Exelon 2014 Annual Report Download - page 190

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
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 Purchase power and fuel expense or Operating revenues 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’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, 2014, and 2013, PECO had current AECs of $13
million and $19 million, respectively. PECO had no noncurrent AECs and $5 million as of December 31, 2014, and 2013,
respectively. As of December 31, 2014, and 2013, Generation had current RECs of $191 million and $158 million, respectively, and
$44 million of noncurrent REC’s as of December 31, 2014. As of December 31, 2014, and 2013, ComEd, had current RECs of $4
million and $3 million, respectively. See Note 3—Regulatory Matters and Note 22—Commitments and Contingencies for additional
information on RECs and AECs.
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