ComEd 2006 Annual Report Download - page 232

Exelon Corporation and Subsidiary Companies
Exelon Generation Company, LLC and Subsidiary Companies
Commonwealth Edison Company and Subsidiary Companies
PECO Energy Company and Subsidiary Companies
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
9. Fair Value of Financial Assets and Liabilities (Exelon, Generation, ComEd and PECO)
Derivative Financial Assets and Liabilities
Interest-Rate Swaps (Exelon, Generation, ComEd and PECO)
The fair values of the Registrants’ interest-rate swaps are determined using quoted exchange
prices, external dealer prices and available market pricing curves. At December 31, 2005, Exelon had
$240 million of notional amounts of interest-rate swaps outstanding, which were held by ComEd and
were settled on January 17, 2006 for a cash payment of approximately $1 million. At December 31,
2006, the Registrants did not have any cash-flow hedges outstanding.
Fair-Value Hedges. The Registrants may utilize fixed-to-floating interest-rate swaps from time to
time as a means to achieve their targeted level of variable-rate debt as a percent of total debt. At
December 31, 2006 and 2005, Exelon had $50 million and $240 million, respectively, of notional
amounts of fair-value hedges outstanding. At December 31, 2005, ComEd had $240 million of notional
amounts of fair-value hedges outstanding. Fixed-to-floating interest-rate swaps are designated as fair-
value hedges, as defined in SFAS No. 133, and, as such, changes in the fair value of the swaps are
recorded in earnings; however, as long as the hedge remains effective and the underlying liability
remains outstanding, changes in the fair value of the swaps are offset by changes in the fair value of
the hedged liabilities. Any change in the fair value of the hedge as a result of ineffectiveness is
recorded immediately in earnings. During 2006 and 2005, no amounts relating to fair-value hedges
were recorded in earnings as a result of ineffectiveness.
At December 31, 2006, the fair value associated with interest-rate swaps were as follows:
Notional
Amount Exelon Pays Counterparty Pays
Fair
Value
12/31/06
Fair
Value
12/31/05
Fair-Value Hedges
Exelon ..................... $50 3Month LIBOR-.1419% 4.90% $(0.4) $—
Cash-Flow Hedges. The Registrants may utilize interest-rate derivatives to lock in interest-rate
levels in anticipation of future financings. Forward-starting interest-rate swaps are designated as cash-
flow hedges, as defined in SFAS No. 133 and, as such, changes in the fair value of the swaps are
recorded in accumulated other comprehensive income (OCI). Any change in the fair value of the hedge
as a result of ineffectiveness is recorded immediately in earnings. At December 31, 2006 and 2005, the
Registrants did not have any notional amounts of cash-flow hedges outstanding. During 2005, Exelon
settled interest-rate swaps in the aggregate notional amount of $1.8 billion, of which $325 million was
the result of a ComEd forecasted transaction no longer being probable, and recorded pre-tax losses of
$54 million, of which $15 million was included in other, net within Exelon’s and ComEd’s Consolidated
Statements of Operations. Exelon is recording the remaining $39 million as additional interest expense
over the remaining life of the related debt.
227