ComEd 2013 Annual Report Download - page 127

groupsare impairedbycomparingtheirundiscountedexpectedfuture cash flows to theircarryingvalue.Cash flows for long-lived
assetsandasset groupsare determinedat thelowestlevel for which identifiable cash flows are largelyindependent ofthecash
flows ofother assetsandliabilities. Cash flows fromGeneration plant assetsare generallyevaluatedat a regional portfoliolevel
alongwithcash flows generatedfromGeneration’s supplyandrisk management activities, includingcash flows fromcontractsthat
are recordedasintangible contractassetsandliabilitieson thebalancesheet.Incertaincasesgeneration assetsmaybeevaluated
on an individual basis where thoseassetsare contractedon a long-termbasis withathirdpartyandoperationsare independent of
other generation assets(typicallycontractedrenewables).
Impairment mayoccur when thecarryingvalue oftheasset or asset group exceeds thefuture undiscountedcash flows. When the
undiscountedcash flowanalysis indicatesa long-livedasset or asset group is not recoverable,theamount oftheimpairment loss is
determinedbymeasuringtheexcess ofthecarryingamount ofthe long-livedasset or asset group over itsfairvalue.
Conditionsthat couldhaveanadverseimpactontheexpectedfuture cash flows andthefairvalue ofthe long-livedassetsandasset
groupsinclude,amongother factors, adeterioratingbusiness climate,includingenergy pricesandmarket conditions, revisionsto
regulatorylaws, or plansto disposeofa long-livedasset significantlybefore theendofitsuseful life.See Note 8—Impairment of
Long-LivedAssetsfor additional information.
Goodwill. Goodwill representstheexcess ofthe purchasepricepaid over theestimatedfairvalue oftheassetsacquiredand
liabilitiesassumedintheacquisition ofabusiness. Goodwill is not amortized, but is testedfor impairment at least annuallyor on an
interim basis if an event occursor circumstanceschangethat wouldmore likelythan not reducethefairvalue ofa reportingunit
belowitscarryingvalue.See Note 10—Intangible Assetsfor additional information regardingExelon’s andComEd’s goodwill.
Equity Method Investments. Exelon andGeneration regularlymonitor andevaluate equitymethodinvestmentsto determine
whether theyare impaired. An impairment is recordedwhen theinvestment hasexperiencedadecline invalue that is not temporary
in nature.Additionally, if the projectinwhich Generation holds an investment recognizesan impairment loss, Exelon andGeneration
wouldrecordtheir proportionate share ofthat impairment loss andevaluate theinvestment for an other than temporarydecline in
value.
Direct Financing Lease Investments. Directfinancingleaseinvestmentsrepresent theestimatedresidual valuesofleasedcoal-
firedplantsinGeorgiaandTexas. Exelon reviews theestimatedresidual valuesofitsdirectfinancingleaseinvestmentsandrecords
an impairment chargeif thereviewindicatesan other than temporarydecline inthefairvalue oftheresidual valuesbelowtheir
carryingvalues. See Note 8—Impairment ofLong-LivedAssetsfor additional information.
Derivative Financial Instruments
All derivativesare recognizedon thebalancesheet at theirfairvalue unless theyqualify for certainexceptions, includingthe normal
purchasesandnormal salesexception.Additionally, derivativesthat qualify andare designatedfor hedgeaccountingare classified
aseither hedgesofthefairvalue ofarecognizedasset or liabilityor ofan unrecognizedfirmcommitment (fairvalue hedge)or
hedgesofaforecastedtransaction or thevariabilityofcash flows to bereceivedor paid relatedto a recognizedasset or liability
(cash flowhedge). For fairvalue hedges, changesinfairvaluesfor boththederivativeandtheunderlyinghedgedexposure are
recognizedin earnings each period. For cash flowhedges, the portion ofthederivativegainorloss that is effectiveinoffsettingthe
changeinthecostorvalue oftheunderlyingexposure is deferredinaccumulated OCI andlater reclassifiedinto earnings when the
underlyingtransaction occurs. Gainsandlossesfromtheineffective portion ofanyhedge are recognizedin earnings immediately.
For derivativecontractsintendedto serveaseconomic hedgesandthat are not designatedor do not qualify for hedgeaccountingor
the normal purchasesandnormal salesexception,changesinthefairvalue ofthederivativesare recognizedin earnings each
period. Amountsclassifiedin earnings are includedinrevenue,purchasedpower andfuel,interestexpenseorother,net on the
ConsolidatedStatement ofOperationsbasedon theactivitythe transaction is economicallyhedging. For energy-relatedderivatives
enteredinto for proprietarytradingpurposes, which are subjecttoExelon’s Risk Management Policy, changesinthefairvalue ofthe
derivativesare recognizedin earnings each period. All amountsclassifiedin earnings relatedto proprietarytradingare includedin
revenue on theConsolidatedStatement ofOperations. Cash inflows andoutflows relatedto derivativeinstrumentsare includedasa
component ofoperating, investingor financingcash flows intheConsolidatedStatementsofCash Flows, dependingon the nature of
each transaction.
For commodityderivativecontracts, effectivewiththedate ofthemerger withConstellation,Generation no longer utilizesthe
election providedfor by thecash flowhedgedesignation andde-designatedall ofitsexistingcash flowhedgesprior to themerger.
Becausetheunderlyingforecastedtransactionsremain probable,thefairvalue oftheeffective portion ofthesecash flowhedges
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