Exelon 2014 Annual Report Download - page 249

Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
(a) Represents cash settlements only.
(b) In connection with the Employee Matters Agreement between EDF and Exelon, Exelon assumed the pension plan assets of Nine Mile Point Nuclear Station, LLC and
Constellation Energy Nuclear Group, LLC resulting in transfers into Level 3 of $56 million.
(c) As of January 1, 2014 and January 1, 2013, hedge fund investments that contained redemption restrictions limiting Exelon’s ability to redeem the investments within a
reasonable period of time were classified as Level 3 investments. As of December 31, 2014 and December 31, 2013, restrictions for certain investments no longer
applied, therefore allowing redemption within a reasonable period of time from the measurement date at NAV. As such, these hedge fund investments are reflected
as transfers out of Level 3 to Level 2 of $43 million and $627 million in 2014 and 2013 respectively.
There were no transfers between Level 1 and Level 2 during the twelve months ended December 31, 2014 for the pension and other
postretirement benefit plan assets.
Valuation Techniques Used to Determine Fair Value
Cash equivalents. Investments with maturities of three months or less when purchased, including certain short-term fixed income
securities and money market funds, are considered cash equivalents. The fair values are based on observable market prices and,
therefore, are included in the recurring fair value measurements hierarchy as Level 1.
Equities. Equities consist of individually held equity securities, equity mutual funds and equity commingled funds in domestic and
foreign markets. With respect to individually held equity securities, the trustees obtain prices from pricing services, whose prices are
obtained from direct feeds from market exchanges, which Exelon is able to independently corroborate. Equity securities held
individually, including rights and warrants, are primarily traded on exchanges that contain only actively traded securities due to the
volume trading requirements imposed by these exchanges. Equity securities are valued based on quoted prices in active markets
and are categorized as Level 1. Certain private placement equity securities are categorized as Level 3 because they are not publicly
traded and are priced using significant unobservable inputs.
Equity commingled funds and mutual funds are maintained by investment companies that hold certain investments in accordance
with a stated set of fund objectives, which are consistent with the plans’ overall investment strategy. The values of some of these
funds are publicly quoted. For mutual funds which are publicly quoted, the funds are valued based on quoted prices in active
markets and have been categorized as Level 1. For equity commingled funds and mutual funds which are not publicly quoted, the
fund administrators value the funds using the NAV per fund share, derived from the quoted prices in active markets of the underlying
securities. These funds have been categorized as Level 2.
Fixed income. For fixed income securities, which consist primarily of corporate debt securities, foreign government securities,
municipal bonds, asset and mortgage-backed securities, commingled funds, mutual funds and derivative instruments, the trustees
obtain multiple prices from pricing vendors whenever possible, which enables cross-provider validations in addition to checks for
unusual daily movements. A primary price source is identified based on asset type, class or issue for each security. The trustees
monitor prices supplied by pricing services and may use a supplemental price source or change the primary price source of a given
security if the portfolio managers challenge an assigned price and the trustees determine that another price source is considered to
be preferable. Exelon has obtained an understanding of how these prices are derived, including the nature and observability of the
inputs used in deriving such prices. Additionally, Exelon selectively corroborates the fair values of securities by comparison to other
market-based price sources. Investments in U.S. Treasury securities have been categorized as Level 1 because they trade in highly-
liquid and transparent markets. Certain private placement fixed income securities have been categorized as Level 3 because they
are priced using certain significant unobservable inputs and are typically illiquid. The remaining fixed income securities, including
certain other fixed income investments, are based on evaluated prices that reflect observable market information, such as actual
trade information of similar securities, adjusted for observable differences and are categorized as Level 2
Other fixed income investments primarily consist of fixed income commingled funds, mutual funds, and short-term investment funds,
which are maintained by investment companies and hold certain investments in accordance with a stated set of fund objectives,
which are consistent with Exelon’s overall investment strategy. The values of some of these funds are publicly quoted. For mutual
funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level
1. For fixed income commingled funds and mutual funds which are not publicly quoted, the fund administrators value the funds using
the NAV per fund share, derived from the quoted prices in active markets of the underlying securities. These funds have been
categorized as Level 2. Certain fixed income commingled funds are valued using the NAV per fund share, which is based on the
valuation of the underlying investments and include significant unobservable inputs. These funds have been categorized as Level 3.
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