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

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, 2015 and December 31, 2014, Exelon, Generation, and BGE collectively consolidated seven and six VIEs or VIE groups, respectively, for which the applicable Registrant was the primary beneficiary (see Consolidated Variable Interest Entities below). As of June 30, 2015 and December 31, 2014, the Registrants had significant interests in eight and six other VIEs, respectively, for which the Registrants do not have the power to direct the entities’ activities and, accordingly, were not the primary beneficiary (see Unconsolidated Variable Interest Entities below).

During the second quarter of 2015 Generation added a new group of consolidated VIEs named “a group of companies formed by Generation to build, own, and operate other generating facilities.” The new group is comprised of a biomass fueled, combined heat and power facility and a backup generator company for which Generation is the primary beneficiary. Generation provides parental guarantees for up to $275 million in support of the payment obligations related to the Engineering, Procurement and Construction contract for Albany Green Energy, LLC (see Note 11 — Debt and Credit Agreements for additional details).

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, 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,


•	a group of companies formed by Generation to build, own and operate other generating facilities,


•	certain retail power and gas companies for which Generation is the sole supplier of energy, and


•	CENG.

As of June 30, 2015 and December 31, 2014, ComEd and PECO do not have any material consolidated VIEs.

As of June 30, 2015 and December 31, 2014, Exelon, Generation, and BGE provided the following support to their respective 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, 2015, BGE remitted $21 million and $42 million to BondCo, respectively. During the three and six months ended June 30, 2014, BGE remitted $21 million and $42 million to BondCo, respectively.


•	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 6 — Investment in Constellation Energy Nuclear Group, LLC, and Note 25 — Related Party Transactions, of the Exelon 2014 Form 10-K for additional information regarding Generation's 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 EDF Inc. (EDFI) (a subsidiary of EDF),


•	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 will purchase 50.01% of the available output generated by the CENG nuclear plants not subject to other contractual agreements from January 2015 through the end of the operating life of each respective plant. However, pursuant to amendments dated March 31, 2015, the energy obligations under the Ginna Nuclear Power Plant (Ginna) PPAs have been suspended during the term of the Reliability Support Services Agreement (RSSA) which Ginna entered into with Rochester Gas and Electric Corporation (RG&E) on February 13, 2015. The obligations under the RSSA commenced on April 1, 2015 and are effective through September 30, 2018 (see Note 5 — Regulatory Matters for additional details),


•	Generation provided a $400 million loan to CENG. As of June 30, 2015, the remaining obligation is $288 million plus accrued interest, which reflects the principal payment made in January 2015 (see Note 5 — Investment in Constellation Energy Nuclear Group, LLC of the Exelon 2014 Form 10-K for additional 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 19 — 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 2014 through 2016. As of June 30, 2015, the remaining obligation is approximately $2 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 19 — 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 (NEIL) 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 19 — 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 $8 million in credit support for the retail power and gas companies for which Generation is the sole supplier of energy, 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, 2015 and December 31, 2014 are as follows:



	June 30, 2015						December 31, 2014
	Exelon^(a)		Generation		BGE		Exelon^(a)		Generation		BGE
Current assets	$	924	$	894	$	24	$	1,271	$	1,242	$	21
Noncurrent assets	7,731		7,723		3		7,580		7,566		3
Total assets	$	8,655	$	8,617	$	27	$	8,851	$	8,808	$	24

Current liabilities	$	378	$	292	$	79	$	611	$	526	$	77
Noncurrent liabilities	2,860		2,773		81		2,730		2,600		120
Total liabilities	$	3,238	$	3,065	$	160	$	3,341	$	3,126	$	197

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

Assets and Liabilities of Consolidated VIEs

Included within the balances 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 June 30, 2015 and December 31, 2014, these assets and liabilities primarily consisted of the following:



		June 30, 2015						December 31, 2014
		Exelon		Generation		BGE		Exelon		Generation			BGE
Cash and cash equivalents		$	240	$	240	$	—	$	392	$	392	$	—
Restricted cash			145		121		24		117		96		21
Accounts receivable, net
	Customer		179		179		—		297		297		—
	Other		29		29		—		57		57		—
Mark-to-market derivatives assets			96		96		—		171		171		—
Inventory
	Materials and supplies		178		178		—		172		172		—
Other current assets			32		25		—		33		26		—
	Total current assets		899		868		24		1,239		1,211		21

Property, plant and equipment, net			4,811		4,811		—		4,638		4,638		—
Nuclear decommissioning trust funds			2,096		2,096		—		2,097		2,097		—
Goodwill			47		47		—		47		47		—
Mark-to-market derivatives assets			45		45		—		44		44		—
Other noncurrent assets			91		82		3		95		82		3
Total noncurrent assets			7,090		7,081		3		6,921		6,908		3
	Total assets	$	7,989	$	7,949	$	27	$	8,160	$	8,119	$	24

Long-term debt due within one year		$	88	$	5	$	77	$	87	$	5	$	75
Accounts payable			143		143		—		292		292		—
Accrued expenses			87		84		1		111		108		2
Mark-to-market derivative liabilities			8		8		—		24		24		—
Unamortized energy contract liabilities			9		9		—		22		22		—
Other current liabilities			13		13		—		25		25		—
	Total current liabilities		348		262		78		561		476		77

Long-term debt			166		79		81		212		81		120
Asset retirement obligations			1,865		1,865		—		1,763		1,763		—
Pension obligation^(a)			9		9		—		9		9		—
Unamortized energy contract liabilities			45		45		—		51		51		—
	Other noncurrent liabilities		122		122		—		127		127		—
	Noncurrent liabilities		2,207		2,120		81		2,162		2,031		120
	Total liabilities	$	2,555	$	2,382	$	159	$	2,723	$	2,507	$	197

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(a)	Includes 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 14 — 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. 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.


•	Asset sale agreement with ZionSolutions, LLC and EnergySolutions, Inc. in which Generation has a variable interest but has concluded that consolidation is not required.


•	Equity investments in energy development projects, distributed energy companies, and energy generating facilities for which Generation has concluded that consolidation is not required.

As of June 30, 2015 and December 31, 2014, Exelon and Generation had significant unconsolidated variable interests in eight and six 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 the execution of an energy purchase and sale agreement with a new unconsolidated VIE.

In June 2015, 2015 ESA Investco, LLC, a wholly owned subsidiary of Generation, entered into an arrangement to purchase a 90% equity interest and 99% of the tax attributes of a distributed energy company. Equity will be contributed incrementally over an eighteen month period and will total approximately $250 million (see Note 19 — Commitments and Contingencies for additional details). Generation provides a parental guarantee of up to $275 million in support of 2015 ESA Investco, LLC's obligation to make equity contributions to the VIE. The investment was evaluated and it was determined to be a VIE for which Generation is not the primary beneficiary. Separate from the equity investment, Generation provided $27 million in cash to the other (10%) equity holder in the distributed energy company in exchange for a convertible promissory note. In July 2014, Generation entered into another arrangement with the same equity holder for the purchase of a 90% equity interest and 90% of the tax attributes of another distributed energy company. Generation’s total equity commitment in this arrangement was $91 million and is paid incrementally over an approximate two year period (see Note 19 — Commitments and Contingencies for additional details). This arrangement did not meet the definition of a VIE and is recorded as an equity method investment. Both distributed energy companies are considered related parties.

The following tables present summary information about Exelon and Generation’s significant unconsolidated VIE entities:



June 30, 2015	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	260	$	127	$	387
Total liabilities^(a)	29		61		90
Exelon's ownership interest in VIE^(a)	—		16		16
Other ownership interests in VIE^(a)	231		51		282
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments	—		19		19
Contract intangible asset	9		—		9
Debt and payment guarantees	—		3		3
Net assets pledged for Zion Station decommissioning^(b)	23		—		23



December 31, 2014	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	114	$	91	$	205
Total liabilities^(a)	3		49		52
Exelon's ownership interest in VIE^(a)	—		9		9
Other ownership interests in VIE^(a)	111		33		144
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

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(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. Exelon corrected an error in the December 31, 2014 balances within Commercial Agreement VIEs for an overstatement of Total assets, Total liabilities and Other ownership interests in VIE of $392 million, $234 million and $158 million, respectively. The error is not considered material to any prior period.

(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 include, gross pledged assets of $264 million and $319 million as of June 30, 2015 and December 31, 2014, respectively; offset by payables to ZionSolutions, LLC of $241 million and $292 million as of June 30, 2015 and December 31, 2014, 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 has 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 material agreements with, or commitments by, third parties that would affect the fair value or risk of their variable interests in these VIEs.