125		106		3		127		106		3
	Total noncurrent assets		6,806		6,787		3		1,298		1,277		3
	Total assets	$	7,765	$	7,711	$	31	$	1,755	$	1,695	$	31

Short-term borrowings		$	40	$	40	$	-	$	-	$	-	$	-
Long-term debt due within one year			84		5		72		85		5		70
Accounts payable			243		243		-		170		170		-
Accrued expenses			89		86		4		26		22		4
Mark-to-market derivative liabilities			24		24		-		29		29		-
Unamortized energy contracts			12		12		-		5		5		-
Other current liabilities			165		165		-		5		5		-
	Total current liabilities		657		575		76		320		236		74

Long-term debt			258		84		158		298		86		195
Asset retirement obligations			1,731		1,731		-		-		-		-
Pension obligation^(a)			133		133		-		-		-		-
Non-pension postretirement benefit			136		136		-		-		-		-
Unamortized energy contracts			18		18		-		12		12		-
Other noncurrent liabilities			178		178		-		28		28		-
	Noncurrent liabilities		2,454		2,280		158		338		126		195
	Total liabilities	$	3,111	$	2,855	$	234	$	658	$	362	$	269

___________

Includes the CNEG Retail Gas' pension obligation, which is presented as a net asset balance within the Prepaid Pension asset line item on Generation's balance sheet. See Note 13 for additional details.

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 June 30, 2014 and December 31, 2013, Exelon and Generation had significant unconsolidated variable interests in nine and eight VIEs, respectively, for which Exelon or Generation, as applicable, was not the primary beneficiary; including certain equity method investments and certain commercial agreements. The increase in the number of unconsolidated VIEs is due to an investment in another unconsolidated VIE and the execution of an energy purchase and sale agreement with an unconsolidated VIE, offset by the sale of Generation's ownership interest in one unconsolidated VIE. The following tables present summary information about Exelon and Generation's significant unconsolidated VIE entities:


		Commercial		Equity
		Agreement		Investment
June 30, 2014		VIEs		VIEs		Total
Total assets ^(a)		$	119	$	325	$	444
Total liabilities^(a)			2		120		122
Exelon's ownership interest in VIE^(a)			0		63		63
Other ownership interests in VIE^(a)			117		142		259
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)		45		0		45


		Commercial		Equity
		Agreement		Investment
December 31, 2013		VIEs		VIEs		Total
Total assets ^(a)		$	128	$	332	$	460
Total liabilities^(a)			17		123		140
Exelon's ownership interest in VIE^(a)			0		86		86
Other ownership interests in VIE^(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 $402 million and $458 million as of June 30, 2014 and December 31, 2013, respectively; offset by payables to ZionSolutions LLC of $357 million and $414 million as of June 30, 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.