ComEd 2015 Annual Report Download - page 324

Table of Contents
Combined Notes to Consolidated Financial Statements—(Continued)
(Dollars in millions, except per share data unless otherwise noted)
derived, including the nature and observability of the inputs used in deriving such prices. Additionally, Generation selectively corroborates the fair
values of securities by comparison to other market-based price sources. U.S. Treasury securities are categorized as Level 1 because they trade in
a highly liquid and transparent market. The fair values of fixed income securities, excluding U.S. Treasury securities, are based on evaluated
prices that reflect observable market information, such as actual trade information or similar securities, adjusted for observable differences and are
categorized in Level 2. The fair values of private placement fixed income securities, which are included in Corporate debt, are determined using a
third party valuation that contains significant unobservable inputs and are categorized in Level 3.
Equity, balanced and fixed income commingled funds and mutual funds are maintained by investment companies and hold certain
investments in accordance with a stated set of fund objectives such as holding short term fixed income securities or tracking the performance of
certain equity indices by purchasing equity securities to replicate the capitalization and characteristics of the indices. 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 commingled funds and mutual funds, which are not publicly quoted, the fund administrators value the funds using
NAV as a practical expedient for fair value, which is primarily derived from the quoted prices in active markets on the underlying securities. These
investments typically can be redeemed monthly with 30 or less days of notice and without further restrictions, and, as a result are categorized as
Level 2.
Derivative instruments consisting primarily of interest rate swaps to manage risk are recorded at fair value. Derivative instruments are valued
based on external price data of comparable securities and have been categorized as Level 2.
Middle market lending are investments in loans or managed funds which lend to private companies. Generation elected the fair value option
for its investments in certain limited partnerships that invest in middle market lending managed funds. The fair value of these loans is determined
using a combination of valuation models including cost models, market models, and income models. Investments in middle market lending are
categorized as Level 3 because the fair value of these securities is based largely on inputs that are unobservable and utilize complex valuation
models. Investments in middle market lending typically cannot be redeemed until maturity of the term loan.
Private equity and real estate investments include those in limited partnerships that invest in operating companies and real estate holding
companies that are not publicly traded on a stock exchange, such as,leveraged buyouts, growth capital, venture capital, distressed investments,
investments in natural resources, and direct investments in pools of real estate properties. The fair value of private equity and real estate
investments is determined using NAV or its equivalent as a practical expedient. These investments typically cannot be redeemed and are
generally liquidated over a period of 8 to 10 years from the initial investment date. Private equity and real estate valuations are reported by the
fund manager and are based on the valuation of the underlying investments, which include inputs such as cost, operating results, discounted
future cash flows, market based comparable data, and independent appraisals from sources with professional qualifications. Since these valuation
inputs are not highly observable, private equity and real estate investments have been categorized as Level 3.
As of December 31, 2015, Generation has outstanding commitments to invest in middle market lending, corporate debt securities, private
equity investments, and real estate investments of approximately $266 million. These commitments will be funded by Generation’s existing
nuclear decommissioning trust funds.
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Source: BALTIMORE GAS & ELECTRIC CO, 10-K, February 10, 2016 Powered by Morningstar® Document Research℠
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