(Exelon, Generation, ComEd and PECO)

Goodwill

Exelon’s, Generation's and ComEd’s gross amount of goodwill, accumulated impairment losses and carrying amount of goodwill for the years ended December 31, 2015 and 2014 were as follows:



	ComEd						Generation				Exelon
	Gross Amount ^(a)		Accumulated Impairment Losses		Carrying Amount		Gross Amount		Carrying Amount		Gross Amount		Accumulated Impairment Losses		Carrying Amount
Balance, January 1, 2014	$	4,608	$	1,983	$	2,625	$	—	$	—	$	4,608	$	1,983	$	2,625
Goodwill from business combination	—		—		—		47		47		47		—		47
Balance, December 31, 2014	4,608		1,983		2,625		47		47		4,655		1,983		2,672
Impairment losses	—		—		—		—		—		—		—		—
Balance, December 31, 2015	$	4,608	$	1,983	$	2,625	$	47	$	47	$	4,655	$	1,983	$	2,672

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(a)	Reflects goodwill recorded in 2000 from the PECO/Unicom (predecessor parent company of ComEd) merger net of amortization, resolution of tax matters and other non-impairment-related changes as allowed under previous authoritative guidance.

Goodwill is not amortized, but is subject to an assessment for impairment at least annually, or more frequently if events occur or circumstances change that would more likely than not reduce the fair value of the ComEd reporting unit below its carrying amount. Under the authoritative guidance for goodwill, a reporting unit is an operating segment or one level below an operating segment (known as a component) and is the level at which goodwill is tested for impairment. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and its operating results are regularly reviewed by segment management. ComEd has a single operating segment for its combined business. There is no level below this operating segment for which operating results are regularly reviewed by segment management. Therefore, ComEd’s operating segment is considered its only reporting unit.

Entities assessing goodwill for impairment have the option of first performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step one of the two-step fair value based impairment test). If an entity determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step fair value based impairment test is required. Otherwise, no further testing is required.

If an entity bypasses the qualitative assessment or performs the qualitative assessment, but determines that it is more likely than not that its fair value is less than its carrying amount, a quantitative two-step, fair value based test is performed. The first step compares the fair value of the reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step is performed. The second step requires an allocation of fair value to the individual assets and liabilities using purchase price allocation in order to determine the implied fair value of goodwill. If the implied fair value of goodwill is less than the carrying amount, an impairment loss is recorded as a reduction to goodwill and a charge to operating expense. Any goodwill impairment charge at ComEd will affect Exelon’s consolidated results of operations.

ComEd’s valuation approach is based on a market participant view, pursuant to authoritative guidance for fair value measurement, and utilizes a weighted combination of a discounted cash flow analysis and a market multiples analysis. The discounted cash flow analysis relies on a single scenario reflecting “base case” or “best estimate” projected cash flows for ComEd’s business and includes an estimate of ComEd’s terminal value based on these expected cash flows using the generally accepted Gordon Dividend Growth formula, which derives a valuation using an assumed perpetual annuity based on the entity’s residual cash flows. The discount rate is based on the generally accepted Capital Asset Pricing Model and represents the weighted average cost of capital of comparable companies. The market multiples analysis utilizes multiples of business enterprise value to earnings, before interest, taxes, depreciation and amortization (EBITDA) of comparable companies in estimating fair value. Significant assumptions used in estimating the fair value include discount and growth rates, utility sector market performance and transactions, projected operating and capital cash flows from ComEd’s business and the fair value of debt. Management performs a reconciliation of the sum of the estimated fair value of all Exelon reporting units to Exelon’s enterprise value based on its trading price to corroborate the results of the discounted cash flow analysis and the market multiple analysis.

2015 and 2014 Goodwill Impairment Assessment. Pursuant to authoritative guidance, ComEd is required to test its goodwill for impairment annually and more frequently if an event occurs or circumstances change that suggest an impairment is more likely than not. ComEd performs its assessment as of November 1, of each year. For its 2015 and 2014 annual goodwill impairment assessments, ComEd qualitatively determined that its fair value was not more likely than not less than its carrying value. Therefore, ComEd did not perform quantitative assessments. As part of its qualitative assessments, ComEd evaluated, among other things, management’s best estimate of projected operating and capital cash flows for ComEd’s business, as well as, changes in certain market conditions, including the discount rate and regulated utility peer company EBITDA multiples, while also considering the passing margin from its last quantitative assessment performed as of November 1, 2013.

Other Intangible Assets

Exelon’s, Generation’s and ComEd’s other intangible assets and liabilities, included in Unamortized energy contract assets and liabilities and Other deferred debits and other assets in their Consolidated Balance Sheets, consisted of the following as of December 31, 2015:



	Weighted Average Amortization Years ^(k)										Estimated amortization expense
	Weighted Average Amortization Years ^(k)	Gross			Accumulated Amortization			Net			2016			2017			2018			2019			2020
Exelon
Software License Agreement ^(a)	10.0	$	95		$	(6	)	$	89		$	10		$	10		$	10		$	10		$	10
Generation
Unamortized Energy Contracts ^(b)
Exelon Wind ^(c)	18.0	224			(69		)	155			14			14			14			14			10
Antelope Valley^(d)	25.0	190			(20		)	170			8			8			8			8			8
Constellation ^(e)	1.5	1,499			(1,473		)	26			(33		)	(21		)	11			8			10
CENG ^(f)	1.7	(97		)	48			(49		)	(11		)	(15		)	(18		)	(15		)	(8		)
Integrys ^(g)	2.4	5			2			7			5			1			1			—			—
Customer Relationships ^(h)
Constellation ^(e)	12.4	214			(76		)	138			18			18			18			17			17
Integrys ^(g)	10.0	50			(6		)	44			5			5			5			5			5
Trade Names
Constellation ^(e)	10.0	243			(103		)	140			23			23			23			23			23
ComEd
Chicago settlement—1999 agreement ⁽ⁱ⁾	21.8	100			(83		)	17			3			3			3			4			4
Chicago settlement—2003 agreement ^(j)	17.9	62			(44		)	18			4			4			4			3			3
Total intangible assets		$	2,585		$	(1,830	)	$	755		$	46		$	50		$	79		$	77		$	82

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(a)	On May 31, 2015, Exelon entered into a long-term software license agreement. Exelon is required to make payments starting August 2015 through May 2024. The intangible asset recognized as a result of these payments is being amortized on a straight-line basis over the contract term.

(b)

Includes unamortized energy contract assets and liabilities on Exelon's and Generation's Consolidated Balance Sheets. Excludes $44 million of other miscellaneous unamortized energy contracts that have been acquired at various points in time. The estimated amortization for these miscellaneous unamortized energy contracts is $3 million, $0 million, $2 million, $3 million and $4 million for 2016, 2017, 2018, 2019 and 2020, respectively.


(c)	In December 2010, Generation acquired all of the equity interests of John Deere Renewables, LLC (later named Exelon Wind), adding 735MWs of installed, operating wind capacity located in eight states.


(d)	In September 2011, Generation acquired all of the interest in Antelope Valley Solar Ranch One, a 242 MW solar project under development in northern Los Angeles County, CA from First Solar, Inc.


(e)	On March 12, 2012, Constellation merged into Exelon with Exelon continuing as the surviving corporation pursuant to the transactions contemplated by the Agreement and Plan of Merger. Since the merger transaction, Generation includes the former Constellation generation and customer supply operations.


(f)	See Note 5—Investment in Constellation Energy Nuclear Group, LLC for additional information.


(g)	See Note 4—Mergers, Acquisitions, and Dispositions for additional information.


(h)	Excludes $12 million of other miscellaneous customer relationships that have been acquired. The estimated amortization for these miscellaneous customer relationships is $1 million in each of the years from 2016 to 2020.

(i)

In March 1999, ComEd entered into a settlement agreement with the City of Chicago associated with ComEd’s franchise agreement. Under the terms of the settlement, ComEd agreed to make payments to the City of Chicago each year from 1999 to 2002. The intangible asset recognized as a result of these payments is being amortized ratably over the remaining term of the franchise agreement, which ends in 2020.

(j)

In February 2003, ComEd entered into separate agreements with the City of Chicago and with Midwest Generation, LLC (Midwest Generation). Under the terms of the settlement agreement with the City of Chicago, ComEd agreed to pay the City of Chicago a total of $60 million over a ten-year period, beginning in 2003. The intangible asset recognized as a result of the settlement agreement is being amortized ratably over the remaining term of the City of Chicago franchise agreement, which ends in 2020. As required by the settlement, ComEd also made a payment of $2 million to a third-party on the City of Chicago’s behalf. Under the terms of the agreement with Midwest Generation, ComEd received payments of $32 million from Midwest Generation to relieve Midwest Generation’s obligation under the 1999 fossil sale agreement with ComEd to build the generation facility in the City of Chicago. The payments received by ComEd, which have been recorded in Other deferred credits and other liabilities, and other long-term liabilities on Exelon's and ComEd's Consolidated Balance Sheets are being recognized ratably (approximately $2 million annually) as an offset to amortization expense over the remaining term of the franchise agreement.


(k)	Weighted-average amortization period was calculated at the date of a) acquisition for acquired assets or b) settlement agreement.

The following table summarizes the amortization expense related to intangible assets and liabilities for each of the years ended December 31, 2015, 2014 and 2013:



For the Year Ended December 31,	Exelon ^(a)		Generation ^(a)		ComEd
2015	$	76	$	69	$	7
2014	179		179		7
2013	478		550		7

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(a) At Exelon, amortization of unamortized energy contracts totaling $22 million, $135 million and $430 million for the years ended December 31, 2015, 2014 and 2013, respectively, was recorded in Operating revenues or Purchase power and fuel expense within Exelon’s Consolidated Statement of Operations and Comprehensive Income. At Generation, amortization of unamortized energy contracts totaling $22 million, $135 million and $507 million for the years ended December 31, 2015, 2014 and 2013, respectively, was recorded in Operating revenues or Purchase power and fuel expense within Generation’s Consolidated Statement of Operations and Comprehensive Income

Acquired Intangible Assets

Accounting guidance for business combinations requires the acquirer to separately recognize identifiable intangible assets in the application of purchase accounting.

Unamortized Energy Contracts. Unamortized energy contract assets and liabilities represent the remaining unamortized fair value of non-derivative energy contracts that Generation has acquired. The valuation of unamortized energy contracts was estimated by applying either the market approach or the income approach depending on the nature of the underlying contract. The market approach was utilized when prices and other relevant information generated by market transactions involving comparable transactions were available. Otherwise, the income approach, which is based upon discounted projected future cash flows associated with the underlying contracts, was utilized. The fair value is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance. Key estimates and inputs include forecasted power and fuel prices and the discount rate. The Exelon Wind unamortized energy contracts are amortized on a straight line basis over the period in which the associated contract revenues are recognized as a decrease in Operating revenue within Exelon’s and Generation’s Consolidated Statement of Operations and Comprehensive Income. In the case of Antelope Valley, Constellation, CENG and Integrys, the fair value amounts are amortized over the life of the contract in relation to the present value of the underlying cash flows as of the acquisition dates through either Operating revenues or Purchase power and fuel expense within Exelon’s and Generation’s Consolidated Statement of Operations and Comprehensive Income.

Customer Relationships. The customer relationship intangible was determined based on a “multi-period excess method” of the income approach. Under this method, the intangible asset’s fair value is determined to be the estimated future cash flows that will be earned on the current customer base, taking into account expected contract renewals based on customer attrition rates and costs to retain those customers. The fair value is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance. Key assumptions include the customer attrition rate and the discount rate. The accounting guidance requires that customer-based intangibles be amortized over the period expected to be benefited using the pattern of economic benefit. The amortization of the customer relationships is recorded in Depreciation and amortization expense within Exelon's and Generation's Consolidated Statements of Operations and Comprehensive Income.

Trade Name. The Constellation trade name intangible was determined based on the relief from royalty method of income approach whereby fair value is determined to be the present value of the license fees avoided by owning the assets. The fair value is based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance. Key assumptions include the hypothetical royalty rate and the discount rate. The Constellation trade name intangible is amortized on a straight-line basis over a period of 10 years. The amortization of the trade name is recorded in Depreciation and amortization expense within Exelon's and Generation's Consolidated Statements of Operations and Comprehensive Income.

Renewable Energy Credits and Alternative Energy Credits (Exelon, Generation, ComEd and PECO).

Exelon’s, Generation’s, ComEd’s and PECO’s other intangible assets, included in Other current assets and Other deferred debits and other assets on the Consolidated Balance Sheets, include RECs (Exelon, Generation and ComEd) and AECs (Exelon and PECO). Purchased RECs are recorded at cost on the date they are purchased. The cost of RECs purchased on a stand-alone basis is based on the transaction price, while the cost of RECs acquired through PPAs represents the difference between the total contract price and the market price of energy at contract inception. Revenue for RECs that are part of a bundled power sale is recognized when the power is produced and delivered to the customer. As of December 31, 2015, and 2014, PECO had current AECs of $2 million and $13 million, respectively. PECO had no noncurrent AECs as of December 31, 2015 and 2014. As of December 31, 2015, and 2014, Generation had current RECs of $251 million and $191 million, respectively, and $56 million and $44 million of noncurrent REC's, respectively. As of December 31, 2015 and 2014, ComEd had current RECs of $5 million and $4 million, respectively. ComEd had no noncurrent RECs as of December 31, 2015 and 2014. See Note 3—Regulatory Matters and Note 23—Commitments and Contingencies for additional information on RECs and AECs.