ComEd 2013 Annual Report Download - page 169

Thefairvalue ofGeneration’s non-government-backed fixedrate projectfinancingdebt(Level 3)isbasedon market andquoted
pricesfor itsownandother projectfinancingdebtwith similar risk profiles. Given thelowtradingvolumeinthe projectfinancingdebt
market,thepricequotesusedto determine fairvalue will reflectcertainqualitativefactors, such asmarket conditions, investor
demand, newdevelopmentsthat mightsignificantlyimpactthe projectcash flows or off-taker credit,andother circumstancesrelated
to the project(e.g., political andregulatoryenvironment). Thefairvalue ofGeneration’s government-back fixedrate projectfinancing
debt(Level 3)islargelybasedon a discountedcash flowmethodology that is similar to thetaxable debtsecuritiesmethodology
describedabove.Due to thelack ofmarket tradingdata on similar debt,thediscount ratesare derivedbasedon theoriginal loan
interest rate spreadto the applicable Treasuryrate aswell asacurrent market curvederivedfromgovernment-backed
securities. Variable rate projectfinancingdebtresetson a quarterlybasis andthecarryingvalue approximatesfairvalue.
Exelon alsohastax-exempt debt(Level 3). Due to lowtradingvolumeinthis market,qualitativefactors, such asmarket conditions,
investor demand, andcircumstancesrelatedto theissuer (i.e., political andregulatoryenvironment), maybeincorporatedinto the
creditspreads that are usedto obtainthefairvalue asdescribedabove.
SNF Obligation. Thecarryingamount ofGeneration’s SNF obligation (Level 2)isderivedfromacontractwiththeDOE to providefor
disposal of SNF fromGeneration’s nuclear generatingstations. When determiningthefairvalue oftheobligation,thefuture carrying
amount oftheSNF obligation estimatedto besettledin 2025iscalculatedbycompoundingthecurrent bookvalue oftheSNF
obligation at the13-weekTreasuryrate.Thecompoundedobligation amount is discountedback to present value usingGeneration’s
discount rate, which is calculatedusingthesamemethodology asdescribedabovefor thetaxable debtsecurities, andan estimated
maturitydate of2025.
Long-Term Debt to Financing Trusts. Exelon’s long-termdebttofinancingtrustsisvaluedbasedon publiclytradedsecurities issued
by thefinancingtrusts. Due to lowtradingvolumeofthesesecurities, qualitativefactors, such asmarket conditions, investor
demand, andcircumstancesrelatedto each issue,this debtis classifiedasLevel 3.
Preferred Securities. Thefairvalue ofthesesecuritiesisdeterminedbasedon thelastclosingpriceprior to quarter end, less
accruedinterest.Thesecuritiesare registeredwiththeSEC andare public. PECO redeemedall outstandingseriesofpreferred
securitieson May1,2013.See Note 20—Earnings Per Share andEquityfor additional information.
Recurring Fair Value Measurements
Exelon records thefairvalue ofassetsandliabilitiesinaccordancewiththehierarchy establishedbythe authoritativeguidancefor
fairvalue measurements. Thehierarchy prioritizestheinputsto valuation techniquesusedto measure fairvalue into three levelsas
follows:
•Level 1—quotedprices(unadjusted) inactivemarketsfor identical assetsor liabilitiesthat theRegistrantshavetheabilityto
access asofthe reportingdate.Financial assetsandliabilitiesutilizingLevel 1 inputsincludeactiveexchange-tradedequity
securitiesandfunds, certainexchange-basedderivatives, andmoneymarket funds.
•Level 2—inputsother than quotedpricesincludedwithinLevel 1 that are directlyobservable for theasset or liabilityor indirectly
observable through corroboration withobservable market data.Financial assetsandliabilitiesutilizingLevel 2 inputsinclude
fixedincomesecurities, derivatives, commingledandmutual investment funds pricedat NAVper fundshare andfairvalue
hedges.
•Level 3—unobservable inputs, such asinternallydevelopedpricingmodelsor third-partyvaluationsfor theasset or liabilitydue
to little or no market activityfor theasset or liability. Financial assetsandliabilitiesutilizingLevel 3 inputsincludeinfrequently
tradedsecuritiesandderivatives, andinvestmentspricedusingan alternativepricingmechanism or thirdpartyvaluation.
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