Exelon 2015 Annual Report Download - page 328

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
(c) The fair values do not include cash collateral posted on level three positions of $201 million as of December 31, 2015.
(d) Unlike the previous year, the New England region was not a significant driver for the upper end of the ranges for power and gas as of December 31, 2015.
Type of trade
Fair Value at
December 31, 2014
Valuation
Technique
Unobservable
Input Range
Mark-to-market derivatives—Economic hedges (Generation)
$ 893
Discounted
Cash Flow
Forward power
price $15 - $120
Forward gas
price $1.52 - $14.02
Option Model
Volatility
percentage 8% - 257%
Mark-to-market derivatives— Proprietary trading (Generation) $ (15) Discounted
Cash Flow
Forward power
price $15 - $117
Mark-to-market derivatives (ComEd) $ (207) Discounted
Cash Flow
Forward heat
rate 8x - 9x
Marketability
reserve 3.5% - 8%
Renewable
factor 86% - 126%
(a) The valuation techniques, unobservable inputs and ranges are the same for the asset and liability positions.
(b) 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.
(c) The fair values do not include cash collateral posted on level three positions of $172 million as of December 31, 2014
(d) The upper ends of the ranges are driven by the winter power and gas prices in the New England region. Without the New England region, the upper ends of the ranges for power
and gas would be approximately $97 and $8.14, respectively and would be approximately $76 for power proprietary trading.
The inputs listed above 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.
 For
middle market lending, certain corporate debt securities, real estate and private equity investments the fair value is determined using a
combination of valuation models including cost models, market models and income models. The valuation estimates are based on valuations of
comparable companies, discounting the forecasted cash flows of the portfolio company, estimating the liquidation or collateral value of the portfolio
company or its assets, considering offers from third parties to buy the portfolio company, its historical and projected
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(a)(c)
(d)
(d)
(a)(c)
(d)
(b)
Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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