Variable Interest Entities (All Registrants)

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 September 30, 2018 and December 31, 2017, Exelon, Generation, PHI and ACE collectively consolidated five VIEs or VIE groups for which the applicable Registrant was the primary beneficiary (see Consolidated Variable Interest Entities below). As of September 30, 2018 and December 31, 2017, Exelon and Generation collectively had significant interests in seven other VIEs for which the applicable Registrant does not have the power to direct the entities’ activities and, accordingly, was not the primary beneficiary (see Unconsolidated Variable Interest Entities below).

Consolidated Variable Interest Entities

As of September 30, 2018 and December 31, 2017, Exelon's and Generation's consolidated VIEs consist of:


•	energy related companies involved in distributed generation, backup generation and energy development


•	renewable energy project companies formed by Generation to build, own and operate renewable power facilities


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


•	CENG.

As of September 30, 2018 and December 31, 2017, Exelon's, PHI's and ACE's consolidated VIE consist of:


•	ATF, a special purpose entity formed by ACE for the purpose of securitizing authorized portions of ACE’s recoverable stranded costs through the issuance and sale of transition bonds.

As of September 30, 2018 and December 31, 2017, ComEd, PECO, BGE, Pepco and DPL did not have any material consolidated VIEs.

As of September 30, 2018 and December 31, 2017, Exelon and Generation provided the following support to their respective consolidated VIEs:


•	Generation provides operating and capital funding to the renewable energy project companies and there is limited recourse to Generation related to certain renewable energy project companies.


•	Generation provides operating and capital funding to one of the energy related companies involved in backup generation.


•	Generation provides approximately $34 million in credit support for the retail power and gas companies for which Generation is the sole supplier of energy.


•	Exelon and Generation, where indicated, provide the following support to CENG:

•

under power purchase agreements with CENG, Generation purchased or 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 were suspended during the term of the RSSA, through the end of March 31, 2017. With the expiration of the RSSA, the PPA was reinstated beginning April 1, 2017,


•	Generation provided a $400 million loan to CENG. As of September 30, 2018, the remaining obligation is $194 million,

•

Generation executed an Indemnity Agreement pursuant to which Generation agreed to indemnify EDF 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 17 — Commitments and Contingencies for additional information),


•	Generation and EDF share in the $637 million of contingent payment obligations for the payment of contingent retrospective premium adjustments for the nuclear liability insurance,


•	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.

As of September 30, 2018 and December 31, 2017, Exelon, PHI and ACE provided the following support to their respective consolidated VIE:

•

In the case of ATF, proceeds from the sale of each series of transition bonds by ATF were transferred to ACE in exchange for the transfer by ACE to ATF of the right to collect a non-bypassable Transition Bond Charge from ACE customers pursuant to bondable stranded costs rate orders issued by the NJBPU in an amount sufficient to fund the principal and interest payments on transition bonds and related taxes, expenses and fees. During the three and nine months ended September 30, 2018, ACE transferred $9 million and $23 million to ATF, respectively. During the three and nine months ended September 30, 2017, ACE transferred $11 million and $39 million to ATF, respectively.

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, PHI and ACE did not provide any additional material financial support to the VIEs;


•	Exelon, Generation, PHI and ACE 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, PHI's or ACE's general credit.

The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the Registrants' consolidated financial statements at September 30, 2018 and December 31, 2017 are as follows:



	September 30, 2018								December 31, 2017
	Exelon^(a)		Generation		PHI^(a)		ACE		Exelon^(a)		Generation		PHI^(a)		ACE
Current assets	$	891	$	881	$	10	$	7	$	662	$	652	$	10	$	6
Noncurrent assets	9,259		9,233		26		19		9,317		9,286		31		23
Total assets	$	10,150	$	10,114	$	36	$	26	$	9,979	$	9,938	$	41	$	29
Current liabilities	$	329	$	303	$	26	$	23	$	308	$	272	$	36	$	32
Noncurrent liabilities	3,284		3,232		52		45		3,316		3,250		66		58
Total liabilities	$	3,613	$	3,535	$	78	$	68	$	3,624	$	3,522	$	102	$	90

_________


(a)	Includes certain purchase accounting adjustments not pushed down to the ACE 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 September 30, 2018 and December 31, 2017, these assets and liabilities primarily consisted of the following:



	September 30, 2018								December 31, 2017
	Exelon^(a)		Generation		PHI^(a)		ACE		Exelon^(a)		Generation		PHI^(a)		ACE
Cash and cash equivalents	$	316	$	316	$	—	$	—	$	126	$	126	$	—	$	—
Restricted cash	77		70		7		7		64		58		6		6
Accounts receivable, net
Customer	165		165		—		—		170		170		—		—
Other	30		30		—		—		25		25		—		—
Inventory, net
Materials and supplies	214		214		—		—		205		205		—		—
Other current assets	65		62		3		—		45		41		4		—
Total current assets	867		857		10		7		635		625		10		6
Property, plant and equipment, net	6,158		6,158		—		—		6,186		6,186		—		—
Nuclear decommissioning trust funds	2,523		2,523		—		—		2,502		2,502		—		—
Other noncurrent assets	256		230		26		19		274		243		31		23
Total noncurrent assets	8,937		8,911		26		19		8,962		8,931		31		23
Total assets	$	9,804	$	9,768	$	36	$	26	$	9,597	$	9,556	$	41	$	29
Long-term debt due within one year	$	97	$	72	$	25	$	22	$	102	$	67	$	35	$	31
Accounts payable	128		128		—		—		114		114		—		—
Accrued expenses	73		72		1		1		67		66		1		1
Unamortized energy contract liabilities	16		16		—		—		18		18		—		—
Other current liabilities	14		14		—		—		7		7		—		—
Total current liabilities	328		302		26		23		308		272		36		32
Long-term debt	1,087		1,035		52		45		1,154		1,088		66		58
Asset retirement obligations	2,116		2,116		—		—		2,035		2,035		—		—
Other noncurrent liabilities	75		75		—		—		121		121		—		—
Total noncurrent liabilities	3,278		3,226		52		45		3,310		3,244		66		58
Total liabilities	$	3,606	$	3,528	$	78	$	68	$	3,618	$	3,516	$	102	$	90

_________


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

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 (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 September 30, 2018 and December 31, 2017, Exelon's and Generation's 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 distributed energy companies for which Generation has concluded that consolidation is not required.

As of September 30, 2018 and December 31, 2017, the Utility Registrants did not have any material unconsolidated VIEs.

As of September 30, 2018 and December 31, 2017, Exelon and Generation had significant unconsolidated variable interests in seven VIEs for which Exelon or Generation, as applicable, was not the primary beneficiary; including certain equity investments and certain commercial agreements. Exelon and Generation only include unconsolidated VIEs that are individually material in the tables below. However, Generation has several individually immaterial VIEs that in aggregate represent a total investment of $15 million. These immaterial VIEs are equity and debt securities in energy development companies. The maximum exposure to loss related to these securities is limited to the $15 million included in Investments on Exelon’s and Generation’s Consolidated Balance Sheets. The risk of a loss was assessed to be remote and, accordingly, Exelon and Generation have not recognized a liability associated with any portion of the maximum exposure to loss.

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



September 30, 2018	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	606	$	481	$	1,087
Total liabilities^(a)	36		221		257
Exelon's ownership interest in VIE^(a)	—		232		232
Other ownership interests in VIE^(a)	570		28		598
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments	—		232		232
Contract intangible asset	8		—		8
Net assets pledged for Zion Station decommissioning^(b)	—		—		—



December 31, 2017	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	625	$	509	$	1,134
Total liabilities^(a)	37		228		265
Exelon's ownership interest in VIE^(a)	—		251		251
Other ownership interests in VIE^(a)	588		30		618
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments	—		251		251
Contract intangible asset	8		—		8
Net assets pledged for Zion Station decommissioning^(b)	2		—		2

_________


(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 $9 million and $39 million as of September 30, 2018 and December 31, 2017, respectively; offset by payables to ZionSolutions, LLC of $9 million and $37 million as of September 30, 2018 and December 31, 2017, respectively. These items are included to provide information regarding the relative size of the ZionSolutions, LLC unconsolidated VIE. See Note 13 — Asset Retirement Obligations for additional information.

For each of the unconsolidated VIEs, Exelon and Generation have 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.