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Fair Value of Financial Assets and Liabilities (All Registrants)

6 Months Ended

Jun. 30, 2019

Fair Value of Financial Assets and Liabilities (All Registrants)

Exelon measures and classifies fair value measurements in accordance with the hierarchy as defined by GAAP. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:


•	Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the Registrants have the ability to liquidate as of the reporting date.


•	Level 2 - inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.


•	Level 3 - unobservable inputs, such as internally developed pricing models or third-party valuations for the asset or liability due to little or no market activity for the asset or liability.

Exelon’s valuation techniques used to measure the fair value of the assets and liabilities shown in the tables below are in accordance with the policies discussed in Note 11 — Fair Value of Financial Assets and Liabilities of the Exelon 2018 Form 10-K, unless otherwise noted below.

Fair Value of Financial Liabilities Recorded at Amortized Cost

The following tables present the carrying amounts and fair values of the Registrants’ short-term liabilities, long-term debt, SNF obligation and trust preferred securities (long-term debt to financing trusts or junior subordinated debentures) as of June 30, 2019 and December 31, 2018. The Registrants have no financial liabilities classified as Level 1.

The carrying amounts of the Registrants’ short-term liabilities as presented on their Consolidated Balance Sheets are representative of their fair value (Level 2) because of the short-term nature of these instruments.



	June 30, 2019								December 31, 2018
	Carrying Amount		Fair Value						Carrying Amount		Fair Value
	Carrying Amount		Level 2		Level 3		Total		Carrying Amount		Level 2		Level 3		Total
Long-Term Debt, including amounts due within one year^(a)
Exelon	$	35,685	$	36,248	$	2,569	$	38,817	$	35,424	$	33,711	$	2,158	$	35,869
Generation	8,704		7,822		1,472		9,294		8,793		7,467		1,443		8,910
ComEd	8,195		9,222		—		9,222		8,101		8,390		—		8,390
PECO	3,085		3,415		50		3,465		3,084		3,157		50		3,207
BGE	2,877		3,197		—		3,197		2,876		2,950		—		2,950
PHI	6,509		5,823		1,047		6,870		6,259		5,436		665		6,101
Pepco	2,860		3,134		377		3,511		2,719		2,901		196		3,097
DPL	1,495		1,396		218		1,614		1,494		1,303		193		1,496
ACE	1,329		1,025		451		1,476		1,188		987		275		1,262
Long-Term Debt to Financing Trusts^(a)
Exelon	$	390	$	—	$	415	$	415	$	390	$	—	$	400	$	400
ComEd	205		—		209		209		205		—		209		209
PECO	184		—		206		206		184		—		191		191
SNF Obligation
Exelon	$	1,186	$	1,025	$	—	$	1,025	$	1,171	$	949	$	—	$	949
Generation	1,186		1,025		—		1,025		1,171		949		—		949

____


(a)	Includes unamortized debt issuance costs which are not fair valued.

Recurring Fair Value Measurements

The following tables present assets and liabilities measured and recorded at fair value in the Registrants' Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of June 30, 2019 and December 31, 2018:



	Exelon										Generation
As of June 30, 2019	Level 1		Level 2		Level 3		Not subject to leveling		Total		Level 1		Level 2		Level 3		Not subject to leveling		Total
Assets
Cash equivalents^(a)	$	648	$	—	$	—	$	—	$	648	$	323	$	—	$	—	$	—	$	323
NDT fund investments
Cash equivalents^(b)	1,241		90		—		—		1,331		1,241		90		—		—		1,331
Equities	3,123		1,638		—		1,328		6,089		3,123		1,638		—		1,328		6,089
Fixed income
Corporate debt	—		1,453		247		—		1,700		—		1,453		247		—		1,700
U.S. Treasury and agencies	1,589		134		—		—		1,723		1,589		134		—		—		1,723
Foreign governments	—		58		—		—		58		—		58		—		—		58
State and municipal debt	—		81		—		—		81		—		81		—		—		81
Other^(c)	—		19		—		955		974		—		19		—		955		974
Fixed income subtotal	1,589		1,745		247		955		4,536		1,589		1,745		247		955		4,536



	Exelon														Generation
As of June 30, 2019	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Middle market lending	—			—			292			455		747			—			—			292			455		747
Private equity	—			—			—			379		379			—			—			—			379		379
Real estate	—			—			—			557		557			—			—			—			557		557
NDT fund investments subtotal^(d)	5,953			3,473			539			3,674		13,639			5,953			3,473			539			3,674		13,639
Rabbi trust investments
Cash equivalents	49			—			—			—		49			4			—			—			—		4
Mutual funds	73			—			—			—		73			23			—			—			—		23
Fixed income	—			13			—			—		13			—			—			—			—		—
Life insurance contracts	—			72			40			—		112			—			23			—			—		23
Rabbi trust investments subtotal	122			85			40			—		247			27			23			—			—		50
Commodity derivative assets
Economic hedges	505			2,148			1,875			—		4,528			505			2,148			1,875			—		4,528
Proprietary trading	—			44			139			—		183			—			44			139			—		183
Effect of netting and allocation of collateral^(e)(f)	(646		)	(2,042		)	(965		)	—		(3,653		)	(646		)	(2,042		)	(965		)	—		(3,653		)
Commodity derivative assets subtotal	(141		)	150			1,049			—		1,058			(141		)	150			1,049			—		1,058
Total assets	6,582			3,708			1,628			3,674		15,592			6,162			3,646			1,588			3,674		15,070
Liabilities
Commodity derivative liabilities
Economic hedges	(743		)	(2,539		)	(1,606		)	—		(4,888		)	(743		)	(2,539		)	(1,333		)	—		(4,615		)
Proprietary trading	—			(44		)	(71		)	—		(115		)	—			(44		)	(71		)	—		(115		)
Effect of netting and allocation of collateral^(e)(f)	743			2,438			1,228			—		4,409			743			2,438			1,228			—		4,409
Commodity derivative liabilities subtotal	—			(145		)	(449		)	—		(594		)	—			(145		)	(176		)	—		(321		)
Deferred compensation obligation	—			(137		)	—			—		(137		)	—			(36		)	—			—		(36		)
Total liabilities	—			(282		)	(449		)	—		(731		)	—			(181		)	(176		)	—		(357		)
Total net assets	$	6,582		$	3,426		$	1,179		$	3,674	$	14,861		$	6,162		$	3,465		$	1,412		$	3,674	$	14,713



	Exelon														Generation
As of December 31, 2018	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Assets
Cash equivalents^(a)	$	1,243		$	—		$	—		$	—	$	1,243		$	581		$	—		$	—		$	—	$	581
NDT fund investments
Cash equivalents^(b)	252			86			—			—		338			252			86			—			—		338
Equities	2,918			1,591			—			1,381		5,890			2,918			1,591			—			1,381		5,890
Fixed income
Corporate debt	—			1,593			230			—		1,823			—			1,593			230			—		1,823
U.S. Treasury and agencies	2,081			99			—			—		2,180			2,081			99			—			—		2,180
Foreign governments	—			50			—			—		50			—			50			—			—		50
State and municipal debt	—			149			—			—		149			—			149			—			—		149
Other^(c)	—			30			—			846		876			—			30			—			846		876
Fixed income subtotal	2,081			1,921			230			846		5,078			2,081			1,921			230			846		5,078
Middle market lending	—			—			313			367		680			—			—			313			367		680
Private equity	—			—			—			329		329			—			—			—			329		329
Real estate	—			—			—			510		510			—			—			—			510		510
NDT fund investments subtotal^(d)	5,251			3,598			543			3,433		12,825			5,251			3,598			543			3,433		12,825
Rabbi trust investments
Cash equivalents	48			—			—			—		48			5			—			—			—		5
Mutual funds	72			—			—			—		72			24			—			—			—		24
Fixed income	—			15			—			—		15			—			—			—			—		—
Life insurance contracts	—			70			38			—		108			—			22			—			—		22
Rabbi trust investments subtotal	120			85			38			—		243			29			22			—			—		51
Commodity derivative assets
Economic hedges	541			2,760			1,470			—		4,771			541			2,760			1,470			—		4,771
Proprietary trading	—			69			77			—		146			—			69			77			—		146
Effect of netting and allocation of collateral^(e)(f)	(582		)	(2,357		)	(732		)	—		(3,671		)	(582		)	(2,357		)	(732		)	—		(3,671		)
Commodity derivative assets subtotal	(41		)	472			815			—		1,246			(41		)	472			815			—		1,246
Total assets	6,573			4,155			1,396			3,433		15,557			5,820			4,092			1,358			3,433		14,703



	Exelon														Generation
As of December 31, 2018	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Liabilities
Commodity derivative liabilities
Economic hedges	(642		)	(2,963		)	(1,276		)	—		(4,881		)	(642		)	(2,963		)	(1,027		)	—		(4,632		)
Proprietary trading	—			(73		)	(21		)	—		(94		)	—			(73		)	(21		)	—		(94		)
Effect of netting and allocation of collateral^(e)(f)	639			2,581			808			—		4,028			639			2,581			808			—		4,028
Commodity derivative liabilities subtotal	(3		)	(455		)	(489		)	—		(947		)	(3		)	(455		)	(240		)	—		(698		)
Deferred compensation obligation	—			(137		)	—			—		(137		)	—			(35		)	—			—		(35		)
Total liabilities	(3		)	(592		)	(489		)	—		(1,084		)	(3		)	(490		)	(240		)	—		(733		)
Total net assets	$	6,570		$	3,563		$	907		$	3,433	$	14,473		$	5,817		$	3,602		$	1,118		$	3,433	$	13,970

_________

(a)

Exelon excludes cash of $447 million and $458 million at June 30, 2019 and December 31, 2018, respectively, and restricted cash of $83 million and $80 million at June 30, 2019 and December 31, 2018, respectively, and includes long-term restricted cash of $191 million and $185 million at June 30, 2019 and December 31, 2018, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. Generation excludes cash of $329 million and $283 million at June 30, 2019 and December 31, 2018, respectively, and restricted cash of $45 million and $39 million at June 30, 2019 and December 31, 2018, respectively.


(b)	Includes $75 million and $50 million of cash received from outstanding repurchase agreements at June 30, 2019 and December 31, 2018, respectively, and is offset by an obligation to repay upon settlement of the agreement as discussed in (d) below.

(c)

Includes a derivative liability of $2 million and a derivative asset of $44 million, which have total notional amounts of $827 million and $1,432 million at June 30, 2019 and December 31, 2018, respectively. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of the fiscal years ended and do not represent the amount of Exelon and Generation's exposure to credit or market loss.

(d)

Excludes net liabilities of $141 million and $130 million at June 30, 2019 and December 31, 2018, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables, repurchase agreement obligations, and payables related to pending securities purchases. The repurchase agreements are generally short-term in nature with durations generally of 30 days or less.

(e)

Collateral posted/(received) from counterparties totaled $97 million, $396 million and $263 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of June 30, 2019. Collateral posted/(received) from counterparties, net of collateral paid to counterparties, totaled $57 million, $224 million and $76 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2018.


(f)	Of the collateral posted/(received), $358 million and $(94) million represents variation margin on the exchanges as of June 30, 2019 and December 31, 2018, respectively.

As of June 30, 2019, Exelon and Generation have outstanding commitments to invest in fixed income, middle market lending, private equity and real estate investments of approximately $121 million, $84 million, $396 million, and $252 million, respectively. These commitments will be funded by Generation’s existing NDT funds.

Exelon and Generation hold investments without readily determinable fair values with carrying amounts of $75 million as of June 30, 2019. Changes were immaterial in fair value, cumulative adjustments and impairments for the three and six months ended June 30, 2019.

Valuation Techniques Used to Determine Net Asset Value

Certain NDT Fund Investments are not classified within the fair value hierarchy and are included under the heading “Not subject to leveling” in the table above. These investments are measured at fair value using NAV per share as a practical expedient and include commingled funds, mutual funds which are not publicly quoted, managed middle market funds, private equity and real estate funds.

For commingled funds and mutual funds, which are not publicly quoted, the fair value is primarily derived from the quoted prices in active markets on the underlying securities and can typically be redeemed monthly with 30 or less days of notice and without further restrictions. For managed middle market funds, the fair value is determined using a combination of valuation models including cost models, market models, and income models and typically cannot be redeemed until maturity of the term loan. Private equity and real estate investments include those in limited partnerships that invest in operating companies and real estate holding companies that are not publicly traded on a stock exchange, such as, leveraged buyouts, growth capital, venture capital, distressed investments, investments in natural resources, and direct investments in pools of real estate properties. These investments typically cannot be redeemed and are generally liquidated over a period of 8 to 10 years from the initial investment date, which is based on Exelon’s understanding of the investment funds. Private equity and real estate valuations are reported by the fund manager and are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted future cash flows, market based comparable data, and independent appraisals from sources with professional qualifications. These valuation inputs are unobservable.

ComEd, PECO and BGE



	ComEd											PECO										BGE
As of June 30, 2019	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents^(a)	$	222	$	—		$	—		$	222		$	9	$	—		$	—	$	9		$	1	$	—		$	—	$	1
Rabbi trust investments
Mutual funds	—		—			—			—			7		—			—		7			7		—			—		7
Life insurance contracts	—		—			—			—			—		10			—		10			—		—			—		—
Rabbi trust investments subtotal	—		—			—			—			7		10			—		17			7		—			—		7
Total assets	222		—			—			222			16		10			—		26			8		—			—		8
Liabilities
Deferred compensation obligation	—		(7		)	—			(7		)	—		(8		)	—		(8		)	—		(5		)	—		(5		)
Mark-to-market derivative liabilities^(b)	—		—			(273		)	(273		)	—		—			—		—			—		—			—		—
Total liabilities	—		(7		)	(273		)	(280		)	—		(8		)	—		(8		)	—		(5		)	—		(5		)
Total net assets (liabilities)	$	222	$	(7	)	$	(273	)	$	(58	)	$	16	$	2		$	—	$	18		$	8	$	(5	)	$	—	$	3



	ComEd											PECO										BGE
As of December 31, 2018	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents^(a)	$	209	$	—		$	—		$	209		$	111	$	—		$	—	$	111		$	4	$	—		$	—	$	4
Rabbi trust investments
Mutual funds	—		—			—			—			7		—			—		7			6		—			—		6
Life insurance contracts	—		—			—			—			—		10			—		10			—		—			—		—
Rabbi trust investments subtotal	—		—			—			—			7		10			—		17			6		—			—		6
Total assets	209		—			—			209			118		10			—		128			10		—			—		10
Liabilities
Deferred compensation obligation	—		(6		)	—			(6		)	—		(10		)	—		(10		)	—		(5		)	—		(5		)
Mark-to-market derivative liabilities^(b)	—		—			(249		)	(249		)	—		—			—		—			—		—			—		—
Total liabilities	—		(6		)	(249		)	(255		)	—		(10		)	—		(10		)	—		(5		)	—		(5		)
Total net assets (liabilities)	$	209	$	(6	)	$	(249	)	$	(46	)	$	118	$	—		$	—	$	118		$	10	$	(5	)	$	—	$	5

_________

(a)

ComEd excludes cash of $65 million and $93 million at June 30, 2019 and December 31, 2018, respectively, and restricted cash of $29 million and $28 million at June 30, 2019 and December 31, 2018, respectively, and includes long-term restricted cash of $174 million and $166 million at June 30, 2019 and December 31, 2018, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. PECO excludes cash of $17 million and $24 million at June 30, 2019 and December 31, 2018, respectively. BGE excludes cash of $7 million at both June 30, 2019 and December 31, 2018, and restricted cash of $1 million and $2 million at June 30, 2019 and December 31, 2018, respectively.


(b)	The Level 3 balance consists of the current and noncurrent liability of $29 million and $244 million, respectively, at June 30, 2019, and $26 million and $223 million, respectively, at December 31, 2018, related to floating-to-fixed energy swap contracts with unaffiliated suppliers.

PHI, Pepco, DPL and ACE



	As of June 30, 2019										As of December 31, 2018
PHI	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents^(a)	$	87	$	—		$	—	$	87		$	147	$	—		$	—	$	147
Rabbi trust investments
Cash equivalents	44		—			—		44			42		—			—		42
Mutual funds	13		—			—		13			13		—			—		13
Fixed income	—		13			—		13			—		15			—		15
Life insurance contracts	—		23			40		63			—		22			38		60
Rabbi trust investments subtotal	57		36			40		133			55		37			38		130
Total assets	144		36			40		220			202		37			38		277
Liabilities
Deferred compensation obligation	—		(19		)	—		(19		)	—		(21		)	—		(21		)
Total liabilities	—		(19		)	—		(19		)	—		(21		)	—		(21		)
Total net assets	$	144	$	17		$	40	$	201		$	202	$	16		$	38	$	256



	Pepco										DPL								ACE
As of June 30, 2019	Level 1		Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash equivalents^(a)	$	40	$	—		$	—	$	40		$	1	$	—	$	—	$	1	$	19	$	—	$	—	$	19
Rabbi trust investments
Cash equivalents	43		—			—		43			—		—		—		—		—		—		—		—
Fixed income	—		3			—		3			—		—		—		—		—		—		—		—
Life insurance contracts	—		23			39		62			—		—		—		—		—		—		—		—
Rabbi trust investments subtotal	43		26			39		108			—		—		—		—		—		—		—		—
Total assets	83		26			39		148			1		—		—		1		19		—		—		19
Liabilities
Deferred compensation obligation	—		(2		)	—		(2		)	—		—		—		—		—		—		—		—
Total liabilities	—		(2		)	—		(2		)	—		—		—		—		—		—		—		—
Total net assets	$	83	$	24		$	39	$	146		$	1	$	—	$	—	$	1	$	19	$	—	$	—	$	19



	Pepco										DPL										ACE
As of December 31, 2018	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total
Assets
Cash equivalents^(a)	$	38	$	—		$	—	$	38		$	16	$	—		$	—	$	16		$	23	$	—	$	—	$	23
Rabbi trust investments
Cash equivalents	41		—			—		41			—		—			—		—			—		—		—		—
Fixed income	—		5			—		5			—		—			—		—			—		—		—		—
Life insurance contracts	—		22			37		59			—		—			—		—			—		—		—		—
Rabbi trust investments subtotal	41		27			37		105			—		—			—		—			—		—		—		—
Total assets	79		27			37		143			16		—			—		16			23		—		—		23
Liabilities
Deferred compensation obligation	—		(3		)	—		(3		)	—		(1		)	—		(1		)	—		—		—		—
Total liabilities	—		(3		)	—		(3		)	—		(1		)	—		(1		)	—		—		—		—
Total net assets (liabilities)	$	79	$	24		$	37	$	140		$	16	$	(1	)	$	—	$	15		$	23	$	—	$	—	$	23

_________

(a)

PHI excludes cash of $21 million and $39 million at June 30, 2019 and December 31, 2018, respectively, and includes long-term restricted cash of $17 million and $19 million at June 30, 2019 and December 31, 2018, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets. Pepco excludes cash of $12 million and $15 million at June 30, 2019 and December 31, 2018, respectively. DPL excludes cash of $3 million and $8 million at June 30, 2019 and December 31, 2018, respectively. ACE excludes cash of $4 million and $7 million at June 30, 2019 and December 31, 2018, respectively, and includes long-term restricted cash of $17 million and $19 million at June 30, 2019 and December 31, 2018, respectively, which is reported in Other deferred debits in the Consolidated Balance Sheets.

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the three and six months ended June 30, 2019 and 2018:



	Exelon			Generation										ComEd				PHI and Pepco
Three Months Ended June 30, 2019	Total			NDT Fund Investments			Mark-to-Market Derivatives				Total Generation			Mark-to-Market Derivatives				Life Insurance Contracts		Eliminated in Consolidation
Balance as of March 31, 2019	$	838		$	540		$	499			$	1,039		$	(240	)		$	39	$	—
Total realized / unrealized gains (losses)
Included in net income	275			2			272			^(a)	274			—				1		—
Included in noncurrent payables to affiliates	—			10			—				10			—				—		(10		)
Included in regulatory assets/liabilities	(23		)	—			—				—			(33		)	^(b)	—		10
Change in collateral	106			—			106				106			—				—		—
Purchases, sales, issuances and settlements
Purchases	51			40			11				51			—				—		—
Sales	(1		)	—			(1		)		(1		)	—				—		—
Settlements	(53		)	(53		)	—				(53		)	—				—		—
Transfers into Level 3	3			—			3			^(c)	3			—				—		—
Transfers out of Level 3	(17		)	—			(17		)	^(c)	(17		)	—				—		—
Balance at June 30, 2019	$	1,179		$	539		$	873			$	1,412		$	(273	)		$	40	$	—
The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of June 30, 2019	$	339		$	1		$	337			$	338		$	—			$	1	$	—



	Exelon			Generation										ComEd				PHI and Pepco
Six Months Ended June 30, 2019	Total			NDT Fund Investments			Mark-to-Market Derivatives				Total Generation			Mark-to-Market Derivatives				Life Insurance Contracts		Eliminated in Consolidation
Balance as of December 31, 2018	$	907		$	543		$	575			$	1,118		$	(249	)		$	38	$	—
Total realized / unrealized gains (losses)
Included in net income	46			3			41			^(a)	44			—				2		—
Included in noncurrent payables to affiliates	—			21			—				21			—				—		(21		)
Included in regulatory assets	(3		)	—			—				—			(24		)	^(b)	—		21
Change in collateral	187			—			187				187			—				—		—
Purchases, sales, issuances and settlements
Purchases	110			42			68				110			—				—		—
Sales	(1		)	—			(1		)		(1		)	—				—		—
Settlements	(70		)	(70		)	—				(70		)	—				—		—
Transfers into Level 3	3			—			3			^(c)	3			—				—		—
Transfers out of Level 3	—			—			—			^(c)	—			—				—		—
Balance as of June 30, 2019	$	1,179		$	539		$	873			$	1,412		$	(273	)		$	40	$	—
The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of June 30, 2019	$	191		$	3		$	186			$	189		$	—			$	2	$	—

__________


(a)	Includes a reduction for the reclassification of $65 million and $145 million of realized gains due to the settlement of derivative contracts for the three and six months ended June 30, 2019, respectively.

(b)

Includes $41 million of decreases in fair value and an increase for realized losses due to settlements of $8 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the three months ended June 30, 2019. Includes $37 million of increases in fair value and an increase for realized losses due to settlements of $13 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the six months ended June 30, 2019.


(c)	Transfers into and out of Level 3 generally occur when the contract tenor becomes less and more observable respectively, primarily due to changes in market liquidity or assumptions for certain commodity contracts.



	Exelon			Generation										ComEd				PHI and Pepco
Three Months Ended June 30, 2018	Total			NDT Fund Investments			Mark-to-Market Derivatives				Total Generation			Mark-to-Market Derivatives				Life Insurance Contracts		Eliminated in Consolidation
Balance as of March 31, 2018	$	1,283		$	609		$	918			$	1,527		$	(267	)		$	23	$	—
Total realized / unrealized gains (losses)
Included in net income	(112		)	—			(113		)	^(a)	(113		)	—				1		—
Included in noncurrent payables to affiliates	—			(3		)	—				(3		)	—				—		3
Included in regulatory assets	12			—			—				—			15			^(b)	—		(3		)
Change in collateral	(49		)	—			(49		)		(49		)	—				—		—
Purchases, sales, issuances and settlements
Purchases	30			17			13				30			—				—		—
Sales	(1		)	—			(1		)		(1		)	—				—		—
Settlements	(26		)	(38		)	—				(38		)	—				12		—
Transfers into Level 3	(15		)	—			(15		)	^(c)	(15		)	—				—		—
Transfers out of Level 3	(16		)	—			(16		)	^(c)	(16		)	—				—		—
Balance as of June 30, 2018	$	1,106		$	585		$	737			$	1,322		$	(252	)		$	36	$	—
The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of June 30, 2018	$	3		$	(4	)	$	7			$	3		$	—			$	—	$	—



	Exelon			Generation										ComEd				PHI and Pepco
Six Months Ended June 30, 2018	Total			NDT Fund Investments			Mark-to-Market Derivatives				Total Generation			Mark-to-Market Derivatives				Life Insurance Contracts		Eliminated in Consolidation
Balance as of December 31, 2017	$	966		$	648		$	552			$	1,200		$	(256	)		$	22	$	—
Total realized / unrealized gains (losses)
Included in net income	74			1			71			^(a)	72			—				2		—
Included in noncurrent payables to affiliates	—			3			—				3			—				—		(3		)
Included in regulatory assets	7			—			—				—			4			^(b)	—		3
Change in collateral	57			—			57				57			—				—		—
Purchases, sales, issuances and settlements
Purchases	119			19			100				119			—				—		—
Sales	(4		)	—			(4		)		(4		)	—				—		—
Settlements	(74		)	(86		)	—				(86		)	—				12		—
Transfers into Level 3	(23		)	—			(23		)	^(c)	(23		)	—				—		—
Transfers out of Level 3	(16		)	—			(16		)	^(c)	(16		)	—				—		—
Balance as of June 30, 2018	$	1,106		$	585		$	737			$	1,322		$	(252	)		$	36	$	—
The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of June 30, 2018	$	259		$	(4	)	$	263			$	259		$	—			$	—	$	—

__________


(a)	Includes a reduction for the reclassification of $120 million and $192 million of realized gains due to the settlement of derivative contracts for the three and six months ended June 30, 2018, respectively.

(b)

Includes $11 million of decreases in fair value and an increase for realized losses due to settlements of $4 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the three months ended June 30, 2018. Includes $6 million of increases in fair value and an increase for realized losses due to settlements of $10 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the six months ended June 30, 2018.


(c)	Transfers into and out of Level 3 generally occur when the contract tenor becomes less and more observable respectively, primarily due to changes in market liquidity or assumptions for certain commodity contracts.

The following tables present the income statement classification of the total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis during the three and six months ended June 30, 2019 and 2018:



	Exelon									Generation							PHI and Pepco
	Operating Revenues		Purchased Power and Fuel			Operating and Maintenance		Other, net		Operating Revenues		Purchased Power and Fuel			Other, net		Operating and Maintenance
Total realized gains (losses) for the three months ended June 30, 2019	$	275	$	(3	)	$	1	$	2	$	275	$	(3	)	$	2	$	1
Total realized (losses) gains for the six months ended June 30, 2019	147		(106		)	2		3		147		(106		)	3		2
Total unrealized gains (losses) for the three months ended June 30, 2019	360		(23		)	1		1		360		(23		)	1		1
Total unrealized gains (losses) for the six months ended June 30, 2019	269		(83		)	2		3		269		(83		)	3		2



	Exelon											Generation									PHI and Pepco
	Operating Revenues			Purchased Power and Fuel			Operating and Maintenance		Other, net			Operating Revenues			Purchased Power and Fuel			Other, net			Operating and Maintenance
Total realized (losses) gains for the three months ended June 30, 2018	$	(191	)	$	78		$	1	$	—		$	(191	)	$	78		$	—		$	1
Total realized gains (losses) for the six months ended June 30, 2018	144			(73		)	2		2			144			(73		)	2			2
Total unrealized (losses) gains for the three months ended June 30, 2018	(71		)	78			—		(4		)	(71		)	78			(4		)	—
Total unrealized gains (losses) for the six months ended June 30, 2018	238			25			—		(3		)	238			25			(3		)	—

The table below discloses the significant inputs to the forward curve used to value these positions.



Type of trade	Fair Value at June 30, 2019			Fair Value at December 31, 2018			Valuation Technique	Unobservable Input	2019 Range			2018 Range
Mark-to-market derivatives — Economic Hedges (Exelon and Generation)^(a)(b)	$	542		$	443		Discounted Cash Flow	Forward power price	$10	-	$118	$12	-	$174
								Forward gas price	$1.54	-	$11.26	$0.78	-	$12.38
							Option Model	Volatility percentage	8%	-	384%	10%	-	277%

Mark-to-market derivatives — Proprietary trading (Exelon and Generation)^(a)(b)	$	68		$	56		Discounted Cash Flow	Forward power price	$10	-	$118	$14	-	$174

Mark-to-market derivatives (Exelon and ComEd)	$	(273	)	$	(249	)	Discounted Cash Flow	Forward heat rate^(c)	9x	-	10x	10x	-	11x
								Marketability reserve	4%	-	7%	4%	-	8%
								Renewable factor	88%	-	119%	86%	-	120%

_________


(a)	The valuation techniques, unobservable inputs and ranges are the same for the asset and liability positions.


(b)	The fair values do not include cash collateral posted on level three positions of $263 million and $76 million as of June 30, 2019 and December 31, 2018, respectively.


(c)	Quoted forward natural gas rates are utilized to project the forward power curve for the delivery of energy at specified future dates. The natural gas curve is extrapolated beyond its observable period to the end of the contract’s delivery.

The inputs listed above, which are as of the balance sheet date, would have a direct impact on the fair values of the above instruments if they were adjusted. The significant unobservable inputs used in the fair value measurement of Generation’s commodity derivatives are forward commodity prices and for options is price volatility. Increases (decreases) in the forward commodity price in isolation would result in significantly higher (lower) fair values for long positions (contracts that give Generation the obligation or option to purchase a commodity), with offsetting impacts to short positions (contracts that give Generation the obligation or right to sell a commodity). Increases (decreases) in volatility would increase (decrease) the value for the holder of the option (writer of the option). Generally, a change in the estimate of forward commodity prices is unrelated to a change in the estimate of volatility of prices. An increase to the reserves listed above would decrease the fair value of the positions. An increase to the heat rate or renewable factors would increase the fair value accordingly. Generally, interrelationships exist between market prices of natural gas and power. As such, an increase in natural gas pricing would potentially have a similar impact on forward power markets.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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