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 December 31, 2014 and 2013, Exelon, Generation, and BGE collectively consolidated six and four VIEs or VIE groups, respectively, for which the applicable Registrant was the primary beneficiary. As of December 31, 2014 and 2013, the Registrants had significant interests in six 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.

Consolidated Variable Interest Entities

The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the Registrants’ consolidated financial statements at December 31, 2014 and 2013 are as follows:



	December 31, 2014						December 31, 2013
	Exelon ^{(a) (b)}		Generation^(b)		BGE		Exelon ^(a)		Generation		BGE
Current assets	$	1,271	$	1,242	$	21	$	484	$	446	$	28
Noncurrent assets	7,580		7,566		3		1,905		1,884		3
Total assets	$	8,851	$	8,808	$	24	$	2,389	$	2,330	$	31
Current liabilities	$	611	$	526	$	77	$	566	$	481	$	74
Noncurrent liabilities	2,730		2,600		120		774		562		195
Total liabilities	$	3,341	$	3,126	$	197	$	1,340	$	1,043	$	269

_______________________


(a)	Includes certain purchase accounting adjustments not pushed down to the BGE standalone entity.


(b)	Includes total assets of $6.1 billion and total liabilities of $2.1 billion due to the consolidation of CENG. See Note 5— Investment in Constellation Energy Nuclear Group, LLC for additional information.

Except as specifically noted below, the assets in the table above are restricted for settlement of the VIE obligations and the liabilities in the table can only be settled using VIE resources.

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

RSB BondCo LLC. In 2007, BGE formed RSB BondCo LLC (BondCo), a special purpose bankruptcy remote limited liability company, to acquire and hold rate stabilization property and to issue and service bonds secured by the rate stabilization property. In June 2007, BondCo purchased rate stabilization property from BGE, including the right to assess, collect, and receive non-bypassable rate stabilization charges payable by all residential electric customers of BGE. These charges are being assessed in order to recover previously incurred power purchase costs that BGE deferred pursuant to Senate Bill 1. BGE has determined that BondCo is a VIE for which it is the primary beneficiary. As a result, BGE consolidates BondCo.

BondCo’s assets are restricted and can only be used to settle the obligations of BondCo. Further, BGE is required to remit all payments it receives from customers for rate stabilization charges to BondCo. During 2014, 2013, and 2012, BGE remitted $85 million, $83 million, and $85 million, respectively, to BondCo.

BGE did not provide any additional financial support to BondCo during 2014. Further, BGE does not have any contractual commitments or obligations to provide additional financial support to BondCo unless additional rate stabilization bonds are issued. The BondCo creditors do not have any recourse to the general credit of BGE in the event the rate stabilization charges are not sufficient to cover the bond principal and interest payments of BondCo.

Retail Gas Group. During 2009, Constellation formed two new entities, which now are part of Generation, and combined them with its existing retail gas activities into a retail gas entity group for the purpose of entering into a collateralized gas supply agreement with a third-party gas supplier. While Generation owns 100% of these entities, it has been determined that the retail gas entity group is a VIE because there is not sufficient equity to fund the group’s activities without the additional credit support that is provided in the form of a parental guarantee. Generation is the primary beneficiary of the retail gas entity group; accordingly, Generation consolidates the retail gas entity group as a VIE.

The third-party gas supply arrangement is collateralized as follows:


•	The assets of the retail gas entity group must be used to settle obligations under the third-party gas supply agreement before it can make any distributions to Generation,


•	The third-party gas supplier has a collateral interest in all of the assets and equity of the retail gas entity group, and


•	Generation provides a $75 million parental guarantee to the third-party gas supplier in support of the retail gas entity group.

Other than credit support provided by the parental guarantee, Exelon or Generation do not have any contractual or other obligations to provide additional financial support under the collateralized third-party gas supply agreement. The third-party gas supply creditors do not have any recourse to Exelon’s or Generation’s general credit other than the parental guarantee.

Solar Project Entity Group. In 2011, Constellation formed a group of solar project limited liability companies to build, own, and operate solar power facilities, which are now part of Generation. Additionally, on September 30, 2011, Generation acquired all of the equity interests in Antelope Valley Solar Ranch One (Antelope Valley) from First Solar, Inc., a 242-MW solar PV project under construction in northern Los Angeles County, California. While Generation owns 100% of these entities, it has been determined that certain of the individual solar project entities are VIEs because the entities require additional subordinated financial support in the form of a parental guarantee of debt, loans from the customers in order to obtain the necessary funds for construction of the solar facilities, or the customers absorb price variability from the entities through the fixed price power and/or REC purchase agreements. Generation is the primary beneficiary of the solar project entities that qualify as VIEs because Generation controls the design, construction, and operation of the solar power facilities. 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. In addition, these solar VIE entities have an aggregate amount of outstanding debt with third parties of $642 million, as of December 31, 2014, for which the creditors have no recourse to Generation, however there is limited recourse to Generation with respect to remaining equity contributions necessary to complete the Antelope Valley project. For additional information on these project-specific financing arrangements refer to Note 13 — Debt and Credit Agreements.

Retail Power Companies. 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, but provides approximately $5 million in credit support for the retail power companies. These entities are included in Generation’s consolidated financial statements, and the consolidation of the VIEs does not have a material impact on Generation’s financial results or financial condition.

Wind Project Entity Group. Generation owns and operates a number of wind project limited liability entities, the majority of which were acquired on December 9, 2010 with the acquisition of all of the equity interests of John Deere Renewables, LLC (now known as Exelon Wind). Generation has evaluated the significant agreements and ownership structures and the risks of each of its wind projects and underlying entities, and determined that certain of the entities are VIEs because either the projects have noncontrolling equity interest holders that absorb variability from the wind projects, or the customers absorb price variability from the entities through the fixed price power and/or REC purchase agreements. Generation is the primary beneficiary of the wind project entities that qualify as VIEs because Generation controls the design, construction, and operation of the wind generation facilities. While Generation owns 100% of the majority of the wind project entities, nine of the projects have noncontrolling equity interests of 1% held by third parties. Generation’s current economic interests in eight of these projects is significantly greater than its stated contractual governance rights and all of these projects have reversionary interest provisions that provide the noncontrolling interest holder with a purchase option, certain of which are considered bargain purchase prices, which, if exercised, transfers ownership of the projects to the noncontrolling interest holder upon either the passage of time or the achievement of targeted financial returns. The ownership agreements with the noncontrolling interests state that Generation is to provide financial support to the projects in proportion to its current 99% economic interests in the projects. However, no additional support to these projects beyond what was contractually required has been provided during 2014. As of December 31, 2014, the carrying amount of the assets and liabilities that are consolidated as a result of Generation being the primary beneficiary of the wind VIE entities primarily relates to the wind generating assets, PPA intangible assets and working capital amounts.

CENG. Through March 31, 2014, CENG was operated as a joint venture with EDF Inc. (EDFI) (a subsidiary of EDF) 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 through the Board of Directors, subject to the Chairman of the Board’s final decision making authority on certain special matters; 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 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 and the CENG fleet 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 and the CENG fleet conveyed through the NOSA. Further, since Generation is conducting the operational activities of CENG and the CENG fleet, 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 noncontrolling 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 year ended December 31, 2014. For additional information on this transaction refer to Note 5 — Investment in Constellation Energy Nuclear Group, LLC.

Generation and Exelon, where indicated, provide the following support to CENG (See Note 25 — Related Party Transactions and Note 5 — Investment in Constellation Energy Nuclear Group, LLC for additional information regarding Generation and Exelon’s transactions with CENG):


•	under the 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 and decommissioning of the CENG nuclear plants as if they were a part of the Generation nuclear fleet, subject to the CENG member rights of EDFI,


•	under the Power Services Agency Agreement (PSAA), Generation provides scheduling, asset management, and billing services to the CENG fleet for the remaining operating life of the CENG nuclear plants,


•	under power purchase agreements with CENG, Generation purchased 85% of the available output generated by the CENG nuclear plants through the end of 2014 and will purchase 50.01% from 2015 through the end of the operating life of each respective plant,


•	Generation provided a $400 million loan to CENG (see Note 5 — Investment in Constellation Energy Nuclear Group, LLC for more details),

•

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 Agreement. (See Note 22 — 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 from 2013 through 2016. As of December 31, 2014, the remaining obligation is approximately $3 million,


•	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 22 — Commitments and Contingencies for more details),


•	Generation provides a guarantee of approximately $7 million 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 22 — 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.

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.

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

Assets and Liabilities of Consolidated VIEs

Included within the consolidated VIE table above are assets and liabilities of certain consolidated VIEs for which the assets can only be used to settle obligations of those VIEs, and liabilities that creditors, or beneficiaries, do not have recourse to the general credit of the Registrants. As of December 31, 2014 and 2013, these assets and liabilities primarily consisted of the following:



		December 31, 2014									December 31, 2013
		Exelon			Generation			BGE				Exelon		Generation		BGE
Cash and cash equivalents			$	392		$	392		$	—		$	62	$	62	$	—
Restricted cash			117			96			21			80		52		28
Accounts receivable, net
	Customer		297			297			—			260		260		—
	Other		57			57			—			—		—		—
Mark-to-market derivatives assets			171			171			—			21		21		—
Inventory
	Materials and supplies		172			172			—			—		—		—
Other current assets			33			26			—			34		23		—
	Total current assets		1,239			1,211			21			457		418		28

Property, plant and equipment, net			4,638			4,638			—			1,171		1,171		—
Nuclear decommissioning trust funds			2,097			2,097			—			—		—		—
Goodwill			47			47			—			—		—		—
Mark-to-market derivatives assets			44			44			—			—		—		—
Other noncurrent assets			95			82			3			127		106		3
	Total noncurrent assets		6,921			6,908			3			1,298		1,277		3
	Total assets		$	8,160		$	8,119		$	24		$	1,755	$	1,695	$	31

Long-term debt due within one year			$	87		$	5		$	75		$	85	$	5	$	70
Accounts payable			292			292			—			170		170		—
Accrued expenses			111			108			2			26		22		4
Mark-to-market derivative liabilities			24			24			—			29		29		—
Unamortized energy contract liabilities			22			22			—			5		5		—
Other current liabilities			25			25			—			5		5		—
	Total current liabilities		561			476			77			320		236		74

	Long-term debt		212			81			120			298		86		195
	Asset retirement obligations		1,763			1,763			—			—		—		—
	Pension obligation^(a)		9			9			—			—		—		—
	Unamortized energy contract liabilities		51			51			—			28		28		—
	Other noncurrent liabilities		127			127			—			12		12		—
	Noncurrent liabilities		2,162			2,031			120			338		126		195
	Total liabilities		$	2,723		$	2,507		$	197		$	658	$	362	$	269

___________


(a)	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 16—Retirement Benefits 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 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.

As of December 31, 2014 and 2013, Exelon and Generation had significant unconsolidated variable interests in six 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 decrease in the number of unconsolidated VIEs is due to the sale of Generation's ownership interest in four unconsolidated VIEs in 2014, offset by the execution of an energy purchase and sale agreement with an unconsolidated VIE and an equity investment in another unconsolidated VIE. The following tables present summary information about Exelon and Generation’s significant unconsolidated VIE entities:



December 31, 2014	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	506	$	91	$	597
Total liabilities^(a)	237		49		286
Exelon's ownership interest in VIE^(a)	—		9		9
Other ownership interests in VIE^(a)	269		33		302
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments	—		13		13
Contract intangible asset	9		—		9
Debt and payment guarantees	—		3		3
Net assets pledged for Zion Station decommissioning^(b)	27		—		27



December 31, 2013	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	128	$	332	$	460
Total liabilities^(a)	17		123		140
Exelon's ownership interest in VIE^(a)	—		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		—		9
Debt and payment guarantees	—		5		5
Net assets pledged for Zion Station decommissioning^(b)	44		—		44

___________________


(a)	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.

(b)

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 $319 million and $458 million as of December 31, 2014 and December 31, 2013, respectively; offset by payables to ZionSolutions LLC of $292 million and $414 million as of December 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 unconsolidated VIE, Exelon and Generation assessed 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 materially affect the fair value or risk of their variable interests in these variable interest entities.

Energy Purchase and Sale Agreements. Generation has several energy purchase and sale agreements with generating facilities. Generation has evaluated the significant agreements, ownership structures and risks of each entity, and determined that certain of the entities are VIEs because the entity absorbs risk through the sale of fixed price power and renewable energy credits. Generation has reviewed the entities and has determined that Generation is not the primary beneficiary of the VIEs because Generation does not have the power to direct the activities that most significantly impact the VIEs economic performance.

In March 2005, Constellation, to which Generation is now a successor, closed a transaction in which Generation assumed from a counterparty two power sales contracts with previously existing VIEs. The VIEs previously were created by the counterparty to issue debt in order to monetize the value of the original contracts to purchase and sell power. Under the power sales contracts, Generation sold power to the VIEs which, in turn, sold that power to an electric distribution utility through 2013. In connection with this transaction, a third-party acquired the equity of the VIEs and Generation loaned that party a portion of the purchase price. If the electric distribution utility were to default under its obligation to buy power from the VIEs, the equity holder could transfer its equity interests to Generation in lieu of repaying the loan. In this event, Generation would have the right to seek recovery of its losses from the electric distribution utility. As a result, Generation has concluded that consolidation was not required. During 2013, the third-party repaid their obligations of the loan with Generation which caused the entities to no longer be unconsolidated VIEs.

ZionSolutions. Generation has an asset sale agreement with EnergySolutions, Inc. and certain of its subsidiaries, including ZionSolutions, LLC (ZionSolutions), which is further discussed in Note 15 — Asset Retirement Obligations. Under this agreement, ZionSolutions can put the assets and liabilities back to Generation when decommissioning is complete. Generation has evaluated this agreement and determined that, through the put option, it has a variable interest in ZionSolutions but is not the primary beneficiary. As a result, Generation has concluded that consolidation is not required. Other than the asset sale agreement, Exelon and Generation do not have any contractual or other obligations to provide additional financial support and ZionSolutions’ creditors do not have any recourse to Exelon’s or Generation’s general credit.

Fuel Purchase Commitments. Generation’s customer supply operations include the physical delivery and marketing of power obtained through its generating capacity, and long-, intermediate- and short-term contracts. Generation also has contracts to purchase fuel supplies for nuclear and fossil generation. These contracts and Generation’s membership in NEIL are discussed in further detail in Note 22 — Commitments and Contingencies. Generation has evaluated these contracts and its membership with NEIL and determined that it either has no variable interest in an entity or, where Generation does have a variable interest in an entity, the variable interest is not significant and it is not the primary beneficiary; therefore, consolidation is not required.

For contracts where Generation has a variable interest, the level of variability being absorbed through the contracts is not considered significant because of the small proportion of the entities’ activities encompassed by the contracts with Generation. Further, Generation has considered which interest holder has the power to direct the activities that most significantly affect the economic performance of the VIE and thus is considered the primary beneficiary and is required to consolidate the entity. The primary beneficiary must also have exposure to significant losses or the right to receive significant benefits from the VIE. In general, the most significant activity of the VIEs is the operation and maintenance of the facilities. Facilities represent power plants, sources of uranium and fossil fuels, or plants used in the uranium conversion, enrichment and fabrication process. Generation does not have control over the operation and maintenance of the facilities considered VIEs, and it does not bear operational risk of the facilities. Furthermore, Generation has no debt or equity investments in the entities and Generation does not provide any other financial support through liquidity arrangements, guarantees or other commitments other than purchase commitments described in Note 22 — Commitments and Contingencies. Upon consideration of these factors, Generation does not consider itself to have significant variable interests in these entities or be the primary beneficiary of these VIEs and, accordingly, has determined that consolidation is not required.

Investment in Energy Development Projects and Energy Generating Facilities. Generation has several equity investments in energy development projects and energy generating facilities. Generation has evaluated the significant agreements, ownership structures and risks of each of its equity investments, and determined that certain of the entities are VIEs because the entity has an insufficient amount of equity at risk to finance its activities, Generation guarantees the debt of the entity, provides equity support, or provides operating services to the entity. Generation has reviewed the entities and has determined that Generation is not the primary beneficiary of the entities that qualify as VIEs because Generation does not have the power to direct the activities that most significantly impact the VIEs economic performance.

ComEd, PECO and BGE

The financing trust of ComEd, ComEd Financing III, the financing trusts of PECO, PECO Trust III and PECO Trust IV, and the financing trust of BGE, BGE Capital Trust II are not consolidated in Exelon’s, ComEd’s, PECO’s or BGE’s financial statements. These financing trusts were created to issue mandatorily redeemable trust preferred securities. ComEd, PECO, and BGE have concluded that they do not have a significant variable interest in ComEd Financing III, PECO Trust III, PECO Trust IV or BGE Capital Trust II as each Registrant financed its equity interest in the financing trusts through the issuance of subordinated debt and, therefore, has no equity at risk. See Note 13 —Debt and Credit Agreements for additional information.