Edgar Filing: EXELON CORP

FORM 10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File Number	Name of Registrant; State or Other Jurisdiction of Incorporation; Address of Principal Executive Offices; and Telephone Number	IRS Employer Identification Number

1-16169	EXELON CORPORATION		23-2990190
	(a Pennsylvania corporation) 10 South Dearborn Street P.O. Box 805379 Chicago, Illinois 60680-5379 (800) 483-3220

333-85496	EXELON GENERATION COMPANY, LLC		23-3064219
	(a Pennsylvania limited liability company) 300 Exelon Way Kennett Square, Pennsylvania 19348-2473 (610) 765-5959

1-1839	COMMONWEALTH EDISON COMPANY		36-0938600
	(an Illinois corporation) 440 South LaSalle Street Chicago, Illinois 60605-1028 (312) 394-4321

000-16844	PECO ENERGY COMPANY		23-0970240
	(a Pennsylvania corporation) P.O. Box 8699 2301 Market Street Philadelphia, Pennsylvania 19101-8699 (215) 841-4000

1-1910	BALTIMORE GAS AND ELECTRIC COMPANY		52-0280210
	(a Maryland corporation) 2 Center Plaza 110 West Fayette Street Baltimore, Maryland 21201-3708 (410) 234-5000

001-31403	PEPCO HOLDINGS LLC		52-2297449
	(a Delaware limited liability company) 701 Ninth Street, N.W. Washington, District of Columbia 20068 (202) 872-2000

001-01072	POTOMAC ELECTRIC POWER COMPANY		53-0127880
	(a District of Columbia and Virginia corporation) 701 Ninth Street, N.W. Washington, District of Columbia 20068 (202) 872-2000

001-01405	DELMARVA POWER & LIGHT COMPANY		51-0084283
	(a Delaware and Virginia corporation) 500 North Wakefield Drive Newark, Delaware 19702 (202) 872-2000

001-03559	ATLANTIC CITY ELECTRIC COMPANY		21-0398280
	(a New Jersey corporation) 500 North Wakefield Drive Newark, Delaware 19702 (202) 872-2000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller
Reporting
Company

Emerging
Growth
Company

Exelon Corporation

☒

Exelon Generation Company, LLC

☒

Commonwealth Edison Company

☒

PECO Energy Company

☒

Baltimore Gas and Electric Company

☒

Pepco Holdings LLC

☒

Potomac Electric Power Company

☒

Delmarva Power & Light Company

☒

Atlantic City Electric Company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The number of shares outstanding of each registrant’s common stock as of March 31, 2017 was:


Exelon Corporation Common Stock, without par value		926,096,660
Exelon Generation Company, LLC		not applicable
Commonwealth Edison Company Common Stock, $12.50 par value		127,017,158
PECO Energy Company Common Stock, without par value		170,478,507
Baltimore Gas and Electric Company Common Stock, without par value		1,000
Pepco Holdings LLC		not applicable
Potomac Electric Power Company Common Stock, $.01 par value		100
Delmarva Power & Light Company Common Stock, $2.25 par value		1,000
Atlantic City Electric Company Common Stock, $3.00 par value		8,546,017

TABLE OF CONTENTS


		Page No.

GLOSSARY OF TERMS AND ABBREVIATIONS			4

FILING FORMAT			9

FORWARD-LOOKING STATEMENTS			9

WHERE TO FIND MORE INFORMATION			9

PART I.	FINANCIAL INFORMATION		10

ITEM 1.	FINANCIAL STATEMENTS		10

	Exelon Corporation

	Consolidated Statements of Operations and Comprehensive Income		11

	Consolidated Statements of Cash Flows		12

	Consolidated Balance Sheets		13

	Consolidated Statement of Changes in Shareholders’ Equity		15

	Exelon Generation Company, LLC

	Consolidated Statements of Operations and Comprehensive Income		16

	Consolidated Statements of Cash Flows		17

	Consolidated Balance Sheets		18

	Consolidated Statement of Changes in Equity		20

	Commonwealth Edison Company

	Consolidated Statements of Operations and Comprehensive Income		21

	Consolidated Statements of Cash Flows		22

	Consolidated Balance Sheets		23

	Consolidated Statement of Changes in Shareholders’ Equity		25

	PECO Energy Company

	Consolidated Statements of Operations and Comprehensive Income		26

	Consolidated Statements of Cash Flows		27

	Consolidated Balance Sheets		28

	Consolidated Statement of Changes in Shareholder’s Equity		30

	Baltimore Gas and Electric Company

	Consolidated Statements of Operations and Comprehensive Income		31

	Consolidated Statements of Cash Flows		32

	Consolidated Balance Sheets		33

	Consolidated Statement of Changes in Shareholders’ Equity		35

	Pepco Holdings LLC

	Consolidated Statements of Operations and Comprehensive Income		36

	Consolidated Statements of Cash Flows		37

	Consolidated Balance Sheets		38

	Consolidated Statement of Changes in Equity		40


	Page No.

Potomac Electric Power Company

Statements of Operations and Comprehensive Income		41

Statements of Cash Flows		42

Balance Sheets		43

Statement of Changes in Shareholder’s Equity		45

Delmarva Power & Light Company

Statements of Operations and Comprehensive Income		46

Statements of Cash Flows		47

Balance Sheets		48

Statement of Changes in Shareholder’s Equity		50

Atlantic City Electric Company

Consolidated Statements of Operations and Comprehensive Income		51

Consolidated Statements of Cash Flows		52

Consolidated Balance Sheets		53

Consolidated Statement of Changes in Shareholder’s Equity		55

Combined Notes to Consolidated Financial Statements		56

1. Significant Accounting Policies		56

2. New Accounting Standards		58

3. Variable Interest Entities		61

4. Mergers, Acquisitions and Dispositions		67

5. Regulatory Matters		75

6. Impairment of Long-Lived Assets		93

7. Early Nuclear Plant Retirements		94

8. Fair Value of Financial Assets and Liabilities		96

9. Derivative Financial Instruments		117

10. Debt and Credit Agreements		134

11. Income Taxes		137

12. Nuclear Decommissioning		141

13. Retirement Benefits		144

14. Severance		147

15. Changes in Accumulated Other Comprehensive Income		149

16. Earnings Per Share and Equity		152

17. Commitments and Contingencies		153

18. Supplemental Financial Information		166

19. Segment Information		171

20. Subsequent Events		176


		Page No.

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		177

	Exelon Corporation		177

	Executive Overview		177

	Financial Results of Operations		178

	Significant 2017 Transactions and Developments		183

	Exelon’s Strategy and Outlook for 2017 and Beyond		186

	Liquidity Considerations		187

	Other Key Business Drivers and Management Strategies		188

	Critical Accounting Policies and Estimates		194

	Results of Operations		195

	Exelon Generation Company, LLC		195

	Commonwealth Edison Company		202

	PECO Energy Company		207

	Baltimore Gas and Electric Company		213

	Pepco Holdings LLC		218

	Potomac Electric Power Company		219

	Delmarva Power & Light Company		225

	Atlantic City Electric Company		231

	Liquidity and Capital Resources		236

	Contractual Obligations and Off-Balance Sheet Arrangements		249

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		250

ITEM 4.	CONTROLS AND PROCEDURES		259

PART II.	OTHER INFORMATION		260

ITEM 1.	LEGAL PROCEEDINGS		260

ITEM 1A.	RISK FACTORS		260

ITEM 4.	MINE SAFETY DISCLOSURES		260

ITEM 5.	OTHER INFORMATION		260

ITEM 6.	EXHIBITS		260

SIGNATURES			262

	Exelon Corporation		262

	Exelon Generation Company, LLC		262

	Commonwealth Edison Company		262

	PECO Energy Company		263

	Baltimore Gas and Electric Company		263

	Pepco Holdings LLC		263

	Potomac Electric Power Company		264

	Delmarva Power & Light Company		264

	Atlantic City Electric Company		264

GLOSSARY OF TERMS AND ABBREVIATIONS


Exelon Corporation and Related Entities
Exelon		Exelon Corporation
Generation		Exelon Generation Company, LLC
ComEd		Commonwealth Edison Company
PECO		PECO Energy Company
BGE		Baltimore Gas and Electric Company
Pepco Holdings or PHI		Pepco Holdings LLC (formerly Pepco Holdings, Inc.)
Pepco		Potomac Electric Power Company
Pepco Energy Services or PES		Pepco Energy Services, Inc. and its subsidiaries
PCI		Potomac Capital Investment Corporation and its subsidiaries
DPL		Delmarva Power & Light Company
ACE		Atlantic City Electric Company
ACE Funding or ATF		Atlantic City Electric Transition Funding LLC
BSC		Exelon Business Services Company, LLC
PHISCO		PHI Service Company
Exelon Corporate		Exelon in its corporate capacity as a holding company
PHI Corporate		PHI in its corporate capacity as a holding company
Registrants		Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE, collectively
Utility Registrants		ComEd, PECO, BGE, Pepco, DPL and ACE, collectively
AmerGen		AmerGen Energy Company, LLC
Antelope Valley		Antelope Valley Solar Ranch One
BondCo		RSB BondCo LLC
CENG		Constellation Energy Nuclear Group, LLC
ConEdison Solutions		The competitive retail electricity and natural gas business of Consolidated Edison Solutions, Inc., a subsidiary of Consolidated Edison, Inc.
Constellation		Constellation Energy Group, Inc.
EGTP		ExGen Texas Power, LLC
EGR		ExGen Renewables I, LLC
Entergy		Entergy Nuclear FitzPatrick LLC
Exelon Transmission Company		Exelon Transmission Company, LLC
Exelon Wind		Exelon Wind, LLC and Exelon Generation Acquisition Company, LLC
FitzPatrick		James A. FitzPatrick nuclear generating station
Legacy PHI		PHI, Pepco, DPL and ACE, collectively
PEC L.P.		PECO Energy Capital, L.P.
PECO Trust III		PECO Capital Trust III
PECO Trust IV		PECO Energy Capital Trust IV
PETT		PECO Energy Transition Trust
RPG		Renewable Power Generation
SolGen		SolGen, LLC
UII		Unicom Investments, Inc.
Ventures		Exelon Ventures Company, LLC


Other Terms and Abbreviations
Note “—” of the Exelon 2016 Form 10-K		Reference to specific Combined Note to Consolidated Financial Statements within Exelon’s 2016 Annual Report on Form 10-K
Act 11		Pennsylvania Act 11 of 2012
Act 129		Pennsylvania Act 129 of 2008
AEC		Alternative Energy Credit that is issued for each megawatt hour of generation from a qualified alternative energy source

GLOSSARY OF TERMS AND ABBREVIATIONS


Other Terms and Abbreviations
AEPS		Pennsylvania Alternative Energy Portfolio Standards
AEPS Act		Pennsylvania Alternative Energy Portfolio Standards Act of 2004, as amended
AESO		Alberta Electric Systems Operator
AFUDC		Allowance for Funds Used During Construction
AMI		Advanced Metering Infrastructure
AOCI		Accumulated Other Comprehensive Income
ARC		Asset Retirement Cost
ARO		Asset Retirement Obligation
ASC		Accounting Standards Codification
BGS		Basic Generation Service
Block Contracts		Forward Purchase Energy Block Contracts
CAIR		Clean Air Interstate Rule
CAISO		California ISO
CAMR		Federal Clean Air Mercury Rule
CERCLA		Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended
CES		Clean Energy Standard
CFL		Compact Fluorescent Light
Clean Air Act		Clean Air Act of 1963, as amended
Clean Water Act		Federal Water Pollution Control Amendments of 1972, as amended
Competition Act		Pennsylvania Electricity Generation Customer Choice and Competition Act of 1996
Conectiv		Conectiv, LLC, a wholly owned subsidiary of PHI and the parent of DPL and ACE
Conectiv Energy		Conectiv Energy Holdings, Inc. and substantially all of its subsidiaries, which were sold to Calpine in July 2010
CPUC		California Public Utilities Commission
CSAPR		Cross-State Air Pollution Rule
D.C. Circuit Court		United States Court of Appeals for the District of Columbia Circuit
DCPSC		District of Columbia Public Service Commission
DC PLUG		District of Columbia Power Line Undergrounding
Default Electricity Supply		The supply of electricity by PHI’s electric utility subsidiaries at regulated rates to retail customers who do not elect to purchase electricity from a competitive supplier, and which, depending on the jurisdiction, is also known as Standard Offer Service or BGS
DOE		United States Department of Energy
DOJ		United States Department of Justice
DPSC		Delaware Public Service Commission
DRP		Direct Stock Purchase and Dividend Reinvestment Plan
DSP		Default Service Provider
DSP Program		Default Service Provider Program
EDCs		Electric distribution companies
EDF		Electricite de France SA and its subsidiaries
EE&C		Energy Efficiency and Conservation/Demand Response
EGS		Electric Generation Supplier
EIMA		Energy Infrastructure Modernization Act (Illinois Senate Bill 1652 and Illinois House Bill 3036)

GLOSSARY OF TERMS AND ABBREVIATIONS


Other Terms and Abbreviations
EmPower Maryland		A Maryland demand-side management program for Pepco and DPL
EPA		United States Environmental Protection Agency
EPSA		Electric Power Supply Association
ERCOT		Electric Reliability Council of Texas
ERISA		Employee Retirement Income Security Act of 1974, as amended
EROA		Expected Rate of Return on Assets
FASB		Financial Accounting Standards Board
FEJA		Illinois Public Act 99-0906 or Future Energy Jobs Act
FERC		Federal Energy Regulatory Commission
FRCC		Florida Reliability Coordinating Council
GAAP		Generally Accepted Accounting Principles in the United States
GCR		Gas Cost Rate
GHG		Greenhouse Gas
GSA		Generation Supply Adjustment
GWh		Gigawatt hour
Health Care Reform Acts		Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010
HSR Act		The Hart-Scott-Rodino Antitrust Improvements Act of 1976
IBEW		International Brotherhood of Electrical Workers
ICC		Illinois Commerce Commission
ICE		Intercontinental Exchange
Illinois Act		Illinois Electric Service Customer Choice and Rate Relief Law of 1997
Illinois EPA		Illinois Environmental Protection Agency
Illinois Settlement Legislation		Legislation enacted in 2007 affecting electric utilities in Illinois
Integrys		Integrys Energy Services, Inc.
IPA		Illinois Power Agency
IRC		Internal Revenue Code
IRS		Internal Revenue Service
ISO		Independent System Operator
ISO-NE		ISO New England Inc.
ISO-NY		ISO New York
kV		Kilovolt
kW		Kilowatt
kWh		Kilowatt-hour
LIBOR		London Interbank Offered Rate
LLRW		Low-Level Radioactive Waste
LT Plan		Long-term renewable resources procurement plan
LTIP		Long-Term Incentive Plan
MAPP		Mid-Atlantic Power Pathway
MATS		U.S. EPA Mercury and Air Toxics Rule
MBR		Market Based Rates Incentive
MDE		Maryland Department of the Environment
MDPSC		Maryland Public Service Commission
MGP		Manufactured Gas Plant
MISO		Midcontinent Independent System Operator, Inc.
mmcf		Million Cubic Feet
Moody’s		Moody’s Investor Service
MOPR		Minimum Offer Price Rule
MRV		Market-Related Value

GLOSSARY OF TERMS AND ABBREVIATIONS


Other Terms and Abbreviations
MW		Megawatt
MWh		Megawatt hour
NAAQS		National Ambient Air Quality Standards
n.m.		not meaningful
NAV		Net Asset Value
NDT		Nuclear Decommissioning Trust
NEIL		Nuclear Electric Insurance Limited
NERC		North American Electric Reliability Corporation
NGS		Natural Gas Supplier
NJBPU		New Jersey Board of Public Utilities
NJDEP		New Jersey Department of Environmental Protection
Non-Regulatory Agreements Units		Nuclear generating units or portions thereof whose decommissioning-related activities are not subject to contractual elimination under regulatory accounting
NOSA		Nuclear Operating Services Agreement
NPDES		National Pollutant Discharge Elimination System
NRC		Nuclear Regulatory Commission
NSPS		New Source Performance Standards
NUGs		Non-utility generators
NWPA		Nuclear Waste Policy Act of 1982
NYMEX		New York Mercantile Exchange
OCI		Other Comprehensive Income
OIESO		Ontario Independent Electricity System Operator
OPC		Office of People’s Counsel
OPEB		Other Postretirement Employee Benefits
PA DEP		Pennsylvania Department of Environmental Protection
PAPUC		Pennsylvania Public Utility Commission
PGC		Purchased Gas Cost Clause
PJM		PJM Interconnection, LLC
POLR		Provider of Last Resort
POR		Purchase of Receivables
PPA		Power Purchase Agreement
Price-Anderson Act		Price-Anderson Nuclear Industries Indemnity Act of 1957
Preferred Stock		Originally issued shares of non-voting, non-convertible and non-transferable Series A preferred stock, par value $0.01 per share
PRP		Potentially Responsible Parties
PSEG		Public Service Enterprise Group Incorporated
PURTA		Pennsylvania Public Realty Tax Act
PV		Photovoltaic
RCRA		Resource Conservation and Recovery Act of 1976, as amended
REC		Renewable Energy Credit which is issued for each megawatt hour of generation from a qualified renewable energy source
Regulatory Agreement Units		Nuclear generating units or portions thereof whose decommissioning-related activities are subject to contractual elimination under regulatory accounting
RES		Retail Electric Suppliers
RFP		Request for Proposal
Rider		Reconcilable Surcharge Recovery Mechanism
RGGI		Regional Greenhouse Gas Initiative

GLOSSARY OF TERMS AND ABBREVIATIONS


Other Terms and Abbreviations
RMC		Risk Management Committee
ROE		Return on equity
RPM		PJM Reliability Pricing Model
RPS		Renewable Energy Portfolio Standards
RSSA		Reliability Support Services Agreement
RTEP		Regional Transmission Expansion Plan
RTO		Regional Transmission Organization
S&P		Standard & Poor’s Ratings Services
SEC		United States Securities and Exchange Commission
Senate Bill 1		Maryland Senate Bill 1
SERC		SERC Reliability Corporation (formerly Southeast Electric Reliability Council)
SGIG		Smart Grid Investment Grant from DOE
SILO		Sale-In, Lease-Out
SMPIP		Smart Meter Procurement and Installation Plan
SNF		Spent Nuclear Fuel
SOS		Standard Offer Service
SPFPA		Security, Police and Fire Professionals of America
SPP		Southwest Power Pool
Transition Bond Charge		Revenue ACE receives, and pays to ACE Funding, to fund the principal and interest payments on Transition Bonds and related taxes, expenses and fees
Transition Bonds		Transition Bonds issued by ACE Funding
UGSOA		United Government Security Officers of America
Upstream		Natural gas exploration and production activities
VIE		Variable Interest Entity
WECC		Western Electric Coordinating Council
ZEC		Zero Emission Credit
ZES		Zero Emission Standard

FILING FORMAT

This combined Form 10-Q is being filed separately by Exelon Corporation, Exelon Generation Company, LLC, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Pepco Holdings LLC, Potomac Electric Power Company, Delmarva Power & Light Company, and Atlantic City Electric Company (Registrants). Information contained herein relating to any individual Registrant is filed by such Registrant on its own behalf. No Registrant makes any representation as to information relating to any other Registrant.

FORWARD-LOOKING STATEMENTS

This Report contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. The factors that could cause actual results to differ materially from the forward-looking statements made by Exelon Corporation, Exelon Generation Company, LLC, Commonwealth Edison Company, PECO Energy Company, Baltimore Gas and Electric Company, Pepco Holdings LLC (PHI), Potomac Electric Power Company, Delmarva Power & Light Company, and Atlantic City Electric Company (Registrants) include those factors discussed herein, as well as the items discussed in (1) the Registrants’ combined 2016 Annual Report on Form 10-K in (a) ITEM 1A. Risk Factors, (b) ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and (c) ITEM 8. Financial Statements and Supplementary Data: Note 24, Commitments and Contingencies; and (2) other factors discussed in filings with the SEC by the Registrants. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this Report. None of the Registrants undertakes any obligation to publicly release any revision to its forward-looking statements to reflect events or circumstances after the date of this Report.

WHERE TO FIND MORE INFORMATION

The public may read and copy any reports or other information that the Registrants file with the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. These documents are also available to the public from commercial document retrieval services, the website maintained by the SEC at www.sec.gov and the Registrants’ websites at www.exeloncorp.com. Information contained on the Registrants’ websites shall not be deemed incorporated into, or to be a part of, this Report.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In millions, except per share data)	2017			2016
Operating revenues
Competitive businesses revenues	$	4,560		$	4,473
Rate-regulated utility revenues		4,197			3,100

Total operating revenues		8,757			7,573
Operating expenses
Competitive businesses purchased power and fuel		2,795			2,440
Rate-regulated utility purchased power and fuel		1,104			814
Operating and maintenance		2,460			2,835
Depreciation and amortization		896			685
Taxes other than income		436			325

Total operating expenses		7,691			7,099

Gain on sales of assets		4			9
Bargain purchase gain		226			—

Operating income		1,296			483

Other income and (deductions)
Interest expense, net		(363	)		(277	)
Interest expense to affiliates		(10	)		(10	)
Other, net		283			114

Total other income and (deductions)		(90	)		(173	)

Income before income taxes		1,206			310
Income taxes		215			184
Equity in losses of unconsolidated affiliates		(10	)		(3	)

Net income		981			123

Net loss attributable to noncontrolling interests and preference stock dividends		(14	)		(50	)

Net income attributable to common shareholders	$	995		$	173

Comprehensive income, net of income taxes
Net income	$	981		$	123
Other comprehensive income (loss), net of income taxes
Pension and non-pension postretirement benefit plans:
Prior service benefit reclassified to periodic benefit cost		(13	)		(12	)
Actuarial loss reclassified to periodic benefit cost		49			46
Pension and non-pension postretirement benefit plan valuation adjustment		(59	)		(1	)
Unrealized gain (loss) on cash flow hedges		6			(7	)
Unrealized gain (loss) on equity investments		3			(3	)
Unrealized gain on foreign currency translation		1			6
Unrealized gain (loss) on marketable securities		1			(1	)

Other comprehensive (loss) income		(12	)		28

Comprehensive income		969			151

Comprehensive loss attributable to noncontrolling interests and preference stock dividends		(16	)		(50	)

Comprehensive income attributable to common shareholders	$	985		$	201

Average shares of common stock outstanding:
Basic		928			923
Diluted		930			925
Earnings per average common share:
Basic	$	1.07		$	0.19
Diluted	$	1.07		$	0.19

Dividends declared per common share	$	0.33		$	0.31

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Cash flows from operating activities
Net income	$	981		$	123
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion, including nuclear fuel and energy contract amortization		1,274			1,063
Impairment of long-lived assets		10			119
Gain on sales of assets		(4	)		(9	)
Bargain purchase gain		(226	)		—
Deferred income taxes and amortization of investment tax credits		189			127
Net fair value changes related to derivatives		47			(107	)
Net realized and unrealized gains on nuclear decommissioning trust fund investments		(175	)		(55	)
Other non-cash operating activities		118			804
Changes in assets and liabilities:
Accounts receivable		313			117
Inventories		109			142
Accounts payable and accrued expenses		(623	)		(571	)
Option premiums (paid) received, net		(6	)		17
Collateral (posted) received, net		(110	)		206
Income taxes		50			47
Pension and non-pension postretirement benefit contributions		(307	)		(239	)
Other assets and liabilities		(439	)		(311	)

Net cash flows provided by operating activities		1,201			1,473

Cash flows from investing activities
Capital expenditures		(2,114	)		(2,202	)
Proceeds from nuclear decommissioning trust fund sales		1,767			2,240
Investment in nuclear decommissioning trust funds		(1,833	)		(2,297	)
Acquisition of businesses, net		(212	)		(6,645	)
Proceeds from termination of direct financing lease investment		—			360
Change in restricted cash		(1	)		(2	)
Other investing activities		(18	)		(2	)

Net cash flows used in investing activities		(2,411	)		(8,548	)

Cash flows from financing activities
Changes in short-term borrowings		721			1,647
Proceeds from short-term borrowings with maturities greater than 90 days		560			123
Repayments on short-term borrowings with maturities greater than 90 days		(500	)		—
Issuance of long-term debt		763			151
Retirement of long-term debt		(65	)		(116	)
Dividends paid on common stock		(303	)		(287	)
Proceeds from employee stock plans		12			9
Other financing activities		(4	)		6

Net cash flows provided by financing activities		1,184			1,533

Decrease in cash and cash equivalents		(26	)		(5,542	)
Cash and cash equivalents at beginning of period		635			6,502

Cash and cash equivalents at end of period	$	609		$	960

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	609	$	635
Restricted cash and cash equivalents		254		253
Deposit with IRS		1,250		1,250
Accounts receivable, net
Customer		3,886		4,158
Other		1,133		1,201
Mark-to-market derivative assets		847		917
Unamortized energy contract assets		103		88
Inventories, net
Fossil fuel and emission allowances		249		364
Materials and supplies		1,312		1,274
Regulatory assets		1,330		1,342
Other		1,221		930

Total current assets		12,194		12,412

Property, plant and equipment, net		72,630		71,555
Deferred debits and other assets
Regulatory assets		10,051		10,046
Nuclear decommissioning trust funds		12,362		11,061
Investments		648		629
Goodwill		6,677		6,677
Mark-to-market derivative assets		539		492
Unamortized energy contract assets		432		447
Pledged assets for Zion Station decommissioning		95		113
Other		1,440		1,472

Total deferred debits and other assets		32,244		30,937

Total assets^(a)	$	117,068	$	114,904

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017			December 31, 2016
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	2,048		$	1,267
Long-term debt due within one year		3,645			2,430
Accounts payable		3,011			3,441
Accrued expenses		3,007			3,460
Payables to affiliates		8			8
Regulatory liabilities		637			602
Mark-to-market derivative liabilities		228			282
Unamortized energy contract liabilities		388			407
Renewable energy credit obligation		400			428
PHI merger related obligation		123			151
Other		942			981

Total current liabilities		14,437			13,457

Long-term debt		31,044			31,575
Long-term debt to financing trusts		641			641
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		18,518			18,138
Asset retirement obligations		9,634			9,111
Pension obligations		4,082			4,248
Non-pension postretirement benefit obligations		1,928			1,848
Spent nuclear fuel obligation		1,136			1,024
Regulatory liabilities		4,302			4,187
Mark-to-market derivative liabilities		420			392
Unamortized energy contract liabilities		779			830
Payable for Zion Station decommissioning		3			14
Other		1,853			1,827

Total deferred credits and other liabilities		42,655			41,619

Total liabilities^(a)		88,777			87,292

Commitments and contingencies
Shareholders’ equity
Common stock (No par value, 2000 shares authorized, 926 shares and 924 shares outstanding at March 31, 2017 and December 31, 2016, respectively)		18,807			18,794
Treasury stock, at cost (35 shares at March 31, 2017 and December 31, 2016, respectively)		(2,327	)		(2,327	)
Retained earnings		12,720			12,030
Accumulated other comprehensive loss, net		(2,670	)		(2,660	)

Total shareholders’ equity		26,530			25,837
Noncontrolling interests		1,761			1,775

Total equity		28,291			27,612

Total liabilities and shareholders’ equity	$	117,068		$	114,904

(a)

Exelon’s consolidated assets include $9,148 million and $8,893 million at March 31, 2017 and December 31, 2016, respectively, of certain VIEs that can only be used to settle the liabilities of the VIE. Exelon’s consolidated liabilities include $3,345 million and $3,356 million at March 31, 2017 and December 31, 2016, respectively, of certain VIEs for which the VIE creditors do not have recourse to Exelon. See Note 3 — Variable Interest Entities.

See the Combined Notes to Consolidated Financial Statements

EXELON CORPORATION AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(In millions, shares in thousands)	Issued Shares		Common Stock		Treasury Stock			Retained Earnings			Accumulated Other Comprehensive Loss, net			Noncontrolling Interests			Total Shareholders’ Equity
Balance, December 31, 2016		958,778	$	18,794	$	(2,327	)	$	12,030		$	(2,660	)	$	1,775		$	27,612
Net income (loss)		—		—		—			995			—			(14	)		981
Long-term incentive plan activity		1,739		1		—			—			—			—			1
Employee stock purchase plan issuances		323		12		—			—			—			—			12
Changes in equity of noncontrolling interests		—		—		—			—			—			2			2
Common stock dividends		—		—		—			(305	)		—			—			(305	)
Other comprehensive loss, net of income taxes		—		—		—			—			(10	)		(2	)		(12	)

Balance at March 31, 2017		960,840	$	18,807	$	(2,327	)	$	12,720		$	(2,670	)	$	1,761		$	28,291

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Operating revenues
Operating revenues	$	4,558		$	4,471
Operating revenues from affiliates		330			268

Total operating revenues		4,888			4,739

Operating expenses
Purchased power and fuel		2,796			2,440
Purchased power and fuel from affiliates		2			2
Operating and maintenance		1,309			1,296
Operating and maintenance from affiliates		179			171
Depreciation and amortization		302			289
Taxes other than income		143			126

Total operating expenses		4,731			4,324

Gain on sales of assets		4			—
Bargain purchase gain		226			—

Operating income		387			415

Other income and (deductions)
Interest expense, net		(90	)		(87	)
Interest expense to affiliates		(10	)		(10	)
Other, net		259			93

Total other income and (deductions)		159			(4	)

Income before income taxes		546			411
Income taxes		127			151
Equity in losses of unconsolidated affiliates		(10	)		(3	)

Net income		409			257
Net loss attributable to noncontrolling interests		(14	)		(53	)

Net income attributable to membership interest	$	423		$	310

Comprehensive income, net of income taxes
Net income	$	409		$	257
Other comprehensive income (loss), net of income taxes
Unrealized gain (loss) on cash flow hedges		6			(5	)
Unrealized gain (loss) on equity investments		4			(2	)
Unrealized gain on foreign currency translation		1			6

Other comprehensive income (loss)		11			(1	)

Comprehensive income		420			256

Comprehensive loss attributable to noncontrolling interests		(16	)		(53	)

Comprehensive income attributable to membership interest	$	436		$	309

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Cash flows from operating activities
Net income	$	409		$	257
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion, including nuclear fuel and energy contract amortization		678			667
Impairment of long-lived assets		10			119
Gain on sales of assets		(4	)		—
Bargain purchase gain		(226	)		—
Deferred income taxes and amortization of investment tax credits		112			68
Net fair value changes related to derivatives		51			(106	)
Net realized and unrealized gains on nuclear decommissioning trust fund investments		(175	)		(55	)
Other non-cash operating activities		(10	)		51
Changes in assets and liabilities:
Accounts receivable		195			173
Receivables from and payables to affiliates, net		23			(17	)
Inventories		81			93
Accounts payable and accrued expenses		62			(363	)
Option premiums (paid) received, net		(6	)		17
Collateral (posted) received, net		(102	)		198
Income taxes		(81	)		(60	)
Pension and non-pension postretirement benefit contributions		(110	)		(112	)
Other assets and liabilities		(167	)		(148	)

Net cash flows provided by operating activities		740			782

Cash flows from investing activities
Capital expenditures		(923	)		(1,125	)
Proceeds from nuclear decommissioning trust fund sales		1,767			2,240
Investment in nuclear decommissioning trust funds		(1,833	)		(2,297	)
Acquisition of businesses, net		(212	)		(1	)
Change in restricted cash		18			4
Other investing activities		(29	)		(25	)

Net cash flows used in investing activities		(1,212	)		(1,204	)

Cash flows from financing activities
Changes in short-term borrowings		(42	)		1,377
Proceeds from short-term borrowings with maturities greater than 90 days		60			123
Issuance of long-term debt		762			151
Retirement of long-term debt		(30	)		(94	)
Changes in Exelon intercompany money pool		(1	)		(1,183	)
Distribution to member		(164	)		(55	)
Contribution from member		—			44
Other financing activities		(3	)		5

Net cash flows provided by financing activities		582			368

Increase (Decrease) in cash and cash equivalents		110			(54	)
Cash and cash equivalents at beginning of period		290			431

Cash and cash equivalents at end of period	$	400		$	377

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	400	$	290
Restricted cash and cash equivalents		140		158
Accounts receivable, net
Customer		2,278		2,433
Other		545		558
Mark-to-market derivative assets		847		917
Receivables from affiliates		141		156
Unamortized energy contract assets		103		88
Inventories, net
Fossil fuel and emission allowances		222		292
Materials and supplies		957		935
Other		881		701

Total current assets		6,514		6,528

Property, plant and equipment, net		25,893		25,585
Deferred debits and other assets
Nuclear decommissioning trust funds		12,362		11,061
Investments		435		418
Goodwill		47		47
Mark-to-market derivative assets		527		476
Prepaid pension asset		1,646		1,595
Pledged assets for Zion Station decommissioning		95		113
Unamortized energy contract assets		432		447
Deferred income taxes		10		16
Other		648		688

Total deferred debits and other assets		16,202		14,861

Total assets^(a)	$	48,609	$	46,974

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017			December 31, 2016
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings	$	717		$	699
Long-term debt due within one year		1,156			1,117
Accounts payable		1,482			1,610
Accrued expenses		720			989
Payables to affiliates		145			137
Borrowings from Exelon intercompany money pool		54			55
Mark-to-market derivative liabilities		209			263
Unamortized energy contract liabilities		68			72
Renewable energy credit obligation		400			428
Other		286			313

Total current liabilities		5,237			5,683

Long-term debt		7,904			7,202
Long-term debt to affiliate		919			922
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		5,850			5,585
Asset retirement obligations		9,444			8,922
Non-pension postretirement benefit obligations		926			930
Spent nuclear fuel obligation		1,136			1,024
Payables to affiliates		2,776			2,608
Mark-to-market derivative liabilities		157			153
Unamortized energy contract liabilities		78			80
Payable for Zion Station decommissioning		3			14
Other		615			595

Total deferred credits and other liabilities		20,985			19,911

Total liabilities^(a)		35,045			33,718

Commitments and contingencies
Equity
Member’s equity
Membership interest		9,310			9,261
Undistributed earnings		2,534			2,275
Accumulated other comprehensive loss, net		(41	)		(54	)

Total member’s equity		11,803			11,482
Noncontrolling interests		1,761			1,774

Total equity		13,564			13,256

Total liabilities and equity	$	48,609		$	46,974

(a)

Generation’s consolidated assets include $9,059 million and $8,817 million at March 31, 2017 and December 31, 2016, respectively, of certain VIEs that can only be used to settle the liabilities of the VIE. Generation’s consolidated liabilities include $3,174 million and $3,170 million at March 31, 2017 and December 31, 2016, respectively, of certain VIEs for which the VIE creditors do not have recourse to Generation. See Note 3 — Variable Interest Entities.

See the Combined Notes to Consolidated Financial Statements

EXELON GENERATION COMPANY, LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)


	Member’s Equity
(In millions)	Membership Interest		Undistributed Earnings			Accumulated Other Comprehensive Loss, net			Noncontrolling Interests			Total Equity
Balance, December 31, 2016	$	9,261	$	2,275		$	(54	)	$	1,774		$	13,256
Net income (loss)		—		423			—			(14	)		409
Changes in equity of noncontrolling interests		—		—			—			3			3
Distribution of net retirement benefit obligation to member		49		—			—			—			49
Distribution to member		—		(164	)		—			—			(164	)
Other comprehensive income (loss), net of income taxes		—		—			13			(2	)		11

Balance, March 31, 2017	$	9,310	$	2,534		$	(41	)	$	1,761		$	13,564

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Operating revenues
Electric operating revenues	$	1,293		$	1,244
Operating revenues from affiliates		5			5

Total operating revenues		1,298			1,249

Operating expenses
Purchased power		329			343
Purchased power from affiliate		5			5
Operating and maintenance		307			305
Operating and maintenance from affiliate		63			63
Depreciation and amortization		208			189
Taxes other than income		72			75

Total operating expenses		984			980

Gain on sale of assets		—			5

Operating income		314			274

Other income and (deductions)
Interest expense, net		(82	)		(83	)
Interest expense to affiliates		(3	)		(3	)
Other, net		4			4

Total other income and (deductions)		(81	)		(82	)

Income before income taxes		233			192
Income taxes		92			77

Net income	$	141		$	115

Comprehensive income	$	141		$	115

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Cash flows from operating activities
Net income	$	141		$	115
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		208			189
Deferred income taxes and amortization of investment tax credits		137			70
Other non-cash operating activities		31			32
Changes in assets and liabilities:
Accounts receivable		92			69
Receivables from and payables to affiliates, net		(16	)		—
Inventories		4			7
Accounts payable and accrued expenses		(327	)		(207	)
Collateral (posted) received, net		(7	)		7
Income taxes		(34	)		20
Pension and non-pension postretirement benefit contributions		(35	)		(32	)
Other assets and liabilities		(49	)		14

Net cash flows provided by operating activities		145			284

Cash flows from investing activities
Capital expenditures		(535	)		(639	)
Change in restricted cash		(1	)		—
Other investing activities		7			13

Net cash flows used in investing activities		(529	)		(626	)

Cash flows from financing activities
Changes in short-term borrowings		365			349
Contributions from parent		100			39
Dividends paid on common stock		(105	)		(91	)
Other financing activities		(1	)		(1	)

Net cash flows provided by financing activities		359			296

Decrease in cash and cash equivalents		(25	)		(46	)
Cash and cash equivalents at beginning of period		56			67

Cash and cash equivalents at end of period	$	31		$	21

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	31	$	56
Restricted cash		3		2
Accounts receivable, net
Customer		461		528
Other		199		218
Receivables from affiliates		360		356
Inventories, net		154		159
Regulatory assets		183		190
Other		55		45

Total current assets		1,446		1,554

Property, plant and equipment, net		19,692		19,335
Deferred debits and other assets
Regulatory assets		1,032		977
Investments		6		6
Goodwill		2,625		2,625
Receivables from affiliates		2,294		2,170
Prepaid pension asset		1,330		1,343
Other		331		325

Total deferred debits and other assets		7,618		7,446

Total assets	$	28,756	$	28,335

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017			December 31, 2016
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	365		$	—
Long-term debt due within one year		1,125			425
Accounts payable		518			645
Accrued expenses		1,061			1,250
Payables to affiliates		52			65
Customer deposits		117			121
Regulatory liabilities		311			329
Mark-to-market derivative liability		19			19
Other		77			84

Total current liabilities		3,645			2,938

Long-term debt		5,910			6,608
Long-term debt to financing trust		205			205
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		5,502			5,364
Asset retirement obligations		121			119
Non-pension postretirement benefits obligations		234			239
Regulatory liabilities		3,492			3,369
Mark-to-market derivative liability		263			239
Other		523			529

Total deferred credits and other liabilities		10,135			9,859

Total liabilities		19,895			19,610

Commitments and contingencies
Shareholders’ equity
Common stock		1,588			1,588
Other paid-in capital		6,250			6,150
Retained deficit unappropriated		(1,639	)		(1,639	)
Retained earnings appropriated		2,662			2,626

Total shareholders’ equity		8,861			8,725

Total liabilities and shareholders’ equity	$	28,756		$	28,335

See the Combined Notes to Consolidated Financial Statements

COMMONWEALTH EDISON COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(In millions)	Common Stock		Other Paid-In Capital		Retained Deficit Unappropriated			Retained Earnings Appropriated			Total Shareholders’ Equity
Balance, December 31, 2016	$	1,588	$	6,150	$	(1,639	)	$	2,626		$	8,725
Net income		—		—		141			—			141
Appropriation of retained earnings for future dividends		—		—		(141	)		141			—
Common stock dividends		—		—		—			(105	)		(105	)
Contribution from parent		—		100		—			—			100

Balance, March 31, 2017	$	1,588	$	6,250	$	(1,639	)	$	2,662		$	8,861

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Operating revenues
Electric operating revenues	$	589		$	643
Natural gas operating revenues		206			197
Operating revenues from affiliates		1			1

Total operating revenues		796			841

Operating expenses
Purchased power		156			166
Purchased fuel		86			77
Purchased power from affiliate		45			78
Operating and maintenance		174			177
Operating and maintenance from affiliates		34			38
Depreciation and amortization		71			67
Taxes other than income		38			42

Total operating expenses		604			645

Operating income		192			196

Other income and (deductions)
Interest expense, net		(28	)		(28	)
Interest expense to affiliates		(3	)		(3	)
Other, net		2			2

Total other income and (deductions)		(29	)		(29	)

Income before income taxes		163			167
Income taxes		36			43

Net income	$	127		$	124

Comprehensive income	$	127		$	124

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Cash flows from operating activities
Net income	$	127		$	124
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		71			67
Deferred income taxes and amortization of investment tax credits		24			23
Other non-cash operating activities		23			24
Changes in assets and liabilities:
Accounts receivable		(25	)		(51	)
Receivables from and payables to affiliates, net		(10	)		4
Inventories		19			24
Accounts payable and accrued expenses		(82	)		18
Income taxes		25			29
Pension and non-pension postretirement benefit contributions		(23	)		(29	)
Other assets and liabilities		(85	)		(95	)

Net cash flows provided by operating activities		64			138

Cash flows from investing activities
Capital expenditures		(159	)		(195	)
Changes in Exelon intercompany money pool		131			(160	)
Other investing activities		1			4

Net cash flows used in investing activities		(27	)		(351	)

Cash flows from financing activities
Dividends paid on common stock		(72	)		(69	)

Net cash flows used in financing activities		(72	)		(69	)

Decrease in cash and cash equivalents		(35	)		(282	)
Cash and cash equivalents at beginning of period		63			295

Cash and cash equivalents at end of period	$	28		$	13

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	28	$	63
Restricted cash and cash equivalents		4		4
Accounts receivable, net
Customer		314		306
Other		122		131
Receivables from affiliates		6		4
Receivable from Exelon intercompany pool		—		131
Inventories, net
Fossil fuel		14		35
Materials and supplies		29		27
Prepaid utility taxes		100		9
Regulatory assets		40		29
Other		21		18

Total current assets		678		757

Property, plant and equipment, net		7,659		7,565
Deferred debits and other assets
Regulatory assets		1,708		1,681
Investments		25		25
Receivable from affiliates		482		438
Prepaid pension asset		361		345
Other		19		20

Total deferred debits and other assets		2,595		2,509

Total assets	$	10,932	$	10,831

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Long-term debt due within one year	$	500	$	—
Accounts payable		288		342
Accrued expenses		92		104
Payables to affiliates		55		63
Customer deposits		62		61
Regulatory liabilities		161		127
Other		29		30

Total current liabilities		1,187		727

Long-term debt		2,080		2,580
Long-term debt to financing trusts		184		184
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		3,076		3,006
Asset retirement obligations		28		28
Non-pension postretirement benefits obligations		289		289
Regulatory liabilities		530		517
Other		88		85

Total deferred credits and other liabilities		4,011		3,925

Total liabilities		7,462		7,416

Commitments and contingencies
Shareholder’s equity
Common stock		2,473		2,473
Retained earnings		996		941
Accumulated other comprehensive income, net		1		1

Total shareholder’s equity		3,470		3,415

Total liabilities and shareholder’s equity	$	10,932	$	10,831

See the Combined Notes to Consolidated Financial Statements

PECO ENERGY COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY

(Unaudited)


(In millions)	Common Stock		Retained Earnings			Accumulated Other Comprehensive Income, net		Total Shareholder’s Equity
Balance, December 31, 2016	$	2,473	$	941		$	1	$	3,415
Net income		—		127			—		127
Common stock dividends		—		(72	)		—		(72	)

Balance, March 31, 2017	$	2,473	$	996		$	1	$	3,470

See the Combined Notes to Consolidated Financial Statements

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Operating revenues
Electric operating revenues	$	665		$	678
Natural gas operating revenues		281			246
Operating revenues from affiliates		5			5

Total operating revenues		951			929

Operating expenses
Purchased power		133			127
Purchased fuel		83			75
Purchased power from affiliate		134			171
Operating and maintenance		148			168
Operating and maintenance from affiliates		35			34
Depreciation and amortization		128			109
Taxes other than income		62			58

Total operating expenses		723			742

Operating income		228			187

Other income and (deductions)
Interest expense, net		(23	)		(20	)
Interest expense to affiliates		(4	)		(4	)
Other, net		4			4

Total other income and (deductions)		(23	)		(20	)

Income before income taxes		205			167
Income taxes		80			66

Net income		125			101
Preference stock dividends		—			3

Net income attributable to common shareholder	$	125		$	98


Comprehensive income	$	125		$	101
Comprehensive income attributable to preference stock dividends		—			3

Comprehensive income attributable to common shareholder	$	125		$	98

See the Combined Notes to Consolidated Financial Statements

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Cash flows from operating activities
Net income	$	125		$	101
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		128			109
Deferred income taxes and amortization of investment tax credits		72			26
Other non-cash operating activities		24			44
Changes in assets and liabilities:
Accounts receivable		(7	)		(44	)
Receivables from and payables to affiliates, net		(7	)		7
Inventories		17			17
Accounts payable and accrued expenses		(121	)		3
Income taxes		33			78
Pension and non-pension postretirement benefit contributions		(44	)		(38	)
Other assets and liabilities		(52	)		(30	)

Net cash flows provided by operating activities		168			273

Cash flows from investing activities
Capital expenditures		(166	)		(176	)
Change in restricted cash		(19	)		(20	)
Other investing activities		4			5

Net cash flows used in investing activities		(181	)		(191	)

Cash flows from financing activities
Changes in short-term borrowings		50			(60	)
Dividends paid on preference stock		—			(3	)
Dividends paid on common stock		(49	)		(45	)
Contributions from parent		—			21
Other financing activities		—			1

Net cash flows provided by (used in) financing activities		1			(86	)

Decrease in cash and cash equivalents		(12	)		(4	)
Cash and cash equivalents at beginning of period		23			9

Cash and cash equivalents at end of period	$	11		$	5

See the Combined Notes to Consolidated Financial Statements

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	11	$	23
Restricted cash and cash equivalents		43		24
Accounts receivable, net
Customer		393		395
Other		79		102
Receivables from affiliates		1		—
Inventories, net
Gas held in storage		10		30
Materials and supplies		41		38
Prepaid utility taxes		32		15
Regulatory assets		191		208
Other		11		7

Total current assets		812		842

Property, plant and equipment, net		7,166		7,040
Deferred debits and other assets
Regulatory assets		499		504
Investments		12		12
Prepaid pension asset		322		297
Other		10		9

Total deferred debits and other assets		843		822

Total assets^(a)	$	8,821	$	8,704

See the Combined Notes to Consolidated Financial Statements

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	95	$	45
Long-term debt due within one year		41		41
Accounts payable		186		205
Accrued expenses		120		175
Payables to affiliates		49		55
Customer deposits		112		110
Regulatory liabilities		67		50
Other		23		26

Total current liabilities		693		707

Long-term debt		2,282		2,281
Long-term debt to financing trust		252		252
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		2,295		2,219
Asset retirement obligations		20		21
Non-pension postretirement benefits obligations		202		205
Regulatory liabilities		94		110
Other		59		61

Total deferred credits and other liabilities		2,670		2,616

Total liabilities^(a)		5,897		5,856

Commitments and contingencies
Shareholders’ equity
Common stock		1,421		1,421
Retained earnings		1,503		1,427

Total shareholders’ equity		2,924		2,848

Total liabilities and shareholders’ equity	$	8,821	$	8,704

(a)

BGE’s consolidated assets include $45 million and $26 million at March 31, 2017 and December 31, 2016, respectively, of BGE’s consolidated VIE that can only be used to settle the liabilities of the VIE. BGE’s consolidated liabilities include $42 million and $42 million at March 31, 2017 and December 31, 2016, respectively, of BGE’s consolidated VIE for which the VIE creditors do not have recourse to BGE. See Note 3 — Variable Interest Entities.

See the Combined Notes to Consolidated Financial Statements

BALTIMORE GAS AND ELECTRIC COMPANY AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)


(In millions)	Common Stock		Retained Earnings			Total Shareholders’ Equity
Balance, December 31, 2016	$	1,421	$	1,427		$	2,848
Net income		—		125			125
Common stock dividends		—		(49	)		(49	)

Balance, March 31, 2017	$	1,421	$	1,503		$	2,924

See the Combined Notes to Consolidated Financial Statements

PEPCO HOLDINGS LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Successor						Predecessor
	Three Months Ended March 31,			March 24 to March 31,			January 1 to March 23,
(In millions)	2017			2016			2016
Operating revenues
Electric operating revenues	$	1,097		$	90		$	1,096
Natural gas operating revenues		66			3			57
Operating revenues from affiliates		12			12			—

Total operating revenues		1,175			105			1,153

Operating expenses
Purchased power		288			26			471
Purchased fuel		29			1			26
Purchased power and fuel from affiliates		144			11			—
Operating and maintenance		223			447			294
Operating and maintenance from affiliates		33			2			—
Depreciation and amortization		167			14			152
Taxes other than income		111			15			105

Total operating expenses		995			516			1,048

Operating income (loss)		180			(411	)		105

Other income and (deductions)
Interest expense, net		(62	)		(6	)		(65	)
Other, net		13			2			(4	)

Total other income and (deductions)		(49	)		(4	)		(69	)

Income (loss) before income taxes		131			(415	)		36
Income taxes		(9	)		(106	)		17

Net income (loss)	$	140		$	(309	)	$	19

Comprehensive income (loss), net of income taxes
Net income (loss)	$	140		$	(309	)	$	19
Other comprehensive income, net of income taxes
Pension and non-pension postretirement benefit plans:
Actuarial loss reclassified to periodic cost		—			—			1

Other comprehensive income		—			—			1

Comprehensive income (loss)	$	140		$	(309	)	$	20

See the Combined Notes to Consolidated Financial Statements

PEPCO HOLDINGS LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Successor						Predecessor
	Three Months Ended March 31,			March 24 to March 31,			January 1 to March 23,
(In millions)	2017			2016			2016
Cash flows from operating activities
Net income (loss)	$	140		$	(309	)	$	19
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Depreciation and amortization		167			14			152
Deferred income taxes and amortization of investment tax credits		13			(112	)		19
Net fair value changes related to derivatives		—			—			18
Other non-cash operating activities		(8	)		410			46
Changes in assets and liabilities:
Accounts receivable		68			16			(28	)
Receivables from and payables to affiliates, net		(8	)		—			—
Inventories		(11	)		—			(4	)
Accounts payable and accrued expenses		(81	)		(4	)		42
Income taxes		55			7			12
Pension and non-pension postretirement benefit contributions		(66	)		—			(4	)
Other assets and liabilities		(75	)		(25	)		(8	)

Net cash flows provided by (used in) operating activities		194			(3	)		264

Cash flows from investing activities
Capital expenditures		(320	)		(29	)		(273	)
Changes in restricted cash		2			(1	)		3
Purchases of investments		—			(2	)		(68	)
Other investing activities		(3	)		2			(5	)

Net cash flows used in investing activities		(321	)		(30	)		(343	)

Cash flows from financing activities
Changes in short-term borrowings		145			(20	)		(121	)
Proceeds from short-term borrowings with maturities greater than 90 days		—			—			500
Repayments of short-term borrowings with maturities greater than 90 days		(500	)		—			—
Issuance of long-term debt		1			—			—
Retirement of long-term debt		(24	)		—			(11	)
Common stock issued for the Direct Stock Purchase and Dividend Reinvestment Plan and employee-related compensation		—			—			2
Distribution to member		(69	)		(108	)		—
Contribution from member		500			—			—
Change in Exelon intercompany money pool		13			(7	)		—
Other financing activities		—			—			2

Net cash flows provided by (used in) financing activities		66			(135	)		372

(Decrease) Increase in cash and cash equivalents		(61	)		(168	)		293
Cash and cash equivalents at beginning of period		170			319			26

Cash and cash equivalents at end of period	$	109		$	151		$	319

See the Combined Notes to Consolidated Financial Statements

PEPCO HOLDINGS LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	Successor
(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	109	$	170
Restricted cash and cash equivalents		41		43
Accounts receivable, net
Customer		440		496
Other		210		283
Inventories, net
Gas held in storage		2		6
Materials and supplies		131		116
Regulatory assets		653		653
Other		64		71

Total current assets		1,650		1,838

Property, plant and equipment, net		11,801		11,598
Deferred debits and other assets
Regulatory assets		2,791		2,851
Investments		133		133
Goodwill		4,005		4,005
Long-term note receivable		4		4
Prepaid pension asset		549		509
Deferred income taxes		5		6
Other		80		81

Total deferred debits and other assets		7,567		7,589

Total assets^(a)	$	21,018	$	21,025

See the Combined Notes to Consolidated Financial Statements

PEPCO HOLDINGS LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	Successor
(In millions)	March 31, 2017		December 31, 2016
LIABILITIES AND MEMBER’S EQUITY
Current liabilities
Short-term borrowings	$	167	$	522
Long-term debt due within one year		241		253
Accounts payable		386		458
Accrued expenses		269		272
Payables to affiliates		84		94
Unamortized energy contract liabilities		320		335
Borrowings from Exelon intercompany money pool		13		—
Customer deposits		121		123
Merger related obligation		74		101
Regulatory liabilities		82		79
Other		43		47

Total current liabilities		1,800		2,284

Long-term debt		5,619		5,645
Deferred credits and other liabilities
Regulatory liabilities		154		158
Deferred income taxes and unamortized investment tax credits		3,789		3,775
Asset retirement obligations		14		14
Non-pension postretirement benefit obligations		129		134
Unamortized energy contract liabilities		701		750
Other		225		249

Total deferred credits and other liabilities		5,012		5,080

Total liabilities^(a)		12,431		13,009

Commitments and contingencies
Member’s equity
Membership interest		8,577		8,077
Undistributed earnings (losses)		10		(61	)

Total member’s equity		8,587		8,016

Total liabilities and member’s equity	$	21,018	$	21,025

(a)

PHI’s consolidated total assets include $44 million and $49 million at March 31, 2017 and December 31, 2016, respectively, of PHI’s consolidated VIE that can only be used to settle the liabilities of the VIE. PHI’s consolidated total liabilities include $129 million and $143 million at March 31, 2017 and December 31, 2016, respectively, of PHI’s consolidated VIE for which the VIE creditors do not have recourse to PHI. See Note 3—Variable Interest Entities.

See the Combined Notes to Consolidated Financial Statements

PEPCO HOLDINGS LLC AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(Unaudited)


(In millions)	Membership Interest		Undistributed Earnings (Losses)			Member’s Equity
Successor
Balance, December 31, 2016	$	8,077	$	(61	)	$	8,016
Net income		—		140			140
Distribution to member		—		(69	)		(69	)
Contribution from member		500		—			500

Balance, March 31, 2017	$	8,577	$	10		$	8,587

See the Combined Notes to Consolidated Financial Statements

POTOMAC ELECTRIC POWER COMPANY

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Operating revenues
Electric operating revenues	$	529		$	550
Operating revenues from affiliates		1			1

Total operating revenues		530			551

Operating expenses
Purchased power		83			191
Purchased power from affiliates		83			6
Operating and maintenance		101			288
Operating and maintenance from affiliates		12			2
Depreciation and amortization		82			75
Taxes other than income		90			94

Total operating expenses		451			656

Operating income (loss)		79			(105	)

Other income and (deductions)
Interest expense, net		(29	)		(37	)
Other, net		8			9

Total other income and (deductions)		(21	)		(28	)

Income (loss) before income taxes		58			(133	)
Income taxes		—			(25	)

Net income (loss)	$	58		$	(108	)

Comprehensive income (loss)	$	58		$	(108	)

See the Combined Notes to Consolidated Financial Statements

POTOMAC ELECTRIC POWER COMPANY

STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Cash flows from operating activities
Net income (loss)	$	58		$	(108	)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Depreciation and amortization		82			75
Deferred income taxes and amortization of investment tax credits		5			(31	)
Other non-cash operating activities		(15	)		153
Changes in assets and liabilities:
Accounts receivable		45			(24	)
Receivables from and payables to affiliates, net		(6	)		55
Inventories		(10	)		1
Accounts payable and accrued expenses		(49	)		(4	)
Income taxes		20			151
Pension and non-pension postretirement benefit contributions		(64	)		(1	)
Other assets and liabilities		(37	)		(9	)

Net cash flows provided by operating activities		29			258

Cash flows from investing activities
Capital expenditures		(139	)		(109	)
Purchases of investments		—			(31	)
Changes in restricted cash		—			2
Other investing activities		(5	)		2

Net cash flows used in investing activities		(144	)		(136	)

Cash flows from financing activities
Changes in short-term borrowings		144			(64	)
Issuance of long-term debt		1			—
Dividends paid on common stock		(30	)		(39	)
Other financing activities		(1	)		—

Net cash flows provided by (used in) financing activities		114			(103	)

(Decrease) Increase in cash and cash equivalents		(1	)		19
Cash and cash equivalents at beginning of period		9			5

Cash and cash equivalents at end of period	$	8		$	24

See the Combined Notes to Consolidated Financial Statements

POTOMAC ELECTRIC POWER COMPANY

BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	8	$	9
Restricted cash and cash equivalents		33		33
Accounts receivable, net
Customer		199		235
Other		127		150
Inventories, net		73		63
Regulatory assets		173		162
Other		21		32

Total current assets		634		684

Property, plant and equipment, net		5,659		5,571
Deferred debits and other assets
Regulatory assets		679		690
Investments		101		102
Prepaid pension asset		337		282
Other		7		6

Total deferred debits and other assets		1,124		1,080

Total assets	$	7,417	$	7,335

See the Combined Notes to Consolidated Financial Statements

POTOMAC ELECTRIC POWER COMPANY

BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Short-term borrowings	$	167	$	23
Long-term debt due within one year		17		16
Accounts payable		141		209
Accrued expenses		125		113
Payables to affiliates		68		74
Customer deposits		53		53
Regulatory liabilities		10		11
Merger related obligation		47		68
Other		23		29

Total current liabilities		651		596

Long-term debt		2,333		2,333
Deferred credits and other liabilities
Regulatory liabilities		19		20
Deferred income taxes and unamortized investment tax credits		1,913		1,910
Non-pension postretirement benefit obligations		41		43
Other		132		133

Total deferred credits and other liabilities		2,105		2,106

Total liabilities		5,089		5,035

Commitments and contingencies
Shareholder’s equity
Common stock		1,309		1,309
Retained earnings		1,019		991

Total shareholder’s equity		2,328		2,300

Total liabilities and shareholder’s equity	$	7,417	$	7,335

See the Combined Notes to Consolidated Financial Statements

POTOMAC ELECTRIC POWER COMPANY

STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY

(Unaudited)


(In millions)	Common Stock		Retained Earnings			Total Shareholder’s Equity
Balance, December 31, 2016	$	1,309	$	991		$	2,300
Net income		—		58			58
Common stock dividends		—		(30	)		(30	)

Balance, March 31, 2017	$	1,309	$	1,019		$	2,328

See the Combined Notes to Consolidated Financial Statements

DELMARVA POWER & LIGHT COMPANY

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Operating revenues
Electric operating revenues	$	294		$	301
Natural gas operating revenues		66			59
Operating revenues from affiliates		2			2

Total operating revenues		362			362

Operating expenses
Purchased power		77			147
Purchased fuel		29			25
Purchased power from affiliate		51			4
Operating and maintenance		66			204
Operating and maintenance from affiliates		7			—
Depreciation and amortization		39			39
Taxes other than income		15			15

Total operating expenses		284			434

Operating income (loss)		78			(72	)

Other income and (deductions)
Interest expense, net		(13	)		(12	)
Other, net		3			3

Total other income and (deductions)		(10	)		(9	)

Income (loss) before income taxes		68			(81	)
Income taxes		11			(9	)

Net income (loss)	$	57		$	(72	)

Comprehensive income (loss)	$	57		$	(72	)

See the Combined Notes to Consolidated Financial Statements

DELMARVA POWER & LIGHT COMPANY

STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Cash flows from operating activities
Net income (loss)	$	57		$	(72	)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Depreciation and amortization		39			39
Deferred income taxes and amortization of investment tax credits		13			(4	)
Other non-cash operating activities		(7	)		118
Changes in assets and liabilities:
Accounts receivable		6			4
Receivables from and payables to affiliates, net		1			20
Inventories		1			1
Accounts payable and accrued expenses		14			(3	)
Income taxes		21			52
Other assets and liabilities		(23	)		(8	)

Net cash flows provided by operating activities		122			147

Cash flows from investing activities
Capital expenditures		(82	)		(81	)
Other investing activities		2			—

Net cash flows used in investing activities		(80	)		(81	)

Cash flows from financing activities
Changes in short-term borrowings		—			(30	)
Retirement of long-term debt		(14	)		—
Dividends paid on common stock		(30	)		(38	)

Net cash flows used in financing activities		(44	)		(68	)

Decrease in cash and cash equivalents		(2	)		(2	)
Cash and cash equivalents at beginning of period		46			5

Cash and cash equivalents at end of period	$	44		$	3

See the Combined Notes to Consolidated Financial Statements

DELMARVA POWER & LIGHT COMPANY

BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	44	$	46
Accounts receivable, net
Customer		131		136
Other		39		63
Receivables from affiliates		—		3
Inventories, net
Gas held in storage		3		7
Materials and supplies		35		32
Regulatory assets		66		59
Other		21		24

Total current assets		339		370

Property, plant and equipment, net		3,334		3,273
Deferred debits and other assets
Regulatory assets		301		289
Investments		1		—
Goodwill		8		8
Prepaid pension asset		203		206
Other		5		7

Total deferred debits and other assets		518		510

Total assets	$	4,191	$	4,153

See the Combined Notes to Consolidated Financial Statements

DELMARVA POWER & LIGHT COMPANY

BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Long-term debt due within one year	$	109	$	119
Accounts payable		106		88
Accrued expenses		44		36
Payables to affiliates		36		38
Customer deposits		36		36
Regulatory liabilities		47		43
Merger related obligation		4		13
Other		6		8

Total current liabilities		388		381

Long-term debt		1,217		1,221
Deferred credits and other liabilities
Regulatory liabilities		95		97
Deferred income taxes and unamortized investment tax credits		1,072		1,056
Non-pension postretirement benefit obligations		17		19
Other		49		53

Total deferred credits and other liabilities		1,233		1,225

Total liabilities		2,838		2,827

Commitments and contingencies
Shareholder’s equity
Common stock		764		764
Retained earnings		589		562

Total shareholder’s equity		1,353		1,326

Total liabilities and shareholder’s equity	$	4,191	$	4,153

See the Combined Notes to Consolidated Financial Statements

DELMARVA POWER & LIGHT COMPANY

STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY

(Unaudited)


(In millions)	Common Stock		Retained Earnings			Total Shareholder’s Equity
Balance, December 31, 2016	$	764	$	562		$	1,326
Net income		—		57			57
Common stock dividends		—		(30	)		(30	)

Balance, March 31, 2017	$	764	$	589		$	1,353

See the Combined Notes to Consolidated Financial Statements

ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY COMPANY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Operating revenues
Electric operating revenues	$	274		$	290
Operating revenues from affiliates		1			1

Total operating revenues		275			291

Operating expenses
Purchased power		128			157
Purchased power from affiliates		9			1
Operating and maintenance		69			211
Operating and maintenance from affiliates		7			1
Depreciation and amortization		35			40
Taxes other than income		2			2

Total operating expenses		250			412

Operating income (loss)		25			(121	)

Other income and (deductions)
Interest expense, net		(15	)		(16	)
Other, net		2			4

Total other income and (deductions)		(13	)		(12	)

Income (loss) before income taxes		12			(133	)
Income taxes		(16	)		(33	)

Net income (loss)	$	28		$	(100	)

Comprehensive income (loss)	$	28		$	(100	)

See the Combined Notes to Consolidated Financial Statements

ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended March 31,
(In millions)	2017			2016
Cash flows from operating activities
Net income (loss)	$	28		$	(100	)
Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:
Depreciation and amortization		35			40
Deferred income taxes and amortization of investment tax credits		(7	)		(33	)
Other non-cash operating activities		2			132
Changes in assets and liabilities:
Accounts receivable		14			5
Receivables from and payables to affiliates, net		(5	)		20
Inventories		(1	)		(2	)
Accounts payable and accrued expenses		(5	)		19
Income taxes		3			168
Other assets and liabilities		(6	)		(3	)

Net cash flows provided by operating activities		58			246

Cash flows from investing activities
Capital expenditures		(88	)		(101	)
Changes in restricted cash		2			1
Other investing activities		1			—

Net cash flows used in investing activities		(85	)		(100	)

Cash flows from financing activities
Changes in short-term borrowings		—			(5	)
Retirement of long-term debt		(10	)		(11	)
Dividends paid on common stock		(10	)		(11	)

Net cash flows used in financing activities		(20	)		(27	)

(Decrease) Increase in cash and cash equivalents		(47	)		119
Cash and cash equivalents at beginning of period		101			3

Cash and cash equivalents at end of period	$	54		$	122

See the Combined Notes to Consolidated Financial Statements

ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	54	$	101
Restricted cash and cash equivalents		7		9
Accounts receivable, net
Customer		111		125
Other		41		44
Inventories, net		23		22
Regulatory assets		94		96
Other		3		2

Total current assets		333		399

Property, plant and equipment, net		2,583		2,521
Deferred debits and other assets
Regulatory assets		407		405
Long-term note receivable		4		4
Prepaid pension asset		82		84
Other		42		44

Total deferred debits and other assets		535		537

Total assets^(a)	$	3,451	$	3,457

See the Combined Notes to Consolidated Financial Statements

ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY COMPANY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(In millions)	March 31, 2017		December 31, 2016
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities
Long-term debt due within one year	$	33	$	35
Accounts payable		125		132
Accrued expenses		50		38
Payables to affiliates		24		29
Customer deposits		32		33
Regulatory liabilities		25		25
Merger related obligation		22		20
Other		9		8

Total current liabilities		320		320

Long-term debt		1,112		1,120
Deferred credits and other liabilities
Deferred income taxes and unamortized investment tax credits		911		917
Non-pension postretirement benefit obligations		33		34
Other		23		32

Total deferred credits and other liabilities		967		983

Total liabilities^(a)		2,399		2,423

Commitments and contingencies
Shareholder’s equity
Common stock		912		912
Retained earnings		140		122

Total shareholder’s equity		1,052		1,034

Total liabilities and shareholder’s equity	$	3,451	$	3,457

(a)

ACE’s consolidated total assets include $30 million and $32 million at March 31, 2017 and December 31, 2016, respectively, of ACE’s consolidated VIE that can only be used to settle the liabilities of the VIE. ACE’s consolidated total liabilities include $115 million and $126 million at March 31, 2017 and December 31, 2016, respectively, of ACE’s consolidated VIE for which the VIE creditors do not have recourse to ACE. See Note 3 — Variable Interest Entities.

See the Combined Notes to Consolidated Financial Statements

ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY COMPANY

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER’S EQUITY

(Unaudited)


(In millions)	Common Stock		Retained Earnings			Total Shareholder’s Equity
Balance, December 31, 2016	$	912	$	122		$	1,034
Net income		—		28			28
Common stock dividends		—		(10	)		(10	)

Balance, March 31, 2017	$	912	$	140		$	1,052

See the Combined Notes to Consolidated Financial Statements

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data, unless otherwise noted)

Index to Combined Notes To Consolidated Financial Statements

The notes to the consolidated financial statements that follow are a combined presentation. The following list indicates the Registrants to which the footnotes apply:

Applicable Notes


Registrant	1		2		3		4		5		6		7		8		9		10		11		12		13		14		15		16		17		18		19		20
Exelon Corporation		.		.		.		.		.		.		.		.		.		.		.		.		.		.		.		.		.		.		.		.
Exelon Generation Company, LLC		.		.		.		.		.		.		.		.		.		.		.		.		.		.		.				.		.		.		.
Commonwealth Edison Company		.		.		.				.						.		.		.		.				.		.						.		.		.
PECO Energy Company		.		.		.				.						.		.		.		.				.		.		.				.		.		.
Baltimore Gas and Electric Company		.		.		.				.						.		.		.		.				.		.						.		.		.
Pepco Holdings LLC		.		.		.		.		.						.		.		.		.				.		.		.				.		.		.
Potomac Electric Power Company		.		.		.				.						.		.		.		.				.		.						.		.		.
Delmarva Power & Light Company		.		.		.				.						.		.		.		.				.		.						.		.		.
Atlantic City Electric Company		.		.		.				.						.		.		.		.				.		.						.		.		.

1. Significant Accounting Policies (All Registrants)

Description of Business (All Registrants)

Exelon is a utility services holding company engaged through its principal subsidiaries in the energy generation and energy distribution and transmission businesses. Prior to March 23, 2016, Exelon’s principal, wholly owned subsidiaries included Generation, ComEd, PECO and BGE. On March 23, 2016, in conjunction with the Amended and Restated Agreement and Plan of Merger (the PHI Merger Agreement), Purple Acquisition Corp, a wholly owned subsidiary of Exelon, merged with and into PHI, with PHI continuing as the surviving entity as a wholly owned subsidiary of Exelon. PHI is a utility services holding company engaged through its principal wholly owned subsidiaries, Pepco, DPL and ACE, in the energy distribution and transmission businesses. Refer to Note 4 — Mergers, Acquisitions and Dispositions for further information regarding the merger transaction.

The energy generation business includes:

•

Generation: Generation, physical delivery and marketing of power across multiple geographical regions through its customer-facing business, Constellation, which sells electricity and natural gas to both wholesale and retail customers. Generation also sells renewable energy and other energy-related products and services. Generation has six reportable segments consisting of the Mid-Atlantic, Midwest, New England, New York, ERCOT and Other Power Regions.

The energy delivery businesses include:

•

ComEd: Purchase and regulated retail sale of electricity and the provision of electric distribution and transmission services in northern Illinois, including the City of Chicago.

•

PECO: Purchase and regulated retail sale of electricity and the provision of electric distribution and transmission services in southeastern Pennsylvania, including the City of Philadelphia, and the purchase and regulated retail sale of natural gas and the provision of natural gas distribution services in the Pennsylvania counties surrounding the City of Philadelphia.

•

BGE: Purchase and regulated retail sale of electricity and the provision of electric distribution and transmission services in central Maryland, including the City of Baltimore, and the purchase and regulated retail sale of natural gas and the provision of natural gas distribution services in central Maryland, including the City of Baltimore.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

•

Pepco: Purchase and regulated retail sale of electricity and the provision of electric distribution and transmission services in the District of Columbia and major portions of Prince George’s County and Montgomery County in Maryland.

•

DPL: Purchase and regulated retail sale of electricity and the provision of electric distribution and transmission services in portions of Maryland and Delaware, and the purchase and regulated retail sale of natural gas and the provision of natural gas distribution services in northern Delaware.

•

ACE: Purchase and regulated retail sale of electricity and the provision of electric distribution and transmission services in southern New Jersey.

Basis of Presentation (All Registrants)

As a result of the acquisition of PHI, Exelon’s financial reporting reflects PHI’s consolidated financial results subsequent to the March 23, 2016, acquisition date. Exelon has accounted for the merger transaction applying the acquisition method of accounting, which requires the assets acquired and liabilities assumed by Exelon to be reported in Exelon’s financial statements at fair value, with any excess of the purchase price over the fair value of net assets acquired reported as goodwill. Exelon has pushed-down the application of the acquisition method of accounting to the consolidated financial statements of PHI such that the assets and liabilities of PHI are similarly recorded at their respective fair values, and goodwill has been established as of the acquisition date. Accordingly, the consolidated financial statements of PHI for periods before and after the March 23, 2016, acquisition date reflect different bases of accounting, and the financial positions and the results of operations of the predecessor and successor periods are not comparable. The acquisition method of accounting has not been pushed down to PHI’s wholly-owned subsidiary utility registrants, Pepco, DPL and ACE.

For financial statement purposes, beginning on March 24, 2016, disclosures that had solely related to PHI, Pepco, DPL or ACE activities now also apply to Exelon, unless otherwise noted.

In the second quarter of 2016, an error was identified and corrected related to the PHI successor period Consolidated Statement of Cash Flows for the period March 24, 2016 to March 31, 2016. The $46 million classification error related to the presentation of changes in Receivables from and payables to affiliates, net within Cash flows from operating activities and Change in Exelon intercompany money pool within Cash flows from financing activities. As revised for the first quarter of 2017, the successor period statement of cash flows for the period March 24, 2016 to March 31, 2016 presents Cash flows used in operating activities of $3 million, a decrease of $46 million from the originally reported amount, and Cash flows used in financing activities of $135 million, a decrease of $46 million from the originally reported amount. Management has concluded that the error is not material to the previously issued financial statements.

Each of the Registrant’s Consolidated Financial Statements includes the accounts of its subsidiaries. All intercompany transactions have been eliminated.

The accompanying consolidated financial statements as of March 31, 2017 and 2016 and for the three months then ended are unaudited but, in the opinion of the management of each Registrant include all adjustments that are considered necessary for a fair statement of the Registrants’ respective financial statements in accordance with GAAP. All adjustments are of a normal, recurring nature, except as otherwise disclosed. The December 31, 2016 Consolidated Balance Sheets were derived from audited financial statements. Financial results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the fiscal year ending December 31, 2017. These Combined Notes to Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the SEC for Quarterly Reports on Form 10-Q. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

2. New Accounting Standards (All Registrants)

New Accounting Standards Issued and Not Yet Adopted: The following new authoritative accounting guidance issued by the FASB has not yet been adopted and reflected by the Registrants in their consolidated financial statements. Unless otherwise indicated, the Registrants are currently assessing the impacts such guidance may have (which could be material) on their Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income, Consolidated Statements of Cash Flows and disclosures, as well as the potential to early adopt where applicable. The Registrants have assessed other FASB issuances of new standards which are not listed below given the current expectation such standards will not significantly impact the Registrants’ financial reporting.

Revenue from Contracts with Customers (Issued May 2014 and subsequently amended to address implementation questions): Changes the criteria for recognizing revenue from a contract with a customer. The new revenue recognition guidance, including subsequent amendments, is effective for annual reporting periods beginning on or after December 15, 2017, with the option to early adopt the standard for annual periods beginning on or after December 15, 2016. The Registrants do not plan to early adopt the standard.

The new standard replaces existing guidance on revenue recognition, including most industry specific guidance, with a five step model for recognizing and measuring revenue from contracts with customers. The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability within industries, across industries, and across capital markets. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance also requires a number of disclosures regarding the nature, amount, timing, and uncertainty of revenue and the related cash flows. In addition, the Registrants will be required to capitalize costs to acquire new contracts, and amortize such costs in a manner consistent with the transfer to the customer of the associated goods or services. Exelon currently expenses those costs as incurred. The guidance can be applied retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with a cumulative effect adjustment to retained earnings for initial application of the guidance at the date of initial adoption (modified retrospective method).

The Registrants continue to assess the impacts this guidance may have on their Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income, Consolidated Statements of Cash Flows and disclosures. In performing this assessment, the Registrants have utilized a project implementation team comprised of both internal and external resources to conduct the following key activities:

•

Actively participate in the AICPA Power and Utilities Industry Task Force (Industry Task Force) process to identify implementation issues and support the development of related implementation guidance;

•

Evaluate existing contracts and revenue streams for potential changes in the amounts and timing of recognizing revenues under the new guidance;

•

Evaluate and select the transition method; and

•

Develop and implement the approach and process for complying with the new revenue recognition disclosure requirements.

While there continues to be some ongoing activities in all of these areas, the Registrants have substantially completed the evaluation of their collective contracts and revenue streams, as well as the evaluation of the

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

transition method. Based on the work completed thus far, the Registrants have reached the following preliminary conclusions:

•

The Registrants expect to apply the new guidance using the full retrospective method, however this conclusion could change based on the outcome of open implementation issues discussed below;

•

The Registrants currently anticipate that the implementation of the new guidance will not have a material impact on the amount and timing of revenue recognition; and

•

The new guidance will result in more detailed disclosures of revenue compared to current guidance.

Notwithstanding the preliminary conclusions noted above, certain implementation issues continue to be debated and worked through the Industry Task Force process that could result in amendments to the standard or implementation guidance that could have a material impact on the Registrants’ Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income, Consolidated Statements of Cash Flows and disclosures. The contributions in aid of construction (CIAC) implementation issue previously disclosed has been resolved, subject to the completion of the public comment period, with the conclusion that CIAC is outside of the scope of ASC 606 and, therefore, the accounting by the Utility Registrants for CIAC will not change as a result of ASC 606. The open implementation issues that could be most impactful to the Registrants include: (1) the ability of the Utility Registrants to recognize revenue for certain contracts where collectability is in question and (2) primarily at Generation, bundled sales contracts and contracts with pricing provisions that may require recognition of revenue at prices other than the contract price (e.g., straight line or estimated future market prices). As part of the overall implementation project, the Registrants have developed alternative adoption plans that would be implemented in the event the ultimate resolution of the open implementation issues result in significant changes from current revenue recognition practices.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Issued March 2017): The new standard will require significant changes to the accounting and presentation of pension and OPEB costs at the plan sponsor (i.e., Exelon) level. This guidance requires plan sponsors to separate net periodic pension cost and net periodic OPEB cost (together, net benefit cost) into the service cost component and other components; service cost will be presented as part of income from operations and the other components will be classified outside of income from operations on the Consolidated Statements of Operations and Comprehensive Income. Additionally, service cost is the only component eligible for capitalization (whereas under current GAAP, all components of net benefit cost are classified as compensation cost and are eligible for capitalization).

Exelon is currently evaluating the impact of this standard, including coordinating with its industry group and advisors. Generation, ComEd, PECO, BGE, BSC, PHI, Pepco, DPL, ACE and PHISCO participate in Exelon’s single employer plan and apply multi-employer accounting. Exelon is currently evaluating how the new standard will impact accounting and financial reporting for these registrants.

The standard will be effective January 1, 2018 and requires retrospective adoption for the presentation of the service cost component and the other components of net benefit cost and prospective adoption for the capitalization of only the service cost component of net benefit cost. Exelon will not early adopt this standard.

Leases (Issued February 2016): Increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The guidance requires lessees to recognize both the right-of-use assets and lease liabilities in the balance sheet for most leases, whereas today only financing type lease liabilities (capital leases) are recognized in the balance sheet. This is expected to require significant changes to systems, processes and procedures in order to

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

recognize and measure leases recorded on the balance sheet that are currently classified as operating leases. In addition, the definition of a lease has been revised in regards to when an arrangement conveys the right to control the use of the identified asset under the arrangement which may result in changes to the classification of an arrangement as a lease. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from current GAAP. The accounting applied by a lessor is largely unchanged from that applied under current GAAP. The standard is effective for fiscal years beginning after December 15, 2018. Early adoption is permitted, however the Registrants do not expect to early adopt the standard. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Refer to Note 24 — Commitments and Contingencies of the Combined Notes to the Consolidated Financial Statements in the Exelon 2016 Form 10-K for additional information regarding operating leases.

Impairment of Financial Instruments (Issued June 2016): Provides for a new Current Expected Credit Loss (CECL) impairment model for specified financial instruments including loans, trade receivables, debt securities classified as held-to-maturity investments and net investments in leases recognized by a lessor. Under the new guidance, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The standard does not make changes to the existing impairment models for non-financial assets such as fixed assets, intangibles and goodwill. The standard will be effective January 1, 2020 and, for most debt instruments, requires a modified retrospective transition approach through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption.

Goodwill Impairment (issued January 2017): Simplifies the accounting for goodwill impairment by removing Step 2 of the current test, which requires calculation of a hypothetical purchase price allocation. Under the revised guidance, goodwill impairment will be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill (currently Step 1 of the two step impairment test). Entities will continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary. Exelon, Generation, ComEd, PHI, and DPL have goodwill as of March 31, 2017. This updated guidance is not currently expected to impact the Registrants’ financial reporting. The standard is effective January 1, 2020, with early adoption permitted, and must be adopted on a prospective basis.

Clarifying the Definition of a Business (issued January 2017): Clarifies the definition of a business with the objective of addressing whether acquisitions should be accounted for as acquisitions of assets or as acquisitions of businesses. If substantially all the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set of transferred assets and activities is not a business. If the fair value of the assets acquired is not concentrated in a single identifiable asset or a group of similar identifiable assets, then an entity must evaluate whether an input and a substantive process exist, which together significantly contribute to the ability to produce outputs. The standard also revises the definition of outputs to focus on goods and services to customers. The standard could result in more acquisitions being accounted for as asset acquisitions. The standard will be effective January 1, 2018 and will be applied prospectively.

Intra-Entity Transfers of Assets Other Than Inventory (Issued October 2016): Requires entities to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs (compared to current GAAP which prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party). The standard is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. The guidance is required to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (Issued August 2016) and Restricted Cash (Issued November 2016): In 2016, the FASB issued two standards impacting the Statement of Cash Flows. The first adds or clarifies guidance on the classification of certain cash receipts and payments on the statement of cash flows as follows: debt prepayment or extinguishment costs, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies, distributions received from equity method investees, beneficial interest in securitization transactions, and the application of the predominance principle to separately identifiable cash flows. The second states that amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows (instead of being presented as cash flow activities). Exelon will adopt both standards on January 1, 2018 on a retrospective basis. Adoption of the second standard will result in a change in presentation of restricted cash on the face of the Statement of Cash Flows; otherwise the Registrants expect that adoption of the guidance will have insignificant impacts on the Registrants’ Consolidated Statements of Cash Flows and disclosures.

Recognition and Measurement of Financial Assets and Financial Liabilities (Issued January 2016): (i) Requires all investments in equity securities, including other ownership interests such as partnerships, unincorporated joint ventures and limited liability companies, to be carried at fair value through net income, (ii) requires an incremental recognition and disclosure requirement related to the presentation of fair value changes of financial liabilities for which the fair value option has been elected, (iii) amends several disclosure requirements, including the methods and significant assumptions used to estimate fair value or a description of the changes in the methods and assumptions used to estimate fair value, and (iv) requires disclosure of the fair value of financial assets and liabilities measured at amortized cost at the amount that would be received to sell the asset or paid to transfer the liability. The standard is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. The guidance is required to be applied retrospectively with a cumulative effect adjustment to retained earnings for initial application of the guidance at the date of adoption (modified retrospective method).

3. Variable Interest Entities (All Registrants)

A VIE is a legal entity that possesses any of the following characteristics: an insufficient amount of equity at risk to finance its activities, equity owners who do not have the power to direct the significant activities of the entity (or have voting rights that are disproportionate to their ownership interest), or equity owners who do not have the obligation to absorb expected losses or the right to receive the expected residual returns of the entity. Companies are required to consolidate a VIE if they are its primary beneficiary, which is the enterprise that has the power to direct the activities that most significantly affect the entity’s economic performance.

At March 31, 2017 and December 31, 2016, Exelon, Generation, BGE, PHI and ACE collectively consolidated nine VIEs or VIE groups, for which the applicable Registrant was the primary beneficiary (see Consolidated Variable Interest Entities below). As of March 31, 2017 and December 31, 2016, Exelon and Generation collectively had significant interests in seven and eight, respectively, other VIEs for which the applicable Registrant does not have the power to direct the entities’ activities and, accordingly, was not the primary beneficiary (see Unconsolidated Variable Interest Entities below).

Consolidated Variable Interest Entities

Exelon’s, Generation’s, BGE’s, PHI’s and ACE’s consolidated VIEs consist of:

•

A retail gas group formed by Generation to enter into a collateralized gas supply agreement with a third-party gas supplier,

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

•

a group of solar project limited liability companies formed by Generation to build, own and operate solar power facilities,

•

several wind project companies designed by Generation to develop, construct and operate wind generation facilities,

•

a group of companies formed by Generation to build, own and operate other generating facilities,

•

certain retail power and gas companies for which Generation is the sole supplier of energy,

•

CENG,

•

2015 ESA Investco, LLC, a company that holds an equity method investment in a distributed energy company,

•

BondCo, a special purpose bankruptcy remote limited liability company formed by BGE to acquire, hold, issue and service bonds secured by rate stabilization property, and

•

ATF, a special purpose entity formed by ACE for the purpose of securitizing authorized portions of ACE’s recoverable stranded costs through the issuance and sale of transition bonds.

As of March 31, 2017 and December 31, 2016, ComEd, PECO, Pepco and DPL did not have any material consolidated VIEs.

As of March 31, 2017 and December 31, 2016, Exelon, Generation, BGE, PHI and ACE provided the following support to their respective consolidated VIEs:

•

Generation provides operating and capital funding to the solar and wind entities for ongoing construction, operations and maintenance of the solar and wind power facilities and there is limited recourse to Generation related to certain solar and wind entities.

•

Generation provides approximately $27 million in credit support for the retail power and gas companies for which Generation is the sole supplier of energy.

•

Generation provides a $75 million parental guarantee to a third-party gas supplier and provides limited recourse to other third-party gas suppliers and customers in support of its retail gas group.

•

Generation provides operating and capital funding to the other generating facilities for ongoing construction, operations and maintenance and provides a parental guarantee of up to $275 million in support of the payment obligations related to the Engineering, Procurement and Construction contract in support of one of its other generating facilities.

•

Generation and Exelon, where indicated, provide the following support to CENG (see Note 5 — Investment in Constellation Energy Nuclear Group, LLC and Note 27 — Related Party Transactions of the Exelon 2016 Form 10-K for additional information regarding Generation’s and Exelon’s transactions with CENG):

•

under the NOSA, Generation conducts all activities related to the operation of the CENG nuclear generation fleet owned by CENG subsidiaries (the CENG fleet) and provides corporate and administrative services for the remaining life and decommissioning of the CENG nuclear plants as if they were a part of the Generation nuclear fleet, subject to the CENG member rights of EDF,

•

under the Power Services Agency Agreement (PSAA), Generation provides scheduling, asset management, and billing services to the CENG fleet for the remaining operating life of the CENG nuclear plants,

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

•

under power purchase agreements with CENG, Generation purchased or will purchase 50.01% of the available output generated by the CENG nuclear plants not subject to other contractual agreements from January 2015 through the end of the operating life of each respective plant. However, pursuant to amendments dated March 31, 2015, the energy obligations under the Ginna Nuclear Power Plant (Ginna) PPAs have been suspended during the term of the Reliability Support Services Agreement (RSSA) (see Note 5 — Regulatory Matters for additional details),

•

Generation provided a $400 million loan to CENG. As of March 31, 2017, the remaining obligation is $320 million, including accrued interest, which reflects the principal payment made in January 2015,

•

Generation executed an Indemnity Agreement pursuant to which Generation agreed to indemnify EDF against third-party claims that may arise from any future nuclear incident (as defined in the Price-Anderson Act) in connection with the CENG nuclear plants or their operations. Exelon guarantees Generation’s obligations under this Indemnity Agreement. (See Note 17 — Commitments and Contingencies for more details),

•

Generation and EDF share in the $637 million of contingent payment obligations for the payment of contingent retrospective premium adjustments for the nuclear liability insurance,

•

Generation provides a guarantee of approximately $8 million associated with hazardous waste management facilities and underground storage tanks. In addition, EDF executed a reimbursement agreement that provides reimbursement to Exelon for 49.99% of any amounts paid by Generation under this guarantee,

•

Generation and EDF are the members-insured with Nuclear Electric Insurance Limited and have assigned the loss benefits under the insurance and the NEIL premium costs to CENG and guarantee the obligations of CENG under these insurance programs in proportion to their respective member interests (see Note 17 — Commitments and Contingencies for more details), and

•

Exelon has executed an agreement to provide up to $245 million to support the operations of CENG as well as a $165 million guarantee of CENG’s cash pooling agreement with its subsidiaries.

•

In the case of BondCo, BGE is required to remit all payments it receives from all residential customers through non-bypassable, rate stabilization charges to BondCo. During the three months ended March 31, 2017 and 2016, BGE remitted $19 million and $20 million to BondCo, respectively.

•

In the case of ATF, proceeds from the sale of each series of transition bonds by ATF were transferred to ACE in exchange for the transfer by ACE to ATF of the right to collect a non-bypassable Transition Bond Charge from ACE customers pursuant to bondable stranded costs rate orders issued by the NJBPU in an amount sufficient to fund the principal and interest payments on transition bonds and related taxes, expenses and fees. During the three months ended March 31, 2017 and 2016, ACE transferred $19 million and $14 million to ATF, respectively.

For each of the consolidated VIEs, except as otherwise noted:

•

the assets of the VIEs are restricted and can only be used to settle obligations of the respective VIE;

•

Exelon, Generation, BGE, PHI and ACE did not provide any additional material financial support to the VIEs;

•

Exelon, Generation, BGE, PHI and ACE did not have any material contractual commitments or obligations to provide financial support to the VIEs; and

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

•

the creditors of the VIEs did not have recourse to Exelon’s, Generation’s, BGE’s, PHI’s or ACE’s general credit.

The carrying amounts and classification of the consolidated VIEs’ assets and liabilities included in the Registrants’ consolidated financial statements at March 31, 2017 and December 31, 2016 are as follows:


	March 31, 2017										December 31, 2016
							Successor										Successor
	Exelon^(a)		Generation		BGE		PHI^(a)		ACE		Exelon^(a)(b)		Generation		BGE		PHI^(a)		ACE
Current assets	$	1,018	$	965	$	42	$	11	$	7	$	954	$	916	$	23	$	14	$	9
Noncurrent assets		8,891		8,855		3		33		23		8,563		8,525		3		35		23

Total assets	$	9,909	$	9,820	$	45	$	44	$	30	$	9,517	$	9,441	$	26	$	49	$	32

Current liabilities	$	871	$	791	$	42		38	$	34	$	885	$	802	$	42	$	42	$	37
Noncurrent liabilities		2,745		2,654		—		91		81		2,713		2,612		—		101		89

Total liabilities	$	3,616	$	3,445	$	42	$	129	$	115	$	3,598	$	3,414	$	42	$	143	$	126

(a)	Includes certain purchase accounting adjustments not pushed down to the ACE standalone entity.

(b)	Includes certain purchase accounting adjustments not pushed down to the BGE standalone entity.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Assets and Liabilities of Consolidated VIEs

Included within the balances above are assets and liabilities of certain consolidated VIEs for which the assets can only be used to settle obligations of those VIEs, and liabilities that creditors, or beneficiaries, do not have recourse to the general credit of the Registrants. As of March 31, 2017 and December 31, 2016, these assets and liabilities primarily consisted of the following:


	March 31, 2017										December 31, 2016
							Successor										Successor
	Exelon^(a)		Generation		BGE		PHI ^(a)		ACE		Exelon^(a)(b)		Generation		BGE		PHI^(a)		ACE
Cash and cash equivalents	$	199	$	199	$	—	$	—	$	—	$	150	$	150	$	—	$	—	$	—
Restricted cash		124		75		42		7		7		59		27		23		9		9
Accounts receivable, net
Customer		347		347		—		—		—		371		371		—		—		—
Other		23		23		—		—		—		48		48		—		—		—
Mark-to-market derivatives assets		41		41		—		—		—		31		31		—		—		—
Inventory
Materials and supplies		191		191		—		—		—		199		199		—		—		—
Other current assets		58		54		—		4		—		50		44		—		5		—

Total current assets		983		930		42		11		7		908		870		23		14		9

Property, plant and equipment, net		5,425		5,425		—		—		—		5,415		5,415		—		—		—
Nuclear decommissioning trust funds		2,286		2,286		—		—		—		2,185		2,185		—		—		—
Goodwill		47		47		—		—		—		47		47		—		—		—
Mark-to-market derivatives assets		57		57		—		—		—		23		23		—		—		—
Other noncurrent assets		350		314		3		33		23		315		277		3		35		23

Total noncurrent assets		8,165		8,129		3		33		23		7,985		7,947		3		35		23

Total assets	$	9,148	$	9,059	$	45	$	44	$	30	$	8,893	$	8,817	$	26	$	49	$	32

Long-term debt due within one year	$	237	$	159	$	41	$	37	$	33	$	181	$	99	$	41	$	40	$	35
Accounts payable		275		275		—		—		—		269		269		—		—		—
Accrued expenses		85		83		1		1		1		119		116		1		2		2
Mark-to-market derivative liabilities		18		18		—		—		—		60		60		—		—		—
Unamortized energy contract liabilities		16		16		—		—		—		15		15		—		—		—
Other current liabilities		11		11		—		—		—		30		30		—		—		—

Total current liabilities		642		562		42		38		34		674		589		42		42		37

Long-term debt		626		535		—		91		81		641		540		—		101		89
Asset retirement obligations		1,929		1,929		—		—		—		1,904		1,904		—		—		—
Pension obligation^(c)		8		8		—		—		—		9		9		—		—		—
Unamortized energy contract liabilities		18		18		—		—		—		22		22		—		—		—
Other noncurrent liabilities		122		122		—		—		—		106		106		—		—		—

Total noncurrent liabilities		2,703		2,612		—		91		81		2,682		2,581		—		101		89

Total liabilities	$	3,345	$	3,174	$	42	$	129	$	115	$	3,356	$	3,170	$	42	$	143	$	126

(a)	Includes certain purchase accounting adjustments not pushed down to the ACE standalone entity.

(b)	Includes certain purchase accounting adjustments not pushed down to the BGE standalone entity.

(c)	Includes the CNEG retail gas pension obligation, which is presented as a net asset balance within the Prepaid pension asset line item on Generation’s Consolidated Balance Sheets. See Note 13 — Retirement Benefits for additional details.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Unconsolidated Variable Interest Entities

Exelon’s and Generation’s variable interests in unconsolidated VIEs generally include equity investments and energy purchase and sale contracts. For the equity investments, the carrying amount of the investments is reflected on Exelon’s and Generation’s Consolidated Balance Sheets in Investments. For the energy purchase and sale contracts (commercial agreements), the carrying amount of assets and liabilities in Exelon’s and Generation’s Consolidated Balance Sheets that relate to their involvement with the VIEs are predominately related to working capital accounts and generally represent the amounts owed by, or owed to, Exelon and Generation for the deliveries associated with the current billing cycles under the commercial agreements. Further, Exelon and Generation have not provided material debt or equity support, liquidity arrangements or performance guarantees associated with these commercial agreements.

The Registrants’ unconsolidated VIEs consist of:

•

Energy purchase and sale agreements with VIEs for which Generation has concluded that consolidation is not required.

•

Asset sale agreement with ZionSolutions, LLC and EnergySolutions, Inc. in which Generation has a variable interest but has concluded that consolidation is not required.

•

Equity investments in distributed energy companies and energy generating facilities for which Generation has concluded that consolidation is not required.

As of March 31, 2017 and December 31, 2016, Exelon and Generation had significant unconsolidated variable interests in seven and eight VIEs, respectively for which Exelon or Generation, as applicable, was not the primary beneficiary; including certain equity investments and certain commercial agreements. The decrease in the number of unconsolidated VIEs is due to the sale of an equity investment in an energy generating facility. Exelon and Generation only include unconsolidated VIEs that are individually material in the tables below. However, Generation has several individually immaterial VIEs that in aggregate represent a total investment of $16 million. These immaterial VIEs are equity and debt securities in energy development companies. The maximum exposure to loss related to these securities is limited to the $16 million included in Investments on Exelon’s and Generation’s Consolidated Balance Sheets. The risk of a loss was assessed to be remote and, accordingly, Exelon and Generation have not recognized a liability associated with any portion of the maximum exposure to loss.

In June 2015, 2015 ESA Investco, LLC, then a wholly owned subsidiary of Generation, entered into an arrangement to purchase a 90% equity interest and 99% of the tax attributes of a distributed energy company, which is an unconsolidated VIE. In November 2015, Generation sold 69% of its equity interest in 2015 ESA Investco, LLC to a tax equity investor. Generation and the tax equity investor contributed a total of $227 million of equity incrementally from inception through the first quarter of 2017 in proportion of their ownership interests. Generation and the tax equity investor provided a parental guarantee of up to $275 million in proportion to their ownership interests in support of 2015 ESA Investco, LLC’s obligation to make equity contributions to the distributed energy company. As all equity contributions were made as of March 31, 2017, there is no further payment obligation under the parental guarantee.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The following tables present summary information about Exelon and Generation’s significant unconsolidated VIE entities:


March 31, 2017	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	647	$	541	$	1,188
Total liabilities^(a)		73		230		303
Exelon’s ownership interest in VIE^(a)		—		276		276
Other ownership interests in VIE^(a)		574		36		610
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments		—		279		279
Contract intangible asset		9		—		9
Debt and payment guarantees		—		—		—
Net assets pledged for Zion Station decommissioning^(b)		7		—		7


December 31, 2016	Commercial Agreement VIEs		Equity Investment VIEs		Total
Total assets^(a)	$	638	$	567	$	1,205
Total liabilities^(a)		215		287		502
Exelon’s ownership interest in VIE^(a)		—		248		248
Other ownership interests in VIE^(a)		423		32		455
Registrants’ maximum exposure to loss:
Carrying amount of equity method investments		—		264		264
Contract intangible asset		9		—		9
Debt and payment guarantees		—		3		3
Net assets pledged for Zion Station decommissioning^(b)		9		—		9

(a)	These items represent amounts on the unconsolidated VIE balance sheets, not on Exelon’s or Generation’s Consolidated Balance Sheets. These items are included to provide information regarding the relative size of the unconsolidated VIEs.

(b)

These items represent amounts on Exelon’s and Generation’s Consolidated Balance Sheets related to the asset sale agreement with ZionSolutions, LLC. The net assets pledged for Zion Station decommissioning includes gross pledged assets of $95 million and $113 million as of March 31, 2017 and December 31, 2016, respectively; offset by payables to ZionSolutions LLC of $88 million and $104 million as of March 31, 2017 and December 31, 2016, respectively. These items are included to provide information regarding the relative size of the ZionSolutions LLC unconsolidated VIE.

For each of the unconsolidated VIEs, Exelon and Generation has assessed the risk of a loss equal to their maximum exposure to be remote and, accordingly, Exelon and Generation have not recognized a liability associated with any portion of the maximum exposure to loss. In addition, there are no material agreements with, or commitments by, third parties that would affect the fair value or risk of their variable interests in these VIEs.

4. Mergers, Acquisitions and Dispositions (Exelon, Generation and PHI)

Acquisition of James A. FitzPatrick Nuclear Generating Station (Exelon and Generation)

On March 31, 2017, Generation acquired the 838 MW single-unit James A. FitzPatrick (FitzPatrick) nuclear generating station located in Scriba, New York from Entergy Nuclear FitzPatrick LLC (Entergy) for a total purchase price of $293 million, which consisted of a cash purchase price of $110 million and a net cost reimbursement to and on behalf of Entergy of $183 million. As part of the acquisition agreements, Generation provided nuclear fuel and reimbursed Entergy for incremental costs to prepare for and conduct a plant refueling outage; and Generation reimbursed Entergy for incremental costs to operate and maintain the plant for the period

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

after the refueling outage through the acquisition closing date. These reimbursements covered costs that Entergy otherwise would have avoided had it shut down the plant as originally intended in January 2017. The amounts reimbursed by Generation were offset by FitzPatrick’s electricity and capacity sales revenues for this same post-outage period. As part of the transaction, Generation received the FitzPatrick NDT fund assets and assumed the obligation to decommission FitzPatrick. The NRC license for FitzPatrick expires in 2034. As of March 31, 2017, Generation had remitted purchase price consideration of $302 million (including $248 million of cash and $54 million of nuclear fuel) to and on behalf of Entergy and has $9 million included in Accounts receivable, net — Other on Exelon’s and Generation’s Consolidated Balance Sheets, to be received during the second quarter of 2017.

The following table summarizes the acquisition-date fair value of the consideration transferred and the assets and liabilities assumed for the FitzPatrick acquisition by Generation as of March 31, 2017:


Cash paid for purchase price	$	110
Cash paid for net cost reimbursement		129
Nuclear fuel transfer		54

Total consideration transferred	$	293

Identifiable assets acquired and liabilities assumed
Current assets	$	58
Property, plant and equipment		278
Nuclear decommissioning trust funds		807
Other assets^(a)		114

Total assets	$	1,257

Current liabilities	$	7
Asset retirement obligations		417
Pension and OPEB obligations		49
Deferred income taxes		144
Spent nuclear fuel obligation		110
Other liabilities		11

Total liabilities	$	738

Total net identifiable assets, at fair value	$	519

Bargain purchase gain (after-tax)	$	226

(a)

Includes a $110 million asset associated with a contractual right to reimbursement from the New York Power Authority (NYPA), a prior owner of FitzPatrick, associated with the DOE one-time fee obligation. See Note 24-Commitments and Contingencies of the Exelon 2016 Form 10-K for additional background regarding SNF obligations to the DOE.

The after-tax bargain purchase gain of $226 million is included within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income and reflects differences in strategies between Generation and Entergy for the intended use and ultimate decommissioning of the plant.

The fair values of FitzPatrick’s assets and liabilities were determined based on significant estimates and assumptions that are judgmental in nature, including projected future cash flows (including timing), discount rates reflecting risk inherent in the future cash flows and future power and fuel market prices. The valuations performed to assess the fair value of certain assets acquired and liabilities assumed are preliminary. Accounting guidance provides that the allocation of the purchase price may be modified up to one year from the date of the

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

acquisition to the extent that additional information is obtained about the facts and circumstances that existed as of the acquisition date; however, Generation expects to finalize these amounts by the end of 2017. The significant assets and liabilities for which preliminary valuation amounts are recognized at March 31, 2017 include the fair value of the decommissioning ARO, pension and OPEB obligations and related deferred tax liabilities. Any changes to the fair value assessments may materially impact the purchase price allocation and the amount of the recorded bargain purchase gain.

For the three months ended March 31, 2017, Exelon and Generation incurred $32 million of merger and integration related costs which are included within Operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

Merger with Pepco Holdings, Inc. (Exelon)

Description of Transaction

On March 23, 2016, Exelon completed the merger contemplated by the Merger Agreement among Exelon, Purple Acquisition Corp., a wholly owned subsidiary of Exelon (Merger Sub) and Pepco Holdings, Inc. (PHI). As a result of that merger, Merger Sub was merged into PHI (the PHI Merger) with PHI surviving as a wholly owned subsidiary of Exelon and Exelon Energy Delivery Company, LLC (EEDC), a wholly owned subsidiary of Exelon which also owns Exelon’s interests in ComEd, PECO and BGE (through a special purpose subsidiary in the case of BGE). Following the completion of the PHI Merger, Exelon and PHI completed a series of internal corporate organization restructuring transactions resulting in the transfer of PHI’s unregulated business interests to Exelon and Generation and the transfer of PHI, Pepco, DPL and ACE to a special purpose subsidiary of EEDC.

Regulatory Matters

Approval of the merger in Delaware, New Jersey, Maryland and the District of Columbia was conditioned upon Exelon and PHI agreeing to certain commitments including where applicable: customer rate credits, funding for energy efficiency and delivery system modernization programs, a green sustainability fund, workforce development initiatives, charitable contributions, renewable generation and other required commitments. In addition, the orders approving the merger in Delaware, New Jersey, and Maryland include a “most favored nation” provision which, generally speaking, requires allocation of merger benefits proportionally across all the jurisdictions.

During the third and fourth quarters of 2016, Exelon and PHI filed proposals in Delaware, New Jersey and Maryland for amounts and allocations reflecting the application of the most favored nation provision, resulting in a total nominal cost of commitments of $513 million, excluding renewable generation commitments (approximately $444 million on a net present value basis amount, excluding renewable generation commitments and charitable contributions). These filings reflect agreements reached with certain parties to the merger proceedings in these jurisdictions. In 2016, the DPSC and NJBPU approved the amounts and allocations of the additional merger benefits for Delaware and New Jersey, respectively. On April 12, 2017, the MDPSC issued an order approving the amounts of the additional merger benefits for Maryland, but amending the proposed allocations of the benefits. The amended allocations do not have a material effect on any of the Registrants’ financial statements. No changes in commitment cost levels are required in the District of Columbia.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The following amounts represent total commitment costs for Exelon, PHI, Pepco, DPL and ACE that have been recorded since the acquisition date:


									Successor
Description	Expected Payment Period		Pepco		DPL		ACE		PHI		Exelon
Rate credits		2016 — 2017	$	91	$	66	$	101	$	258	$	258
Energy efficiency		2016 — 2021		—		—		—		—		122
Charitable contributions		2016 — 2026		28		12		10		50		50
Delivery system modernization		Q2 2016		—		—		—		—		22
Green sustainability fund		Q2 2016		—		—		—		—		14
Workforce development		2016 — 2020		—		—		—		—		17
Other				7		7		—		14		30

Total			$	126	$	85	$	111	$	322	$	513

Pursuant to the orders approving the merger, Exelon made $73 million, $46 million and $49 million of equity contributions to Pepco, DPL and ACE, respectively, in the second quarter of 2016 to fund the after-tax amounts of the customer bill credit and the customer base rate credit commitments.

In addition, Exelon is committed to develop or to assist in the commercial development of approximately 37 MWs of new generation in Maryland, District of Columbia, and Delaware, 27 MWs of which are expected to be completed by 2018. These investments are expected to total approximately $137 million, are expected to be primarily capital in nature, and will generate future earnings at Exelon and Generation. Investment costs will be recognized as incurred and recorded on Exelon’s and Generation’s financial statements. Exelon has also committed to purchase 100 MWs of wind energy in PJM, to procure 120 MWs of wind RECs for the purpose of meeting Delaware’s renewable portfolio standards, and to maintain and promote energy efficiency and demand response programs in the PHI jurisdictions.

Pursuant to the various jurisdictions’ merger approval conditions, over specified periods Pepco, DPL and ACE are not permitted to reduce employment levels due to involuntary attrition associated with the merger integration process and have made other commitments regarding hiring and relocation of positions.

In July 2015, the OPC, Public Citizen, Inc., the Sierra Club and the Chesapeake Climate Action Network (CCAN) filed motions to stay the MDPSC order approving the merger. The Circuit Court judge issued an order denying the motions for stay on August 12, 2015. On January 8, 2016, the Circuit Court judge affirmed the MDPSC’s order approving the merger and denied the petitions for judicial review filed by the OPC, the Sierra Club, CCAN and Public Citizen, Inc. On January 19, 2016, the OPC filed a notice of appeal to the Maryland Court of Special Appeals, and on January 21, the Sierra Club and CCAN filed a notice of appeal. On January 27, 2017, the Maryland Court of Special Appeals affirmed the Circuit Court’s judgment. The OPC and Sierra Club have each filed petitions seeking further review in the Court of Appeals of Maryland. Exelon, along with Prince George’s County and Montgomery County have filed answers opposing those petitions, which Exelon believes are without merit.

Between March 25, 2016 and April 22, 2016, various parties filed motions with the DCPSC to reconsider its March 23, 2016 order approving the merger. On June 17, 2016, the DCPSC denied all motions. In August 2016, the District of Columbia Office of People’s Counsel, the District of Columbia Government, and Public Citizen jointly with DC Sun each filed petitions for judicial review of the DCPSC’s March 23, 2016 order with the District of Columbia Court of Appeals. On September 9, 2016, the Court consolidated the appeals. The parties have filed briefs and the Court scheduled oral argument for May 2. A decision on this matter is expected in the second or third quarter of 2017. Exelon believes the matters are without merit.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Accounting for the Merger Transaction

The total purchase price consideration of approximately $7.1 billion for the PHI Merger consisted of cash paid to PHI shareholders, cash paid for PHI preferred securities and cash paid for PHI stock-based compensation equity awards as follows:


(In millions of dollars, except per share data)	Total Consideration
Cash paid to PHI shareholders at $27.25 per share (254 million shares outstanding at March 23, 2016)	$	6,933
Cash paid for PHI preferred stock^(a)		180
Cash paid for PHI stock-based compensation equity awards^(b)		29

Total purchase price	$	7,142

(a)	As of December 31, 2015, the preferred stock was included in Other non-current assets on Exelon’s Consolidated Balance Sheets.

(b)

PHI’s unvested time-based restricted stock units and performance-based restricted stock units issued prior to April 29, 2014 were immediately vested and paid in cash upon the close of the merger. PHI’s remaining unvested time-based restricted stock units as of the close of the merger were cancelled. There were no remaining unvested performance-based restricted stock units as of the close of the merger.

PHI shareholders received $27.25 of cash in exchange for each share of PHI common stock outstanding as of the effective date of the merger. In connection with the Merger Agreement, Exelon entered into a Subscription Agreement under which it purchased $180 million of a new class of nonvoting, nonconvertible and nontransferable preferred securities of PHI prior to December 31, 2015. On March 23, 2016, the preferred securities were cancelled for no consideration to Exelon, and accordingly, the $180 million cash consideration previously paid to acquire the preferred securities was treated as purchase price consideration.

The preliminary valuations performed in the first quarter of 2016 were updated in the second, third, and fourth quarters of 2016. There were no adjustments to the purchase price allocation in the first quarter of 2017 and the purchase price allocation is now final.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Exelon applied push-down accounting to PHI, and accordingly, the PHI assets acquired and liabilities assumed were recorded at their estimated fair values on Exelon’s and PHI’s Consolidated Balance Sheets as of March 23, 2016, as follows:


Purchase Price Allocation^(a)
Current assets	$	1,441
Property, plant and equipment		11,088
Regulatory assets		5,015
Other assets		248
Goodwill		4,005

Total assets	$	21,797

Current liabilities	$	2,752
Unamortized energy contracts		1,515
Regulatory liabilities		297
Long-term debt, including current maturities		5,636
Deferred income taxes		3,447
Pension and OPEB obligations		821
Other liabilities		187

Total liabilities	$	14,655

Total purchase price	$	7,142

(a)

Amounts shown reflect the final purchase price allocation and the correction of a reporting error identified and corrected in the second quarter of 2016. The error had resulted in a gross up of certain assets and liabilities related to legacy PHI intercompany and income tax receivable and payable balances.

On its successor financial statements, PHI has recorded, beginning March 24, 2016, Membership interest equity of $7.2 billion, which is greater than the total $7.1 billion purchase price, reflecting the impact of a $59 million deferred tax liability recorded only at Exelon Corporate to reflect unitary state income tax consequences of the merger.

The excess of the purchase price over the estimated fair value of the assets acquired and the liabilities assumed totaled $4.0 billion, which was recognized as goodwill by PHI and Exelon at the acquisition date, reflecting the value associated with enhancing Exelon’s regulated utility portfolio of businesses, including the ability to leverage experience and best practices across the utilities and the opportunities for synergies. For purposes of future required impairment assessments, the goodwill has been preliminarily assigned to PHI’s reportable units Pepco, DPL and ACE in the amounts of $1.7 billion, $1.1 billion and $1.2 billion, respectively. None of this goodwill is expected to be tax deductible.

Immediately following closing of the merger, $235 million of net assets included in the table above associated with PHI’s unregulated business interests were distributed by PHI to Exelon. Exelon contributed $163 million of such net assets to Generation.

The fair values of PHI’s assets and liabilities were determined based on significant estimates and assumptions that are judgmental in nature, including projected future cash flows (including timing), discount rates reflecting risk inherent in the future cash flows, future market prices and impacts of utility rate regulation. There were also judgments made to determine the expected useful lives assigned to each class of assets acquired.

Through its wholly-owned rate regulated utility subsidiaries, most of PHI’s assets and liabilities are subject to cost-of-service rate regulation. Under such regulation, rates charged to customers are established by a

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

regulator to provide for recovery of costs and a fair return on invested capital, or rate base, generally measured at historical cost. In applying the acquisition method of accounting, for regulated assets and liabilities included in rate base or otherwise earning a return (primarily property, plant and equipment and regulatory assets earning a return), no fair value adjustments were recorded as historical cost is viewed as a reasonable proxy for fair value.

Fair value adjustments were applied to the historical cost bases of other assets and liabilities subject to rate regulation but not earning a return (including debt instruments and pension and OPEB obligations). In these instances, a corresponding offsetting regulatory asset or liability was also established, as the underlying utility asset and liability amounts are recoverable from or refundable to customers at historical cost (and not at fair value) through the rate setting process. Similar treatment was applied for fair value adjustments to record intangible assets and liabilities, such as for electricity and gas energy supply contracts as further described below. Regulatory assets and liabilities established to offset fair value adjustments are amortized in amounts and over time frames consistent with the realization or settlement of the fair value adjustments, with no impact on reported net income. See Note 5 — Regulatory Matters for additional information regarding the fair value of regulatory assets and liabilities established by Exelon and PHI.

Fair value adjustments were recorded at Exelon and PHI for the difference between the contract price and the market price of electricity and gas energy supply contracts of PHI’s wholly-owned rate regulated utility subsidiaries. These adjustments are intangible assets and liabilities classified as unamortized energy contracts on Exelon’s and PHI’s Consolidated Balance Sheets as of March 31, 2017. The difference between the contract price and the market price at the acquisition date of the Merger was recognized for each contract as either an intangible asset or liability. In total, Exelon and PHI recorded a net $1.5 billion liability reflecting out-of-the-money contracts. The valuation of the acquired intangible assets and liabilities 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. In certain instances, the valuations were based upon certain unobservable inputs, which are considered Level 3 inputs, pursuant to applicable accounting guidance. Key estimates and inputs include forecasted power prices and the discount rate. The unamortized energy contract fair value adjustment amounts and the corresponding offsetting regulatory asset and liability amounts are amortized through Purchase power and fuel expense or Operating revenues, as applicable, over the life of the applicable contract in relation to the present value of the underlying cash flows as of the merger date.

As mentioned, under cost-of-service rate regulation, rates charged to customers are established by a regulator to provide for recovery of costs and a fair return on invested capital, or rate base, generally measured at historical cost. Historical cost information therefore is the most relevant presentation for the financial statements of PHI’s rate regulated utility subsidiary registrants, Pepco, DPL and ACE. As such, Exelon and PHI did not push-down the application of acquisition accounting to PHI’s utility registrants, and therefore the financial statements of Pepco, DPL and ACE do not reflect the revaluation of any assets and liabilities.

The current impact of PHI, including its unregulated businesses, on Exelon’s Consolidated Statements of Operations and Comprehensive Income includes Operating revenues of $1.2 billion and Net income of $140 million during the three months ended March 31, 2017, and Operating revenues of $107 million and Net loss of $(315) million during the three months ended March 31, 2016.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

For the three months ended March 31, 2017 and 2016, the Registrants have recognized costs to achieve the PHI acquisition as follows:


	Three Months Ended March 31,
Acquisition, Integration and Financing Costs^(a)	2017			2016
Exelon^(b)	$	9		$	102
Generation		9			16
ComEd^(c)		—			(8	)
PECO		1			2
BGE		2			2
Pepco		1			27
DPL^(d)		(7	)		16
ACE		1			13


	Successor					Predecessor
Acquisition, Integration and Financing Costs^(a)	Three Months Ended March 31, 2017			March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
PHI^(d)	$	(5	)	$	56	$	29

(a)

The costs incurred are classified primarily within Operating and maintenance expense in the Registrants’ respective Consolidated Statements of Operations and Comprehensive Income, with the exception of the financing costs, which are included within Interest expense. Costs do not include merger commitments discussed above.

(b)	Reflects costs (benefits) recorded at Exelon related to financing, including mark-to-market activity on forward-starting interest rate swaps.

(c)

For the three months ended March 31, 2016, includes the reversal of previously incurred acquisition, integration and financing costs of $9 million, incurred at ComEd that have been deferred and recorded as a regulatory asset for anticipated recovery. See Note 5 — Regulatory Matters for more information.

(d)

For the three months ended March 31, 2017, includes the reversal of previously incurred acquisition, integration and financing costs of $8 million, incurred at DPL that have been deferred and recorded as a regulatory asset for anticipated recovery. See Note 5 — Regulatory Matters for more information.

Pro-forma Impact of the Merger

The following unaudited pro forma financial information reflects the consolidated results of operations of Exelon as if the merger with PHI had taken place on January 1, 2015. The unaudited pro forma information was calculated after applying Exelon’s accounting policies and adjusting PHI’s results to reflect purchase accounting adjustments.

The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the merger events taken place on the dates indicated, or the future consolidated results of operations of the combined company.


	Three Months Ended March 31,		Year Ended December 31,
	2016^(a)		2016^(b)
Total operating revenues	$	8,556	$	32,342
Net income attributable to common shareholders		577		1,562

Basic earnings per share	$	0.63	$	1.69
Diluted earnings per share		0.62		1.69

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(a)	The amounts above include adjustments for non-recurring costs directly related to the merger of $639 million and intercompany revenue of $170 million for the three months ended March 31, 2016.

(b)	The amounts above include adjustments for non-recurring costs directly related to the merger of $680 million and intercompany revenue of $171 million for the year ended December 31, 2016.

5. Regulatory Matters (All Registrants)

Except for the matters noted below, the disclosures set forth in Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K reflect, in all material respects, the current status of regulatory and legislative proceedings of the Registrants. The following is an update to that discussion.

Illinois Regulatory Matters

Distribution Formula Rate (Exelon and ComEd). On April 13, 2017, ComEd filed its annual distribution formula rate with the ICC pursuant to EIMA. The filing establishes the revenue requirement used to set the rates that will take effect in January 2018 after the ICC’s review and approval, which is due by December 2017. The revenue requirement requested is based on 2016 actual costs plus projected 2017 capital additions as well as an annual reconciliation of the revenue requirement in effect in 2016 to the actual costs incurred that year. ComEd’s 2017 filing request includes a total increase to the revenue requirement of $96 million, reflecting an increase of $78 million for the initial revenue requirement for 2017 and an increase of $18 million related to the annual reconciliation for 2016. The revenue requirement for 2017 provides for a weighted average debt and equity return on distribution rate base of 6.47% inclusive of an allowed ROE of 8.40%, reflecting the average rate on 30-year treasury notes plus 580 basis points. The annual reconciliation for 2016 provided for a weighted average debt and equity return on distribution rate base of 6.45% inclusive of an allowed ROE of 8.34%, reflecting the average rate on 30-year treasury notes plus 580 basis points less a performance metrics penalty of 6 basis points. See table below for ComEd’s regulatory assets associated with its distribution formula rate. For additional information on ComEd’s distribution formula rate filings see Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K.

On December 6, 2016, the ICC issued a final order approving the 2016 distribution formula rate, which included a total increase to the revenue requirement of $127 million, reflecting an increase of $134 million for the initial revenue requirement for 2016 and a decrease of $7 million related to the annual reconciliation for 2015. On December 20, 2016, the ICC granted ComEd’s and other parties’ joint application for rehearing on the impact that changing ComEd’s OSHA recordable rate for 2014 and 2015 has on the revenue requirement approved in this order. On March 22, 2017, the ICC issued an order approving ComEd’s proposal to reduce the 2016 revenue requirement by $18 million, which will be reflected in customer rates in 2017.

Illinois Future Energy Jobs Act (Exelon, Generation, and ComEd).

Background

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(iii) transition from netting at the full retail rate to the energy-only rate for certain residential net metering customers once the net meter customer load equals 5% of total peak demand supplied in the previous year and (7) support for low income rooftop and community solar programs.

Zero Emission Standard

FEJA includes a ZES that provides compensation through the procurement of ZECs targeted at preserving the environmental attributes of zero-emissions nuclear-powered generating facilities that meet specific eligibility criteria. ZES will have a 10-year duration extending through May 31, 2027. Eligible generators may participate in a procurement event overseen by the IPA and selected generators will directly contract with Illinois utilities for the procurement of the ZECs based upon the number of MWh produced by the eligible facilities, subject to specified annual caps. The ZEC price will be based upon the current social cost of carbon as determined by the federal government and is initially established at $16.50 per MWh of production, subject to future adjustments based on specified escalation and pricing adjustment mechanisms designed to lower the ZEC price based on increases in underlying energy and capacity prices.

Illinois utilities, including ComEd, will be required to purchase from eligible nuclear facilities an amount of ZECs equivalent to 16% of the actual amount of electricity delivered in 2014. ComEd will recover all costs associated with purchasing ZECs through a new rate rider, which will provide for an annual reconciliation and true-up to actual costs incurred by ComEd to purchase ZECs, with any difference to be credited to or collected from ComEd’s retail customers in subsequent periods.

On February 14, 2017, two lawsuits were filed in the Northern District of Illinois against the IPA alleging that the state’s ZEC program violates certain provisions of the U.S. Constitution. One lawsuit was filed by customers of ComEd, led by the Village of Old Mill Creek, and the other was brought by the EPSA and three other electric suppliers. Both lawsuits argue that the Illinois ZEC program will distort FERC’s energy and capacity market auction system of setting wholesale prices, and seek a permanent injunction preventing the implementation of the program. Exelon intervened and filed motions to dismiss in both lawsuits. These motions are currently pending. In addition, on March 31, 2017, plaintiffs in both lawsuits filed motions for preliminary injunction with the court. Exelon cannot predict the outcome of these lawsuits. It is possible that resolution of these matters could have a material, unfavorable impact on Exelon’s and Generation’s results of operations, financial positions and cash flows.

See Note 7 — Early Nuclear Plant Retirements for the impacts of the provisions above on Generation’s Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Income. These provisions do not impact ComEd’s Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows until second quarter of 2017.

ComEd Electric Distribution Rates

FEJA extends the sunset date for ComEd’s performance-based electric distribution formula rate from 2019 to the end of 2022, allows ComEd to revise the electric distribution formula rate to eliminate the ROE collar, and allows ComEd to implement a decoupling tariff if the electric distribution formula rate is terminated at any time. ComEd will revise its electric distribution formula rate to eliminate the ROE collar beginning with the reconciliation filed in 2018 for the 2017 calendar year. Elimination of the ROE collar effectively offsets the favorable or unfavorable impacts to Operating revenues associated with variations in delivery volumes associated with above or below normal weather, numbers of customers or usage per customer. ComEd began reflecting the impacts of this change in its electric distribution services costs regulatory asset beginning in first quarter 2017. As of March 31, 2017, ComEd recorded an increase to Operating revenues and its electric distribution services costs regulatory asset of approximately $16 million for this change.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

FEJA requires ComEd to make non-recoverable contributions to low income energy assistance programs of $10 million per year for 5 years as long as the electric distribution formula rate remains in effect. With the exception of these contributions, ComEd will recover from customers, subject to certain caps explained below, the costs it incurs pursuant to FEJA either through its electric distribution formula rate or other recovery mechanisms.

Energy Efficiency

Existing Illinois law requires ComEd to implement cost-effective energy efficiency measures and, for a 10-year period ending May 31, 2018, cost-effective demand response measures to reduce peak demand by 0.1% over the prior year for eligible retail customers.

Beginning January 1, 2018, FEJA provides for new cumulative annual energy efficiency MWh savings goals for ComEd, which are designed to achieve 21.5% of cumulative persisting annual MWh savings by 2030, as compared to the deemed baseline of 88 million MWhs of electric power and energy sales. FEJA, deems the cumulative persisting annual MWh savings to be 6.6% from 2012 through the end of 2017. ComEd expects to spend approximately $250 million to $400 million annually from 2017 through 2030 to achieve these energy efficiency MWh savings goals. In addition, FEJA extends the peak demand reduction requirement from 2018 to 2026. Because the new requirements apply beginning in 2018, FEJA extends the existing energy efficiency plans, which were due to end on May 31, 2017, through December 31, 2017. FEJA also exempts customers with demands over 10 MW from energy efficiency plans and requirements beginning June 1, 2017.

FEJA allows ComEd to cancel its existing energy efficiency rate rider and replace it with an energy efficiency formula rate, and to defer energy efficiency costs (except for any voltage optimization costs which will be recovered through the electric distribution formula rate) as a separate regulatory asset that will be recovered through the energy efficiency formula rate over the weighted average useful life, as approved by the ICC, of the related energy efficiency measures. ComEd will earn a return on the energy efficiency regulatory asset at a rate equal to its weighted average cost of capital, which is based on a year-end capital structure and calculated using the same methodology applicable to ComEd’s electric distribution formula rate. Through December 31, 2030, the return on equity that ComEd earns on its energy efficiency regulatory asset is subject to a maximum downward or upward adjustment of 200 basis points if ComEd’s cumulative persisting annual MWh savings falls short of or exceeds specified percentage benchmarks of its annual incremental savings goal. ComEd will be required to file an update to its energy efficiency formula rate on or before June 1 each year, with resulting rates effective in January of the following year. The annual update will be based on projected current year energy efficiency costs and the related projected year-end regulatory asset balance less any related deferred taxes. The update will also include a reconciliation of any differences between the revenue requirement in effect for the prior year and the revenue requirement based on actual prior year costs and year-end energy efficiency regulatory asset balances less any related deferred taxes.

ComEd expects to cancel its existing energy efficiency rider after FEJA becomes effective on June 1, 2017, at which time it must perform a reconciliation of revenues and costs incurred through the cancellation date and issue a one-time credit on retail customers’ bills for any over-recoveries. As of March 31, 2017, ComEd’s over-recoveries associated with its existing energy efficiency rider of $139 million were reflected in Current regulatory liabilities on Exelon’s and ComEd’s Consolidated Balance Sheets. ComEd expects to provide a one-time credit to customers in the second half of 2017 to address this over-recovery.

Renewable Portfolio Standard

Existing Illinois law requires ComEd to purchase each year an increasing percentage of renewable energy resources for the customers for which it supplies electricity. This obligation is satisfied through the procurement

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

of RECs. FEJA revises the Illinois RPS to require ComEd to procure RECs for all retail customers by June 2019, regardless of the customers’ electricity supplier, and provides support for low-income rooftop and community solar programs, which will be funded by the existing Renewable Energy Resources Fund and ongoing RPS collections. ComEd will recover all costs associated with purchasing RECs through rate riders, which will provide for a reconciliation and true-up to actual costs, with any difference between revenues and expenses to be credited to or collected from ComEd’s retail customers in subsequent periods. The first reconciliation and true-up for RECs will cover revenues and costs for the four year period beginning June 1, 2017 through May 31, 2021. Subsequently, the RPS rate rider will provide for an annual reconciliation and true-up.

Customer Rate Increase Limitations

FEJA includes provisions intended to limit the average impact on ComEd customer rates for recovery of costs incurred under FEJA as follows: (1) for a typical ComEd residential customer, the average impact must be less than $0.25 cents per month, (2) for nonresidential customers with a peak demand less than 10 MW, the average annual impact must be less than 1.3% of the average amount paid per kWh for electric service by Illinois commercial retail customers during 2015, and (3) for nonresidential customers with a peak demand greater than 10 MW, the average annual impact must be less than 1.3% of the average amount paid per kWh for electric service by Illinois industrial retail customers during 2015.

By June 30, 2017, ComEd must submit a 10-year projection to the ICC of customer rate impacts for residential customers and nonresidential customers with a peak demand less than 10 MW. Thereafter, beginning in 2018, ComEd must submit a report to the ICC for residential customers and nonresidential customers with a peak demand less than 10 MW by February 15th and June 30th of each year, respectively. For nonresidential customers with a peak demand greater than 10 MW, ComEd must submit a report to the ICC by May 1 of each year if a rate reduction will be necessary in the following year. For residential customers, the reports will include the actual costs incurred under FEJA during the preceding year and a rolling 10-year customer rate impact projection. The reports for nonresidential customers with a peak demand less than 10 MW will also include the actual costs incurred under FEJA during the preceding year, as well as the average annual rate increase from January 1, 2017 through the end of the preceding year and the average annual rate increase projected for the remainder of the 10-year period.

If the projected residential customer or nonresidential customer with a peak demand less than 10 MW rate increase exceeds the limitations during the first four years, ComEd is required to decrease costs associated with FEJA investments, including reductions to ZEC contract quantities. If the projected residential customer or nonresidential customer with a peak demand less than 10 MW rate increase exceeds the limitations during the last six years, ComEd is required to demonstrate how it will reduce FEJA investments to ensure compliance. If the actual residential customer or nonresidential customer with a peak demand less than 10 MW rate increase exceeds the limitations for any one year, ComEd is required to submit a corrective action plan to decrease future year costs to reduce customer rates to ensure future compliance. If the actual residential customer or nonresidential customer rate exceeds the limitations for two consecutive years, ComEd can offer to credit customers for amounts billed in excess of the limitations or ComEd can terminate FEJA investments. If ComEd chooses to terminate FEJA investments, the ICC shall order termination of ZEC contracts and further initiate proceedings to reduce energy efficiency savings goals and terminate support for low-income rooftop and community solar programs. ComEd is allowed to fully recover all costs incurred as of and up to the date of the programs’ termination.

For the energy efficiency formula, ComEd will record a regulatory asset or liability and corresponding increase or decrease to Operating revenues for any differences between the revenue requirement in effect and ComEd’s best estimate of the revenue requirement expected to be approved by the ICC for that year’s

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

reconciliation. For the other rate riders to be established under FEJA, ComEd will record a regulatory asset or liability for any differences between revenues and incurred expenses.

Other than recognizing the impacts of eliminating the ROE collar in its electric distribution formula rate, FEJA did not have any impacts on ComEd’s Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Income or Consolidated Statements of Cash Flows in first quarter 2017.

Energy Efficiency and Renewable Energy Resources (Exelon and ComEd). In accordance with legislation in effect on December 31, 2016, the IPA’s Procurement Plans include the procurement of cost-effective renewable energy resources in amounts that equal or exceed a minimum target percentage of the total electricity that each electric utility supplies to its eligible retail customers. The June 1, 2016 target renewable energy resources obligation for the utilities was at least 11.5%. This obligation increases by at least 1.5% each year thereafter to an ultimate target of at least 25% by June 1, 2025. All goals are subject to rate impact criteria set forth by Illinois legislation. As of March 31, 2017, ComEd had purchased renewable energy resources or equivalents, such as RECs, in accordance with the IPA Procurement Plan. ComEd currently retires all RECs upon transfer and acceptance. ComEd is permitted to recover procurement costs of RECs from retail customers without mark-up through rates.

In accordance with FEJA that takes effect on June 1, 2017, beginning with the plan or plans to be implemented in the 2017 delivery year, the IPA shall develop a long term renewable resources procurement plan (LT Plan). The RPS target percentages for the overall service territory have not changed through June 1, 2025 although FEJA extended the 25% RPS target to delivery years after 2025. Currently, each RES and each utility is responsible for the renewable resource obligation of the customers it supplies power for. Over time, this will change and the utility will procure renewable resources based on the retail load of substantially all customers in its service territory. For the delivery year beginning June 1, 2017, the LT Plan shall include cost effective renewable energy resources procured by the utility for the retail load the utility supplies and for 50% of the retail customer load supplied by Retail Electric Suppliers in the utility service territory on February 28, 2017. Utility procurement for RES supplied retail customer load will increase to 75% June 1, 2018 and to 100% beginning June 1, 2019.

Grand Prairie Gateway Transmission Line (Exelon and ComEd). On December 2, 2013, ComEd filed a request to obtain the ICC’s approval to construct a 60-mile overhead 345kV transmission line that traverses Ogle, DeKalb, Kane and DuPage Counties in Northern Illinois. On October 22, 2014, the ICC issued an Order approving ComEd’s request. The City of Elgin and certain other parties each filed an appeal of the ICC Order in the Illinois Appellate Court for the Second District. ComEd then reached a settlement of the appeal filed by all parties except Elgin. On March 31, 2016, the Illinois Appellate Court issued its opinion affirming the ICC’s grant of a certificate to ComEd to construct and operate the line. Elgin did not seek further review of the Illinois Appellate Court decision. ComEd acquired the necessary land rights across the project route through voluntary transactions. ComEd began construction of the line during 2015 and placed the line in-service on April 7, 2017.

Pennsylvania Regulatory Matters

Pennsylvania Procurement Proceedings (Exelon and PECO). Through PECO’s PAPUC approved DSP Programs, PECO procures electric supply for its default electric customers through PAPUC approved competitive procurements.

On March 17, 2016, PECO filed its fourth DSP Program with the PAPUC proposing a 24-month term from June 1, 2017 through May 31, 2019, in compliance with electric generation procurement guidelines set forth in Act 129. On December 8, 2016, the PAPUC approved the fourth DSP Program for the modified 48-month term

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

and deferred CAP Shopping to another proceeding. OCA and Low Income Advocates subsequently filed a Petition for Reconsideration and Clarification related to CAP Shopping. On March 16, 2017 the PAPUC granted reconsideration and consolidated the proceeding with the DSP II docket, which includes the pending CAP Shopping plan that would allow low-income CAP customers to purchase their generation supply from EGSs. PAPUC referred the consolidated proceedings to the Office of Administrative Law Judge for hearing and decision.

Pennsylvania Act 11 of 2012 (Exelon and PECO). In February 2012, Act 11 was signed into law, which provided the PAPUC authority to approve the implementation of a distribution system improvement charge (DSIC) in rates designed to recover capital project costs incurred to repair, improve or replace utilities’ aging electric and natural gas distribution systems in Pennsylvania. Prior to recovering costs pursuant to a DSIC, the PAPUC’s implementation order requires a utility to have a Long Term Infrastructure Improvement Plan (LTIIP) approved by the Commission, which outlines how the utility is planning to increase its investment for repairing, improving or replacing aging infrastructure. The PAPUC approved PECO’s petition for its proposed electric DSIC and LTIIP on October 22, 2015 for spending of $275 million over a 5 year period through 2020. On March 1, 2017, PECO filed a petition with the PAPUC for approval of a Modified Gas LTIIP to increase expenditures to $762 million from the approved $534 million over the 10 year LTIIP period through 2022.

Maryland Regulatory Matters

2017 Maryland Electric Distribution Rates (Exelon, PHI and Pepco). On March 24, 2017, Pepco filed an application with the MDPSC requesting an increase of $69 million based on a ROE of 10.1%. The application includes a request for an income tax adjustment to reflect full normalization of removal costs associated with pre-1981 property, which accounts for $18 million of the requested increase. Pepco expects a decision in the matter in the fourth quarter of 2017, but cannot predict how much of the requested rate increase the MDPSC will approve or if it will approve the requested income tax adjustment.

2016 Maryland Electric Distribution Rates (Exelon, PHI and DPL). On February 15, 2017, the MDPSC approved an increase in DPL electric distribution rates of $38 million based on a ROE of 9.6%. The new rates became effective for services rendered on or after February 15, 2017. The MDPSC also denied DPL’s request to continue its Grid Resiliency Program, through which DPL proposed to invest $4.6 million a year for two years to improve priority feeders and install single-phase reclosing fuse technology. The final order did not result in the recognition of any incremental regulatory assets or liabilities during the first quarter of 2017.

Cash Working Capital Order (Exelon and BGE). On November 17, 2016, the MDPSC rendered a decision in the proceeding to review BGE’s request to recover its cash working capital (CWC) requirement for its Provider of Last Resort service, also known as Standard Offer Service (SOS), as well as other components that make up the Administrative Charge, the mechanism that enables BGE to recover all of its SOS-related costs. The Administrative Charge is now comprised of five components: CWC, uncollectibles, incremental costs, return, and an administrative adjustment, which is an adder to the utility’s SOS rate to act as a proxy for retail suppliers’ costs. The Commission accepted BGE positions on recovery of CWC and pass-through recovery of BGE’s actual uncollectibles and incremental costs. The order also grants BGE a modest return on the SOS. The Commission ruled that the level of the administrative adjustment will be determined in BGE’s next rate case. On December 16, 2016, MDPSC Staff requested clarification concerning the amount of return on the SOS awarded to BGE and on December 19, 2016, the residential consumer advocate sought rehearing of the return awarded. On January 24, 2017, the MDPSC issued an order denying the MDPSC Staff request for clarification and the residential consumer advocate request for rehearing. On February 22, 2017, the residential consumer advocate filed an appeal of the MDPSC’s orders with the Circuit Court for Baltimore City. BGE cannot predict the outcome of this appeal.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Smart Meter and Smart Grid Investments (Exelon and BGE). In August 2010, the MDPSC approved a comprehensive smart grid initiative for BGE that included the planned installation of 2 million residential and commercial electric and natural gas smart meters at an expected total cost of $480 million of which $200 million was funded by SGIG. The MDPSC’s approval ordered BGE to defer the associated incremental costs, depreciation and amortization, and an appropriate return, in a regulatory asset until such time as a cost-effective advanced metering system is implemented. As of March 31, 2017 and December 31, 2016, the balance of BGE’s regulatory asset was $225 million and $230 million, respectively, representing incremental program deployment costs. The current quarter balance of $225 million consists of three major components, including $140 million of unamortized incremental deployment costs of the AMI program, $53 million of unamortized costs of the non-AMI meters replaced under the program, and $32 million related to post-test year incremental program deployment costs incurred prior to approval became effective June 2016. The balance as of March 31, 2017 reflects the impact of the cost disallowances and adjustments discussed below. The incremental deployment costs for the AMI program and the non-AMI meter components of the regulatory asset are being recovered through rates and amortized to expense over a 10 year period, while the post-test year incremental program deployment costs have not yet been approved for recovery by the MDPSC. A return on the regulatory asset is currently included in rates, except for the $53 million portion representing the unamortized cost of the retired non-AMI meters and a $32 million portion related to post-test year incremental program deployment costs.

As a combined result of the MDPSC orders in BGE’s 2015 electric and natural gas distribution rate case, BGE recorded a $52 million charge in June 2016 to Operating and maintenance expense in Exelon’s and BGE’s Consolidated Statements of Operations and Comprehensive Income reducing certain regulatory assets and other long-lived assets and reclassified $56 million of non-AMI plant costs from Property, plant and equipment, net to Regulatory assets on Exelon’s and BGE’s Consolidated Balance Sheets. For further information, see Note 3 —Regulatory Matters of the Exelon 2016 Form 10-K.

Delaware Regulatory Matters

Gas Cost Rates (Exelon, PHI and DPL). DPL makes an annual GCR filing with the DPSC for the purpose of allowing DPL to recover natural gas procurement costs through customer rates. In August 2016, DPL made its 2016-2017 GCR filing. The rates proposed in the 2016-2017 GCR filing resulted in a GCR increase of approximately 14%. On September 20, 2016, the DPSC issued an order allowing DPL to place the new rates into effect on November 1, 2016, subject to refund and pending final DPSC approval. A settlement agreement was reached by all parties. On April 20, 2017, the DPSC issued an order which approved the settlement agreement and made the rates approved as final effective November 1, 2016.

2016 Electric and Natural Gas Distribution Rates (Exelon, PHI and DPL). On May 17, 2016, DPL filed an application with the DPSC to increase its annual electric and natural gas distribution rates by $63 million (which was updated to $60 million on March 8, 2017) and $22 million, respectively, based on a requested ROE of 10.6%. While the DPSC is not required to issue a decision on the application within a specified period of time, Delaware law allowed DPL to put into effect $2.5 million of each of the rate increases two months after filing the applications which were effective July 16, 2016. On December 17, 2016, the DPSC approved that an additional $30 million in electric distribution rates be implemented effective December 17, 2016, subject to refund based on the final DPSC order, and an additional $10 million in natural gas distribution rates be implemented effective December 17, 2016, subject to refund based on the final DPSC order.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

December 17, 2016 (as discussed above), will remain in effect until the date of the final DPSC order and that no refund will be required. As a result, during the first quarter of 2017, DPL established a regulatory asset of $8 million for costs incurred to achieve the merger and reversed a regulatory liability of $1 million for electric revenues that are no longer subject to refund which resulted in an increase in net income of $5 million. DPL currently expects a final order on the settlement agreement during the second quarter of 2017.

On April 6, 2017, DPL entered into a settlement agreement with the Division of the Public Advocate and the DPSC Staff in its natural gas distribution rate proceeding, which provides for an increase in DPL natural gas distribution rates of $4.9 million based on an ROE of 9.7%. The settlement agreement also provides that DPL will refund amounts in excess of the $4.9 million increase collected under the temporary rates effective July 16, 2016 and December 17, 2016 (as discussed above), and that the new rates will be effective within thirty days of DPSC approval of the settlement agreement. In the event that the final order reflects the settlement agreement, DPL does not expect the impact to be material to its financial statements. DPL currently expects a final order on the settlement agreement during the second quarter of 2017.

District of Columbia Regulatory Matters

2016 Electric Distribution Rates (Exelon, PHI and Pepco). On June 30, 2016, Pepco filed an application with the DCPSC to increase its annual electric distribution rates by $86 million, which was updated to $82 million on October 14, 2016, and further updated to approximately $77 million on February 1, 2017, based on a requested ROE of 10.6%. The DCPSC has issued a procedural schedule indicating a final decision will be issued by July 25, 2017. Any adjustments to its rates approved by the DCPSC are expected to take effect soon thereafter. Pepco cannot predict how much of the requested increase the DCPSC will approve.

On April 18, 2016, a party to a separate DCPSC proceeding filed a motion to suspend Pepco’s bill stabilization adjustment (BSA), which decouples distribution revenues from utility customers from the amount of electricity delivered. On September 9, 2016, the DCPSC denied the party’s motion and determined that the appropriate forum in which to determine whether the BSA continues to be just and reasonable is in Pepco’s rate case proceeding. In addition, the DCPSC stated that it was putting Pepco on notice that all funds collected for the BSA from January 2015 to the issuance of a decision in the rate case proceeding are subject to refund should the DCPSC determine that such funds were not justly or reasonably collected. On November 22, 2016, following Pepco’s October 7, 2016 request for reconsideration of the order, the DCPSC issued an order stating that its September 9, 2016 order was not final and confirming that issues related to the BSA, including potential remedial actions, would be addressed in Pepco’s rate case. Pepco cannot predict the outcome of this matter or the impact of a refund if ordered by the DCPSC.

District of Columbia Power Line Undergrounding Initiative (Exelon, PHI and Pepco). The Electric Company Infrastructure Improvement Financing Act of 2014 (the Improvement Financing Act) was the enabling legislation for the District of Columbia Power Line Undergrounding (DC PLUG) initiative, a $1 billion project to selectively place underground some of the District of Columbia’s most outage-prone power lines.

The Improvement Financing Act provides that: (i) Pepco is to fund approximately $500 million of the estimated cost to complete the DC PLUG initiative, recovering those costs through a volumetric surcharge on the electric bills of Pepco District of Columbia customers; (ii) $375 million of the DC PLUG initiative cost is to be funded by the District of Columbia through the issuance of securitized bonds, which bonds will be repaid through a volumetric surcharge (the DDOT surcharge) on the electric bills of Pepco District of Columbia customers that Pepco will remit to the District of Columbia; and (iii) the remaining costs up to $125 million are to be funded by the existing capital projects program of the District of Columbia Department of Transportation (DDOT). Pepco will not earn a return on or a return of the cost of the assets funded with the proceeds of the securitized bonds or

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

assets that are constructed by DDOT under its capital projects program, but ownership and responsibility for the operation and maintenance of such assets will be transferred to Pepco for a nominal amount.

In June 2015, an agency of the federal government served by Pepco asserted that the DDOT surcharge constitutes a tax on end users from which the federal government is immune.

In March 2017, the Electric Company Infrastructure Improvement Financing Amendment Act of 2017 was introduced to the Council of the District of Columbia. The proposed amendment changes a portion of the funding structure for the DC PLUG initiative from securitized bonds issued by the District to a pay-as-you-go structure with the cost imposed on the electric company and recovered by the electric company through a rate rider. This amendment would reduce the overall project authorization from $1 billion to $500 million and would provide that: (i) Pepco is to fund approximately $250 million of the estimated cost to complete the DC PLUG initiative, recovering those costs through a volumetric surcharge on the electric bills of Pepco District of Columbia customers; (ii) $188 million of the DC PLUG initiative cost would be funded through a charge collected from Pepco by the District of Columbia and Pepco would recover this charge from customers through a volumetric distribution rider; and; (iii) the remaining costs up to $62 million are to be covered by the existing capital projects program of DDOT. Pepco will not earn a return on or a return of the cost of the assets funded by the charge collected from Pepco by the District of Columbia or assets that are constructed by DDOT under its capital projects program, but ownership and responsibility for the operation and maintenance of such assets will be transferred to Pepco for a nominal amount upon completion.

PHI believes that the proposed amendment addresses the assertion made by an agency of the federal government that the surcharge proposed in the Improvement Financing Act constitutes a tax on end users.

New Jersey Regulatory Matters

2017 Electric Distribution Rates (Exelon, PHI and ACE). On March 30, 2017, ACE submitted an application with the NJBPU to increase its electric distribution rates by approximately $70 million (before New Jersey sales and use tax), based upon a requested ROE of 10.1%. The application also requests approval of a rate surcharge mechanism called the “System Renewal Recovery Charge,” which would permit more timely recovery of certain costs associated with reliability and system renewal-related capital investments. ACE currently expects a decision in this matter in the first quarter of 2018, but cannot predict if the NJBPU will approve the application as filed.

2016 Electric Distribution Rates (Exelon, PHI and ACE). On August 24, 2016, the NJBPU issued an order approving a stipulation of settlement among ACE, the New Jersey Division of Rate Counsel, NJBPU Staff and Unimin Corporation, which, among other things, provided that a determination on ACE’s grid resiliency program, PowerAhead, would be separated into a phase II of the rate proceeding and decided at a later date PowerAhead includes capital investments to advance modernization of the electric grid through energy efficiency, increased distributed generation, and resiliency, focused on improving the distribution system’s ability to withstand major storm events. ACE currently expects this matter to conclude in the second quarter of 2017, but cannot predict if the NJBPU will approve the PowerAhead initiative.

Update and Reconciliation of Certain Under-Recovered Balances (Exelon, PHI and ACE). On February 1, 2017, ACE submitted its 2017 annual petition with the NJBPU seeking to reconcile and update (i) charges related to the recovery of above-market costs associated with ACE’s long-term power purchase contracts with the non-utility generators and (ii) costs related to surcharges for the New Jersey Societal Benefit Program (a statewide public interest program that is intended to benefit low income customers and address other public policy goals) and ACE’s uncollectible accounts. The net impact of adjusting the charges as proposed is an

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

overall annual rate decrease of approximately $29 million (revised to approximately $32 million in April 2017, based upon an update for actuals through March 2017), including New Jersey sales and use tax. The matter is pending at the NJBPU. ACE has requested that the NJBPU place the new rates into effect by June 1, 2017. There is no assurance that NJBPU will put final rates in effect by the requested date.

New York Regulatory Matters

New York Clean Energy Standard (Exelon, Generation). On August 1, 2016, the New York Public Service Commission (NYPSC) issued an order establishing the CES, a component of which is the Tier 3 ZEC program targeted at preserving the environmental attributes of zero-emissions nuclear-powered generating facilities that meet the criteria demonstrating public necessity as determined by the NYPSC. The New York State Energy Research and Development Authority (NYSERDA) will centrally procure the ZECs from eligible plants through a 12-year contract, to be administered in six two-year tranches, extending from April 1, 2017 through March 31, 2029. ZEC payments will be made to the eligible resources based upon the number of MWh produced, subject to specified caps and minimum performance requirements. The price to be paid for the ZECs under each tranche will be administratively determined using a formula based on the social cost of carbon as determined in 2016 by the federal government, subject to pricing adjustments designed to lower the ZEC price based on increase in underlying energy and capacity prices. The ZEC price for the first tranche has been set at $17.48 per MWh of production. Following the first tranche, the price will be updated bi-annually. Each Load Serving Entity (LSE) shall be required to purchase an amount of ZECs equivalent to its load ratio share of the total electric energy in the New York Control Area. Cost recovery from ratepayers shall be incorporated into the commodity charges on customer bills.

The NYPSC initially identified three plants eligible for the ZEC program: the FitzPatrick, Ginna, and Nine Mile Point nuclear facilities. As issued, the order also provided that the duration of the program beyond the first tranche was conditional upon a buyer purchasing the FitzPatrick facility and taking title prior to September 1, 2018. On November 18, 2016, the required contracts with NYSERDA were executed for Ginna and Nine Mile Point, in addition to Entergy’s execution of the required contract for the FitzPatrick facility. On March 31, 2017, Generation closed on the acquisition of FitzPatrick.

Several parties filed with the NYPSC requests for rehearing or reconsideration of the CES. Generation and CENG also filed a request for clarification, or in the alternative limited rehearing, that the condition limiting the duration of the program beyond the first tranche be limited to the eligibility of the FitzPatrick plant only and have no bearing on Ginna or Nine Mile Point’s eligibility for the full 12-year duration. On December 15, 2016, the NYPSC approved Generation’s and CENG’s petition to clarify this condition and denied all petitions for rehearing of the CES. Parties have until mid-April to appeal to New York State court the denials of the requests for rehearing. In addition, a Petition seeking to invalidate the ZEC program was filed in New York State court by certain environmental groups and other parties on November 30, 2016, and amended on January 13, 2017, arguing that the NYPSC violated certain technical provisions of the State Administrative Procedures Act (SAPA) when adopting the ZEC program. On February 15, 2017, Generation and CENG filed a motion to dismiss the state court action. The NYPSC also filed a motion to dismiss the state court action. On March 24, 2017, the plaintiffs filed a memorandum of law opposing the motions to dismiss, and Generation and CENG filed a reply brief on April 28, 2017. The motion is pending.

On October 19, 2016, a coalition of fossil generation companies filed a complaint in federal district court against the NYPSC alleging that the ZEC program violates certain provisions of the U.S. Constitution; specifically that the ZEC program interferes with FERC’s jurisdiction over wholesale rates and that it discriminates against out of state competitors. On December 9, 2016, Generation and CENG filed a motion to intervene in the case and to dismiss the lawsuit. The motion to intervene has been granted and the motion to dismiss is pending.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Other legal challenges remain possible, the outcomes of which remain uncertain. See Note 7 — Early Nuclear Plant Retirements for additional information relative to Ginna and Nine Mile Point. See Note 4 —Mergers, Acquisitions and Dispositions for additional information on Generation’s acquisition of FitzPatrick.

Ginna Nuclear Power Plant Reliability Support Services Agreement (Exelon and Generation). In November 2014, in response to a petition filed by Ginna Nuclear Power Plant (Ginna) regarding the possible retirement of Ginna, the NYPSC directed Ginna and Rochester Gas & Electric Company (RG&E) to negotiate a Reliability Support Services Agreement (RSSA) to support the continued operation of Ginna to maintain the reliability of the RG&E transmission grid for a specified period of time. During 2015 and 2016, Ginna and RG&E made filings with the NYPSC and FERC for their approval of the proposed RSSA. Although the RSSA was still subject to regulatory approvals, on April 1, 2015, Ginna began delivering the power and capacity from the Ginna plant into the ISO-NY consistent with the technical provisions of the RSSA.

On March 22, 2016, Ginna submitted a compliance filing with FERC with revisions to the RSSA requested by FERC. On April 8, 2016, FERC accepted the compliance filing and on April 20, 2016, the NYPSC accepted the revised RSSA with a term expiring on March 31, 2017. In April 2016, Generation began recognizing revenue based on the final approved pricing contained in the RSSA and also recognized a one-time revenue adjustment of approximately $101 million representing the net cumulative previously unrecognized amount of revenue retroactive from the April 1, 2015 effective date through March 31, 2016. A 49.99% portion of the one-time adjustment was removed from Generation’s results of operations as a result of the noncontrolling interests in CENG.

The RSSA required Ginna to continue operating through the RSSA term. On September 30, 2016, Ginna filed the required notice with the NYPSC of its intent to continue operating beyond the March 31, 2017 expiry of the RSSA, conditioned upon successful execution of an agreement between Ginna and NYSERDA for the sale of ZECs under the CES. As stated previously, on November 18, 2016 the required contract with NYSERDA was executed by Generation and CENG for Ginna. Upon the expiry of the RSSA on March 31, 2017, Ginna is required to make refund payments of $20 million to RG&E related to capital expenditures. Ginna has been deferring recognition for a portion of the monthly revenue received under the RSSA related to this obligation, and Ginna expects to pay RGE the $20 million in June 2017. Additionally, the provisions of the RSSA provided for a one-time payment of $12 million to be paid from RGE to Ginna at the end of the contract. This $12 million was recognized in revenue as of March 31, 2017. Subject to prevailing over any administrative or legal challenges, it is expected the CES will allow Ginna to continue to operate through the end of its current operating license in 2029. See Note 7-Early Nuclear Plant Retirements for further information regarding the impacts of a decision to early retire one or more nuclear plants.

Federal Regulatory Matters

Transmission Formula Rate (Exelon, ComEd and BGE). The following total increases/(decreases) were included in ComEd’s and BGE’s electric transmission formula rate filings:


	2017
Annual Transmission Filings^(a)	ComEd			BGE
Initial revenue requirement increase	$	44		$	31
Annual reconciliation (decrease) increase		(33	)		3
Dedicated facilities decrease^(b)		—			(8	)

Total revenue requirement increase	$	11		$	26

Allowed return on rate base^(c)		8.43	%		7.47	%
Allowed ROE^(d)		11.50	%		10.50	%

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(a)	All rates are effective June 2017, subject to review by the FERC and other parties, which is due by fourth quarter 2017.

(b)	BGE’s transmission revenues include a FERC approved dedicated facilities charge to recover the costs of providing transmission service to specifically designated load by BGE.

(c)	Represents the weighted average debt and equity return on transmission rate bases.

(d)

As part of the FERC-approved settlement of ComEd’s 2007 transmission rate case, the rate of return on common equity is 11.50% and the common equity component of the ratio used to calculate the weighted average debt and equity return for the transmission formula rate is currently capped at 55%. As part of the FERC-approved settlement of the ROE complaint against BGE, the rate of return on common equity is 10.50%, inclusive of a 50 basis point incentive adder for being a member of a regional transmission organization.

For additional information regarding transmission formula rate filings see Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K.

Transmission Formula Rate (Exelon and PECO) On May 1, 2017, PECO filed a request with FERC seeking approval to update its transmission rates and change the manner in which PECO’s transmission rate is determined from a fixed rate to a formula rate. The formula rate would be updated annually to ensure that under this rate customers pay the actual costs of providing transmission services. The formula rate filing includes a requested increase of $22 million to PECO’s annual transmission revenues and a requested rate of return on common equity of 11%, inclusive of a 50 basis point adder for being a member of a regional transmission organization. PECO requested that the new transmission rate be effective as of July 2017. PECO cannot predict how much, if any, of a transmission rate increase FERC may approve or when the rate increase may go into effect.

PJM Transmission Rate Design and Operating Agreements (Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE). PJM Transmission Rate Design specifies the rates for transmission service charged to customers within PJM. Currently, ComEd, PECO, BGE, Pepco, DPL and ACE incur costs based on the existing rate design, which charges customers based on the cost of the existing transmission facilities within their load zone and the cost of new transmission facilities based on those who benefit from those facilities. In April 2007, FERC issued an order concluding that PJM’s current rate design for existing facilities is just and reasonable and should not be changed. In the same order, FERC held that the costs of new facilities 500 kV and above should be socialized across the entire PJM footprint and that the costs of new facilities less than 500 kV should be allocated to the customers of the new facilities who caused the need for those facilities. A number of parties appealed to the U.S. Court of Appeals for the Seventh Circuit for review of the decision.

In August 2009, the court issued its decision affirming the FERC’s order with regard to the existing facilities, but remanded to FERC the issue of the cost allocation associated with the new facilities 500 kV and above (Cost Allocation Issue) for further consideration by the FERC. On remand, FERC reaffirmed its earlier decision to socialize the costs of new facilities 500 kV and above. A number of parties filed appeals of these orders. In June 2014, the court again remanded the Cost Allocation Issue to FERC. On December 18, 2014, FERC issued an order setting an evidentiary hearing and settlement proceeding regarding the Cost Allocation Issue. On June 15, 2016, a number of parties, including Exelon and the Utility Registrants filed a proposed Settlement with FERC. If the Settlement is approved, 50% of the costs of the 500 kV and above facilities approved by the PJM Board on or before February 1, 2013 will be socialized across PJM and 50% will be allocated according to a formula that calculates the flows on the transmission facilities. Each state that is a party in this proceeding either signed, or did not oppose, the settlement. The Settlement is opposed by a number of merchant transmission owners and New York load-serving entities. The Settlement includes provisions for monthly credits or charges that are expected to be mostly refunded or recovered through customer rates over a 10-year period based on negotiated numbers for charges prior to January 1, 2016.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Exelon expects that the Settlement will not have a material impact on the results of operations, cash flows and financial position of Generation, ComEd, PECO, BGE, Pepco, DPL or ACE. The Settlement is subject to approval by FERC.

Complaints at FERC Seeking to Mitigate Illinois and New York Programs Providing ZECs (Exelon and Generation). PJM and NYISO capacity markets include a Minimum Offer Price Rule (MOPR) that is intended to preclude buyers from exercising buyer market power. If a resource is subjected to a MOPR, its offer is adjusted to remove the revenues it receives through a federal, state or other government-provided financial support program — resulting in a higher offer that may not clear the capacity market. Currently, the MOPRs in PJM and NYISO apply only to certain new resources. Exelon has generally opposed policies that require subsidies or give preferential treatment to generation providers or technologies that do not provide superior reliability or environmental benefits, or that would threaten the reliability and value of the integrated electricity grid. Thus, Exelon has supported a MOPR as a means of minimizing the detrimental impact certain subsidized resources could have on capacity markets (such as the New Jersey (LCAPP) and Maryland (CfD) programs). However, in Exelon’s view, MOPRs should not be applied to resources that receive compensation for providing superior reliability or environmental benefits.

On January 9, 2017, the Electric Power Supply Association (EPSA) filed two requests with FERC: one seeking to amend a prior complaint against PJM and another seeking expedited action on a pending NYISO compliance filing in an existing proceeding. Both filings allege that the relevant MOPR should be expanded to also apply to existing resources receiving ZEC compensation under the New York CES and Illinois ZES programs. Exelon has filed protests at FERC in response to each filing, arguing generally that ZEC payments provide compensation for an environmental attribute that is distinct from the energy and capacity sold in the FERC-jurisdictional markets, and therefore, are no different than other renewable support programs like the PTC and RPS that have generally not been subject to a MOPR. However, if successful, for Generation’s facilities expected to receive ZEC compensation (Quad Cities, Ginna, Nine Mile Point and FitzPatrick), an expanded MOPR could require exclusion of ZEC compensation when bidding into future capacity auctions such that these facilities would have an increased risk of not clearing in those auctions and thus no longer receiving capacity revenues during the respective ZEC programs. Any such mitigation of these generating resources could have a material effect on Exelon’s and Generation’s future cash flows and results of operations. The timing of FERC’s decision with respect to both proceedings is currently unknown and the outcome of these matters is currently uncertain.

Operating License Renewals (Exelon and Generation). On August 29, 2012, Generation submitted a hydroelectric license application to FERC for a 46-year license for the Conowingo Hydroelectric Project (Conowingo). In connection with Generation’s efforts to obtain a water quality certification pursuant to Section 401 of the Clean Water Act with Maryland Department of the Environment (MDE) for Conowingo, Generation continues to work with MDE and other stakeholders to resolve water quality licensing issues, including: (1) water quality, (2) fish habitat, and (3) sediment. In addition, Generation continues to work with MDE and other Federal and Maryland state agencies to conduct and fund an additional sediment and nutrient monitoring study.

On April 21, 2016, Exelon and Interior executed a Settlement Agreement resolving all fish passage issues between the parties. Accordingly, on April 22, 2016, Exelon withdrew its Request for a Trial-Type Hearing and Alternative Prescription. The financial impact of the Settlement Agreement is estimated to be $3 million to $7 million per year, on average, over the 46-year life of the new license, including both capital and operating costs. The actual timing and amount of these costs are not currently fixed and may vary significantly from year to year throughout the life of the new license. Resolution of the remaining issues relating to Conowingo involving various stakeholders may have a material effect on Exelon’s and Generation’s results of operations and financial

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

position through an increase in capital expenditures and operating costs. As of March 31, 2017, $29 million of direct costs associated with Conowingo licensing efforts have been capitalized. See Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K for additional information on Generation’s operating license renewal efforts.

Regulatory Assets and Liabilities (Exelon, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE)

Exelon, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE each prepare their consolidated financial statements in accordance with the authoritative guidance for accounting for certain types of regulation. Under this guidance, regulatory assets represent incurred costs that have been deferred because of their probable future recovery from customers through regulated rates. Regulatory liabilities represent the excess recovery of costs or accrued credits that have been deferred because it is probable such amounts will be returned to customers through future regulated rates or represent billings in advance of expenditures for approved regulatory programs.

As a result of applying the acquisition method of accounting and pushing it down to the consolidated financial statements of PHI, certain regulatory assets and liabilities were established at Exelon and PHI to offset the impacts of fair valuing the acquired assets and liabilities assumed which are subject to regulatory recovery. In total, Exelon and PHI recorded a net $2.4 billion regulatory asset reflecting adjustments recorded as a result of the acquisition method of accounting. See Note 4 — Mergers, Acquisitions and Dispositions for additional information.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The following tables provide information about the regulatory assets and liabilities of Exelon, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE as of March 31, 2017 and December 31, 2016. For additional information on the specific regulatory assets and liabilities, refer to Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K.


									Successor
March 31, 2017	Exelon		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Regulatory assets
Pension and other postretirement benefits^(a)	$	4,152	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Deferred income taxes^(b)		2,055		76		1,617		101		261		169		40		52
AMI programs		689		165		46		225		253		170		83		—
Under-recovered distribution service costs^(c)		211		211		—		—		—		—		—		—
Debt costs		122		41		1		7		80		17		9		6
Fair value of long-term debt		797		—		—		—		658		—		—		—
Fair value of PHI’s unamortized energy contracts		1,021		—		—		—		1,021		—		—		—
Severance		4		—		—		4		—		—		—		—
Asset retirement obligations		116		82		22		12		—		—		—		—
MGP remediation costs		296		271		25		—		—		—		—		—
Under-recovered uncollectible accounts		63		63		—		—		—		—		—		—
Renewable energy		285		282		—		—		3		—		1		2
Energy and transmission programs^{(d)(e)(f)(g)(h)(i)}		71		18		—		19		34		6		5		23
Deferred storm costs		39		—		—		1		38		12		7		19
Electric generation-related regulatory asset		8		—		—		8		—		—		—		—
Energy efficiency and demand response programs		596		—		1		269		326		241		84		1
Merger integration costs^(j)(k)		32		—		—		8		24		11		13		—
Under-recovered revenue decoupling^(l)		76		—		—		31		45		36		9		—
COPCO acquisition adjustment		7		—		—		—		7		—		7		—
Recoverable Workers compensation and long-term disability cost		33		—		—		—		33		33		—		—
Vacation accrual		42		—		17		—		25		—		15		10
Securitized stranded costs		123		—		—		—		123		—		—		123
CAP arrearage		11		—		11		—		—		—		—		—
Removal costs		486		—		—		—		486		136		90		261
Other		46		6		8		5		27		21		4		4

Total regulatory assets		11,381		1,215		1,748		690		3,444		852		367		501

Less: current portion		1,330		183		40		191		653		173		66		94

Total non-current regulatory assets	$	10,051	$	1,032	$	1,708	$	499	$	2,791	$	679	$	301	$	407


									Successor
March 31, 2017	Exelon		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Regulatory liabilities
Other postretirement benefits	$	48	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Nuclear decommissioning		2,776		2,294		482		—		—		—		—		—
Removal costs		1,598		1,328		—		136		134		17		117		—
Deferred rent		39		—		—		—		39		—		—		—
Energy efficiency and demand response programs		185		139		44		—		2		2		—		—
DLC program costs		8		—		8		—		—		—		—		—
Electric distribution tax repairs		66		—		66		—		—		—		—		—
Gas distribution tax repairs		18		—		18		—		—		—		—		—
Energy and transmission programs^{(d)(e)(f)(g)(h)(i)}		133		38		66		2		27		7		12		8
Rate stabilization deferral		3		—		—		3		—		—		—		—
Other		65		4		7		20		34		3		13		17

Total regulatory liabilities		4,939		3,803		691		161		236		29		142		25

Less: current portion		637		311		161		67		82		10		47		25

Total non-current regulatory liabilities	$	4,302	$	3,492	$	530	$	94	$	154	$	19	$	95	$	—

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


									Successor
December 31, 2016	Exelon		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Regulatory assets
Pension and other postretirement benefits^(a)	$	4,162	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Deferred income taxes^(b)		2,016		75		1,583		98		260		171		38		51
AMI programs		701		164		49		230		258		174		84		—
Under-recovered distribution service costs^(c)		188		188		—		—		—		—		—		—
Debt costs		124		42		1		7		81		17		9		6
Fair value of long-term debt		812		—		—		—		671		—		—		—
Fair value of PHI’s unamortized energy contracts		1,085		—		—		—		1,085		—		—		—
Severance		5		—		—		5		—		—		—		—
Asset retirement obligations		111		76		23		12		—		—		—		—
MGP remediation costs		305		278		26		1		—		—		—		—
Under-recovered uncollectible accounts		56		56		—		—		—		—		—		—
Renewable energy		260		258		—		—		2		—		—		2
Energy and transmission programs^{(d)(e)(f)(g)(h)(i)}		89		23		—		38		28		6		5		17
Deferred storm costs		36		—		—		1		35		12		5		18
Electric generation-related regulatory asset		10		—		—		10		—		—		—		—
Rate stabilization deferral		7		—		—		7		—		—		—		—
Energy efficiency and demand response programs		621		—		1		285		335		250		85		—
Merger integration costs^(j)(k)		25		—		—		10		15		11		4		—
Under-recovered revenue decoupling^(l)		27		—		—		3		24		21		3		—
COPCO acquisition adjustment		8		—		—		—		8		—		8		—
Workers compensation and long-term disability costs		34		—		—		—		34		34		—		—
Vacation accrual		31		—		7		—		24		—		14		10
Securitized stranded costs		138		—		—		—		138		—		—		138
CAP arrearage		11		—		11		—		—		—		—		—
Removal costs		477		—		—		—		477		134		88		255
Other		49		7		9		5		29		22		5		4

Total regulatory assets		11,388		1,167		1,710		712		3,504		852		348		501

Less: current portion		1,342		190		29		208		653		162		59		96

Total non-current regulatory assets	$	10,046	$	977	$	1,681	$	504	$	2,851	$	690	$	289	$	405


									Successor
December 31, 2016	Exelon		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Regulatory liabilities
Other postretirement benefits	$	47	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Nuclear decommissioning		2,607		2,169		438		—		—		—		—		—
Removal costs		1,601		1,324		—		141		136		18		118		—
Deferred rent		39		—		—		—		39		—		—		—
Energy efficiency and demand response programs		185		141		41		—		3		3		—		—
DLC program costs		8		—		8		—		—		—		—		—
Electric distribution tax repairs		76		—		76		—		—		—		—		—
Gas distribution tax repairs		20		—		20		—		—		—		—		—
Energy and transmission programs^{(d)(e)(f)(g)(h)(i)}		134		60		56		—		18		8		5		5
Other		72		4		5		19		41		2		17		20

Total regulatory liabilities		4,789		3,698		644		160		237		31		140		25

Less: current portion		602		329		127		50		79		11		43		25

Total non-current regulatory liabilities	$	4,187	$	3,369	$	517	$	110	$	158	$	20	$	97	$	—

(a)

As of March 31, 2017 and December 31, 2016, the pension and other postretirement benefits regulatory asset at Exelon includes regulatory assets of $1,087 million established at the date of the PHI Merger related to unrecognized costs that are probable of regulatory recovery. The regulatory assets are amortized over periods from 3 to 15 years, depending on the underlying component. Pepco, DPL and ACE are currently recovering these costs through base rates. Pepco, DPL and ACE are not earning a return on the recovery of these costs in base rates.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(b)

As of March 31, 2017, includes transmission-related regulatory assets that require FERC approval separate from the transmission formula rate of $22 million, $39 million, $31 million, $21 million and $20 million for ComEd, BGE, Pepco, DPL and ACE, respectively. As of December 31, 2016, includes transmission-related regulatory assets that require FERC approval separate from the transmission formula rate of $22 million, $38 million, $31 million, $20 million and $19 million for ComEd, BGE, Pepco, DPL and ACE, respectively.

(c)

As of March 31, 2017, ComEd’s regulatory asset of $211 million was comprised of $158 million for the 2015 — 2017 annual reconciliations and $53 million related to significant one-time events including $17 million of deferred storm costs, $10 million of Constellation and PHI merger and integration related costs and $26 million of smart meter related costs. As of December 31, 2016, ComEd’s regulatory asset of $188 million was comprised of $134 million for the 2015 and 2016 annual reconciliations and $54 million related to significant one-time events, including $20 million of deferred storm costs and $11 million of Constellation and PHI merger and integration related costs, and $23 million of smart meter related costs. ComEd’s 2015 annual reconciliation regulatory asset included a reduction of $8 million related to a ComEd-proposed refund to customers for the impact of changing its OSHA recordable rate for 2014 and 2015. See Note 4 — Merger, Acquisitions, and Dispositions of the Exelon 2016 Form 10-K for further information.

(d)

As of March 31, 2017, ComEd’s regulatory asset of $18 million included $10 million associated with transmission costs recoverable through its FERC approved formula rate and $8 million of Constellation merger and integration costs to be recovered upon FERC approval. As of March 31, 2017, ComEd’s regulatory liability of $38 million included $6 million related to over-recovered energy costs and $32 million associated with revenues received for renewable energy requirements. As of December 31, 2016, ComEd’s regulatory asset of $23 million included $15 million associated with transmission costs recoverable through its FERC approved formula rate and $8 million of Constellation merger and integration costs to be recovered upon FERC approval. As of December 31, 2016, ComEd’s regulatory liability of $60 million included $30 million related to over-recovered energy costs and $30 million associated with revenues received for renewable energy requirements.

(e)

As of March 31, 2017, PECO’s regulatory liability of $66 million included $41 million related to over-recovered costs under the DSP program, $13 million related to the over-recovered natural gas costs under the PGC, $10 million related to over-recovered non-bypassable transmission service charges and $2 million related to over-recovered electric transmission costs. As of December 31, 2016, PECO’s regulatory liability of $56 million included $34 million related to over-recovered costs under the DSP program, $10 million related to over-recovered non-bypassable transmission service charges, $8 million related to the over-recovered natural gas costs under the PGC and $4 million related to the over-recovered electric transmission costs.

(f)

As of March 31, 2017, BGE’s regulatory asset of $19 million included $3 million of costs associated with transmission costs recoverable through its FERC approved formula rate, $13 million related to under-recovered electric energy costs, and $3 million of abandonment costs to be recovered upon FERC approval. As of March 31, 2017, BGE’s regulatory liability consisted of $2 million related to over-recovered natural gas costs. As of December 31, 2016, BGE’s regulatory asset of $38 million included $4 million of costs associated with transmission costs recoverable through its FERC approved formula rate, $28 million related to under-recovered electric energy costs, $3 million of abandonment costs to be recovered upon FERC approval, and $3 million of under-recovered natural gas costs.

(g)

As of March 31, 2017, Pepco’s regulatory asset of $6 million included $2 million of transmission costs recoverable through its FERC approved formula rate and $4 million of under-recovered electric energy costs. As of March 31, 2017, Pepco’s regulatory liability of $7 million included $2 million of over-recovered transmission costs and $5 million of over-recovered electric energy costs. As of December 31, 2016, Pepco’s regulatory asset of $6 million related to under-recovered electric energy costs. As of December 31, 2016, Pepco’s regulatory liability of $8 million included $5 million of over-recovered transmission costs and $3 million of over-recovered electric energy costs.

(h)

As of March 31, 2017, DPL’s regulatory asset of $5 million related to under-recovered electric energy costs. As of March 31, 2017, DPL’s regulatory liability of $12 million included $9 million of over-recovered electric energy costs, $1 million of over-recovered transmission costs, and $2 million of over-recovered gas cost. As of December 31, 2016, DPL’s regulatory asset of $5 million included $1 million of transmission costs recoverable through its FERC approved formula rate and $4 million of under-recovered electric energy costs. As of December 31, 2016, DPL’s regulatory liability of $5 million included $2 million of over-recovered electric energy costs and $3 million of over-recovered transmission costs.

(i)

As of March 31, 2017, ACE’s regulatory asset of $23 million included $10 million of transmission costs recoverable through its FERC approved formula rate and $13 million of under-recovered electric energy costs. As of March 31, 2017, ACE’s regulatory liability of $8 million included $2 million of over-recovered transmission costs and $6 million of over-

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

recovered electric energy costs. As of December 31, 2016, ACE’s regulatory asset of $17 million included $6 million of transmission costs recoverable through its FERC approved formula rate and $11 million of under-recovered electric energy costs. As of December 31, 2016, ACE’s regulatory liability of $5 million included $4 million of over-recovered transmission costs and $1 million of over-recovered electric energy costs.

(j)	As of March 31, 2017, BGE’s regulatory asset of $8 million included $6 million of previously incurred PHI acquisition costs as authorized by the June 2016 rate case order.

(k)

As of March 31, 2017 and December 31, 2016, Pepco’s regulatory asset of $11 million represents previously incurred PHI acquisition costs authorized for recovery by the November 2016 Maryland distribution rate case order. As of March 31, 2017, DPL’s regulatory asset of $13 million represents previously incurred PHI acquisition costs, including $5 million authorized for recovery by the February 2017 Maryland distribution rate case order and $8 million expected to be recovered in electric and gas distribution rates in the Delaware service territory. As of December 31, 2016, DPL’s regulatory asset of $4 million represents previously incurred PHI acquisition costs expected to be recovered in distribution rates in the Maryland service territory.

(l)

Represents the electric and natural gas distribution costs recoverable from customers under BGE’s decoupling mechanism. As of March 31, 2017, BGE had a regulatory asset of $25 million related to under-recovered electric revenue decoupling and $6 million related to under-recovered natural gas revenue decoupling. As of December 31, 2016, BGE had a regulatory asset of $2 million related to under-recovered natural gas revenue decoupling and $1 million related to under-recovered electric revenue decoupling.

Capitalized Ratemaking Amounts Not Recognized (Exelon, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE)

The following table illustrates our authorized amounts capitalized for ratemaking purposes related to earnings on shareholders’ investment that are not recognized for financial reporting purposes on our Consolidated Balance Sheets. These amounts will be recognized as revenues in our Consolidated Statements of Operations and Comprehensive Income in the periods they are billable to our customers.


	Exelon		ComEd^(a)		PECO		BGE^(b)		PHI		Pepco^(c)		DPL^(c)		ACE
March 31, 2017	$	71	$	5	$	—	$	56	$	10	$	6	$	4	$	—

	Exelon		ComEd^(a)		PECO		BGE^(b)		PHI		Pepco^(b)		DPL^(b)		ACE
December 31, 2016	$	72	$	5	$	—	$	57	$	10	$	6	$	4	$	—

(a)	Reflects ComEd’s unrecognized equity returns earned for ratemaking purposes on its under-recovered distribution services costs regulatory assets.

(b)	BGE’s authorized amounts capitalized for ratemaking purposes related to earnings on shareholders’ investment on its AMI Programs.

(c)	Pepco’s and DPL’s authorized amounts capitalized for ratemaking purposes related to earnings on shareholders’ investment on their respective AMI Programs and Energy Efficiency and Demand Response Programs. The earnings on energy efficiency are on Pepco DC and DPL DE programs only.

Purchase of Receivables Programs (Exelon, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE)

ComEd, PECO, BGE, Pepco, DPL and ACE are required, under separate legislation and regulations in Illinois, Pennsylvania, Maryland, District of Columbia and New Jersey, to purchase certain receivables from retail electric and natural gas suppliers that participate in the utilities’ consolidated billing. ComEd, BGE, Pepco and DPL purchase receivables at a discount to recover primarily uncollectible accounts expense from the suppliers. PECO is required to purchase receivables at face value and is permitted to recover uncollectible accounts expense, including those from Third Party Suppliers, from customers through distribution rates. ACE purchases receivables at face value. ACE recovers all uncollectible accounts expense, including those from Third Party Suppliers, through the Societal Benefits Charge (SBC) rider, which includes uncollectible accounts expense as a component. The SBC is filed annually with the NJBPU. Exelon, ComEd, PECO, BGE, PHI, Pepco, DPL and

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

ACE do not record unbilled commodity receivables under the POR programs. Purchased billed receivables are classified in Other accounts receivable, net on Exelon’s, ComEd’s, PECO’s, BGE’s, PHI’s, Pepco’s, DPL’s and ACE’s Consolidated Balance Sheets. The following tables provide information about the purchased receivables of those companies as of March 31, 2017 and December 31, 2016.


													Successor
As of March 31, 2017	Exelon			ComEd			PECO			BGE			PHI			Pepco			DPL			ACE
Purchased receivables^(b)	$	305		$	85		$	72		$	59		$	89		$	58		$	10		$	21
Allowance for uncollectible accounts^(a)		(36	)		(14	)		(7	)		(4	)		(11	)		(6	)		(2	)		(3	)

Purchased receivables, net	$	269		$	71		$	65		$	55		$	78		$	52		$	8		$	18


													Successor
As of December 31, 2016	Exelon			ComEd			PECO			BGE			PHI			Pepco			DPL			ACE
Purchased receivables^(b)	$	313		$	87		$	72		$	59		$	95		$	63		$	10		$	22
Allowance for uncollectible accounts^(a)		(37	)		(14	)		(6	)		(4	)		(13	)		(7	)		(2	)		(4	)

Purchased receivables, net	$	276		$	73		$	66		$	55		$	82		$	56		$	8		$	18

(a)	For ComEd, BGE, Pepco and DPL, reflects the incremental allowance for uncollectible accounts recorded, which is in addition to the purchase discount. For ComEd, the incremental uncollectible accounts expense is recovered through its Purchase of Receivables with Consolidated Billing tariff.

(b)

Pepco’s electric POR program in Maryland included a discount on purchased receivables ranging from 0% to 2% depending on customer class, and Pepco’s electric POR program in the District of Columbia included a discount on purchased receivables ranging from 0% to 6% depending on customer class. DPL’s electric POR program in Maryland included a discount on purchased receivables ranging from 0% to 1% depending on customer class.

6. Impairment of Long-Lived Assets (Exelon and Generation)

Long-Lived Assets (Exelon and Generation)

Generation evaluates long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. During the first quarter of 2016, significant changes in Generation’s intended use of the Upstream oil and gas assets, developments with nonrecourse debt held by its upstream subsidiary CEU Holdings, LLC (as described in Note 14 — Debt and Credit Agreements of the Exelon 2016 Form 10-K) and continued declines in both production volumes and commodity prices suggested that the carrying value may be impaired. Generation concluded that the estimated undiscounted future cash flows and fair value of its Upstream properties were less than their carrying values. As a result, a pre-tax impairment charge of $119 million was recorded in March 2016 within Operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income. On June 16, 2016, Generation initiated the sales process of its Upstream business by executing a forbearance agreement with the lenders of the nonrecourse debt. An additional pre-tax impairment charge of $15 million was recorded in September 2016 within Operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income due to further declines in fair value. In December 2016, Generation sold substantially all of the Upstream Assets. See Note 4 — Merger, Acquisitions, and Dispositions of the Exelon 2016 Form 10-K for further information.

Like-Kind Exchange Transaction (Exelon)

In June 2000, UII, LLC (formerly Unicom Investments, Inc.) (UII), a wholly owned subsidiary of Exelon Corporation, entered into transactions pursuant to which UII invested in coal-fired generating station leases (Headleases) with the Municipal Electric Authority of Georgia (MEAG). The generating stations were leased back to MEAG as part of the transactions (Leases).

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

On March 31, 2016, UII and MEAG finalized an agreement to terminate the MEAG Headleases, the MEAG Leases, and other related agreements prior to their expiration dates. As a result of the lease termination, UII received an early termination payment of $360 million from MEAG and wrote-off the $356 million net investment in the MEAG Headleases and the Leases. The transaction resulted in a pre-tax gain of $4 million which is reflected in Operating and maintenance expense in Exelon’s Consolidated Statements of Operations and Comprehensive Income. See Note 11 — Income Taxes for additional information.

7. Early Nuclear Plant Retirements (Exelon and Generation)

Exelon and Generation continue to evaluate the current and expected economic value of each of Generation’s nuclear plants. Factors that will continue to affect the economic value of Generation’s nuclear plants include, but are not limited to: market power prices, results of capacity auctions, potential legislative and regulatory solutions to ensure nuclear plants are fairly compensated for their carbon-free emissions, and the impact of potential rules from the EPA requiring reduction of carbon and other emissions and the efforts of states to implement those final rules. In 2015 and 2016, Generation identified the Clinton, Quad Cities, Ginna, Nine Mile Point, and Three Mile Island (TMI) nuclear plants as having the greatest risk of early retirement based on economic valuation and other factors. PSEG has also recently made public similar financial challenges facing its New Jersey nuclear plants including Salem, of which Generation owns a 42.59% ownership interest. As previously disclosed, Exelon and Generation have committed to cease operation of the Oyster Creek nuclear plant by the end of 2019.

Based on insufficient capacity auction results and the lack of progress on Illinois energy legislation, on June 2, 2016, Generation announced a decision to shut down the Clinton and Quad Cities nuclear plants on June 1, 2017 and June 1, 2018, respectively. With the passage of the Illinois ZES on December 7, 2016, and subject to prevailing over any related administrative or legal challenges, Generation reversed this decision and revised the expected economic useful lives for both facilities; 2027 for Clinton and 2032 for Quad Cities. Refer to Note 5—Regulatory Matters for additional discussion on the Illinois ZES.

Exelon’s and Generation’s 2016 results included a net incremental $714 million of total pre-tax expense associated with the initial early retirement decision for Clinton and Quad Cities, as summarized in the table below.


Income statement expense (pre-tax)	Q2 2016			Q3 2016			Q4 2016			YTD 2016
Depreciation and amortization
Accelerated depreciation^(a)	$	115		$	344		$	253		$	712
Accelerated Nuclear Fuel amortization		9			28			23			60
Operating and maintenance
One time charges^(b)		141			5			(120	)		26
ARO accretion, net of contractual offset^(c)		—			2			—			2
Contractual offset for ARC depreciation^(c)		(14	)		(41	)		(31	)		(86	)

Total	$	251		$	338		$	125		$	714

(a)	Reflected incremental accelerated depreciation of plant assets, including any ARC, for the period June 2, 2016, through December 6, 2016.

(b)	Primarily included materials and supplies inventory reserve adjustments, employee related costs and construction work-in-progress (CWIP) impairments.

(c)	For Quad Cities based on the regulatory agreement with the Illinois Commerce Commission, decommissioning-related activities are offset within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The offset results in an equal adjustment to the noncurrent payables to ComEd at Generation and an adjustment to the regulatory liabilities at ComEd. Likewise, ComEd has recorded an equal noncurrent affiliate receivable from Generation and corresponding regulatory liability.

In New York, the Ginna, Nine Mile Point, and Generation’s recently acquired FitzPatrick nuclear plant also faced significant economic challenges and risk of retirement before the end of each unit’s respective operating license period (2029 for Ginna and Nine Mile Point Unit 1, 2046 for Nine Mile Point Unit 2, and 2034 for FitzPatrick). On August 1, 2016, the NYPSC issued an order adopting the CES that, subject to prevailing over any administrative or legal challenges, would allow Ginna, Nine Mile Point, and FitzPatrick to continue to operate at least through the life of the program (March 31, 2029). The assumed useful life for depreciation purposes for each facility is through the end of their current operating licenses. Ginna most recently operated under an RSSA which expired March 31, 2017 and has filed the required notice with the NYPSC of its intent to continue operating beyond the expiry of the RSSA. Refer to Note 4 — Mergers, Acquisitions and Dispositions for additional information on Generation’s acquisition of FitzPatrick and Note 5 — Regulatory Matters for additional discussion on the Ginna RSSA and the New York CES.

Assuming the successful implementation of the Illinois ZES and the New York CES and the continued effectiveness of these programs, Generation and CENG, through its ownership of Ginna and Nine Mile Point, no longer consider Clinton, Quad Cities, Ginna or Nine Mile Point to be at heightened risk for early retirement. However, to the extent either the Illinois ZES or the New York CES programs do not operate as expected over their full terms, each of these plants (and now including the newly acquired FitzPatrick) could again be at heightened risk for early retirement, which could have a material impact on Exelon’s and Generation’s future results of operations, cash flows and financial position.

The TMI nuclear plant did not clear in the May 2016 PJM capacity auction for the 2019-2020 planning year and will not receive capacity revenue for that period, the second consecutive year that TMI failed to clear the PJM base residual capacity auction. The plant is currently committed to operate through May 2019. TMI will be offered into the May 2017 PJM capacity auction for the 2020-2021 planning year, however the plant faces continued economic challenges and Exelon and Generation are exploring all options to return it to profitability, including the potential for a legislative solution in Pennsylvania similar to that passed in Illinois.

The following table provides the balance sheet amounts as of March 31, 2017 for significant assets and liabilities associated with TMI, the plant currently considered by management to be at the greatest risk of early retirement due to current economic valuations and other factors.


(in millions)	TMI
Asset Balances
Materials and supplies inventory	$	40
Nuclear fuel inventory, net		72
Completed plant, net		1,000
Construction work in progress		40
Liability Balances
Asset retirement obligation		(572	)
NRC License Renewal Term		2034

The precise timing of an early retirement date for any nuclear plant, and the resulting financial statement impacts, may be affected by a number of factors, including the status of potential regulatory or legislative solutions, results of any transmission system reliability study assessments, the nature of any co-owner

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

requirements and stipulations, and decommissioning trust fund requirements, among other factors. However, the earliest retirement date for any plant would usually be the first year in which the unit does not have capacity or other obligations, where applicable, and just prior to its next scheduled nuclear refueling outage.

8. Fair Value of Financial Assets and Liabilities (All Registrants)

Fair Value of Financial Liabilities Recorded at the Carrying Amount

The following tables present the carrying amounts and fair values of the Registrants’ short-term liabilities, long-term debt, SNF obligation, and trust preferred securities (long-term debt to financing trusts or junior subordinated debentures) as of March 31, 2017 and December 31, 2016:

Exelon


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	2,048	$	—	$	2,048	$	—	$	2,048
Long-term debt (including amounts due within one year)^(a)		34,689		1,135		32,562		1,962		35,659
Long-term debt to financing trusts^(b)		641		—		—		677		677
SNF obligation		1,136		—		813		—		813


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	1,267	$	—	$	1,267	$	—	$	1,267
Long-term debt (including amounts due within one year)^(a)		34,005		1,113		31,741		1,959		34,813
Long-term debt to financing trusts^(b)		641		—		—		667		667
SNF obligation		1,024		—		732		—		732

Generation


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	717	$	—	$	717	$	—	$	717
Long-term debt (including amounts due within one year)^(a)		9,979		—		8,200		1,671		9,871
SNF obligation		1,136		—		813		—		813


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	699	$	—	$	699	$	—	$	699
Long-term debt (including amounts due within one year)^(a)		9,241		—		7,482		1,670		9,152
SNF obligation		1,024		—		732		—		732

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

ComEd


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	365	$	—	$	365	$	—	$	365
Long-term debt (including amounts due within one year)^(a)		7,035		—		7,615		—		7,615
Long-term debt to financing trusts^(b)		205		—		—		218		218


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)^(a)	$	7,033	$	—	$	7,585	$	—	$	7,585
Long-term debt to financing trusts^(b)		205		—		—		215		215

PECO


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)^(a)	$	2,580	$	—	$	2,806	$	—	$	2,806
Long-term debt to financing trusts		184		—		—		193		193


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)^(a)	$	2,580	$	—	$	2,794	$	—	$	2,794
Long-term debt to financing trusts		184		—		—		192		192

BGE


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	95	$	—	$	95	$	—	$	95
Long-term debt (including amounts due within one year)^(a)		2,323		—		2,501		—		2,501
Long-term debt to financing trusts^(b)		252		—		—		266		266


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	45	$	—	$	45	$	—	$	45
Long-term debt (including amounts due within one year)^(a)		2,322		—		2,467		—		2,467
Long-term debt to financing trusts^(b)		252		—		—		260		260

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

PHI (Successor)


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	167	$	—	$	167	$	—	$	167
Long-term debt (including amounts due within one year)^(a)		5,860		—		5,510		291		5,801


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	522	$	—	$	522	$	—	$	522
Long-term debt (including amounts due within one year)^(a)		5,898		—		5,520		289		5,809

Pepco


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	167	$	—	$	167	$	—	$	167
Long-term debt (including amounts due within one year)^(a)		2,350		—		2,804		9		2,813


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Short-term liabilities	$	23	$	—	$	23	$	—	$	23
Long-term debt (including amounts due within one year)^(a)		2,349		—		2,788		8		2,796

DPL


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)^(a)	$	1,326	$	—	$	1,374	$	—	$	1,374


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)^(a)	$	1,340	$	—	$	1,383	$	—	$	1,383

ACE


	March 31, 2017
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)^(a)	$	1,145	$	—	$	989	$	282	$	1,271

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


	December 31, 2016
	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
Long-term debt (including amounts due within one year)^(a)	$	1,155	$	—	$	1,007	$	280	$	1,287

(a)

Includes unamortized debt issuance costs which are not fair valued of $199 million, $67 million, $45 million, $15 million, $14 million, $2 million, $29 million, $11 million, and $5 million for Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE, respectively, as of March 31, 2017. Includes unamortized debt issuance costs of $200 million, $64 million, $46 million, $15 million, $15 million, $2 million, $30 million, $11 million, and $6 million for Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE, respectively, as of December 31, 2016.

(b)	Includes unamortized debt issuance costs which are not fair valued of $7 million, $1 million, and $6 million for Exelon, ComEd and BGE, respectively, as of March 31, 2017 and December 31, 2016.

Short-Term Liabilities. The short-term liabilities included in the tables above are comprised of dividends payable (included in other current liabilities) (Level 1) and short-term borrowings (Level 2). The Registrants’ carrying amounts of the short-term liabilities are representative of fair value because of the short-term nature of these instruments.

Long-Term Debt. The fair value amounts of Exelon’s taxable debt securities (Level 2) and private placement taxable debt securities (Level 3) are determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. In order to incorporate the credit risk of the Registrants into the discount rates, Exelon obtains pricing (i.e., U.S. Treasury rate plus credit spread) based on trades of existing Exelon debt securities as well as debt securities of other issuers in the utility sector with similar credit ratings in both the primary and secondary market, across the Registrants’ debt maturity spectrum. The credit spreads of various tenors obtained from this information are added to the appropriate benchmark U.S. Treasury rates in order to determine the current market yields for the various tenors. The yields are then converted into discount rates of various tenors that are used for discounting the respective cash flows of the same tenor for each bond or note. Due to low trading volume of private placement debt, qualitative factors such as market conditions, low volume of investors and investor demand, this debt is classified as Level 3. The fair value of Exelon’s equity units (Level 1) are valued based on publicly traded securities issued by Exelon.

The fair value of Generation’s and Pepco’s non-government-backed fixed rate nonrecourse debt (Level 3) is based on market and quoted prices for its own and other nonrecourse debt with similar risk profiles. Given the low trading volume in the nonrecourse debt market, the price quotes used to determine fair value will reflect certain qualitative factors, such as market conditions, investor demand, new developments that might significantly impact the project cash flows or off-taker credit, and other circumstances related to the project (e.g., political and regulatory environment). The fair value of Generation’s government-backed fixed rate project financing debt (Level 3) is largely based on a discounted cash flow methodology that is similar to the taxable debt securities methodology described above. Due to the lack of market trading data on similar debt, the discount rates are derived based on the original loan interest rate spread to the applicable Treasury rate as well as a current market curve derived from government-backed securities. Variable rate financing debt resets on a monthly or quarterly basis and the carrying value approximates fair value (Level 2). When trading data is available on variable rate financing debt, the fair value is based on market and quoted prices for its own and other nonrecourse debt with similar risk profiles (Level 2). Generation, Pepco, DPL and ACE also have tax-exempt debt (Level 2). Due to low trading volume in this market, qualitative factors, such as market conditions, investor demand, and circumstances related to the issuer (e.g., conduit issuer political and regulatory environment), may be incorporated into the credit spreads that are used to obtain the fair value as described above. Variable rate tax-exempt debt (Level 2) resets on a regular basis and the carrying value approximates fair value.

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

SNF Obligation. The carrying amount of Generation’s SNF obligation (Level 2) is derived from a contract with the DOE to provide for disposal of SNF from Generation’s nuclear generating stations. When determining the fair value of the obligation, the future carrying amount of the SNF obligation is calculated by compounding the current book value of the SNF obligation at the 13-week Treasury rate. The compounded obligation amount is discounted back to present value using Generation’s discount rate, which is calculated using the same methodology as described above for the taxable debt securities, and an estimated maturity date of 2030. This amount also includes $110 million for the fair value of the one-time fee obligation associated with FitzPatrick as of March 31, 2017. The fair value was determined using a similar methodology, however the New York Power Authority’s (NYPA) discount rate is used in place of Generation’s given the contractual right to reimbursement from NYPA for the obligation; see Note 4 — Mergers, Acquisitions and Dispositions for additional information on Generation’s acquisition of FitzPatrick.

Long-Term Debt to Financing Trusts. Exelon’s long-term debt to financing trusts is valued based on publicly traded securities issued by the financing trusts. Due to low trading volume of these securities, qualitative factors, such as market conditions, investor demand, and circumstances related to each issue, this debt is classified as Level 3.

Recurring Fair Value Measurements

Exelon records the fair value of assets and liabilities in accordance with the hierarchy established by the authoritative guidance for fair value measurements. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

•

Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the Registrants have the ability to liquidate as of the reporting date.

•

Level 2 — inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

•

Level 3 — unobservable inputs, such as internally developed pricing models or third-party valuations for the asset or liability due to little or no market activity for the asset or liability.

Transfers in and out of levels are recognized as of the end of the reporting period when the transfer occurred. Given derivatives categorized within Level 1 are valued using exchange-based quoted prices within observable periods, transfers between Level 2 and Level 1 were not material. Additionally, there were no material transfers between Level 1 and Level 2 during the three months ended March 31, 2017 for cash equivalents, nuclear decommissioning trust fund investments, pledged assets for Zion Station decommissioning, Rabbi trust investments, and deferred compensation obligations. For derivative contracts, transfers into Level 2 from Level 3 generally occur when the contract tenor becomes more observable and due to changes in market liquidity or assumptions for certain commodity contracts.

Generation and Exelon

In accordance with the applicable guidance on fair value measurement, certain investments that are measured at fair value using the NAV per share as a practical expedient are no longer classified within the fair value hierarchy and are included under “Not subject to leveling” in the table below.

100

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The following tables present assets and liabilities measured and recorded at fair value on Exelon’s and Generation’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2017 and December 31, 2016:


	Generation														Exelon
As of March 31, 2017	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Assets
Cash equivalents^(a)	$	135		$	—		$	—		$	—	$	135		$	342		$	—		$	—		$	—	$	342
NDT fund investments
Cash equivalents^(b)		160			21			—			—		181			160			21			—			—		181
Equities		4,113			505			1			2,089		6,708			4,113			505			1			2,089		6,708
Fixed income
Corporate debt		—			1,749			255			—		2,004			—			1,749			255			—		2,004
U.S. Treasury and agencies		1,516			35			—			—		1,551			1,516			35			—			—		1,551
Foreign governments		—			57			—			—		57			—			57			—			—		57
State and municipal debt		—			241			—			—		241			—			241			—			—		241
Other^(c)		—			52			—			484		536			—			52			—			484		536

Fixed income subtotal		1,516			2,134			255			484		4,389			1,516			2,134			255			484		4,389

Middle market lending		—			—			427			64		491			—			—			427			64		491
Private equity		—			—			—			158		158			—			—			—			158		158
Real estate		—			—			—			427		427			—			—			—			427		427

NDT fund investments subtotal^(d)		5,789			2,660			683			3,222		12,354			5,789			2,660			683			3,222		12,354

Pledged assets for Zion Station decommissioning
Cash equivalents		21			—			—			—		21			21			—			—			—		21
Equities		—			1			—			—		1			—			1			—			—		1
Fixed income — U.S. Treasury and agencies		8			1			—			—		9			8			1			—			—		9
Middle market lending		—			—			20			44		64			—			—			20			44		64

Pledged assets for Zion Station decommissioning subtotal^(e)		29			2			20			44		95			29			2			20			44		95

Rabbi trust investments
Cash equivalents		7			—			—			—		7			80			—			—			—		80
Mutual funds		20			—			—			—		20			53			—			—			—		53
Fixed income		—			—			—			—		—			—			15			—			—		15
Life insurance contracts		—			20			—			—		20			—			66			20			—		86

Rabbi trust investments subtotal		27			20			—			—		47			133			81			20			—		234

Commodity derivative assets
Economic hedges		749			2,993			1,631			—		5,373			751			2,993			1,631			—		5,375
Proprietary trading		5			50			25			—		80			5			50			25			—		80
Effect of netting and allocation of collateral^(f)(g)		(639	)		(2,575	)		(873	)		—		(4,087	)		(641	)		(2,575	)		(873	)		—		(4,089	)

Commodity derivative assets subtotal		115			468			783			—		1,366			115			468			783			—		1,366

Interest rate and foreign currency derivative assets
Derivatives designated as hedging instruments		—			—			—			—		—			—			12			—			—		12
Economic hedges		—			22			—			—		22			—			22			—			—		22
Proprietary trading		3			1			—			—		4			3			1			—			—		4
Effect of netting and allocation of collateral		(4	)		(14	)		—			—		(18	)		(4	)		(14	)		—			—		(18	)

Interest rate and foreign currency derivative assets subtotal		(1	)		9			—			—		8			(1	)		21			—			—		20

Other investments		—			—			40			—		40			—			—			40			—		40

Total assets		6,094			3,159			1,526			3,266		14,045			6,407			3,232			1,546			3,266		14,451

101

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


	Generation														Exelon
As of March 31, 2017	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Liabilities
Commodity derivative liabilities
Economic hedges		(787	)		(2,855	)		(1,167	)		—		(4,809	)		(787	)		(2,855	)		(1,449	)		—		(5,091	)
Proprietary trading		(6	)		(49	)		(22	)		—		(77	)		(6	)		(49	)		(22	)		—		(77	)
Effect of netting and allocation of collateral^(f)(g)		714			2,846			971			—		4,531			714			2,846			971			—		4,531

Commodity derivative liabilities subtotal		(79	)		(58	)		(218	)		—		(355	)		(79	)		(58	)		(500	)		—		(637	)

Interest rate and foreign currency derivative liabilities
Derivatives designated as hedging instruments		—			(1	)		—			—		(1	)		—			(1	)		—			—		(1	)
Economic hedges		—			(25	)		—			—		(25	)		—			(25	)		—			—		(25	)
Proprietary trading		(3	)		—			—			—		(3	)		(3	)		—			—			—		(3	)
Effect of netting and allocation of collateral		4			14			—			—		18			4			14			—			—		18

Interest rate and foreign currency derivative liabilities subtotal		1			(12	)		—			—		(11	)		1			(12	)		—			—		(11	)

Deferred compensation obligation		—			(35	)		—			—		(35	)		—			(135	)		—			—		(135	)

Total liabilities		(78	)		(105	)		(218	)		—		(401	)		(78	)		(205	)		(500	)		—		(783	)

Total net assets	$	6,016		$	3,054		$	1,308		$	3,266	$	13,644		$	6,329		$	3,027		$	1,046		$	3,266	$	13,668


	Generation										Exelon
As of December 31, 2016	Level 1		Level 2		Level 3		Not subject to leveling		Total		Level 1		Level 2		Level 3		Not subject to leveling		Total
Assets
Cash equivalents^(a)	$	39	$	—	$	—	$	—	$	39	$	373	$	—	$	—	$	—	$	373
NDT fund investments
Cash equivalents^(b)		110		19		—		—		129		110		19		—		—		129
Equities		3,551		452		—		2,011		6,014		3,551		452		—		2,011		6,014
Fixed income
Corporate debt		—		1,554		250		—		1,804		—		1,554		250		—		1,804
U.S. Treasury and agencies		1,291		29		—		—		1,320		1,291		29		—		—		1,320
Foreign governments		—		37		—		—		37		—		37		—		—		37
State and municipal debt		—		264		—		—		264		—		264		—		—		264
Other^(c)		—		59		—		493		552		—		59		—		493		552

Fixed income subtotal		1,291		1,943		250		493		3,977		1,291		1,943		250		493		3,977

Middle market lending		—		—		427		71		498		—		—		427		71		498
Private equity		—		—		—		148		148		—		—		—		148		148
Real estate		—		—		—		326		326		—		—		—		326		326

NDT fund investments subtotal^(d)		4,952		2,414		677		3,049		11,092		4,952		2,414		677		3,049		11,092

Pledged assets for Zion Station decommissioning
Cash equivalents		11		—		—		—		11		11		—		—		—		11
Equities		—		2		—		—		2		—		2		—		—		2
Fixed Income — U.S. Treasury and agencies		16		1		—		—		17		16		1		—		—		17
Middle market lending		—		—		19		64		83		—		—		19		64		83

Pledged assets for Zion Station decommissioning subtotal^(e)		27		3		19		64		113		27		3		19		64		113

Rabbi trust investments
Cash equivalents		2		—		—		—		2		74		—		—		—		74
Mutual funds		19		—		—		—		19		50		—		—		—		50
Fixed income		—		—		—		—		—		—		16		—		—		16
Life insurance contracts		—		18		—		—		18		—		64		20		—		84

Rabbi trust investments subtotal		21		18		—		—		39		124		80		20		—		224

102

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


	Generation														Exelon
As of December 31, 2016	Level 1			Level 2			Level 3			Not subject to leveling		Total			Level 1			Level 2			Level 3			Not subject to leveling		Total
Commodity derivative assets
Economic hedges		1,356			2,505			1,229			—		5,090			1,358			2,505			1,229			—		5,092
Proprietary trading		3			50			23			—		76			3			50			23			—		76
Effect of netting and allocation of collateral^(f)(g)		(1,162	)		(2,142	)		(481	)		—		(3,785	)		(1,164	)		(2,142	)		(481	)		—		(3,787	)

Commodity derivative assets subtotal		197			413			771			—		1,381			197			413			771			—		1,381

Interest rate and foreign currency derivative assets
Derivatives designated as hedging instruments		—			—			—			—		—			—			16			—			—		16
Economic hedges		—			28			—			—		28			—			28			—			—		28
Proprietary trading		3			2			—			—		5			3			2			—			—		5
Effect of netting and allocation of collateral		(2	)		(19	)		—			—		(21	)		(2	)		(19	)		—			—		(21	)

Interest rate and foreign currency derivative assets subtotal		1			11			—			—		12			1			27			—			—		28

Other investments		—			—			42			—		42			—			—			42			—		42

Total assets		5,237			2,859			1,509			3,113		12,718			5,674			2,937			1,529			3,113		13,253

Liabilities
Commodity derivative liabilities
Economic hedges		(1,267	)		(2,378	)		(794	)		—		(4,439	)		(1,267	)		(2,378	)		(1,052	)		—		(4,697	)
Proprietary trading		(3	)		(50	)		(26	)		—		(79	)		(3	)		(50	)		(26	)		—		(79	)
Effect of netting and allocation of collateral^(f)(g)		1,233			2,339			542			—		4,114			1,233			2,339			542			—		4,114

Commodity derivative liabilities subtotal		(37	)		(89	)		(278	)		—		(404	)		(37	)		(89	)		(536	)		—		(662	)

Interest rate and foreign currency derivative liabilities
Derivatives designated as hedging instruments		—			(10	)		—			—		(10	)		—			(10	)		—			—		(10	)
Economic hedges		—			(21	)		—			—		(21	)		—			(21	)		—			—		(21	)
Proprietary trading		(4	)		—			—			—		(4	)		(4	)		—			—			—		(4	)
Effect of netting and allocation of collateral		4			19			—			—		23			4			19			—			—		23

Interest rate and foreign currency derivative liabilities subtotal		—			(12	)		—			—		(12	)		—			(12	)		—			—		(12	)

Deferred compensation obligation		—			(34	)		—			—		(34	)		—			(136	)		—			—		(136	)

Total liabilities		(37	)		(135	)		(278	)		—		(450	)		(37	)		(237	)		(536	)		—		(810	)

Total net assets	$	5,200		$	2,724		$	1,231		$	3,113	$	12,268		$	5,637		$	2,700		$	993		$	3,113	$	12,443

(a)

Generation excludes cash of $267 million and $252 million at March 31, 2017 and December 31, 2016 and restricted cash of $138 million and $157 million at March 31, 2017 and December 31, 2016. Exelon excludes cash of $381 million and $360 million at March 31, 2017 and December 31, 2016 and restricted cash of $165 million and $180 million at March 31, 2017 and December 31, 2016 and includes long term restricted cash of $25 million at March 31, 2017 and December 31, 2016, which is reported in other deferred debits on the balance sheet.

(b)	Includes less than $1 million and $29 million of cash received from outstanding repurchase agreements at March 31, 2017 and December 31, 2016, respectively, and is offset by an obligation to repay upon settlement of the agreement as discussed in (d) below.

(c)

Includes derivative instruments of $(1) million and $(2) million, which have a total notional amount of $886 million and $933 million at March 31, 2017 and December 31, 2016, respectively. The notional principal amounts for these instruments provide one measure of the transaction volume outstanding as of the fiscal years ended and do not represent the amount of the company’s exposure to credit or market loss.

(d)

Excludes net assets (liabilities) of $8 million and $(31) million at March 31, 2017 and December 31, 2016, respectively. These items consist of receivables related to pending securities sales, interest and dividend receivables, repurchase agreement obligations, and payables related to pending securities purchases. The repurchase agreements are generally short-term in nature with durations generally of 30 days or less.

103

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(e)	Excludes net assets of less than $1 million at March 31, 2017 and December 31, 2016. These items consist of receivables related to pending securities sales, interest and dividend receivables, and payables related to pending securities purchases.

(f)

Collateral posted/(received) from counterparties totaled $75 million, $271 million and $98 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of March 31, 2017. Collateral posted/(received) from counterparties, net of collateral paid to counterparties, totaled $71 million, $197 million and $61 million allocated to Level 1, Level 2 and Level 3 mark-to-market derivatives, respectively, as of December 31, 2016.

(g)	Of the collateral posted/(received), $14 million represents variation margin on the exchanges as of March 31, 2017. Of the collateral posted/(received), $(158) million represents variation margin on the exchanges as of December 31, 2016.

ComEd, PECO and BGE

The following tables present assets and liabilities measured and recorded at fair value on ComEd’s, PECO’s and BGE’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2017 and December 31, 2016:


	ComEd											PECO										BGE
As of March 31, 2017	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents^(a)	$	—	$	—		$	—		$	—		$	5	$	—		$	—	$	5		$	45	$	—		$	—	$	45
Rabbi trust investments
Mutual funds		—		—			—			—			7		—			—		7			5		—			—		5
Life insurance contracts		—		—			—			—			—		10			—		10			—		—			—		—

Rabbi trust investments subtotal		—		—			—			—			7		10			—		17			5		—			—		5

Total assets		—		—			—			—			12		10			—		22			50		—			—		50

Liabilities
Deferred compensation obligation		—		(8	)		—			(8	)		—		(11	)		—		(11	)		—		(4	)		—		(4	)
Mark-to-market derivative liabilities^(b)		—		—			(282	)		(282	)		—		—			—		—			—		—			—		—

Total liabilities		—		(8	)		(282	)		(290	)		—		(11	)		—		(11	)		—		(4	)		—		(4	)

Total net assets (liabilities)	$	—	$	(8	)	$	(282	)	$	(290	)	$	12	$	(1	)	$	—	$	11		$	50	$	(4	)	$	—	$	46

104

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


	ComEd											PECO										BGE
As of December 31, 2016	Level 1		Level 2			Level 3			Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
Assets
Cash equivalents^(a)	$	20	$	—		$	—		$	20		$	45	$	—		$	—	$	45		$	36	$	—		$	—	$	36
Rabbi trust investments
Mutual funds		—		—			—			—			7		—			—		7			4		—			—		4
Life insurance contracts		—		—			—			—			—		10			—		10			—		—			—		—

Rabbi trust investments subtotal		—		—			—			—			7		10			—		17			4		—			—		4

Total assets		20		—			—			20			52		10			—		62			40		—			—		40

Liabilities
Deferred compensation obligation		—		(8	)		—			(8	)		—		(11	)		—		(11	)		—		(4	)		—		(4	)
Mark-to-market derivative liabilities^(b)		—		—			(258	)		(258	)		—		—			—		—			—		—			—		—

Total liabilities		—		(8	)		(258	)		(266	)		—		(11	)		—		(11	)		—		(4	)		—		(4	)

Total net assets (liabilities)	$	20	$	(8	)	$	(258	)	$	(246	)	$	52	$	(1	)	$	—	$	51		$	40	$	(4	)	$	—	$	36

(a)

ComEd excludes cash of $31 million and $36 million at March 31, 2017 and December 31, 2016 and restricted cash of $3 million and $2 million at March 31, 2017 and December 31, 2016. PECO excludes cash of $27 million and $22 million at March 31, 2017 and December 31, 2016. BGE excludes cash of $11 million and $13 million at March 31, 2017 and December 31, 2016 and includes long term restricted cash of $2 million at March 31, 2017 and December 31, 2016, which is reported in other deferred debits on the balance sheet.

(b)	The Level 3 balance consists of the current and noncurrent liability of $19 million and $263 million, respectively, at March 31, 2017, and $19 million and $239 million, respectively, at December 31, 2016, related to floating-to-fixed energy swap contracts with unaffiliated suppliers.

105

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

PHI, Pepco, DPL and ACE

The following tables present assets and liabilities measured and recorded at fair value on PHI’s, Pepco’s, DPL’s and ACE’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of March 31, 2017 and December 31, 2016:


	Successor										Successor
	As of March 31, 2017										As of December 31, 2016
PHI	Level 1		Level 2			Level 3		Total			Level 1			Level 2			Level 3		Total
Assets
Cash equivalents^(a)	$	154	$	—		$	—	$	154		$	217		$	—		$	—	$	217
Mark-to-market derivative assets^(b)		—		—			—		—			2			—			—		2
Effect of netting and allocation of collateral		—		—			—		—			(2	)		—			—		(2	)

Mark-to-market derivative assets subtotal		—		—			—		—			—			—			—		—

Rabbi trust investments
Cash equivalents		74		—			—		74			73			—			—		73
Fixed income		—		15			—		15			—			16			—		16
Life insurance contracts		—		23			20		43			—			22			20		42

Rabbi trust investments subtotal		74		38			20		132			73			38			20		131

Total assets		228		38			20		286			290			38			20		348

Liabilities
Deferred compensation obligation		—		(25	)		—		(25	)		—			(28	)		—		(28	)

Total liabilities		—		(25	)		—		(25	)		—			(28	)		—		(28	)

Total net assets	$	228	$	13		$	20	$	261		$	290		$	10		$	20	$	320


	Pepco										DPL										ACE
As of March 31, 2017	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total
Assets
Cash equivalents^(a)	$	33	$	—		$	—	$	33		$	39	$	—		$	—	$	39		$	80	$	—	$	—	$	80
Rabbi trust investments
Cash equivalents		43		—			—		43			1		—			—		1			—		—		—		—
Fixed income		—		15			—		15			—		—			—		—			—		—		—		—
Life insurance contracts		—		23			20		43			—		—			—		—			—		—		—		—

Rabbi trust investments subtotal		43		38			20		101			1		—			—		1			—		—		—		—

Total assets		76		38			20		134			40		—			—		40			80		—		—		80

Liabilities
Deferred compensation obligation		—		(4	)		—		(4	)		—		(1	)		—		(1	)		—		—		—		—

Total liabilities		—		(4	)		—		(4	)		—		(1	)		—		(1	)		—		—		—		—

Total net assets (liabilities)	$	76	$	34		$	20	$	130		$	40	$	(1	)	$	—	$	39		$	80	$	—	$	—	$	80

106

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


	Pepco										DPL											ACE
As of December 31, 2016	Level 1		Level 2			Level 3		Total			Level 1			Level 2			Level 3		Total			Level 1		Level 2		Level 3		Total
Assets
Cash equivalents^(a)	$	33	$	—		$	—	$	33		$	42		$	—		$	—	$	42		$	130	$	—	$	—	$	130
Mark-to-market derivative assets^(b)		—		—			—		—			2			—			—		2			—		—		—		—
Effect of netting and allocation of collateral		—		—			—		—			(2	)		—			—		(2	)		—		—		—		—

Mark-to-market derivative assets subtotal		—		—			—		—			—			—			—		—			—		—		—		—

Rabbi trust investments
Cash equivalents		43		—			—		43			—			—			—		—			—		—		—		—
Fixed income		—		16			—		16			—			—			—		—			—		—		—		—
Life insurance contracts		—		22			19		41			—			—			—		—			—		—		—		—

Rabbi trust investments subtotal		43		38			19		100			—			—			—		—			—		—		—		—

Total assets		76		38			19		133			42			—			—		42			130		—		—		130

Liabilities
Deferred compensation obligation		—		(5	)		—		(5	)		—			(1	)		—		(1	)		—		—		—		—

Total liabilities		—		(5	)		—		(5	)		—			(1	)		—		(1	)		—		—		—		—

Total net assets (liabilities)	$	76	$	33		$	19	$	128		$	42		$	(1	)	$	—	$	41		$	130	$	—	$	—	$	130

(a)

PHI excludes cash of $19 million and $19 million at March 31, 2017 and December 31, 2016 and includes long term restricted cash of $23 million and $23 million at March 31, 2017 and December 31, 2016 which is reported in other deferred debits on the balance sheet. Pepco excludes cash of $8 million and $9 million at March 31, 2017 and December 31, 2016. DPL excludes cash of $5 million and $4 million at March 31, 2017 and December 31, 2016. ACE excludes cash of $4 million and $3 million at March 31, 2017 and December 31, 2016 and includes long term restricted cash of $23 million and $23 million at March 31, 2017 and December 31, 2016 which is reported in other deferred debits on the balance sheet.

(b)	Represents natural gas futures purchased by DPL as part of a natural gas hedging program approved by the DPSC.

107

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the three months ended March 31, 2017 and 2016:


																		Successor
	Generation														ComEd			PHI						Exelon
Three Months Ended March 31, 2017	NDT Fund Investments			Pledged Assets for Zion Station Decommissioning		Mark-to- Market Derivatives			Other Investments			Total Generation			Mark-to- Market Derivatives^(a)			Life Insurance Contracts			Eliminated in Consolidation			Total
Balance as of December 31, 2016	$	677		$	19	$	493		$	42		$	1,231		$	(258	)	$	20		$	—		$	993
Total realized / unrealized gains (losses)
Included in net income		3			—		(43	)^(b)		1			(39	)		—			1			—			(38	)
Included in noncurrent payables to affiliates		9			—		—			—			9			—			—			(9	)		—
Included in regulatory assets/liabilities		—			—		—			—			—			(24	)		—			9			(15	)
Change in collateral		—			—		38			—			38			—			—			—			38
Purchases, sales, issuances and settlements
Purchases		17			1		69			2			89			—			—			—			89
Sales		—			—		(2	)		—			(2	)		—			—			—			(2	)
Issuances		—			—		—			—			—			—			(1	)		—			(1	)
Settlements		(23	)		—		—			—			(23	)		—			—			—			(23	)
Transfers into Level 3		—			—		(1	)		—			(1	)		—			—			—			(1	)
Transfers out of Level 3		—			—		11			(5	)		6			—			—			—			6

Balance as of March 31, 2017	$	683		$	20	$	565		$	40		$	1,308		$	(282	)	$	20		$	—		$	1,046

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of March 31, 2017	$	2		$	—	$	59		$	—		$	61		$	—		$	1		$	—		$	62

(a)	Includes $30 million of decreases in fair value and an increase for realized losses due to settlements of $6 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the three months ended March 31, 2017.

(b)	Includes a reduction for the reclassification of $102 million of realized gains due to the settlement of derivative contracts for the three months ended March 31, 2017.

108

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


																	Successor
	Generation													ComEd			PHI^(c)					Exelon
Three Months Ended March 31, 2016	NDT Fund Investments			Pledged Assets for Zion Station Decommissioning		Mark-to- Market Derivatives			Other Investments		Total Generation			Mark-to- Market Derivatives^(a)			Life Insurance Contracts		Eliminated in Consolidation			Total
Balance as of December 31, 2015	$	670		$	22	$	1,051		$	33	$	1,776		$	(247	)	$	—	$	—		$	1,529
Included due to merger		—			—		—			—		—			—			20		—			20
Total realized / unrealized gains (losses)
Included in net income		2			—		(6	)^(b)		—		(4	)		—			—		—			(4	)
Included in noncurrent payables to affiliates		4			—		—			—		4			—			—		(4	)		—
Included in payable for Zion Station decommissioning		—			2		—			—		2			—			—		—			2
Included in regulatory assets		—			—		—			—		—			(18	)		—		4			(14	)
Change in collateral		—			—		(50	)		—		(50	)		—			—		—			(50	)
Purchases, sales, issuances and settlements
Purchases		34			1		59			3		97			—			—		—			97
Sales		—			—		(2	)		—		(2	)		—			—		—			(2	)
Settlements		(26	)		—		—			—		(26	)		—			—		—			(26	)
Transfers into Level 3		—			—		2			—		2			—			—		—			2
Transfers out of Level 3		—			—		(7	)		—		(7	)		—			—		—			(7	)

Balance as of March 31, 2016	$	684		$	25	$	1,047		$	36	$	1,792		$	(265	)	$	20	$	—		$	1,547

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of March 31, 2016	$	1		$	—	$	219		$	—	$	220		$	—		$	—	$	—		$	220

(a)	Includes $25 million of decreases in fair value and an increase for realized losses due to settlements of $7 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers for the three months ended March 31, 2016.

(b)	Includes a reduction for the reclassification of $225 million of realized gains due to the settlement of derivative contracts recorded in results of operations for the three months ended March 31, 2016.

(c)	Successor period represents activity from March 24, 2016 through March 31, 2016. See tables below for PHI’s predecessor periods, as well as activity for Pepco for the three months ended March 31, 2017 and 2016.


	Predecessor
	January 1, 2016 to March 23, 2016
PHI	Preferred Stock			Life Insurance Contracts
Beginning Balance	$	18		$	19
Total realized / unrealized gains (losses)
Included in net income		(18	)		1

Ending Balance	$	—		$	20

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities for the period	$	—		$	1

109

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


	Life Insurance Contracts Three Months Ended March 31,
Pepco	2017			2016
Beginning Balance	$	20		$	19
Total realized / unrealized gains (losses)
Included in net income		1			1
Purchases, sales, issuances and settlements
Issuances		(1	)		—

Ending Balance	$	20		$	20

The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities for the period	$	1		$	1

The following tables present the income statement classification of the total realized and unrealized gains (losses) included in income for Level 3 assets and liabilities measured at fair value on a recurring basis during the three months ended March 31, 2017 and 2016:


								Successor
	Generation							PHI		Exelon
	Operating Revenues		Purchased Power and Fuel			Other, net^(a)		Other, net^(a)		Operating Revenues		Purchased Power and Fuel			Other, net^(a)
Total gains (losses) included in net income for the three months ended March 31, 2017		88		(131	)		3		1		88		(131	)		4
Change in the unrealized gains (losses) relating to assets and liabilities held for the three months ended March 31, 2017		140		(81	)		2		1		140		(81	)		3


	Generation							Exelon
	Operating Revenues		Purchased Power and Fuel			Other, net^(a)		Operating Revenues		Purchased Power and Fuel			Other, net^(a)
Total gains (losses) included in net income for the three months ended March 31, 2016		49		(55	)		2		49		(55	)		2
Change in the unrealized gains (losses) relating to assets and liabilities held for the three months ended March 31, 2016		254		(35	)		1		254		(35	)		1


	Predecessor
	PHI			Pepco
	January 1, 2016 to March 23, 2016			Three Months Ended March 31, 2017		Three Months Ended March 31, 2016
	Other, net
Total gains (losses)included in net income	$	(17	)	$	1	$	1
Change in the unrealized gains (losses) relating to assets and liabilities held		1			1		1

(a)	Other, net activity consists of realized and unrealized gains (losses) included in income for the NDT funds held by Generation and the life insurance contracts held by PHI and Pepco.

110

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Valuation Techniques Used to Determine Fair Value

The following describes the valuation techniques used to measure the fair value of the assets and liabilities shown in the tables above.

Cash Equivalents (Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE). The Registrants’ cash equivalents include investments with maturities of three months or less when purchased. The cash equivalents shown in the fair value tables are comprised of investments in mutual and money market funds. The fair values of the shares of these funds are based on observable market prices and, therefore, have been categorized in Level 1 in the fair value hierarchy.

Preferred Stock Derivative (PHI). In connection with entering into the PHI Merger Agreement, PHI entered into a Subscription Agreement with Exelon dated April 29, 2014, pursuant to which PHI issued to Exelon shares of Preferred stock. The Preferred stock contained embedded features requiring separate accounting consideration to reflect the potential value to PHI that any issued and outstanding Preferred stock could be called and redeemed at a nominal par value upon a termination of the merger agreement under certain circumstances due to the failure to obtain required regulatory approvals. The embedded call and redemption features on the shares of the Preferred stock in the event of such a termination were separately accounted for as derivatives. These Preferred stock derivatives were valued quarterly using quantitative and qualitative factors, including management’s assessment of the likelihood of a Regulatory Termination and therefore, were categorized in Level 3 in the fair value hierarchy. As a result of the PHI Merger, the PHI Preferred stock derivative was reduced to zero as of March 23, 2016. The write-off was charged to Other, net on the PHI Consolidated Statement of Operations and Comprehensive Income.

Nuclear Decommissioning Trust Fund Investments and Pledged Assets for Zion Station Decommissioning (Exelon and Generation). The trust fund investments have been established to satisfy Generation’s and CENG’s nuclear decommissioning obligations as required by the NRC. The NDT funds hold debt and equity securities directly and indirectly through commingled funds and mutual funds, which are included in Equities and Fixed Income. Generation’s and CENG’s NDT fund investments policies outline investment guidelines for the trusts and limit the trust funds’ exposures to investments in highly illiquid markets and other alternative investments. Investments with maturities of three months or less when purchased, including certain short-term fixed income securities are considered cash equivalents and included in the recurring fair value measurements hierarchy as Level 1 or Level 2.

With respect to individually held equity securities, the trustees obtain prices from pricing services, whose prices are generally obtained from direct feeds from market exchanges, which Generation is able to independently corroborate. The fair values of equity securities held directly by the trust funds which are based on quoted prices in active markets are categorized in Level 1. Certain equity securities have been categorized as Level 2 because they are based on evaluated prices that reflect observable market information, such as actual trade information or similar securities. Equity securities held individually are primarily traded on the New York Stock Exchange and NASDAQ-Global Select Market, which contain only actively traded securities due to the volume trading requirements imposed by these exchanges.

For fixed income securities, multiple prices from pricing services are obtained 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. With respect to individually held fixed income securities, 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. Generation has obtained an

111

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

understanding of how these prices are 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 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 funds are valued using NAV as a practical expedient for fair value, which is primarily derived from the quoted prices in active markets on the underlying securities, and are not classified within the fair value hierarchy. These investments typically can be redeemed monthly with 30 or less days of notice and without further restrictions.

Derivative instruments consisting primarily of futures and interest rate swaps to manage risk are recorded at fair value. Over the counter derivatives are valued daily based on quoted prices in active markets and trade in open markets, and have been categorized as Level 1. Derivative instruments other than over the counter derivatives 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 loans 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. Managed funds are valued using NAV or its equivalent as a practical expedient, and therefore, are not classified within the fair value hierarchy. 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, and therefore, are not classified within the fair value hierarchy. 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. These valuation inputs are unobservable.

As of March 31, 2017, Generation has outstanding commitments to invest in middle market lending, private equity investments and real estate investments of approximately $290 million, $120 million, and $107 million, respectively. These commitments will be funded by Generation’s existing nuclear decommissioning trust funds.

112

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Concentrations of Credit Risk. Generation evaluated its NDT portfolios for the existence of significant concentrations of credit risk as of March 31, 2017. Types of concentrations that were evaluated include, but are not limited to, investment concentrations in a single entity, type of industry, foreign country, and individual fund. As of March 31, 2017, there were no significant concentrations (generally defined as greater than 10 percent) of risk in Generation’s NDT assets.

See Note 12 — Nuclear Decommissioning for further discussion on the NDT fund investments.

Rabbi Trust Investments (Exelon, Generation, PECO, BGE, PHI, Pepco, DPL and ACE). The Rabbi trusts were established to hold assets related to deferred compensation plans existing for certain active and retired members of Exelon’s executive management and directors. The Rabbi trusts assets are included in investments in the Registrants’ Consolidated Balance Sheets and consist primarily of money market funds, mutual funds, fixed income securities and life insurance policies. The mutual funds 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. Money market funds and mutual funds are publicly quoted and have been categorized as Level 1 given the clear observability of the prices. The fair values of fixed income 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 life insurance policies are valued using the cash surrender value of the policies, net of loans against those policies, which is provided by a third-party. Certain life insurance policies, which consist primarily of mutual funds that are priced based on observable market data, have been categorized as Level 2 because the life insurance policies can be liquidated at the reporting date for the value of the underlying assets. Life insurance policies that are valued using unobservable inputs have been categorized as Level 3.

Mark-to-Market Derivatives (Exelon, Generation, ComEd, PHI and DPL). Derivative contracts are traded in both exchange-based and non-exchange-based markets. Exchange-based derivatives that are valued using unadjusted quoted prices in active markets are categorized in Level 1 in the fair value hierarchy. Certain derivatives’ pricing is verified using indicative price quotations available through brokers or over-the-counter, on-line exchanges and are categorized in Level 2. These price quotations reflect the average of the bid-ask, mid-point prices and are obtained from sources that the Registrants believe provide the most liquid market for the commodity. The price quotations are reviewed and corroborated to ensure the prices are observable and representative of an orderly transaction between market participants. This includes consideration of actual transaction volumes, market delivery points, bid-ask spreads and contract duration. The remainder of derivative contracts are valued using the Black model, an industry standard option valuation model. The Black model takes into account inputs such as contract terms, including maturity, and market parameters, including assumptions of the future prices of energy, interest rates, volatility, credit worthiness and credit spread. For derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs are generally observable. Such instruments are categorized in Level 2. The Registrants’ derivatives are predominately at liquid trading points. For derivatives that trade in less liquid markets with limited pricing information model inputs generally would include both observable and unobservable inputs. These valuations may include an estimated basis adjustment from an illiquid trading point to a liquid trading point for which active price quotations are available. Such instruments are categorized in Level 3.

Exelon may utilize fixed-to-floating interest rate swaps, which are typically designated as fair value hedges, as a means to achieve its targeted level of variable-rate debt as a percent of total debt. In addition, the Registrants may utilize interest rate derivatives to lock in interest rate levels in anticipation of future financings. These interest rate derivatives are typically designated as cash flow hedges. Exelon determines the current fair value by calculating the net present value of expected payments and receipts under the swap agreement, based on and discounted by the market’s expectation of future interest rates. Additional inputs to the net present value

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(Dollars in millions, except per share data, unless otherwise noted)

calculation may include the contract terms, counterparty credit risk and other market parameters. As these inputs are based on observable data and valuations of similar instruments, the interest rate swaps are categorized in Level 2 in the fair value hierarchy. See Note 9—Derivative Financial Instruments for further discussion on mark-to-market derivatives.

Deferred Compensation Obligations (Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE). The Registrants’ deferred compensation plans allow participants to defer certain cash compensation into a notional investment account. The Registrants include such plans in other current and noncurrent liabilities in their Consolidated Balance Sheets. The value of the Registrants’ deferred compensation obligations is based on the market value of the participants’ notional investment accounts. The underlying notional investments are comprised primarily of equities, mutual funds, commingled funds, and fixed income securities which are based on directly and indirectly observable market prices. Since the deferred compensation obligations themselves are not exchanged in an active market, they are categorized as Level 2 in the fair value hierarchy.

The value of certain employment agreement obligations (which are included with the Deferred Compensation Obligation in the tables above) are based on a known and certain stream of payments to be made over time and are categorized as Level 2 within the fair value hierarchy.

Additional Information Regarding Level 3 Fair Value Measurements (Exelon, Generation, ComEd, PHI, Pepco and DPL)

Mark-to-Market Derivatives (Exelon, Generation and ComEd). For valuations that include both observable and unobservable inputs, if the unobservable input is determined to be significant to the overall inputs, the entire valuation is categorized in Level 3. This includes derivatives valued using indicative price quotations whose contract tenure extends into unobservable periods. In instances where observable data is unavailable, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes assumptions about market risks such as liquidity, volatility and contract duration. Such instruments are categorized in Level 3 as the model inputs generally are not observable. Exelon’s RMC approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval, and the monitoring and reporting of risk exposures. The RMC is chaired by the chief executive officer and includes the chief risk officer, chief strategy officer, chief executive officer of Exelon Utilities, chief commercial officer, chief financial officer and chief executive officer of Constellation. The RMC reports to the Finance and Risk Committee of the Exelon Board of Directors on the scope of the risk management activities. Forward price curves for the power market utilized by the front office to manage the portfolio, are reviewed and verified by the middle office, and used for financial reporting by the back office. The Registrants consider credit and nonperformance risk in the valuation of derivative contracts categorized in Level 2 and 3, including both historical and current market data in its assessment of credit and nonperformance risk by counterparty. Due to master netting agreements and collateral posting requirements, the impacts of credit and nonperformance risk were not material to the financial statements.

Disclosed below is detail surrounding the Registrants’ significant Level 3 valuations. The calculated fair value includes marketability discounts for margining provisions and other attributes. Generation’s Level 3 balance generally consists of forward sales and purchases of power and natural gas and certain transmission congestion contracts. Generation utilizes various inputs and factors including market data and assumptions that market participants would use in pricing assets or liabilities as well as assumptions about the risks inherent in the inputs to the valuation technique. The inputs and factors include forward commodity prices, commodity price volatility, contractual volumes, delivery location, interest rates, credit quality of counterparties and credit enhancements.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

For commodity derivatives, the primary input to the valuation models is the forward commodity price curve for each instrument. Forward commodity price curves are derived by risk management for liquid locations and by the traders and portfolio managers for illiquid locations. All locations are reviewed and verified by risk management considering published exchange transaction prices, executed bilateral transactions, broker quotes, and other observable or public data sources. The relevant forward commodity curve used to value each of the derivatives depends on a number of factors, including commodity type, delivery location, and delivery period. Price volatility varies by commodity and location. When appropriate, Generation discounts future cash flows using risk free interest rates with adjustments to reflect the credit quality of each counterparty for assets and Generation’s own credit quality for liabilities. The level of observability of a forward commodity price varies generally due to the delivery location and delivery period. Certain delivery locations including PJM West Hub (for power) and Henry Hub (for natural gas) are more liquid and prices are observable for up to three years in the future. The observability period of volatility is generally shorter than the underlying power curve used in option valuations. The forward curve for a less liquid location is estimated by using the forward curve from the liquid location and applying a spread to represent the cost to transport the commodity to the delivery location. This spread does not typically represent a majority of the instrument’s market price. As a result, the change in fair value is closely tied to liquid market movements and not a change in the applied spread. The change in fair value associated with a change in the spread is generally immaterial. An average spread calculated across all Level 3 power and gas delivery locations is approximately $2.67 and $0.40 for power and natural gas, respectively. Many of the commodity derivatives are short term in nature and thus a majority of the fair value may be based on observable inputs even though the contract as a whole must be classified as Level 3.

On December 17, 2010, ComEd entered into several 20-year floating to fixed energy swap contracts with unaffiliated suppliers for the procurement of long-term renewable energy and associated RECs. See Note 9 — Derivative Financial Instruments for more information. The fair value of these swaps has been designated as a Level 3 valuation due to the long tenure of the positions and internal modeling assumptions. The modeling assumptions include using natural gas heat rates to project long term forward power curves adjusted by a renewable factor that incorporates time of day and seasonality factors to reflect accurate renewable energy pricing. In addition, marketability reserves are applied to the positions based on the tenor and supplier risk.

The table below discloses the significant inputs to the forward curve used to value these positions.


Type of trade	Fair Value at March 31, 2017			Valuation Technique	Unobservable Input	Range
Mark-to-market derivatives — Economic Hedges (Exelon and Generation)^(a)(c)	$	464		Discounted Cash Flow	Forward power price	$8 — $130
					Forward gas price	$1.92 — $9.87
				Option Model	Volatility percentage	13% — 112%

Mark-to-market derivatives — Proprietary trading (Exelon and Generation)^(a)(c)	$	3		Discounted Cash Flow	Forward power price	$15 — $67

Mark-to-market derivatives (Exelon and ComEd)	$	(282	)	Discounted Cash Flow	Forward heat rate^(b)	8x — 9x
					Marketability reserve	3% — 8%
					Renewable factor	88% — 121%

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(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 $98 million as of March 31, 2017.


Type of trade	Fair Value at December 31, 2016			Valuation Technique	Unobservable Input	Range
Mark-to-market derivatives — Economic Hedges (Exelon and Generation)^(a)(c)	$	435		Discounted Cash Flow	Forward power price	$11 — $130
					Forward gas price	$1.72 — $9.2
				Option Model	Volatility percentage	8% — 173%

Mark-to-market derivatives — Proprietary trading (Exelon and Generation)^(a)(c)	$	(3	)	Discounted Cash Flow	Forward power price	$19 — $79

Mark-to-market derivatives (Exelon and ComEd)	$	(258	)	Discounted Cash Flow	Forward heat rate^(b)	8x — 9x
					Marketability reserve	3% — 8%
					Renewable factor	89% — 121%

(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 $61 million as of December 31, 2016.

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.

Nuclear Decommissioning Trust Fund Investments and Pledged Assets for Zion Station Decommissioning (Exelon and Generation). For middle market lending and certain corporate debt securities 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 discounting the forecasted cash flows, market-based comparable data, credit and liquidity factors, as well as other factors that may impact value. Significant judgment is required

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(Dollars in millions, except per share data, unless otherwise noted)

in the application of discounts or premiums applied for factors such as size, marketability, credit risk and relative performance.

Because Generation relies on third-party fund managers to develop the quantitative unobservable inputs without adjustment for the valuations of its Level 3 investments, quantitative information about significant unobservable inputs used in valuing these investments is not reasonably available to Generation. This includes information regarding the sensitivity of the fair values to changes in the unobservable inputs. Generation gains an understanding of the fund managers’ inputs and assumptions used in preparing the valuations. Generation performed procedures to assess the reasonableness of the valuations.

Rabbi Trust Investments — Life insurance contracts (Exelon, PHI, Pepco, DPL and ACE). For life insurance policies categorized as Level 3, the fair value is determined based on the cash surrender value of the policy, which contains unobservable inputs and assumptions. Because Exelon relies on its third-party insurance provider to develop the inputs without adjustment for the valuations of its Level 3 investments, quantitative information about significant unobservable inputs used in valuing these investments is not reasonably available to Exelon. Exelon gains an understanding of the types of inputs and assumptions used in preparing the valuations and performs procedures to assess the reasonableness of the valuations.

9. Derivative Financial Instruments (All Registrants)

The Registrants use derivative instruments to manage commodity price risk, foreign currency exchange risk and interest rate risk related to ongoing business operations.

Commodity Price Risk (All Registrants)

To the extent the amount of energy Generation produces differs from the amount of energy it has contracted to sell, Exelon and Generation are exposed to market fluctuations in the prices of electricity, fossil fuels and other commodities. Each of the Registrants employ established policies and procedures to manage their risks associated with market fluctuations in commodity prices by entering into physical and financial derivative contracts, including swaps, futures, forwards, options and short-term and long-term commitments to purchase and sell energy and energy-related products. The Registrants believe these instruments, which are classified as either economic hedges or non-derivatives, mitigate exposure to fluctuations in commodity prices.

Derivative accounting guidance requires that derivative instruments be recognized as either assets or liabilities at fair value, with changes in fair value of the derivative recognized in earnings each period. Other accounting treatments are available through special election and designation, provided they meet specific, restrictive criteria both at the time of designation and on an ongoing basis. These alternative permissible accounting treatments include normal purchase normal sale (NPNS), cash flow hedge and fair value hedge. For Generation, all derivative economic hedges related to commodities are recorded at fair value through earnings for the combined company, referred to as economic hedges in the following tables. The Registrants have applied the NPNS scope exception to certain derivative contracts for the forward sale of generation, power procurement agreements, and natural gas supply agreements. Generation has also entered into bilateral long-term contractual obligations for sales of energy to load-serving entities, including electric utilities, municipalities, electric cooperatives and retail load aggregators, as well as contractual obligations to deliver energy to market participants who primarily focus on the resale of energy products for delivery. These non-derivative contracts are accounted for primarily under the accrual method of accounting. Additionally, Generation is exposed to certain market risks through its proprietary trading activities. The proprietary trading activities are a complement to Generation’s energy marketing portfolio but represent a small portion of Generation’s overall energy marketing activities.

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(Dollars in millions, except per share data, unless otherwise noted)

Economic Hedging. The Registrants are exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels, and other commodities associated with price movements resulting from changes in supply and demand, fuel costs, market liquidity, weather conditions, governmental regulatory and environmental policies, and other factors. Within Exelon, Generation has the most exposure to commodity price risk. As such, Generation uses a variety of derivative and non-derivative instruments to manage the commodity price risk of its electric generation facilities, including power and gas sales, fuel and energy purchases, natural gas transportation and pipeline capacity agreements and other energy-related products marketed and purchased. In order to manage these risks, Generation may enter into fixed-price derivative or non-derivative contracts to hedge the variability in future cash flows from forecasted sales of energy and gas and purchases of fuel and energy. The objectives for entering into such hedges include fixing the price for a portion of anticipated future electricity sales at a level that provides an acceptable return on electric generation operations, fixing the price of a portion of anticipated fuel purchases for the operation of power plants, and fixing the price for a portion of anticipated energy purchases to supply load-serving customers. The portion of forecasted transactions hedged may vary based upon management’s policies and hedging objectives, the market, weather conditions, operational and other factors. Generation is also exposed to differences between the locational settlement prices of certain economic hedges and the hedged generating units. This price difference is actively managed through other instruments which include derivative congestion products, whose changes in fair value are recognized in earnings each period, and auction revenue rights, which are accounted for on an accrual basis.

In general, increases and decreases in forward market prices have a positive and negative impact, respectively, on Generation’s owned and contracted generation positions that have not been hedged. Generation hedges commodity price risk on a ratable basis over three-year periods. As of March 31, 2017, the proportion of expected generation hedged for the major reportable segments is 97%-100%, 60%-63% and 30%-33% for 2017, 2018 and 2019, respectively. The percentage of expected generation hedged is the amount of equivalent sales divided by the expected generation. Expected generation is the volume of energy that best represents our commodity position in energy markets from owned or contracted generating facilities based upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market quotes for power, fuel, load following products, and options. Equivalent sales represent all hedging products, which include economic hedges and certain non-derivative contracts including Generation’s sales to ComEd, PECO, and BGE to serve their retail load.

On December 17, 2010, ComEd entered into several 20-year floating-to-fixed energy swap contracts with unaffiliated suppliers for the procurement of long-term renewable energy and associated RECs. Delivery under the contracts began in June 2012. These contracts are designed to lock in a portion of the long-term commodity price risk resulting from the renewable energy resource procurement requirements in the Illinois Settlement Legislation. ComEd has not elected hedge accounting for these derivative financial instruments. ComEd records the fair value of the swap contracts on its balance sheet. Because ComEd receives full cost recovery for energy procurement and related costs from retail customers, the change in fair value each period is recorded by ComEd as a regulatory asset or liability. See Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K for additional information.

PECO has contracts to procure electric supply that were executed through the competitive procurement process outlined in its PAPUC-approved DSP Programs, which are further discussed in Note 5 — Regulatory Matters. Based on Pennsylvania legislation and the DSP Programs permitting PECO to recover its electric supply procurement costs from retail customers with no mark-up, PECO’s price risk related to electric supply procurement is limited. PECO locked in fixed prices for a significant portion of its commodity price risk through full requirements contracts. PECO has certain full requirements contracts that are considered derivatives and qualify for the NPNS scope exception under current derivative authoritative guidance.

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(Dollars in millions, except per share data, unless otherwise noted)

PECO’s natural gas procurement policy is designed to achieve a reasonable balance of long-term and short-term gas purchases under different pricing approaches in order to achieve system supply reliability at the least cost. PECO’s reliability strategy is two-fold. First, PECO must assure that there is sufficient transportation capacity to satisfy delivery requirements. Second, PECO must ensure that a firm source of supply exists to utilize the capacity resources. All of PECO’s natural gas supply and asset management agreements that are derivatives either qualify for the NPNS scope exception and have been designated as such, or have no mark-to-market balances because the derivatives are index priced. Additionally, in accordance with the 2016 PAPUC PGC settlement and to reduce the exposure of PECO and its customers to natural gas price volatility, PECO has continued its program to purchase natural gas for both winter and summer supplies using a layered approach of locking-in prices ahead of each season with long-term gas purchase agreements (those with primary terms of at least twelve months). Under the terms of the 2016 PGC settlement, PECO is required to lock in (i.e. economically hedge) the price of a minimum volume of its long-term gas commodity purchases. PECO’s gas-hedging program is designed to cover about 25% of planned natural gas purchases in support of projected firm sales. The hedging program for natural gas procurement has no direct impact on PECO’s financial position or results of operations as natural gas costs are fully recovered from customers under the PGC.

BGE has contracts to procure SOS electric supply that are executed through a competitive procurement process approved by the MDPSC. The SOS rates charged recover BGE’s wholesale power supply costs and include an administrative fee. The administrative fee includes an incremental cost component and a shareholder return component for commercial and industrial rate classes. BGE’s price risk related to electric supply procurement is limited. BGE locks in fixed prices for all of its SOS requirements through full requirements contracts. Certain of BGE’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other BGE full requirements contracts are not derivatives.

BGE provides natural gas to its customers under a MBR mechanism approved by the MDPSC. Under this mechanism, BGE’s actual cost of gas is compared to a market index (a measure of the market price of gas in a given period). The difference between BGE’s actual cost and the market index is shared equally between shareholders and customers. BGE must also secure fixed price contracts for at least 10%, but not more than 20%, of forecasted system supply requirements for flowing (i.e. non-storage) gas for the November through March period. These fixed-price contracts are not subject to sharing under the MBR mechanism. BGE also ensures it has sufficient pipeline transportation capacity to meet customer requirements. All of BGE’s natural gas supply and asset management agreements qualify for the NPNS scope exception and result in physical delivery.

Pepco has contracts to procure SOS electric supply that are executed through a competitive procurement process approved by the MDPSC and DCPSC. The SOS rates charged recover Pepco’s wholesale power supply costs and include an administrative fee. The administrative fee includes an incremental cost component and a shareholder return component for residential and commercial rate classes. Pepco’s price risk related to electric supply procurement is limited. Pepco locks in fixed prices for all of its SOS requirements through full requirements contracts. Certain of Pepco’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other Pepco full requirements contracts are not derivatives.

DPL has contracts to procure SOS electric supply that are executed through a competitive procurement process approved by the MDPSC and the DPSC. The SOS rates charged recover DPL’s wholesale power supply costs. In Delaware, DPL is also entitled to recover a Reasonable Allowance for Retail Margin (RARM). The RARM includes a fixed annual margin of approximately $2.75 million, plus an incremental cost component and a cash working capital allowance. In Maryland, DPL charges an administrative fee intended to allow it to recover its administrative costs. DPL locks in fixed prices for all of its SOS requirements through full requirements

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(Dollars in millions, except per share data, unless otherwise noted)

contracts. DPL’s price risk related to electric supply procurement is limited. Certain of DPL’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other DPL full requirements contracts are not derivatives.

DPL provides natural gas to its customers under an Annual GCR mechanism approved by the DPSC. Under this mechanism, DPL’s Annual GCR Filing establishes a future GCR for firm bundled sales customers by using a forecast of demand and commodity costs. The actual costs are trued up versus the forecast on a monthly basis and any shortfall or excess is carried forward as a recovery balance in the next GCR filing. The demand portion of the GCR is based upon DPL’s firm transportation and storage contracts. DPL has firm deliverability of swing and seasonal storage; a liquefied natural gas facility and firm transportation capacity to meet customer demand and provide a reserve margin. The commodity portion of the GCR includes a commission approved hedging program which is intended to reduce gas commodity price volatility while limiting the firm natural gas customers’ exposure to adverse changes in the market price of natural gas. The hedge program requires that DPL hedge, on a non-discretionary basis, an amount equal to fifty percent (50%) of estimated purchase requirements for each month, including estimated monthly purchases for storage injections. The fifty percent (50%) hedge monthly target is achieved by hedging 1/12th of the 50% target each month beginning 12-months prior to the month in which the physical gas is to be purchased. Currently, DPL uses only exchange traded futures for its gas hedging program, which are considered derivatives, however, it retains the capability to employ other physical and financial hedges if needed. DPL has not elected hedge accounting for these derivative financial instruments. Because of the DPSC-approved fuel adjustment clause for DPL’s derivatives, the change in fair value of the derivatives each period, in addition to all premiums paid and other transaction costs incurred as part of the Gas Hedging Program, are fully recoverable and are recorded by DPL as regulatory assets or liabilities. DPL’s physical gas purchases are currently all daily, monthly or intra-month transactions. From time to time, DPL will enter into seasonal purchase or sale arrangements, however, there are none currently in the portfolio. Certain of DPL’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other DPL full requirements contracts are not derivatives.

ACE has contracts to procure BGS electric supply that are executed through a competitive procurement process approved by the NJBPU. The BGS rates charged recover ACE’s wholesale power supply costs. ACE does not make any profit or incur any loss on the supply component of the BGS it supplies to customers. ACE’s price risk related to electric supply procurement is limited. ACE locks in fixed prices for all of its BGS requirements through full requirements contracts. Certain of ACE’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other ACE full requirements contracts are not derivatives.

Proprietary Trading. Generation also enters into certain energy-related derivatives for proprietary trading purposes. Proprietary trading includes all contracts entered into with the intent of benefiting from shifts or changes in market prices as opposed to those entered into with the intent of hedging or managing risk. Proprietary trading activities are subject to limits established by Exelon’s RMC. The proprietary trading activities, which included settled physical sales volumes of 1,850 GWhs and 1,220 GWhs for the three months ended March 31, 2017 and 2016, respectively, are a complement to Generation’s energy marketing portfolio but represent a small portion of Generation’s revenue from energy marketing activities. ComEd, PECO, BGE, PHI, Pepco, DPL and ACE do not enter into derivatives for proprietary trading purposes.

Interest Rate and Foreign Exchange Risk (Exelon, Generation, ComEd, PECO, BGE and PHI)

The Registrants use a combination of fixed-rate and variable-rate debt to manage interest rate exposure. The Registrants utilize fixed-to-floating interest rate swaps, which are typically designated as fair value hedges, as a means to manage their interest rate exposure. In addition, the Registrants may utilize interest rate derivatives to

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(Dollars in millions, except per share data, unless otherwise noted)

lock in rate levels in anticipation of future financings, which are typically designated as cash flow hedges. These strategies are employed to manage interest rate risks. At March 31, 2017, Exelon had $800 million of notional amounts of fixed-to-floating hedges outstanding, and Exelon and Generation had $657 million of notional amounts of floating-to-fixed hedges outstanding. Assuming the fair value and cash flow interest rate hedges are 100% effective, a hypothetical 50 bps increase in the interest rates associated with unhedged variable-rate debt (excluding Commercial Paper) and fixed-to-floating swaps would result in an approximately $2 million decrease in Exelon Consolidated pre-tax income for the three months ended March 31, 2017. To manage foreign exchange rate exposure associated with international energy purchases in currencies other than U.S. dollars, Generation utilizes foreign currency derivatives, which are typically designated as economic hedges. Below is a summary of the interest rate and foreign exchange hedge balances as of March 31, 2017:


	Generation															Exelon Corporate		Exelon
Description	Derivatives Designated as Hedging Instruments			Economic Hedges			Proprietary Trading^(a)			Collateral and Netting^(b)			Subtotal			Derivatives Designated as Hedging Instruments		Total
Mark-to-market derivative assets (current assets)	$	—		$	15		$	3		$	(13	)	$	5		$	—	$	5
Mark-to-market derivative assets (noncurrent assets)		—			7			1			(5	)		3			12		15

Total mark-to-market derivative assets		—			22			4			(18	)		8			12		20

Mark-to-market derivative liabilities (current liabilities)		(1	)		(17	)		(2	)		13			(7	)		—		(7	)
Mark-to-market derivative liabilities (noncurrent liabilities)		—			(8	)		(1	)		5			(4	)		—		(4	)

Total mark-to-market derivative liabilities		(1	)		(25	)		(3	)		18			(11	)		—		(11	)

Total mark-to-market derivative net assets (liabilities)	$	(1	)	$	(3	)	$	1		$	—		$	(3	)	$	12	$	9

(a)

Generation enters into interest rate derivative contracts to economically hedge risk associated with the interest rate component of commodity positions. The characterization of the interest rate derivative contracts between the proprietary trading activity in the above table is driven by the corresponding characterization of the underlying commodity position that gives rise to the interest rate exposure. Generation does not utilize proprietary trading interest rate derivatives with the objective of benefiting from shifts or changes in market interest rates.

(b)

Exelon and Generation net all available amounts allowed under the derivative accounting guidance on the balance sheet. These amounts include unrealized derivative transactions with the same counterparty under legally enforceable master netting agreements and cash collateral. In some cases, Exelon and Generation may have other offsetting counterparty exposures subject to a master netting or similar agreement, such as accrued interest, transactions that do not qualify as derivatives, letters of credit and other forms of non-cash collateral. These are not reflected in the table above.

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(Dollars in millions, except per share data, unless otherwise noted)

The following table provides a summary of the interest rate and foreign exchange hedge balances recorded by the Registrants as of December 31, 2016:


	Generation															Exelon Corporate		Exelon
Description	Derivatives Designated as Hedging Instruments			Economic Hedges			Proprietary Trading^(a)			Collateral and Netting^(b)			Subtotal			Derivatives Designated as Hedging Instruments		Total
Mark-to-market derivative assets (current assets)	$	—		$	17		$	4		$	(13	)	$	8		$	—	$	8
Mark-to-market derivative assets (noncurrent assets)		—			11			1			(8	)		4			16		20

Total mark-to-market derivative assets		—			28			5			(21	)		12			16		28

Mark-to-market derivative liabilities (current liabilities)		(7	)		(13	)		(2	)		14			(8	)		—		(8	)
Mark-to-market derivative liabilities (noncurrent liabilities)		(3	)		(8	)		(2	)		9			(4	)		—		(4	)

Total mark-to-market derivative liabilities		(10	)		(21	)		(4	)		23			(12	)		—		(12	)

Total mark-to-market derivative net assets (liabilities)	$	(10	)	$	7		$	1		$	2		$	—		$	16	$	16

(a)

(b)

Fair Value Hedges. For derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. Exelon includes the gain or loss on the hedged items and the offsetting loss or gain on the related interest rate swaps in interest expense as follows:


	Income Statement Location	Three Months Ended March 31,
		2017			2016		2017		2016
		Gain (loss) on Swaps					Gain (loss) on Borrowings
Exelon	Interest expense	$	(4	)	$	17	$	8	$	(15	)

At March 31, 2017, Exelon had total outstanding fixed-to-floating fair value hedges related to interest rate swaps of $800 million, with a derivative asset of $12 million. At December 31, 2016, Exelon had total outstanding fixed-to-floating fair value hedges related to interest rate swaps of $800 million, with a derivative asset of $16 million. During the three months ended March 31, 2017 and 2016, the impact on the results of operations as a result of ineffectiveness from fair value hedges was a $4 million gain and a $2 million gain, respectively.

122

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Cash Flow Hedges. During the first and second quarter of 2016, Exelon entered into $600 million and $100 million of floating-to-fixed forward starting interest rate swaps, respectively, to manage a portion of the interest rate exposure associated with an anticipated debt issuance. The swaps were designated as cash flow hedges. Exelon terminated the swaps during the second quarter of 2016 upon issuance of the debt. Exelon recognized a loss of $3 million related to the swaps and $3 million of AOCI will be amortized into Other, net in Exelon’s Consolidated Statement of Operations and Comprehensive Income over the term of the debt. See Note 10 — Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements for additional information.

During the first quarter of 2016, Exelon entered into a $100 million floating-to-fixed forward starting interest rate swaps to manage a portion of the interest rate exposure associated with an anticipated debt issuance. The swap was designated as a cash flow hedge. Exelon terminated the swap during the first quarter of 2016 upon issuance of the debt. Exelon did not recognize a gain or loss as a result of the termination of the swap and an immaterial amount of AOCI will be amortized into Other, net in Exelon’s Consolidated Statement of Operations and Comprehensive Income over the term of the debt.

During the first quarter of 2014, EGR, a subsidiary of Generation, entered into floating-to-fixed interest rate swaps to manage a portion of its interest rate exposure in connection with the long-term borrowings. See Note 14 — Debt and Credit Agreements of the Exelon 2016 Form 10-K for additional information regarding the financing. The swaps have a notional amount of $164 million as of March 31, 2017 and expire in 2020. The swaps are designated as cash flow hedges. At March 31, 2017, the subsidiary had a $1 million derivative liability related to the swaps.

During the three months ended March 31, 2017 and 2016, the impact on the results of operations as a result of ineffectiveness from cash flow hedges in continuing designated hedge relationships was immaterial.

Economic Hedges. During the third quarter of 2014, EGTP, a subsidiary of Generation, entered into a floating-to-fixed interest rate swap to manage a portion of its interest rate exposure in connection with the long-term borrowing. See Note 14 — Debt and Credit Agreements of the Exelon 2016 Form 10-K for additional information regarding the financing. The swaps have a notional amount of $494 million as of March 31, 2017 and expire in 2019. The swap was designated as a cash flow hedge in the fourth quarter of 2014. During the first quarter of 2017, the swap was de-designated. At March 31, 2017, the subsidiary had a $7 million derivative liability related to the swap.

During the third quarter of 2011, Sacramento PV Energy, a subsidiary of Generation entered into floating-to-fixed interest rate swaps to manage a portion of its interest rate exposure in connection with the long-term borrowings. See Note 14 — Debt and Credit Agreements of the Exelon 2016 Form 10-K for additional information regarding the financing. During the first quarter of 2016, upon the termination of debt, Generation terminated the swaps. The total notional amount of the swaps were $25 million. No gain or loss was recognized as a result of the termination of the swaps.

During the third quarter of 2012, Constellation Solar Horizons, a subsidiary of Generation, entered into a floating-to-fixed interest rate swap to manage a portion of its interest rate exposure in connection with the long-term borrowings. See Note 14 — Debt and Credit Agreements of the Exelon 2016 Form 10-K for additional information regarding the financing. During the first quarter of 2016, upon the termination of debt, Generation terminated the swap. The total notional amount of the swap was $24 million. No gain or loss was recognized as a result of the termination of the swap.

At March 31, 2017, Generation had immaterial notional amounts of interest rate derivative contracts to economically hedge risk associated with the interest rate component of commodity positions and $73 million in

123

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

notional amounts of foreign currency exchange rate swaps that are marked-to-market to manage the exposure associated with international purchases of commodities in currencies other than U.S. dollars.

Fair Value Measurement and Accounting for the Offsetting of Amounts Related to Certain Contracts (Exelon, Generation, ComEd, PECO, BGE, PHI and DPL)

Fair value accounting guidance and disclosures about offsetting assets and liabilities requires the fair value of derivative instruments to be shown in the Notes to the Consolidated Financial Statements on a gross basis, even when the derivative instruments are subject to legally enforceable master netting agreements and qualify for net presentation in the Consolidated Balance Sheet. A master netting agreement is an agreement between two counterparties that may have derivative and non-derivative contracts with each other providing for the net settlement of all referencing contracts via one payment stream, which takes place as the contracts deliver, when collateral is requested or in the event of default. Generation’s use of cash collateral is generally unrestricted, unless Generation is downgraded below investment grade (i.e., to BB+ or Ba1). In the table below, Generation’s energy related economic hedges and proprietary trading derivatives are shown gross. The impact of the netting of fair value balances with the same counterparty that are subject to legally enforceable master netting agreements, as well as netting of cash collateral, including margin on exchange positions, is aggregated in the collateral and netting column. As of both March 31, 2017 and December 31, 2016, $8 million of cash collateral held was not offset against derivative positions because such collateral was not associated with any energy-related derivatives, were associated with accrual positions, or as of the balance sheet date there were no positions to offset. Excluded from the tables below are economic hedges that qualify for the NPNS scope exception and other non-derivative contracts that are accounted for under the accrual method of accounting.

ComEd’s use of cash collateral is generally unrestricted unless ComEd is downgraded below investment grade (i.e., to BB+ or Ba1).

Cash collateral held by PECO and BGE must be deposited in a non affiliate major U.S. commercial bank or foreign bank with a U.S. branch office that meet certain qualifications.

In the table below, DPL’s economic hedges are shown gross. The impact of the netting of fair value balances with the same counterparty that are subject to legally enforceable master netting agreements, as well as netting of cash collateral, is aggregated in the collateral and netting column.

124

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The following table provides a summary of the derivative fair value balances recorded by the Registrants as of March 31, 2017:


																						Successor
	Generation												ComEd			DPL						PHI		Exelon
Derivatives	Economic Hedges			Proprietary Trading			Collateral and Netting^(a)(e)			Subtotal^(b)			Economic Hedges^(c)			Economic Hedges^(d)		Collateral and Netting^(a)		Subtotal		Subtotal		Total Derivatives
Mark-to-market derivative assets (current assets)	$	3,398		$	56		$	(2,612	)	$	842		$	—		$	—	$	—	$	—	$	—	$	842
Mark-to-market derivative assets (noncurrent assets)		1,975			24			(1,475	)		524			—			—		—		—		—		524

Total mark-to-market derivative assets		5,373			80			(4,087	)		1,366			—			—		—		—		—		1,366

Mark-to-market derivative liabilities (current liabilities)		(3,029	)		(49	)		2,876			(202	)		(19	)		—		—		—		—		(221	)
Mark-to-market derivative liabilities (noncurrent liabilities)		(1,780	)		(28	)		1,655			(153	)		(263	)		—		—		—		—		(416	)

Total mark-to-market derivative liabilities		(4,809	)		(77	)		4,531			(355	)		(282	)		—		—		—		—		(637	)

Total mark-to-market derivative net assets (liabilities)	$	564		$	3		$	444		$	1,011		$	(282	)	$	—	$	—	$	—	$	—	$	729

(a)

Exelon, Generation, PHI and DPL net all available amounts allowed under the derivative accounting guidance on the balance sheet. These amounts include unrealized derivative transactions with the same counterparty under legally enforceable master netting agreements and cash collateral. In some cases Exelon and Generation may have other offsetting exposures, subject to a master netting or similar agreement, such as trade receivables and payables, transactions that do not qualify as derivatives, letters of credit and other forms of non-cash collateral. These are not reflected in the table above.

(b)

Current and noncurrent assets are shown net of collateral of $128 million and $77 million, respectively, and current and noncurrent liabilities are shown net of collateral of $136 million and $103 million, respectively. The total cash collateral posted, net of cash collateral received and offset against mark-to-market assets and liabilities was $444 million at March 31, 2017.

(c)	Includes current and noncurrent liabilities relating to floating-to-fixed energy swap contracts with unaffiliated suppliers.

(d)	Represents natural gas futures purchased by DPL as part of a natural gas hedging program approved by the DPSC.

(e)	Of the collateral posted/(received), $14 million represents variation margin on the exchanges.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The following table provides a summary of the derivative fair value balances recorded by the Registrants as of December 31, 2016:


																							Successor
	Generation												ComEd			DPL							PHI		Exelon
Description	Economic Hedges			Proprietary Trading			Collateral and Netting^(a)(e)			Subtotal^(b)			Economic Hedges^(c)			Economic Hedges^(d)		Collateral and Netting^(a)			Subtotal		Subtotal		Total Derivatives
Mark-to-market derivative assets (current assets)	$	3,623		$	55		$	(2,769	)	$	909		$	—		$	2	$	(2	)	$	—	$	—	$	909
Mark-to-market derivative assets (noncurrent assets)		1,467			21			(1,016	)		472			—			—		—			—		—		472

Total mark-to-market derivative assets		5,090			76			(3,785	)		1,381			—			2		(2	)		—		—		1,381

Mark-to-market derivative liabilities (current liabilities)		(3,165	)		(54	)		2,964			(255	)		(19	)		—		—			—		—		(274	)
Mark-to-market derivative liabilities (noncurrent liabilities)		(1,274	)		(25	)		1,150			(149	)		(239	)		—		—			—		—		(388	)

Total mark-to-market derivative liabilities		(4,439	)		(79	)		4,114			(404	)		(258	)		—		—			—		—		(662	)

Total mark-to-market derivative net assets (liabilities)	$	651		$	(3	)	$	329		$	977		$	(258	)	$	2	$	(2	)	$	—	$	—	$	719

(a)

Exelon, Generation, PHI and DPL net all available amounts allowed under the derivative accounting guidance on the balance sheet. These amounts include unrealized derivative transactions with the same counterparty under legally enforceable master netting agreements and cash collateral. In some cases Exelon and Generation may have other offsetting exposures, subject to a master netting or similar agreement, such as trade receivables and payables, transactions that do not qualify as derivatives, and letters of credit and other forms of non-cash collateral. These are not reflected in the table above.

(b)

Current and noncurrent assets are shown net of collateral of $100 million and $72 million, respectively, and current and noncurrent liabilities are shown net of collateral of $95 million and $62 million, respectively. The total cash collateral posted, net of cash collateral received and offset against mark-to-market assets and liabilities was $329 million at December 31, 2016.

(c)	Includes current and noncurrent liabilities relating to floating-to-fixed energy swap contracts with unaffiliated suppliers.

(d)	Represents natural gas futures purchased by DPL as part of a natural gas hedging program approved by the DPSC.

(e)	Of the collateral posted/(received), $(158) million represents variation margin on the exchanges.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Cash Flow Hedges (Exelon and Generation). The tables below provide the activity of OCI related to cash flow hedges for the three months ended March 31, 2017 and 2016, containing information about the changes in the fair value of cash flow hedges and the reclassification from Accumulated OCI into results of operations. The amounts reclassified from OCI, when combined with the impacts of the hedged transactions, result in the ultimate recognition of net revenues or expenses at the contractual price.


	Income Statement Location		Total Cash Flow Hedge OCI Activity, Net of Income Tax
			Generation			Exelon
Three Months Ended March 31, 2017			Total Cash Flow Hedges			Total Cash Flow Hedges
Accumulated OCI derivative loss at December 31, 2016			$	(19	)	$	(17	)
Effective portion of changes in fair value				2			2
Reclassifications from AOCI to net income		Interest Expense		4	^(a)		4	^(a)

Accumulated OCI derivative loss at March 31, 2017			$	(13	)	$	(11	)


	Income Statement Location		Total Cash Flow Hedge OCI Activity, Net of Income Tax
			Generation			Exelon
Three Months Ended March 31, 2016			Total Cash Flow Hedges			Total Cash Flow Hedges
Accumulated OCI derivative loss at December 31, 2015			$	(21	)	$	(19	)
Effective portion of changes in fair value				(8	)		(10	)
Reclassifications from AOCI to net income		Interest Expense		3	^(b)		3	^(b)

Accumulated OCI derivative loss at March 31, 2016			$	(26	)	$	(26	)

(a)	Amount is net of related income tax expense of $3 million for the three months ended March 31, 2017.

(b)	Amount is net of related income tax expense of $2 million for the three months ended March 31, 2016.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Economic Hedges (Exelon and Generation). These instruments represent hedges that economically mitigate exposure to fluctuations in commodity prices and include financial options, futures, swaps, physical forward sales and purchases, but for which the fair value or cash flow hedge elections were not made. Additionally, Generation enters into interest rate derivative contracts and foreign exchange currency swaps (“treasury”) to manage the exposure related to the interest rate component of commodity positions and international purchases of commodities in currencies other than U.S. Dollars. For the three months ended March 31, 2017 and 2016, the following net pre-tax mark-to-market gains (losses) of certain purchase and sale contracts were reported in Operating revenues or Purchased power and fuel expense, or Interest expense at Exelon and Generation in the Consolidated Statements of Operations and Comprehensive Income and are included in “Net fair value changes related to derivatives” in Exelon’s and Generation’s Consolidated Statements of Cash Flows. In the tables below, “Change in fair value” represents the change in fair value of the derivative contracts held at the reporting date. The “Reclassification to realized” generally represents the recognized change in fair value that was reclassified from unrealized to realized when the transaction to which the derivative relates occurs.


	Generation									Exelon
Three Months Ended March 31, 2017	Operating Revenues			Purchased Power and Fuel			Total			Total
Change in fair value of commodity positions	$	93		$	(135	)	$	(42	)	$	(42	)
Reclassification to realized of commodity positions		(47	)		42			(5	)		(5	)

Net commodity mark-to-market gains (losses)		46			(93	)		(47	)		(47	)

Change in fair value of treasury positions		(1	)		—			(1	)		(1	)
Reclassification to realized of treasury positions		(1	)		—			(1	)		(1	)

Net treasury mark-to-market gains (losses)		(2	)		—			(2	)		(2	)

Net mark-to-market gains (losses)	$	44		$	(93	)	$	(49	)	$	(49	)


	Generation									Exelon
Three Months Ended March 31, 2016	Operating Revenues			Purchased Power and Fuel			Total			Total
Change in fair value of commodity positions	$	279		$	(127	)	$	152		$	152
Reclassification to realized of commodity positions		(211	)		167			(44	)		(44	)

Net commodity mark-to-market gains (losses)		68			40			108			108

Change in fair value of treasury positions		(3	)		—			(3	)		(3	)
Reclassification to realized of treasury positions		(2	)		—			(2	)		(2	)

Net treasury mark-to-market gains (losses)		(5	)		—			(5	)		(5	)

Net mark-to-market gains (losses)	$	63		$	40		$	103		$	103

Proprietary Trading Activities (Exelon and Generation). For the three months ended March 31, 2017 and 2016, Exelon and Generation recognized the following net unrealized mark-to-market gains (losses), net realized mark-to-market gains (losses) and total net mark-to-market gains (losses) before income taxes relating to mark-to-market activity on commodity derivative instruments entered into for proprietary trading purposes and interest rate and foreign exchange derivative contracts to hedge risk associated with the interest rate and foreign exchange components of underlying commodity positions. Gains and losses associated with proprietary trading are reported as operating revenues in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income and are included in “Net fair value changes related to derivatives” in Exelon’s and

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Generation’s Consolidated Statements of Cash Flows. In the tables below, “Change in fair value” represents the change in fair value of the derivative contracts held at the reporting date. The “Reclassification to realized” represents the recognized change in fair value that was reclassified to realized due to settlement of the derivative during the period.


	Three Months Ended March 31,
	2017			2016
Change in fair value of commodity positions	$	—		$	7
Reclassification to realized of commodity positions		(1	)		(3	)

Net commodity mark-to-market gains (losses)		(1	)		4

Change in fair value of treasury positions		—			(2	)
Reclassification to realized of treasury positions		(1	)		1

Net treasury mark-to-market gains (losses)		(1	)		(1	)

Total net mark-to-market gains (losses)	$	(2	)	$	3

Credit Risk (All Registrants)

The Registrants would be exposed to credit-related losses in the event of non-performance by counterparties that enter into derivative instruments. The credit exposure of derivative contracts, before collateral, is represented by the fair value of contracts at the reporting date. For energy-related derivative instruments, Generation enters into enabling agreements that allow for payment netting with its counterparties, which reduces Generation’s exposure to counterparty risk by providing for the offset of amounts payable to the counterparty against amounts receivable from the counterparty. Typically, each enabling agreement is for a specific commodity and so, with respect to each individual counterparty, netting is limited to transactions involving that specific commodity product, except where master netting agreements exist with a counterparty that allow for cross product netting. In addition to payment netting language in the enabling agreement, Generation’s credit department establishes credit limits, margining thresholds and collateral requirements for each counterparty, which are defined in the derivative contracts. Counterparty credit limits are based on an internal credit review process that considers a variety of factors, including the results of a scoring model, leverage, liquidity, profitability, credit ratings by credit rating agencies and risk management capabilities. To the extent that a counterparty’s margining thresholds are exceeded, the counterparty is required to post collateral with Generation as specified in each enabling agreement. Generation’s credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and an aggregate basis.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The following tables provide information on Generation’s credit exposure for all derivative instruments, NPNS and applicable payables and receivables, net of collateral and instruments that are subject to master netting agreements, as of March 31, 2017. The tables further delineate that exposure by credit rating of the counterparties and provide guidance on the concentration of credit risk to individual counterparties. The figures in the tables below exclude credit risk exposure from individual retail counterparties, Nuclear fuel procurement contracts and exposure through RTOs, ISOs, NYMEX, ICE, NASDAQ, NGX and Nodal commodity exchanges. Additionally, the figures in the tables below exclude exposures with affiliates, including net receivables with ComEd, PECO, BGE, Pepco, DPL and ACE of $13 million, $31 million,$24 million, $40 million, $13 million, and $7 million as of March 31, 2017, respectively.


Rating as of March 31, 2017	Total Exposure Before Credit Collateral		Credit Collateral^(a)		Net Exposure		Number of Counterparties Greater than 10% of Net Exposure		Net Exposure of Counterparties Greater than 10% of Net Exposure
Investment grade	$	964	$	16	$	948		1	$	313
Non-investment grade		75		3		72		—		—
No external ratings
Internally rated — investment grade		324		—		324		—		—
Internally rated — non- investment grade		127		14		113		—		—

Total	$	1,490	$	33	$	1,457		1	$	313


Net Credit Exposure by Type of Counterparty	As of March 31, 2017
Financial institutions	$	101
Investor-owned utilities, marketers, power producers		600
Energy cooperatives and municipalities		663
Other		93

Total	$	1,457

(a)	As of March 31, 2017, credit collateral held from counterparties where Generation had credit exposure included $23 million of cash and $10 million of letters of credit. The credit collateral does not include non-liquid collateral.

ComEd’s power procurement contracts provide suppliers with a certain amount of unsecured credit. The credit position is based on forward market prices compared to the benchmark prices. The benchmark prices are the forward prices of energy projected through the contract term and are set at the point of supplier bid submittals. If the forward market price of energy exceeds the benchmark price, the suppliers are required to post collateral for the secured credit portion after adjusting for any unpaid deliveries and unsecured credit allowed under the contract. The unsecured credit used by the suppliers represents ComEd’s net credit exposure. As of March 31, 2017, ComEd’s net credit exposure to suppliers was approximately $1 million.

ComEd is permitted to recover its costs of procuring energy through the Illinois Settlement Legislation. ComEd’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates. See Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K for additional information.

PECO’s supplier master agreements that govern the terms of its electric supply procurement contracts, which define a supplier’s performance assurance requirements, allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s lowest credit rating from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day a transaction is

130

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

executed, compared to the current forward price curve for energy. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. The unsecured credit used by the suppliers represents PECO’s net credit exposure. As of March 31, 2017, PECO had no material net credit exposure to suppliers.

PECO is permitted to recover its costs of procuring electric supply through its PAPUC-approved DSP Program. PECO’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates. See Note 5 — Regulatory Matters for additional information.

PECO’s natural gas procurement plan is reviewed and approved annually on a prospective basis by the PAPUC. PECO’s counterparty credit risk under its natural gas supply and asset management agreements is mitigated by its ability to recover its natural gas costs through the PGC, which allows PECO to adjust rates quarterly to reflect realized natural gas prices. PECO does not obtain collateral from suppliers under its natural gas supply and asset management agreements. As of March 31, 2017, PECO had no material credit exposure under its natural gas supply and asset management agreements with investment grade suppliers.

BGE is permitted to recover its costs of procuring energy through the MDPSC-approved procurement tariffs. BGE’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates. See Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K for additional information.

BGE’s full requirement wholesale electric power agreements that govern the terms of its electric supply procurement contracts, which define a supplier’s performance assurance requirements, allow a supplier, or its guarantor, to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s lowest credit rating from the major credit rating agencies and the supplier’s tangible net worth, subject to an unsecured credit cap. The credit position is based on the initial market price, which is the forward price of energy on the day a transaction is executed, compared to the current forward price curve for energy. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. The unsecured credit used by the suppliers represents BGE’s net credit exposure. The seller’s credit exposure is calculated each business day. As of March 31, 2017, BGE had no net credit exposure to suppliers.

BGE’s regulated gas business is exposed to market-price risk. This market-price risk is mitigated by BGE’s recovery of its costs to procure natural gas through a gas cost adjustment clause approved by the MDPSC. BGE does make off-system sales after BGE has satisfied its customers’ demands, which are not covered by the gas cost adjustment clause. At March 31, 2017, BGE had credit exposure of $3 million related to off-system sales which is mitigated by parental guarantees, letters of credit or right to offset clauses within other contracts with those third-party suppliers.

Pepco’s, DPL’s and ACE’s power procurement contracts provide suppliers with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s lowest credit rating from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day a transaction is executed, compared to the current forward price curve for energy. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. The unsecured credit used by the suppliers represents Pepco’s, DPL’s and ACE’s net credit exposure. As of March 31, 2017, Pepco’s, DPL’s and ACE’s net credit exposures to suppliers were immaterial.

Pepco is permitted to recover its costs of procuring energy through the MDPSC-approved and DCPSC-approved procurement tariffs. DPL is permitted to recover its costs of procuring energy through the MDPSC-approved and DPSC-approved procurement tariffs. ACE is permitted to recover its costs of procuring energy through the NJBPU-approved procurement tariffs. Pepco’s, DPL’s and ACE’s counterparty credit risks are mitigated by their ability to recover realized energy costs through customer rates. See Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K for additional information.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

DPL’s natural gas procurement plan is reviewed and approved annually on a prospective basis by the DPSC. DPL’s counterparty credit risk under its natural gas supply and asset management agreements is mitigated by its ability to recover its natural gas costs through the GCR, which allows DPL to adjust rates annually to reflect realized natural gas prices. To the extent that the fair value of the transactions in a net loss position exceeds the unsecured credit threshold, then collateral is required to be posted in an amount equal to the amount by which the unsecured credit threshold is exceeded. Exchange-traded contracts are required to be fully collateralized without regard to the credit rating of the holder. As of March 31, 2017, DPL had no credit exposure under its natural gas supply and asset management agreements with investment grade suppliers.

Collateral and Contingent-Related Features (All Registrants)

As part of the normal course of business, Generation routinely enters into physical or financially settled contracts for the purchase and sale of electric capacity, energy, fuels, emissions allowances and other energy-related products. Certain of Generation’s derivative instruments contain provisions that require Generation to post collateral. Generation also enters into commodity transactions on exchanges (i.e., NYMEX, ICE). The exchanges act as the counterparty to each trade. Transactions on the exchanges must adhere to comprehensive collateral and margining requirements. This collateral may be posted in the form of cash or credit support with thresholds contingent upon Generation’s credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit-risk-related contingent features stipulate that if Generation were to be downgraded or lose its investment grade credit rating (based on its senior unsecured debt rating), it would be required to provide additional collateral. This incremental collateral requirement allows for the offsetting of derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master netting agreements. In the absence of expressly agreed-to provisions that specify the collateral that must be provided, collateral requested will be a function of the facts and circumstances of the situation at the time of the demand. In this case, Generation believes an amount of several months of future payments (i.e., capacity payments) rather than a calculation of fair value is the best estimate for the contingent collateral obligation, which has been factored into the disclosure below.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features in a liability position that are not fully collateralized (excluding transactions on the exchanges that are fully collateralized) is detailed in the table below:


Credit-Risk Related Contingent Feature	March 31, 2017			December 31, 2016
Gross Fair Value of Derivative Contracts Containing this Feature^(a)	$	(994	)	$	(960	)
Offsetting Fair Value of In-the-Money Contracts Under Master Netting Arrangements^(b)		712			627

Net Fair Value of Derivative Contracts Containing This Feature^(c)	$	(282	)	$	(333	)

(a)	Amount represents the gross fair value of out-of-the-money derivative contracts containing credit-risk related contingent features ignoring the effects of master netting agreements.

(b)	Amount represents the offsetting fair value of in-the-money derivative contracts under legally enforceable master netting agreements with the same counterparty, which reduces the amount of any liability for which a Registrant could potentially be required to post collateral.

(c)

Amount represents the net fair value of out-of-the-money derivative contracts containing credit-risk related contingent features after considering the mitigating effects of offsetting positions under master netting arrangements and reflects the actual net liability upon which any potential contingent collateral obligations would be based.

Generation had cash collateral posted of $471 million and letters of credit posted of $273 million and cash collateral held of $35 million and letters of credit held of $32 million as of March 31, 2017 for external counterparties with derivative positions. Generation had cash collateral posted of $347 million and letters of credit posted of $284 million and cash collateral held of $24 million and letters of credit held of $28 million at December 31, 2016 for external counterparties with derivative positions. In the event of a credit downgrade below investment grade (i.e., to

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

BB+ by S&P or Ba1 by Moody’s), Generation would have been required to post additional collateral of $1.8 billion and $1.9 billion as of March 31, 2017 and December 31, 2016, respectively. These amounts represent the potential additional collateral required after giving consideration to offsetting derivative and non-derivative positions under master netting agreements.

Generation’s and Exelon’s interest rate swaps contain provisions that, in the event of a merger, if Generation’s debt ratings were to materially weaken, it would be in violation of these provisions, resulting in the ability of the counterparty to terminate the agreement prior to maturity. Collateralization would not be required under any circumstance. Termination of the agreement could result in a settlement payment by Exelon or the counterparty on any interest rate swap in a net liability position. The settlement amount would be equal to the fair value of the swap on the termination date. As of March 31, 2017, Generation’s swaps were in a liability position with a fair value of $3 million and Exelon’s swaps were in an asset position, with a fair value of $9 million.

See Note 26 — Segment Information of the Exelon 2016 Form 10-K for further information regarding the letters of credit supporting the cash collateral.

Generation entered into supply forward contracts with certain utilities, including PECO and BGE, with one-sided collateral postings only from Generation. If market prices fall below the benchmark price levels in these contracts, the utilities are not required to post collateral. However, when market prices rise above the benchmark price levels, counterparty suppliers, including Generation, are required to post collateral once certain unsecured credit limits are exceeded. Under the terms of ComEd’s standard block energy contracts, collateral postings are one-sided from suppliers, including Generation, should exposures between market prices and benchmark prices exceed established unsecured credit limits outlined in the contracts. As of March 31, 2017, ComEd held approximately $1 million in collateral from suppliers in association with energy procurement contracts. Under the terms of ComEd’s annual renewable energy contracts, collateral postings are required to cover a fixed value for RECs only. In addition, under the terms of ComEd’s long-term renewable energy contracts, collateral postings are required from suppliers for both RECs and energy. The REC portion is a fixed value and the energy portion is one-sided from suppliers should the forward market prices exceed contract prices. As of March 31, 2017, ComEd held approximately $19 million in the form of cash and letters of credit as margin for both the annual and long-term REC obligations. If ComEd lost its investment grade credit rating as of March 31, 2017, it would have been required to post approximately $10 million of collateral to its counterparties. See Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K for additional information.

PECO’s natural gas procurement contracts contain provisions that could require PECO to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon PECO’s credit rating from the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. As of March 31, 2017, PECO was not required to post collateral for any of these agreements. If PECO lost its investment grade credit rating as of March 31, 2017, PECO could have been required to post approximately $27 million of collateral to its counterparties.

PECO’s supplier master agreements that govern the terms of its DSP Program contracts do not contain provisions that would require PECO to post collateral.

BGE’s full requirements wholesale power agreements that govern the terms of its electric supply procurement contracts do not contain provisions that would require BGE to post collateral.

BGE’s natural gas procurement contracts contain provisions that could require BGE to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon BGE’s credit rating from the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. As of March 31, 2017, BGE was not required to post collateral for any of these agreements. If

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

BGE lost its investment grade credit rating as of March 31, 2017, BGE could have been required to post approximately $47 million of collateral to its counterparties.

Pepco’s full requirements wholesale power agreements that govern the terms of its electric supply procurement contracts do not contain provisions that would require Pepco to post collateral.

DPL’s full requirements wholesale power agreements that govern the terms of its electric supply procurement contracts do not contain provisions that would require DPL to post collateral.

DPL’s natural gas procurement contracts contain provisions that could require DPL to post collateral. To the extent that the fair value of the natural gas derivative transaction in a net loss position exceeds the unsecured credit threshold, then collateral is required to be posted in an amount equal to the amount by which the unsecured credit threshold is exceeded. The DPL obligations are standalone, without the guaranty of PHI. If DPL lost its investment grade credit rating as of March 31, 2017, DPL could have been required to post an additional amount of approximately $11 million of collateral to its natural gas counterparties.

ACE’s full requirements wholesale power agreements that govern the terms of its electric supply procurement contracts do not contain provisions that would require ACE to post collateral.

10. Debt and Credit Agreements (All Registrants)

Short-Term Borrowings

Exelon, Pepco, DPL and ACE meet their short-term liquidity requirements primarily through the issuance of commercial paper and short-term notes. ComEd and BGE meet their short-term liquidity requirements primarily through the issuance of commercial paper. Generation and PECO meet their short-term liquidity requirements primarily through the issuance of commercial paper and borrowings from the Exelon intercompany money pool. PHI meets its short-term liquidity requirement primarily through the issuance of short-term notes and the Exelon intercompany money pool.

Commercial Paper

The Registrants had the following amounts of commercial paper borrowings outstanding as of March 31, 2017 and December 31, 2016:


Commercial Paper Borrowings	March 31, 2017		December 31, 2016
Exelon Corporate	$	204	$	—
Generation		579		620
ComEd		365		—
PECO		—		—
BGE		95		45
PHI Corporate		—		—
Pepco		167		23

Short-Term Loan Agreements

On January 13, 2016, PHI entered into a $500 million term loan agreement, which was amended on March 28, 2016. The net proceeds of the loan were used to repay PHI’s outstanding commercial paper, and for

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

general corporate purposes. Pursuant to the loan agreement, as amended, loans made thereunder bear interest at a variable rate equal to LIBOR plus 1%, and all indebtedness thereunder is unsecured. On March 23, 2017, the aggregate principal amount of all loans, together with any accrued but unpaid interest due under the loan agreement was fully repaid and the loan terminated. On March 23, 2017, Exelon Corporate entered into a similar type term loan for $500 million which expires on March 22, 2018. Pursuant to the loan agreement, loans made thereunder bear interest at a variable rate equal to LIBOR plus 1% and all indebtedness thereunder is unsecured. The loan agreement is reflected in Exelon’s Consolidated Balance Sheet within Short-Term borrowings.

Credit Agreements

On January 5, 2016, Generation entered into a credit agreement establishing a $150 million bilateral credit facility, scheduled to mature in January 2019. This facility will solely be utilized by Generation to issue letters of credit. This facility does not back Generation’s commercial paper program.

On January 9, 2017, the credit agreement for Generation’s $75 million bilateral credit facility was amended and restated to increase the facility size to $100 million and extend the maturity to January 2019. This facility will solely be used by Generation to issue letters of credit.

On April 1, 2016, the credit agreement for CENG’s $100 million bilateral credit facility was amended to increase the overall facility size to $200 million. This facility is utilized by CENG to fund working capital and capital projects. The facility does not back Generation’s commercial paper program.

On May 26, 2016, Exelon Corporate, Generation, ComEd, PECO and BGE entered into amendments to each of their respective syndicated revolving credit facilities, which extended the maturity of each of the facilities to May 26, 2021. Exelon Corporate also increased the size of its facility from $500 million to $600 million. On May 26, 2016, PHI, Pepco, DPL and ACE entered into an amendment to their Second Amended and Restated Credit Agreement dated as of August 1, 2011, which (i) extended the maturity date of the facility to May 26, 2021, (ii) removed PHI as a borrower under the facility, (iii) decreased the size of the facility from $1.5 billion to $900 million and (iv) converted its financial covenant from a debt to capitalization leverage ratio to an interest coverage ratio.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Long-Term Debt

Issuance of Long-Term Debt

During the three months ended March 31, 2017, the following long-term debt was issued:

Company

Type

Interest Rate

Maturity

Amount

Use of Proceeds

Generation

Energy Efficiency Project Financing

3.72%

April 30, 2018

Funding to install energy conservation measures for the Smithsonian Zoo project

Generation

Energy Efficiency Project Financing

2.61%

September 30, 2018

Funding to install energy conservation measures for the Pensacola project

Generation

Energy Efficiency Project Financing

3.90%

January 31, 2018

Funding to install energy conservation measures for the Naval Station Great Lakes project

Generation

Albany Green Energy Project Financing

LIBOR + 1.25%

November 17, 2017

Albany Green Energy biomass generation development

Generation

Senior Notes

2.95%

January 15, 2020

250

Repay outstanding commercial paper obligations and for general corporate purposes.

Generation

Senior Notes

3.40%

March 15, 2022

500

Repay outstanding commercial paper obligations and for general corporate purposes.

Pepco

Energy Efficiency Project Financing

3.30%

December 15, 2017

Funding to install energy conservation measures for the DOE Germantown project

EGTP Nonrecourse Debt

In September 2014, EGTP, an indirect subsidiary of Exelon and Generation, issued $675 million aggregate principal amount of a nonrecourse senior secured term loan. The net proceeds were distributed to Generation for general business purposes. The loan is scheduled to mature on September 18, 2021. The term loan bears interest at a variable rate equal to LIBOR plus 4.75%, subject to a 1% LIBOR floor with interest payable quarterly. As of March 31, 2017, $658 million was outstanding. As part of the agreement, a revolving credit facility was established for the amount of $20 million available through, and scheduled to mature on September 18, 2019. In addition to the financing, EGTP entered into various interest rate swaps with an initial notional amount of approximately $505 million at an interest rate of 2.34% to hedge a portion of the interest rate exposure in connection with this financing, as required by the debt covenants. See Note 9 — Derivative Financial Instruments for additional information regarding interest rate swaps. See Note 20 — Subsequent Events for additional information regarding EGTP and the associated nonrecourse debt.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Junior Subordinated Notes

In June 2014, Exelon issued $1.15 billion of junior subordinated notes in the form of 23 million equity units at a stated amount of $50.00 per unit. Each equity unit represented an undivided beneficial ownership interest in Exelon’s $1.15 billion of 2.50% junior subordinated notes due in 2024 (“2024 notes”) and a forward equity purchase contract. As contemplated in the June 2014 equity unit structure, in April 2017, Exelon completed the remarketing of the 2024 notes into $1.15 billion of 3.497% junior subordinated notes due in 2022 (“Remarketing”). Exelon conducted the Remarketing on behalf of the holders of equity units and did not directly receive any proceeds therefrom. Instead, the former holders of the 2024 notes may use debt remarketing proceeds towards settling the forward equity purchase contract with Exelon on June 1, 2017. Exelon will receive $1.15 billion upon settlement on June 1, 2017, of the forward equity purchase contract. Exelon currently expects the number of equity shares to be issued to range from 26 million to 33 million dependent on Exelon’s stock price at the time of settlement pursuant to the equity unit terms. Until settlement of the equity purchase contract, earnings per share dilution resulting from the equity units is being determined under the treasury stock method.

For the three months ended March 31, 2017 and 2016, contract payments of $11 million related to the Contract Payment Obligation were included within Retirements of long-term debt in Exelon’s Consolidated Statements of Cash Flows.

11. Income Taxes (All Registrants)

The effective income tax rate from continuing operations varies from the U.S. Federal statutory rate principally due to the following:


	Three Months Ended March 31, 2017
																									Successor
	Exelon			Generation			ComEd			PECO			BGE			Pepco			DPL			ACE			PHI
U.S. Federal statutory rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit		0.9			1.0			4.9			0.1			5.2			4.6			5.3			5.6			4.9
Qualified nuclear decommissioning trust fund income		3.4			7.6			—			—			—			—			—			—			—
Amortization of investment tax credit, including deferred taxes on basis difference		(0.4	)		(0.7	)		(0.2	)		(0.1	)		(0.1	)		(0.1	)		(0.3	)		(0.4	)		(0.2	)
Plant basis differences		(2.4	)		—			(0.2	)		(13.2	)		(0.9	)		(5.8	)		(1.9	)		(3.4	)		(3.8	)
Production tax credits and other credits		(0.6	)		(1.4	)		—			—			—			—			—			—			—
Noncontrolling interests		(0.1	)		(0.3	)		—			—			—			—			—			—			—
Merger expenses^(a)		(11.4	)		(3.3	)		—			—			—			(34.2	)		(21.9	)		(167.1	)		(42.4	)
Fitzpatrick bargain purchase gain		(6.6	)		(14.5	)		—			—			—			—			—			—			—
Other		—			(0.1	)		—			0.3			(0.2	)		0.5			—			(3.0	)		(0.4	)

Effective income tax rate		17.8	%		23.3	%		39.5	%		22.1	%		39.0	%		0.0	%		16.2	%		(133.3	)%		(6.9	)%

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


																									Successor			Predecessor
	Three Months Ended March 31, 2016																								March 24, 2016 to March 31, 2016			January 1, 2016 to March 23, 2016
	Exelon			Generation			ComEd			PECO			BGE			Pepco^(b)			DPL^(b)			ACE^(b)			PHI^(b)			PHI
U.S. Federal statutory rate		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%		35.0	%
Increase (decrease) due to:
State income taxes, net of Federal income tax benefit^(c)		(1.1	)		3.7			5.1			1.0			5.2			(2.5	)		(2.7	)		5.9			5.4			11.9
Qualified nuclear decommissioning trust fund income		5.6			4.2			—			—			—			—			—			—			—			—
Amortization of investment tax credit, including deferred taxes on basis difference		(1.6	)		(1.0	)		(0.3	)		(0.1	)		(0.1	)		—			0.1			0.2			—			(0.9	)
Plant basis differences		(5.5	)		—			(0.1	)		(9.3	)		(0.6	)		2.8			0.7			0.6			—			(13.5	)
Production tax credits and other credits		(5.1	)		(3.9	)		—			—			—			—			—			—			—			—
Noncontrolling interests		0.5			0.3			—			—			—			—			—			—			—			—
Merger expenses		33.6			—			—			—			—			(16.5	)		(22.1	)		(17.0	)		(15.1	)		11.1
Other		(2.0	)		(1.6	)		0.4			(0.9	)		—			—			0.1			0.1			0.2			3.6

Effective income tax rate		59.4	%		36.7	%		40.1	%		25.7	%		39.5	%		18.8	%		11.1	%		24.8	%		25.5	%		47.2	%

(a)	Includes a remeasurement of uncertain federal and state income tax positions, see below.

(b)	Pepco, DPL and ACE recognized a loss before income taxes for the three months ended March 31, 2016, and PHI recognized a loss before income taxes for the period of March 24, 2016, through March 31, 2016. As a result, positive percentages represent an income tax benefit for the periods presented.

(c)	Includes a remeasurement of uncertain state income tax positions for Pepco and DPL.

Accounting for Uncertainty in Income Taxes

The Registrants have the following unrecognized tax benefits as of March 31, 2017 and December 31, 2016:


												Successor
	Exelon		Generation		ComEd			PECO		BGE		PHI		Pepco		DPL		ACE
March 31, 2017	$	769	$	470	$	(12	)	$	—	$	120	$	112	$	59	$	21	$	—


												Successor
	Exelon		Generation		ComEd			PECO		BGE		PHI		Pepco		DPL		ACE
December 31, 2016	$	916	$	490	$	(12	)	$	—	$	120	$	172	$	80	$	37	$	22

Exelon established a liability for an uncertain tax position associated with the tax deductibility of certain merger commitments incurred by Exelon in connection with the acquisitions of Constellation in 2012 and PHI in 2016. In the first quarter 2017, as a part of its examination of Exelon’s return, the IRS National Office issued guidance concurring with Exelon’s position that the merger commitments were deductible. As a result, Exelon, Generation, PHI, Pepco, DPL, and ACE decreased their liability for unrecognized tax benefits by $146 million, $19 million, $59 million, $21 million, $16 million, and $22 million, respectively, as of March 31, 2017, resulting in a benefit to Income taxes on Exelon’s, Generation’s, PHI’s, Pepco’s, DPL’s and ACE’s Consolidated Statements of Operations and Comprehensive Income and corresponding decreases in their effective tax rates.

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(Dollars in millions, except per share data, unless otherwise noted)

Reasonably possible the total amount of unrecognized tax benefits could significantly increase or decrease within 12 months after the reporting date

Like-Kind Exchange

As of March 31, 2017, Exelon and ComEd have approximately $76 million and $(12) million, respectively, of unrecognized state income tax benefits that could significantly decrease and increase within the 12 months after the reporting date due to a final resolution of the like-kind exchange litigation described below. The recognition of these unrecognized tax benefits would decrease Exelon’s effective tax rate and increase ComEd’s effective tax rate.

Settlement of Income Tax Audits

As of March 31, 2017, Exelon, Generation, BGE, PHI, Pepco, and DPL have approximately $257 million, $57 million, $120 million, $80 million, $59 million, and $21 million of unrecognized federal and state tax benefits that could significantly decrease within the 12 months after the reporting date as a result of completing audits and potential settlements. Of the above unrecognized tax benefits, Exelon and Generation have $50 million that, if recognized, would decrease the effective tax rate. The unrecognized tax benefits related to BGE, DPL, and a portion of Pepco, if recognized, may be included in future regulated base rates and that portion would have no impact to the effective tax rate.

Other Income Tax Matters

Like-Kind Exchange (Exelon and ComEd)

Exelon, through its ComEd subsidiary, took a position on its 1999 income tax return to defer approximately $1.2 billion of tax gain on the sale of ComEd’s fossil generating assets. The gain was deferred by reinvesting a portion of the proceeds from the sale in qualifying replacement property under the like-kind exchange provisions of the IRC. The like-kind exchange replacement property purchased by Exelon included interests in three municipal-owned electric generation facilities which were properly leased back to the municipalities.

The IRS disagreed with this position and asserted that the entire gain of approximately $1.2 billion was taxable in 1999. Exelon was unable to reach agreement with the IRS regarding the dispute over the like-kind exchange position. The IRS asserted that the Exelon purchase and leaseback transaction was substantially similar to a leasing transaction, known as a SILO, which the IRS does not respect as the acquisition of an ownership interest in property. A SILO is a “listed transaction” that the IRS has identified as a potentially abusive tax shelter under guidance issued in 2005. Accordingly, the IRS asserted that the sale of the fossil plants followed by the purchase and leaseback of the municipal owned generation facilities did not qualify as a like-kind exchange and the gain on the sale is fully subject to tax. The IRS also asserted a penalty of approximately $90 million for a substantial understatement of tax.

On September 30, 2013, the IRS issued a notice of deficiency to Exelon for the like-kind exchange position. Exelon filed a petition on December 13, 2013 to initiate litigation in the United States Tax Court and the trial took place in August of 2015. Exelon was not required to remit any part of the asserted tax or penalty in order to litigate the issue.

On September 19, 2016, the Tax Court rejected Exelon’s position in the case and ruled that Exelon was not entitled to defer gain on the transaction. In addition, contrary to Exelon’s evaluation that the penalty was unwarranted, the Tax Court ruled that Exelon is liable for the penalty and interest due on the asserted penalty. Exelon expects to timely appeal this decision to the U.S. Court of Appeals for the Seventh Circuit in 2017.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

In the first quarter of 2013, Exelon concluded that it was no longer more likely than not that the like-kind exchange position would be sustained and recorded charges to earnings representing the amount of interest expense (after-tax) and incremental state income tax expense that would be payable in the event Exelon is unsuccessful in litigation. Prior to the Tax Court’s decision, however, Exelon did not believe it was likely a penalty would be assessed based on applicable case law and the facts of the transaction. As a result, no charge had been recorded for the penalty or for after-tax interest on the penalty. While it has strong arguments on appeal with respect to both the merits and the penalty, Exelon has determined that, pursuant to accounting standards, it is no longer more likely than not to avoid ultimate imposition of the penalty. As a result, in the third quarter of 2016, Exelon and ComEd recorded a charge to earnings of approximately $106 million and $86 million, respectively, of penalty and approximately $94 million and $64 million, respectively, of after-tax interest. Exelon and ComEd recorded the penalty and pre-tax interest due on the asserted penalty to Other, net and Interest expense, net, respectively, on their Consolidated Statements of Operations. Consistent with Exelon’s agreement to continue to hold ComEd harmless from any unfavorable impact on its equity, ComEd recorded on its Consolidated Balance Sheets as of September 30, 2016, a $150 million receivable and non-cash equity contributions from Exelon. In addition, while further adjustments may be required, Exelon currently estimates that its income tax expense may decrease by as much as $50 million and ComEd’s income tax expense may increase by as much as $20 million resulting from the IRS’s completion of its calculation of tax, penalties, and interest in the second quarter of 2017.

In order to appeal the decision, Exelon is required to pay the tax, penalties and interest at the time Exelon files its appeal (expected in the third quarter of 2017). While the final calculation of tax, penalties and interest has not yet been finalized by the IRS, Exelon estimates that a payment of approximately $1.3 billion related to the like-kind exchange will be due, including $300 million from ComEd, in the third quarter of 2017. While Exelon will receive a tax benefit of approximately $350 million associated with the deduction for the interest, Exelon currently has a net operating loss carryforward and thus does not expect to realize the cash benefit until 2018. After taking into account these interest deduction tax benefits, the total estimated net cash outflow for the like-kind exchange is approximately $950 million, of which approximately $300 million is attributable to ComEd after giving consideration to Exelon’s agreement to hold ComEd harmless from any unfavorable impacts of after-tax interest or penalty amounts on ComEd’s equity. Upon a final appellate decision, which could take up to several years, Exelon expects to receive approximately $80 million related to final interest computations.

Of the above amounts payable, Exelon deposited with the IRS $1.25 billion in October of 2016. The remaining amount will be paid in the third quarter of 2017 at the time Exelon files its appeal of the Tax Court decision. Exelon funded the $1.25 billion deposit with a combination of cash on hand and short-term borrowings. The deposit is reflected as a current asset and the related liabilities for the tax, penalty, and interest are included on Exelon’s balance sheet as current obligations.

As of March 31, 2017, ComEd has a total receivable from Exelon pursuant to the hold harmless agreement of $345 million, which is included in Current Receivables from Affiliates on ComEd’s Consolidated Balance Sheet. Under the agreement, Exelon will settle this receivable with ComEd no later than the time that the payments related to the like-kind exchange are due to the IRS, currently anticipated in the third quarter of 2017. Exelon will not seek recovery from ComEd customers for any interest or penalty payment amounts associated with the like-kind exchange tax position.

As previously disclosed, in the first quarter of 2014, Exelon entered into an agreement to terminate its investment in one of the three municipal-owned electric generation properties in exchange for a net early termination amount of $335 million. In the first quarter of 2016, Exelon terminated its interests in the remaining two municipal-owned electric generation properties in exchange for $360 million.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Long-Term Marginal State Income Tax Rate (Exelon, Generation and PHI)

Exelon, Generation and PHI periodically review events that may significantly impact how income is apportioned among the states and, therefore, the calculation of their respective deferred state income taxes. Events that may require Exelon, Generation and PHI to update their long-term state tax apportionment include significant changes in tax law and/or significant operational changes. Exelon and PHI’s long-term marginal state income tax rate was revised in the first quarter of 2017 as a result of a statutory rate change pursuant to Exelon’s marginal state income tax rate policy, resulting in the recording of a deferred state tax benefit for Exelon of $21 million, net of tax.

12. Nuclear Decommissioning (Exelon and Generation)

Nuclear Decommissioning Asset Retirement Obligations

Generation has a legal obligation to decommission its nuclear power plants following the expiration of their operating licenses. To estimate its decommissioning obligation related to its nuclear generating stations for financial accounting and reporting purposes, Generation uses a probability-weighted, discounted cash flow model which, on a unit-by-unit basis, considers multiple outcome scenarios that include significant estimates and assumptions, and are based on decommissioning cost studies, cost escalation rates, probabilistic cash flow models and discount rates. Generation updates its ARO annually, unless circumstances warrant more frequent updates, based on its review of updated cost studies and its annual evaluation of cost escalation factors and probabilities assigned to various scenarios.

The following table provides a rollforward of the nuclear decommissioning ARO reflected on Exelon’s and Generation’s Consolidated Balance Sheets from December 31, 2016 to March 31, 2017:


Nuclear decommissioning ARO at December 31, 2016^(a)	$	8,734
Acquisition of FitzPatrick		417
Accretion expense		109
Costs incurred to decommission retired plants		(1	)

Nuclear decommissioning ARO at March 31, 2017^(a)(b)	$	9,259

(a)	Includes $11 million and $10 million for the current portion of the ARO at March 31, 2017 and December 31, 2016, respectively, which is included in Other current liabilities on Exelon’s and Generation’s Consolidated Balance Sheets.

(b)	Includes the fair value of the FitzPatrick ARO liability as of March 31, 2017, the date of the acquisition. See Note 4 —Mergers, Acquisitions and Dispositions.

During the three months ended March 31, 2017, Generation’s nuclear ARO increased by approximately $525 million. The increase is largely driven by the acquisition of FitzPatrick. The fair value of FitzPatrick’s assets and liabilities, including the ARO, was determined based on significant estimates and assumptions that are judgmental in nature. The fair value of the ARO is considered an initial estimate and will be updated with inputs from a third party engineering firm with corresponding adjustments recorded by the end of 2017. For additional details on the acquisition of FitzPatrick, see Note 4 — Mergers, Acquisitions and Dispositions.

Nuclear Decommissioning Trust Fund Investments

NDT funds have been established for each generation station unit to satisfy Generation’s nuclear decommissioning obligations. Generally, NDT funds established for a particular unit may not be used to fund the decommissioning obligations of any other unit.

141

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The NDT funds associated with Generation’s nuclear units have been funded with amounts collected from the previous owners and their respective utility customers. PECO is authorized to collect funds, in revenues, for decommissioning the former PECO nuclear plants through regulated rates, and these collections are scheduled through the operating lives of the former PECO plants. The amounts collected from PECO customers are remitted to Generation and deposited into the NDT funds for the unit for which funds are collected. Every five years, PECO files a rate adjustment with the PAPUC that reflects PECO’s calculations of the estimated amount needed to decommission each of the former PECO units based on updated fund balances and estimated decommissioning costs. The rate adjustment is used to determine the amount collectible from PECO customers. On March 31, 2017, PECO filed its Nuclear Decommissioning Cost Adjustment (NDCA) with the PAPUC proposing an annual recovery from customers of approximately $4 million which, if approved by the PAPUC, will be effective January 1, 2018. This amount reflects a decrease from the current approved annual collection of approximately $24 million primarily due to the removal of the collections for Limerick Units 1 and 2 as a result of the NRC approving the extension of the operating licenses for an additional 20 years. See Note 16 — Asset Retirement Obligations of Exelon’s 2016 Form 10-K, for information regarding the amount collected from PECO ratepayers for decommissioning costs.

At March 31, 2017 and December 31, 2016, Exelon and Generation had NDT fund investments totaling $12,362 million and $11,061 million, respectively. The increase is primarily driven by the acquisition of FitzPatrick.

The following table provides unrealized gains on NDT funds for the three months ended March 31, 2017 and 2016:


	Exelon and Generation
	Three Months Ended March 31,
	2017		2016
Net unrealized gains on decommissioning trust funds — Regulatory Agreement Units^(a)	$	222	$	79
Net unrealized gains on decommissioning trust funds — Non-Regulatory Agreement Units^(b)(c)		166		52

(a)	Net unrealized gains related to Generation’s NDT funds associated with Regulatory Agreement Units are included in Regulatory liabilities on Exelon’s Consolidated Balance Sheets and Noncurrent payables to affiliates on Generation’s Consolidated Balance Sheets.

(b)

Excludes $(1) million and $2 million of net unrealized gains (losses) related to the Zion Station pledged assets for the three months ended March 31, 2017 and 2016 respectively. Net unrealized gains related to Zion Station pledged assets are included in the Payable for Zion Station decommissioning on Exelon’s and Generation’s Consolidated Balance Sheets.

(c)	Net unrealized gains related to Generation’s NDT funds with Non-Regulatory Agreement Units are included within Other, net in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income.

Interest and dividends on NDT fund investments are recognized when earned and are included in Other, net in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income. Interest and dividends earned on the NDT fund investments for the Regulatory Agreement Units are eliminated within Other, net in Exelon’s and Generation’s Consolidated Statement of Operations and Comprehensive Income.

Refer to Note 3 — Regulatory Matters and Note 27 — Related Party Transactions of the Exelon 2016 Form 10-K for information regarding regulatory liabilities at ComEd and PECO and intercompany balances between Generation, ComEd and PECO reflecting the obligation to refund to customers any decommissioning-related assets in excess of the related decommissioning obligations.

142

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Zion Station Decommissioning

On September 1, 2010, Generation completed an Asset Sale Agreement (ASA) with EnergySolutions Inc. and its wholly owned subsidiaries, EnergySolutions, LLC (EnergySolutions) and ZionSolutions, under which ZionSolutions has assumed responsibility for completing certain decommissioning activities at Zion Station, which is located in Zion, Illinois and ceased operation in 1998. See Note 16 — Asset Retirement Obligations of the Exelon 2016 Form 10-K for information regarding the specific treatment of assets, including NDT funds, and decommissioning liabilities transferred in the transaction.

ZionSolutions is subject to certain restrictions on its ability to request reimbursements from the Zion Station NDT funds as defined within the ASA. Therefore, the transfer of the Zion Station assets did not qualify for asset sale accounting treatment and, as a result, the related NDT funds were reclassified to Pledged assets for Zion Station decommissioning within Generation’s and Exelon’s Consolidated Balance Sheets and will continue to be measured in the same manner as prior to the completion of the transaction. Additionally, the transferred ARO for decommissioning was replaced with a Payable for Zion Station decommissioning in Generation’s and Exelon’s Consolidated Balance Sheets. Changes in the value of the Zion Station NDT assets, net of applicable taxes, are recorded as a change in the Payable to ZionSolutions. At no point will the payable to ZionSolutions exceed the project budget of the costs remaining to decommission Zion Station. Generation has retained its obligation for the SNF. Following ZionSolutions’ completion of its contractual obligations and transfer of the NRC license to Generation, Generation will store the SNF at Zion Station until it is transferred to the DOE for ultimate disposal, and will complete all remaining decommissioning activities associated with the SNF dry storage facility. Generation has a liability of approximately $112 million which is included within the nuclear decommissioning ARO at March 31, 2017. Generation also has retained NDT assets to fund its obligation to maintain the SNF at Zion Station until transfer to the DOE and to complete all remaining decommissioning activities for the SNF storage facility. Any shortage of funds necessary to maintain the SNF and decommission the SNF storage facility is ultimately required to be funded by Generation. Any Zion Station NDT funds remaining after the completion of all decommissioning activities will be returned to ComEd customers in accordance with the applicable orders. The following table provides the pledged assets and payables to ZionSolutions, and withdrawals by ZionSolutions at March 31, 2017 and December 31, 2016:


	Exelon and Generation
	March 31, 2017		December 31, 2016
Carrying value of Zion Station pledged assets	$	95	$	113
Payable to Zion Solutions^(a)		88		104
Current portion of payable to Zion Solutions^(b)		85		90
Cumulative withdrawals by Zion Solutions to pay decommissioning costs^(c)		895		878

(a)	Excludes a liability recorded within Exelon’s and Generation’s Consolidated Balance Sheets related to the tax obligation on the unrealized activity associated with the Zion Station NDT funds. The NDT funds will be utilized to satisfy the tax obligations as gains and losses are realized.

(b)	Included in Other current liabilities within Exelon’s and Generation’s Consolidated Balance Sheets.

(c)	Includes project expenses to decommission Zion Station and estimated tax payments on Zion Station NDT fund earnings.

NRC Minimum Funding Requirements

NRC regulations require that licensees of nuclear generating facilities demonstrate reasonable assurance that funds will be available in specified minimum amounts to decommission the facility at the end of its life.

Generation filed its biennial decommissioning funding status report with the NRC on March 30, 2017 for all units except for Zion Station which is included in a separate report to the NRC submitted by EnergySolutions

143

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(see Zion Station Decommissioning above). The status report demonstrated adequate decommissioning funding assurance for all units except for Peach Bottom Unit 1. As a former PECO plant, financial assurance for decommissioning Peach Bottom Unit 1 is provided by the NDT fund in addition to collections from PECO ratepayers. As discussed under Nuclear Decommissioning Trust Fund Investments above, the amount collected from PECO ratepayers has been adjusted in the March 31, 2017 filing to the PAPUC which, if approved by the PAPUC, will be effective January 1, 2018.

13. Retirement Benefits (All Registrants)

Exelon sponsors defined benefit pension plans and other postretirement benefit plans for essentially all employees.

Effective March 31, 2017, in connection with the acquisition of FitzPatrick, Exelon established a new qualified pension plan and a new other postretirement employee benefit plan, and recorded benefit plan obligations of $38 million and $11 million, respectively. Refer to Note 4 — Mergers, Acquisitions and Dispositions for additional discussion of the acquisition of FitzPatrick.

Effective March 23, 2016, Exelon became the sponsor of all of PHI’s defined benefit pension and other postretirement benefit plans, and assumed PHI’s benefit plan obligations and related assets. As a result, PHI’s benefit plan net obligation and related regulatory assets were transferred to Exelon.

Defined Benefit Pension and Other Postretirement Benefits

During the first quarter of 2017, Exelon received an updated valuation of its pension and other postretirement benefit obligations to reflect actual census data as of January 1, 2017. This valuation resulted in an increase to the pension obligation of $92 million and an increase to the other postretirement benefit obligation of $57 million. Additionally, accumulated other comprehensive loss increased by approximately $59 million (after tax), regulatory assets increased by approximately $57 million and regulatory liabilities increased by approximately $4 million.

The majority of the 2017 pension benefit cost for Exelon-sponsored plans is calculated using an expected long-term rate of return on plan assets of 7.00% and a discount rate of 4.04%. The majority of the 2017 other postretirement benefit cost is calculated using an expected long-term rate of return on plan assets of 6.58% for funded plans and a discount rate of 4.04%.

144

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

A portion of the net periodic benefit cost for all plans is capitalized within the Consolidated Balance Sheets. The following tables present the components of Exelon’s net periodic benefit costs, prior to capitalization, for the three months ended March 31, 2017 and 2016 and PHI’s net periodic benefit costs, prior to capitalization, for the predecessor period of January 1, 2016 to March 23, 2016.


	Pension Benefits Three Months Ended March 31,						Other Postretirement Benefits Three Months Ended March 31,
	2017			2016^(a)			2017			2016^(a)
Components of net periodic benefit cost:
Service cost	$	95		$	78		$	26		$	26
Interest cost		210			190			45			43
Expected return on assets		(299	)		(263	)		(41	)		(38	)
Amortization of:
Prior service cost (benefit)		—			3			(47	)		(44	)
Actuarial loss		152			127			16			14

Net periodic benefit cost	$	158		$	135		$	(1	)	$	1

(a)	PHI net periodic benefit costs for the period prior to the merger are not included in the table above.


	Predecessor
	PHI
	Pension Benefits			Other Postretirement Benefits
	January 1, 2016 to March 23, 2016			January 1, 2016 to March 23, 2016
Components of net periodic benefit cost:
Service cost	$	12		$	1
Interest cost		26			6
Expected return on assets		(30	)		(5	)
Amortization of:
Prior service cost (benefit)		—			(3	)
Actuarial loss		14			2

Net periodic benefit cost	$	22		$	1

145

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The amounts below represent Exelon’s, Generation’s, ComEd’s, PECO’s, BGE’s, PHI’s, Pepco’s, DPL’s, ACE’s, BSC’s and PHISCO’s allocated portion of the pension and postretirement benefit plan costs, which were included in Property, plant and equipment within the respective Consolidated Balance Sheets and Operating and maintenance expense within the Consolidated Statement of Operations and Comprehensive Income during the three months ended March 31, 2017 and 2016 and PHI’s for the predecessor and successor periods of January 1, 2016 to March 23, 2016 and March 24, 2016 to March 31, 2016, respectively.


	Three Months Ended March 31,
Pension and Other Postretirement Benefit Costs	2017		2016
Exelon	$	157	$	136
Generation		54		54
ComEd		44		41
PECO		7		8
BGE		16		16
BSC^(a)		12		14
Pepco^(b)		7		8
DPL^(b)		3		5
ACE^(b)		3		4
PHISCO^(a)(b)		11		9


	Successor		Predecessor
Pension and Other Postretirement Benefit Costs	March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
PHI	$	3	$	23

(a)	These amounts primarily represent amounts billed to Exelon’s subsidiaries through intercompany allocations. These amounts are not included in the Generation, ComEd, PECO, BGE, PHI, Pepco, DPL or ACE amounts above.

(b)	Pepco’s, DPL’s, ACE’s and PHISCO’s pension and postretirement benefit costs for the three months ended March 31, 2016 include $7 million, $4 million, $3 million and $9 million, respectively, of costs incurred prior to the closing of Exelon’s merger with PHI on March 23, 2016.

Defined Contribution Savings Plans

The Registrants participate in various 401(k) defined contribution savings plans that are sponsored by Exelon. The plans are qualified under applicable sections of the IRC and allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with specified guidelines. All Registrants match a percentage of the employee contributions up to certain limits. The following table presents the matching contributions to the savings plans during the three months ended March 31, 2017 and 2016:


	Three Months Ended March 31,
Savings Plan Matching Contributions	2017		2016
Exelon	$	30	$	26
Generation		14		12
ComEd		7		6
PECO		2		2
BGE		2		1
BSC^(a)		2		5
Pepco^(b)		1		1
DPL^(b)		1		1
PHISCO^(a)(b)		1		1

146

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


	Successor		Predecessor
Savings Plan Matching Contributions	March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
PHI	$	—	$	3

(a)	These amounts primarily represent amounts billed to Exelon and PHI’s subsidiaries through intercompany allocations. These costs are not included in the Generation, ComEd, PECO, BGE, Pepco and DPL amounts above.

(b)

Pepco’s, DPL’s and PHISCO’s matching contributions for the three months ended March 31, 2016 include $1 million, $1 million and $1 million, respectively, of costs incurred prior to the closing of Exelon’s merger with PHI on March 23, 2016, which is not included in Exelon’s matching contributions for the three months ended March 31, 2016.

14. Severance (All Registrants)

The Registrants have an ongoing severance plan under which, in general, the longer an employee worked prior to termination the greater the amount of severance benefits. The Registrants record a liability and expense or regulatory asset for severance once terminations are probable of occurrence and the related severance benefits can be reasonably estimated. For severance benefits that are incremental to its ongoing severance plan (“one-time termination benefits”), the Registrants measure the obligation and record the expense at fair value at the communication date if there are no future service requirements, or, if future service is required to receive the termination benefit, ratably over the required service period.

Ongoing Severance Plans

The Registrants provide severance and health and welfare benefits under Exelon’s ongoing severance benefit plans to terminated employees in the normal course of business. These benefits are accrued for when the benefits are considered probable and can be reasonably estimated.

For the three months ended March 31, 2017 and 2016, Exelon, Generation, and ComEd recorded the following severance costs (benefits) associated with these ongoing severance benefits within Operating and maintenance expense in their Consolidated Statements of Operations and Comprehensive Income.


	Exelon		Generation^(a)		ComEd^(a)
Three Months Ended
March 31, 2017	$	4	$	3	$	1
March 31, 2016		2		2		—

(a)	The amounts above for Generation include $1 million for amounts billed by BSC through intercompany allocations for both the three months ended March 31, 2017 and 2016. Amounts billed by BSC to ComEd were immaterial.

Cost Management Program-Related Severance

In August 2015, Exelon announced a cost management program focused on cost savings at BSC and Generation, including the elimination of approximately 500 positions. These actions are in response to the continuing economic challenges confronting all parts of Exelon’s business and industry, necessitating continued focus on cost management through enhanced efficiency and productivity. Exelon expects that approximately 250 corporate support positions in BSC and approximately 250 positions located throughout Generation will be eliminated.

For the three months ended March 31, 2017 and 2016, the Registrants recorded the following severance costs related to the cost management program within Operating and maintenance expense in their Consolidated

147

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Statements of Operations and Comprehensive Income, pursuant to the authoritative guidance for ongoing severance plans:


	Exelon			Generation			ComEd		PECO		BGE
Three Months Ended
March 31, 2017^(a)	$	(1	)	$	(1	)	$	—	$	—	$	—
March 31, 2016^(b)	$	17		$	12		$	3	$	1	$	1

(a)	Amounts billed by BSC through intercompany allocations for the three months ended March 31, 2017 were immaterial.

(b)	The amounts above for Generation, ComEd, PECO and BGE include $7 million, $3 million, $1 million and $1 million, respectively, for amounts billed by BSC through intercompany allocations for the three months ended March 31, 2016.

Severance Costs Related to the PHI Merger

Upon closing the PHI Merger, Exelon recorded a severance accrual for the anticipated employee position reductions as a result of the post-merger integration. Cash payments under the plan began in May 2016 and will continue through 2020.

For the three months ended March 31, 2017, the PHI merger severance costs were immaterial. For the three months ended March 31, 2016, the Registrants recorded the following severance costs associated with the identified job reductions within Operating and maintenance expense in their Consolidated Statements of Operations and Comprehensive Income, pursuant to the authoritative guidance for ongoing severance plans:


											Successor
	Exelon		Generation		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Three Months Ended March 31, 2016
Severance benefits^(a)	$	52	$	10	$	2	$	1	$	1	$	37	$	18	$	11	$	8

(a)	The amounts above for Generation, ComEd, PECO, BGE, Pepco, DPL and ACE include $9 million, $2 million, $1 million, $1 million, $18 million, $11 million and $8 million, respectively, for amounts billed by BSC and/or PHISCO through intercompany allocations for the three months ended March 31, 2016.

Severance Liability

Amounts included in the table below represent the severance liability recorded for the severance plans above for employees of each Registrant and exclude amounts included at Exelon and billed through intercompany allocations:


													Successor
Severance Liability	Exelon			Generation			ComEd		PECO		BGE		PHI			Pepco		DPL		ACE
Balance at December 31, 2016	$	88		$	36		$	3	$	—	$	—	$	29		$	—	$	—	$	—
Severance charges^(a)		3			1			—		—		—		—			—		—		—
Payments		(10	)		(3	)		—		—		—		(5	)		—		—		—

Balance at March 31, 2017	$	81		$	34		$	3	$	—	$	—	$	24		$	—	$	—	$	—

(a)	Includes salary continuance and health and welfare severance benefits.

148

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

15. Changes in Accumulated Other Comprehensive Income (Exelon, Generation, PECO and PHI)

The following tables present changes in accumulated other comprehensive income (loss) (AOCI) by component for the three months ended March 31, 2017 and 2016:


Three Months Ended March 31, 2017	Gains and (losses) on Cash Flow Hedges			Unrealized Gains and (losses) on Marketable Securities		Pension and Non-Pension Postretirement Benefit Plan Items			Foreign Currency Items			AOCI of Equity Investments			Total
Exelon^(a)
Beginning balance	$	(17	)	$	4	$	(2,610	)	$	(30	)	$	(7	)	$	(2,660	)

OCI before reclassifications		2			1		(59	)		1			5			(50	)
Amounts reclassified from AOCI^(b)		4			—		36			—			—			40

Net current-period OCI		6			1		(23	)		1			5			(10	)

Ending balance	$	(11	)	$	5	$	(2,633	)	$	(29	)	$	(2	)	$	(2,670	)

Generation^(a)
Beginning balance	$	(19	)	$	2	$	—		$	(30	)	$	(7	)	$	(54	)

OCI before reclassifications		2			—		—			1			6			9
Amounts reclassified from AOCI^(b)		4			—		—			—			—			4

Net current-period OCI		6			—		—			1			6			13

Ending balance	$	(13	)	$	2	$	—		$	(29	)	$	(1	)	$	(41	)

PECO^(a)
Beginning balance	$	—		$	1	$	—		$	—		$	—		$	1

OCI before reclassifications		—			—		—			—			—			—
Amounts reclassified from AOCI^(b)		—			—		—			—			—			—

Net current-period OCI		—			—		—			—			—			—

Ending balance	$	—		$	1	$	—		$	—		$	—		$	1

149

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


Three Months Ended March 31, 2016	Gains and (losses) on Hedging Activity			Unrealized Gains and (losses) on Marketable Securities			Pension and Non-Pension Postretirement Benefit Plan Items			Foreign Currency Items			AOCI of Equity Investments			Total
Exelon^(a)
Beginning balance	$	(19	)	$	3		$	(2,565	)	$	(40	)	$	(3	)	$	(2,624	)

OCI before reclassifications		(10	)		(1	)		(1	)		6			(3	)		(9	)
Amounts reclassified from AOCI^(b)		3			—			34			—			—			37

Net current-period OCI		(7	)		(1	)		33			6			(3	)		28

Ending balance	$	(26	)	$	2		$	(2,532	)	$	(34	)	$	(6	)	$	(2,596	)

Generation^(a)
Beginning balance	$	(21	)	$	1		$	—		$	(40	)	$	(3	)	$	(63	)

OCI before reclassifications		(8	)		—			—			6			(2	)		(4	)
Amounts reclassified from AOCI^(b)		3			—			—			—			—			3

Net current-period OCI		(5	)		—			—			6			(2	)		(1	)

Ending balance	$	(26	)	$	1		$	—		$	(34	)	$	(5	)	$	(64	)

PECO^(a)
Beginning balance	$	—		$	1		$	—		$	—		$	—		$	1

OCI before reclassifications		—			—			—			—			—			—
Amounts reclassified from AOCI^(b)		—			—			—			—			—			—

Net current-period OCI		—			—			—			—			—			—

Ending balance	$	—		$	1		$	—		$	—		$	—		$	1

PHI Predecessor^(a)
Beginning balance January 1, 2016	$	(8	)	$	—		$	(28	)	$	—		$	—		$	(36	)

OCI before reclassifications		—			—			—			—			—			—
Amounts reclassified from AOCI^(b)		—			—			1			—			—			1

Net current-period OCI		—			—			1			—			—			1

Ending balance March 23, 2016^(c)	$	(8	)	$	—		$	(27	)	$	—		$	—		$	(35	)

(a)	All amounts are net of tax and noncontrolling interest. Amounts in parenthesis represent a decrease in AOCI.

(b)	See next tables for details about these reclassifications.

(c)	As a result of the PHI Merger, the PHI predecessor balances at March 23, 2016 were reduced to zero on March 24, 2016 due to purchase accounting adjustments applied to PHI.

ComEd, PECO, BGE, Pepco, DPL and ACE did not have any reclassifications out of AOCI to Net income during the three months ended March 31, 2017 and 2016. The following tables present amounts reclassified out of AOCI to Net income for Exelon, Generation and PHI during the three months ended March 31, 2017 and 2016.

150

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Three Months Ended March 31, 2017


Details about AOCI components	Items reclassified out of AOCI^(a)						Affected line item in the Statement of Operations and Comprehensive Income
	Exelon			Generation
Gains and (losses) on cash flow hedges
Other cash flow hedges	$	(7	)	$	(7	)	Interest expense

Total before tax		(7	)		(7	)
Tax benefit		3			3

Net of tax	$	(4	)	$	(4	)	Comprehensive income

Amortization of pension and other postretirement benefit plan items
Prior service costs^(b)	$	23		$	—
Actuarial losses^(b)		(81	)		—

Total before tax		(58	)		—
Tax benefit		22			—

Net of tax	$	(36	)	$	—

Total Reclassifications	$	(40	)	$	(4	)	Comprehensive income

Three Months Ended March 31, 2016


Details about AOCI components	Items reclassified out of AOCI^(a)									Affected line item in the Statement of Operations and Comprehensive Income
							Predecessor
	Exelon			Generation			PHI
Gains and (losses) on cash flow hedges
Other cash flow hedges	$	(5	)	$	(5	)		—		Interest expense

Total before tax		(5	)		(5	)		—
Tax expense		2			2			—

Net of tax	$	(3	)	$	(3	)	$	—		Comprehensive income

Amortization of pension and other postretirement benefit plan items
Prior service costs^(b)	$	20		$	—		$	—
Actuarial losses^(b)		(76	)		—			(1	)

Total before tax		(56	)		—			(1	)
Tax benefit		22			—			—

Net of tax	$	(34	)	$	—		$	(1	)

Total Reclassifications	$	(37	)	$	(3	)	$	(1	)	Comprehensive income

(a)	Amounts in parenthesis represent a decrease in net income.

(b)	This AOCI component is included in the computation of net periodic pension and OPEB cost (see Note 13 — Retirement Benefits for additional details).

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(Dollars in millions, except per share data, unless otherwise noted)

The following table presents income tax expense (benefit) allocated to each component of other comprehensive income (loss) during the three months ended March 31, 2017 and 2016:


	Three Months Ended March 31,
	2017			2016
Exelon
Pension and non-pension postretirement benefit plans:
Prior service benefit reclassified to periodic benefit cost	$	10		$	7
Actuarial loss reclassified to periodic benefit cost		(32	)		(30	)
Pension and non-pension postretirement benefit plans valuation adjustment		—			—
Change in unrealized (loss)/gain on cash flow hedges		(1	)		3
Change in unrealized (loss)/gain on equity investments		(4	)		2
Change in unrealized (loss)/gain on marketable securities		(1	)		1

Total	$	(28	)	$	(17	)

Generation
Change in unrealized (loss)/gain on cash flow hedges	$	(1	)	$	2
Change in unrealized (loss)/gain on equity investments		(3	)		2

Total	$	(4	)	$	4


	Predecessor
PHI	January 1, 2016 to March 23, 2016
Pension and non-pension postretirement benefit plans:
Actuarial loss reclassified to periodic cost	$	—

16. Earnings Per Share and Equity (Exelon)

Earnings per Share

Diluted earnings per share is calculated by dividing Net income attributable to common shareholders by the weighted average number of shares of common stock outstanding, including shares to be issued upon exercise of stock options, performance share awards and restricted stock outstanding under Exelon’s LTIPs considered to be common stock equivalents. The following table sets forth the components of basic and diluted earnings per share and shows the effect of these stock options, performance share awards and restricted stock on the weighted average number of shares outstanding used in calculating diluted earnings per share:


	Three Months Ended March 31,
	2017		2016
Exelon
Net income attributable to common shareholders	$	995	$	173

Weighted average common shares outstanding — basic		928		923
Assumed exercise and/or distributions of stock-based awards		2		2

Weighted average common shares outstanding — diluted		930		925

The number of stock options not included in the calculation of diluted common shares outstanding due to their antidilutive effect was approximately 9 million and 13 million for the three months ended March 31, 2017

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(Dollars in millions, except per share data, unless otherwise noted)

and 2016, respectively. There were no equity units related to the PHI Merger not included in the calculation of diluted common shares outstanding due to their antidilutive effect for the three months ended March 31, 2017. The number of equity units related to the PHI Merger not included in the calculation of diluted common shares outstanding due to their antidilutive effect was 4 million for the three months ended March 31, 2016. Refer to Note 20 — Shareholders’ Equity of the Exelon 2016 Form 10-K for further information regarding the equity units.

Under share repurchase programs, 35 million shares of common stock are held as treasury stock with a cost of $2.3 billion as of March 31, 2017. In 2008, Exelon management decided to defer indefinitely any share repurchases.

17. Commitments and Contingencies (All Registrants)

The following is an update to the current status of commitments and contingencies set forth in Note 24 of the Exelon 2016 Form 10-K . See Note 4 — Mergers, Acquisitions and Dispositions for further discussion on the PHI Merger commitments.

Commitments

Constellation Merger Commitments (Exelon and Generation)

In February 2012, the MDPSC issued an Order approving the Exelon and Constellation merger. As part of the MDPSC Order, Exelon agreed to provide a package of benefits to BGE customers, the City of Baltimore and the State of Maryland, resulting in an estimated direct investment in the State of Maryland of approximately $1 billion. The direct investment estimate includes $95 million to $120 million relating to the construction of a headquarters building in Baltimore for Generation’s competitive energy businesses.

The direct investment commitment also includes $450 million to $550 million relating to Exelon and Generation’s development or assistance in the development of 285 — 300 MWs of new generation in Maryland, which is expected to be completed within a period of 10 years. The MDPSC order contemplates various options for complying with the new generation development commitments, including building or acquiring generating assets, making subsidy or compliance payments, or in circumstances in which the generation build is delayed or certain specified provisions are elected, making liquidated damages payments. Exelon and Generation have incurred $456 million towards satisfying the commitment for new generation development in the state of Maryland, with approximately 220 MW of the new generation commencing with commercial operations to date. During the fourth quarter of 2016, given continued declines in projected energy and capacity prices, Generation terminated rights to certain development projects originally intended to meet its remaining 55 MW commitment amount. The commitment will now most likely be satisfied via payment of liquidated damages or execution of a third party PPA, rather than by Generation constructing renewable generating assets. As a result, Exelon and Generation recorded a pre-tax $50 million loss contingency in Operating and maintenance expense in Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, 2016.

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(Dollars in millions, except per share data, unless otherwise noted)

Equity Investment Commitments (Exelon and Generation)

As part of Generation’s recent investments in technology development, Generation enters into equity purchase agreements that include commitments to invest additional equity through incremental payments to fund the anticipated needs of the planned operations of the associated companies. As of March 31, 2017, Generation’s estimated commitments relating to its equity purchase agreements, including the in-kind services contributions, is anticipated to be as follows:


	Total
2017	$	9
2018		7
2019		3

Total	$	19

Commercial Commitments (All Registrants)

The Registrants’ commercial commitments as of March 31, 2017 , representing commitments potentially triggered by future events were as follows:


											Successor
	Exelon		Generation		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Letters of credit (non-debt)^(a)	$	1,527	$	1,440	$	14	$	23	$	5	$	1	$	1	$	—	$	—
Surety bonds^(b)		1,038		964		5		7		11		16		9		4		3
Financing trust guarantees		628		—		200		178		250		—		—		—		—
Guaranteed lease residual values^(c)		19		—		—		—		—		19		5		7		5

Total commercial commitments	$	3,212	$	2,404	$	219	$	208	$	266	$	36	$	15	$	11	$	8

(a)	Letters of credit (non-debt) — Exelon and certain subsidiaries maintain non-debt letters of credit to provide credit support for certain transactions as requested by third parties.

(b)	Surety bonds — Guarantees issued related to contract and commercial agreements, excluding bid bonds.

(c)

Represents the maximum potential obligation in the event that the fair value of certain leased equipment and fleet vehicles is zero at the end of the maximum lease term. The maximum lease term associated with these assets ranges from 3 to 8 years. The maximum potential obligation at the end of the minimum lease term would be $48 million, $14 million of which is a guarantee by Pepco, $17 million by DPL and $13 million by ACE. The minimum lease term associated with these assets ranges from 1 to 4 years. Historically, payments under the guarantees have not been made and PHI believes the likelihood of payments being required under the guarantees is remote.

Nuclear Insurance (Exelon and Generation)

Generation is subject to liability, property damage and other risks associated with major incidents at any of its nuclear stations, including the CENG nuclear stations. Generation has mitigated its financial exposure to these risks through insurance and other industry risk-sharing provisions.

The Price-Anderson Act was enacted to ensure the availability of funds for public liability claims arising from an incident at any of the U.S. licensed nuclear facilities and also to limit the liability of nuclear reactor owners for such claims from any single incident. As of March 31, 2017 , the current liability limit per incident is

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(Dollars in millions, except per share data, unless otherwise noted)

$13.4 billion and is subject to change to account for the effects of inflation and changes in the number of licensed reactors at least once every five years with the last adjustment effective September 10, 2013. In accordance with the Price-Anderson Act, Generation maintains financial protection at levels equal to the amount of liability insurance available from private sources through the purchase of private nuclear energy liability insurance for public liability claims that could arise in the event of an incident. Effective January 1, 2017, the required amount of nuclear energy liability insurance purchased is $450 million for each operating site. Claims exceeding that amount are covered through mandatory participation in a financial protection pool, as required by the Price Anderson-Act, which provides the additional $13.0 billion per incident in funds available for public liability claims. Participation in this secondary financial protection pool requires the operator of each reactor to fund its proportionate share of costs for any single incident that exceeds the primary layer of financial protection. Exelon’s share of this secondary layer would be approximately $2.8 billion, including CENG’s related liability, however any amounts payable under this secondary layer would be capped at $420 million per year.

In addition, the U.S. Congress could impose revenue-raising measures on the nuclear industry to pay public liability claims exceeding the $13.4 billion limit for a single incident.

As part of the execution of the NOSA on April 1, 2014, Generation executed an Indemnity Agreement pursuant to which Generation agreed to indemnify EDF and its affiliates against third-party claims that may arise from any future nuclear incident (as defined in the Price-Anderson Act) in connection with the CENG nuclear plants or their operations. Exelon guarantees Generation’s obligations under this indemnity. See Note 5 —Investment in Constellation Energy Nuclear Group, LLC of the Exelon 2016 Form 10-K for additional information on Generation’s operations relating to CENG.

Generation is required each year to report to the NRC the current levels and sources of property insurance that demonstrates Generation possesses sufficient financial resources to stabilize and decontaminate a reactor and reactor station site in the event of an accident. The property insurance maintained for each facility is currently provided through insurance policies purchased from NEIL, an industry mutual insurance company of which Generation is a member.

Premiums paid to NEIL by its members are also subject to a potential assessment for adverse loss experience in the form of a retrospective premium obligation. NEIL has never assessed this retrospective premium since its formation in 1973, and Generation cannot predict the level of future assessments if any. The current maximum aggregate annual retrospective premium obligation for Generation is approximately $373 million. NEIL requires its members to maintain an investment grade credit rating or to ensure collectability of their annual retrospective premium obligation by providing a financial guarantee, letter of credit, deposit premium, or some other means of assurance.

NEIL provides “all risk” property damage, decontamination and premature decommissioning insurance for each station for losses resulting from damage to its nuclear plants, either due to accidents or acts of terrorism. If the decision is made to decommission the facility, a portion of the insurance proceeds will be allocated to a fund, which Generation is required by the NRC to maintain, to provide for decommissioning the facility. In the event of an insured loss, Generation is unable to predict the timing of the availability of insurance proceeds to Generation and the amount of such proceeds that would be available. In the event that one or more acts of terrorism cause accidental property damage within a twelve-month period from the first accidental property damage under one or more policies for all insured plants, the maximum recovery by Exelon will be an aggregate of $3.2 billion plus such additional amounts as the insurer may recover for all such losses from reinsurance, indemnity and any other source, applicable to such losses.

For its insured losses, Generation is self-insured to the extent that losses are within the policy deductible or exceed the amount of insurance maintained. Uninsured losses and other expenses, to the extent not recoverable

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(Dollars in millions, except per share data, unless otherwise noted)

from insurers or the nuclear industry, could also be borne by Generation. Any such losses could have a material adverse effect on Exelon’s and Generation’s financial condition, results of operations and liquidity.

Environmental Issues (All Registrants)

General. The Registrants’ operations have in the past, and may in the future, require substantial expenditures in order to comply with environmental laws. Additionally, under Federal and state environmental laws, the Registrants are generally liable for the costs of remediating environmental contamination of property now or formerly owned by them and of property contaminated by hazardous substances generated by them. The Registrants own or lease a number of real estate parcels, including parcels on which their operations or the operations of others may have resulted in contamination by substances that are considered hazardous under environmental laws. In addition, the Registrants are currently involved in a number of proceedings relating to sites where hazardous substances have been deposited and may be subject to additional proceedings in the future.

ComEd, PECO, BGE and DPL have identified sites where former MGP activities have or may have resulted in actual site contamination. For almost all of these sites, there are additional PRPs that may share responsibility for the ultimate remediation of each location.

•

ComEd has identified 42 sites, 18 of which the remediation has been completed and approved by the Illinois EPA or the U.S. EPA and 24 that are currently under some degree of active study and/or remediation. ComEd expects the majority of the remediation at these sites to continue through at least 2021.

•

PECO has identified 26 sites, 17 of which have been remediated in accordance with applicable PA DEP regulatory requirements. The remaining 9 sites are currently under some degree of active study and/or remediation. PECO expects the majority of the remediation at these sites to continue through at least 2022.

•

BGE has identified 13 former gas manufacturing or purification sites that it currently owns or owned at one time through a predecessor’s acquisition. Two gas manufacturing sites require some level of remediation and ongoing monitoring under the direction of the MDE. The required costs at these two sites are not considered material. The first phase of an investigation of an additional gas purification site (Riverside) was completed during the first quarter of 2015 at the direction of the MDE and investigations continue under MDE’s direction. For more information, see the discussion of the Riverside site below.

•

DPL has identified 2 sites, all of which the remediation has been completed and approved by the MDE or the Delaware Department of Natural Resources and Environmental Control.

ComEd, pursuant to an ICC order, and PECO, pursuant to settlements of natural gas distribution rate cases with the PAPUC, are currently recovering environmental remediation costs of former MGP facility sites through customer rates. ComEd and PECO have recorded regulatory assets for the recovery of these costs. See Note 5 —Regulatory Matters for additional information regarding the associated regulatory assets. BGE is authorized to recover, and is currently recovering, environmental costs for the remediation of the former MGP facility sites from customers; however, while BGE does not have a rider for MGP clean-up costs, BGE has historically received recovery of actual clean-up costs in distribution rates. DPL has historically received recovery of actual clean-up costs in distribution rates.

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(Dollars in millions, except per share data, unless otherwise noted)

As of Three Months Ended March 31, 2017 and December 31, 2016, the Registrants had accrued the following undiscounted amounts for environmental liabilities in Other current liabilities and Other deferred credits and other liabilities within their respective Consolidated Balance Sheets:


March 31, 2017	Total Environmental Investigation and Remediation Reserve		Portion of Total Related to MGP Investigation and Remediation
Exelon	$	425	$	319
Generation		71		—
ComEd		288		286
PECO		33		31
BGE		4		2
PHI (Successor)		29		—
Pepco		26		—
DPL		2		—
ACE		1		—


December 31, 2016	Total Environmental Investigation and Remediation Reserve		Portion of Total Related to MGP Investigation and Remediation
Exelon	$	429	$	325
Generation		72		—
ComEd		292		291
PECO		33		31
BGE		2		2
PHI (Successor)		30		1
Pepco		27		—
DPL		2		1
ACE		1		—

The historical nature of the MGP sites and the fact that many of the sites have been buried and built over, impacts the ability to determine a precise estimate of the ultimate costs prior to initial sampling and determination of the exact scope and method of remedial activity. Management determines its best estimate of remediation costs using all available information at the time of each study, including probabilistic and deterministic modeling for ComEd and PECO, and the remediation standards currently required by the applicable state environmental agency. Prior to completion of any significant clean up, each site remediation plan is approved by the appropriate state environmental agency.

The Registrants cannot reasonably estimate whether they will incur other significant liabilities for additional investigation and remediation costs at these or additional sites identified by the Registrants, environmental agencies or others, or whether such costs will be recoverable from third parties, including customers.

Water Quality

Benning Road Site NPDES Permit Limit Exceedances. Pepco holds an NPDES permit issued by EPA with a July 19, 2009 effective date, which authorizes discharges from the Benning Road service facility. The 2009 permit for the first time imposed numerical limits on the allowable concentration of certain metals in storm water discharged from the site into the Anacostia River. The permit contemplated that Pepco would meet these limits over time through the use of best management practices (BMPs). The BMPs were effective in reducing metal concentrations in storm water discharges, but were not sufficient to meet all of the numerical limits for all metals.

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

The 2009 permit remains in effect pending EPA’s action on the Pepco renewal application, including resolution of the stormwater compliance issues. On October 30, 2015, EPA filed a Clean Water Act civil enforcement action against Pepco in federal district court, and in March 2016 the court granted a motion by the Anacostia Riverkeeper to intervene in this case as a plaintiff along with EPA. Since 2009 Pepco has installed runoff mitigation measures and implemented new operating procedures to comply with regulations. In January 2017, the parties agreed to a settlement in the form of a Consent Decree whereby Pepco will pay a civil penalty in the amount of $1.6 million, continue the BMPs to manage stormwater, construct a new stormwater treatment system, and make certain other capital improvements to the stormwater management system. The Consent Decree has been lodged with the Court and has been subject to a 30-day public comment period. Upon completion of its review of public comments, It is expected that the Court will approve the Consent Decree in the second quarter of 2017. Pepco has established appropriate accruals for the liabilities under the Consent Agreement, which is included in the table above.

Solid and Hazardous Waste

Cotter Corporation. The EPA has advised Cotter Corporation (Cotter), a former ComEd subsidiary, that it is potentially liable in connection with radiological contamination at a site known as the West Lake Landfill in Missouri. In 2000, ComEd sold Cotter to an unaffiliated third-party. As part of the sale, ComEd agreed to indemnify Cotter for any liability arising in connection with the West Lake Landfill. In connection with Exelon’s 2001 corporate restructuring, this responsibility to indemnify Cotter was transferred to Generation. On May 29, 2008, the EPA issued a Record of Decision approving the remediation option submitted by Cotter and the two other PRPs that required additional landfill cover. The current estimated cost of the landfill cover remediation for the site is approximately $90 million, including escalation, which will be allocated among all PRPs. Generation has accrued what it believes to be an adequate amount to cover its anticipated share of such liability, which is included in the table above. By letter dated January 11, 2010, the EPA requested that the PRPs perform a supplemental feasibility study for a remediation alternative that would involve complete excavation of the radiological contamination. On September 30, 2011, the PRPs submitted the supplemental feasibility study to the EPA for review. Since June 2012, the EPA has requested that the PRPs perform a series of additional analyses and groundwater and soil sampling as part of the supplemental feasibility study, that were completed in December 2016. While the EPA has not yet announced a schedule for selection of the final remedy, the PRPs believe that the EPA announcement of the proposed remedy will not take place until the end of 2017, or possibly the first quarter of 2018. Thereafter, the EPA will select a final remedy and seek to enter into a Consent Decree with the PRPs to effectuate the remedy. Recent investigation has identified a number of other parties who may be PRPs and could be liable to contribute to the final remedy. Further investigation is underway. Generation believes that a partial excavation remedy is reasonably possible, and the partial excavation costs, inclusive of a landfill cover, could range from approximately $225 million to $650 million; such costs would likely be shared by the final group of identified PRPs. Generation believes the likelihood that the EPA would require a complete excavation remedy is remote. The cost of a partial or complete excavation could have a material, unfavorable impact on Generation’s and Exelon’s future results of operations and cash flows.

During December 2015, the EPA took two actions related to the West Lake Landfill designed to abate what it termed as imminent and dangerous conditions at the landfill. The first involved installation by the PRPs of a non-combustible surface cover to protect against surface fires in areas where radiological materials are believed to have been disposed. Generation has accrued what it believes to be an adequate amount to cover its anticipated liability for this interim action. The second action involved EPA’s public statement that it will require the PRPs to construct a barrier wall in an adjacent landfill to prevent a subsurface fire from spreading to those areas of the West Lake Landfill where radiological materials are believed to have been disposed. At this time, EPA has not provided sufficient details related to the basis for and the requirements and design of a barrier wall to enable Generation to determine the likelihood such a remedy will ultimately be implemented, assess the degree to which

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Generation may have liability as a potentially responsible party, or develop a reasonable estimate of the potential incremental costs. It is reasonably possible, however, that resolution of this matter could have a material, unfavorable impact on Generation’s and Exelon’s future results of operations and cash flows. Finally, one of the other PRPs, the landfill owner and operator of the adjacent landfill, has indicated that it will be making a contribution claim against Cotter for costs that it has incurred to prevent the subsurface fire from spreading to those areas of the West Lake Landfill where radiological materials are believed to have been disposed. At this time, Generation and Exelon do not possess sufficient information to assess this claim and are therefore unable to determine the impact on their future results of operations and cash flows.

On February 2, 2016, the U.S. Senate passed a bill to transfer remediation authority over the West Lake Landfill from the EPA to the U.S. Army Corps of Engineers, under the Formerly Utilized Sites Remedial Action Program (FUSRAP). The legislation was not passed in the U.S. House of Representatives, and would therefore require reintroduction in the Senate for consideration in the current session of Congress. Should such proposed legislation ultimately become law, it would be subject to annual funding appropriations in the U.S. Budget. Remediation under FUSRAP would not alter the liability of the PRPs, but would likely delay the determination of a final remedy and its implementation.

On August 8, 2011, Cotter was notified by the DOJ that Cotter is considered a PRP with respect to the government’s clean-up costs for contamination attributable to low level radioactive residues at a former storage and reprocessing facility named Latty Avenue near St. Louis, Missouri. The Latty Avenue site is included in ComEd’s indemnification responsibilities discussed above as part of the sale of Cotter. The radioactive residues had been generated initially in connection with the processing of uranium ores as part of the U.S. government’s Manhattan Project. Cotter purchased the residues in 1969 for initial processing at the Latty Avenue facility for the subsequent extraction of uranium and metals. In 1976, the NRC found that the Latty Avenue site had radiation levels exceeding NRC criteria for decontamination of land areas. Latty Avenue was investigated and remediated by the United States Army Corps of Engineers pursuant to funding under the FUSRAP. The DOJ has not yet formally advised the PRPs of the amount that it is seeking, but it is believed to be approximately $90 million. The DOJ and the PRPs agreed to toll the statute of limitations until August 2017 so that settlement discussions could proceed. Based on Generation’s preliminary review, it appears probable that Generation has liability to Cotter under the indemnification agreement and has established an appropriate accrual for this liability, which is included in the table above.

Commencing in February 2012, a number of lawsuits have been filed in the U.S. District Court for the Eastern District of Missouri. Among the defendants were Exelon, Generation and ComEd, all of which were subsequently dismissed from the case, as well as Cotter, which remains a defendant. The suits allege that individuals living in the North St. Louis area developed some form of cancer or other serious illness due to Cotter’s negligent or reckless conduct in processing, transporting, storing, handling and/or disposing of radioactive materials. Plaintiffs are asserting public liability claims under the Price-Anderson Act. Their state law claims for negligence, strict liability, emotional distress, and medical monitoring have been dismissed. The complaints do not contain specific damage claims. In the event of a finding of liability against Cotter, it is reasonably possible that Exelon would be financially responsible due to its indemnification responsibilities of Cotter described above. The court has dismissed a number of lawsuits, and is expected to dismiss additional lawsuits based on a recent ruling. Pre-trial motions and discovery are proceeding in the remaining cases and a pre-trial scheduling order has been filed with the court. At this stage of the litigation, Generation and ComEd cannot estimate a range of loss, if any.

68^th Street Dump. In 1999, the EPA proposed to add the 68th Street Dump in Baltimore, Maryland to the Superfund National Priorities List, and notified BGE and 19 others that they are PRPs at the site. In connection with BGE’s 2000 corporate restructuring the responsibility for this liability was transferred to Constellation and

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

as a result of the 2012 Exelon and CEG merger is now Generation’s responsibility. In March 2004, the PRPs formed the 68th Street Coalition and entered into consent order negotiations with the U.S. EPA to investigate clean-up options for the site under the Superfund Alternative Sites Program. In May 2006, a settlement among the U.S. EPA and the PRPs with respect to investigation of the site became effective. The settlement requires the PRPs, over the course of several years, to identify contamination at the site and recommend clean-up options. The PRPs submitted their investigation of the range of clean-up options in the first quarter of 2011. Although the investigation and options provided to the U.S. EPA are still subject to U.S. EPA review and selection of a remedy, the range of estimated clean-up costs to be allocated among all of the PRPs is in the range of $50 million to $64 million. On September 30, 2013, EPA issued the Record of Decision identifying its preferred remedial alternative for the site. The estimated cost for the alternative chosen by EPA is consistent with the PRPs estimated range of costs noted above. Based on Generation’s preliminary review, it appears probable that Generation has liability and has established an appropriate accrual for its share of the estimated clean-up costs which is included in the table above.

Rossville Ash Site. The Rossville Ash Site is a 32-acre property located in Rosedale, Baltimore County, Maryland, which was used for the placement of fly ash from 1983-2007. The property is owned by Constellation Power Source Generation, LLC (CPSG), a wholly-owned subsidiary of Generation. In 2008, CPSG investigated and remediated the property by entering it into the Maryland Voluntary Cleanup Program (VCP) to address any historic environmental concerns and ready the site for appropriate future redevelopment. The site was accepted into the program in 2010 and is currently going through the process to remediate the site and receive closure from MDE. Exelon currently estimates the cost to close the site to be approximately $4 million which has been fully reserved and included in the table above as of March 31, 2017.

Sauer Dump. On May 30, 2012, BGE was notified by the U.S. EPA that it is considered a PRP at the Sauer Dump Superfund site in Dundalk, Maryland. The U.S. EPA offered BGE and three other PRPs the opportunity to conduct an environmental investigation and present cleanup recommendations at the site. In addition, the U.S. EPA is seeking recovery from the PRPs of $1.7 million for past cleanup and investigation costs at the site. On March 11, 2013, BGE and three other PRPs signed an Administrative Settlement Agreement and Order on Consent with the U.S. EPA which requires the PRPs to conduct a remedial investigation and feasibility study at the site to determine what, if any, are the appropriate and recommended cleanup activities for the site. The ultimate outcome of this proceeding is uncertain. Since the U.S. EPA has not selected a cleanup remedy and the allocation of the cleanup costs among the PRPs has not been determined, an estimate of the range of BGE’s reasonably possible loss, if any, cannot be determined. It is possible, however, that resolution of this matter could have a material, unfavorable impact on Exelon’s and BGE’s future results of operations and cash flows, and an appropriate accrual has been established and is included in the table above.

Riverside. In 2013, the MDE, at the request of EPA, conducted a site inspection and limited environmental sampling of certain portions of the 170 acre Riverside property owned by BGE. The site consists of several different parcels with different current and historical uses. The sampling included soil and groundwater samples for a number of potential environmental contaminants. The sampling confirmed the existence of contaminants consistent with the known historical uses of the various portions of the site. In March 2014, the MDE requested that BGE conduct an investigation which included a site-wide investigation of soils, sediment, groundwater, and surface water to complement the MDE sampling. The field investigation was completed in January 2015, and a final report was provided to MDE in June 2015. In November 2015, MDE provided BGE with its comments and recommendations on the report which require BGE to conduct further investigation and sampling at the site to better delineate the nature and extent of historic contamination, including off-site sediment and soil sampling. MDE did not request any interim remediation at this time and BGE anticipates completing the additional work requested by the end of the second quarter of 2017. BGE has established what it believes is an appropriate reserve based upon the investigation to date. The established reserve is included in the table above. As the

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

investigation and potential remediation proceed, it is possible that additional reserves could be established, in amounts that could be material to BGE.

BGE is authorized to recover, and is currently recovering, environmental costs for the remediation of the former MGP facility sites from customers; however, while BGE does not have a rider for MGP clean-up costs, BGE has historically received recovery of actual clean-up costs in distribution rates.

Benning Road Site. In September 2010, PHI received a letter from EPA identifying the Benning Road site as one of six land-based sites potentially contributing to contamination of the lower Anacostia River. A portion of the site was formerly the location of a Pepco Energy Services electric generating facility. That generating facility was deactivated in June 2012 and plant structure demolition was completed in July 2015. The remaining portion of the site consists of a Pepco transmission and distribution service center that remains in operation. In December 2011, the U.S. District Court for the District of Columbia approved a consent decree entered into by Pepco and Pepco Energy Services with the DOEE, which requires Pepco and Pepco Energy Services to conduct a RI/FS for the Benning Road site and an approximately 10 to 15 acre portion of the adjacent Anacostia River. The RI/FS will form the basis for the remedial actions for the Benning Road site and for the Anacostia River sediment associated with the site. The consent decree does not obligate Pepco or Pepco Energy Services to pay for or perform any remediation work, but it is anticipated that DOEE will look to Pepco and Pepco Energy Services to assume responsibility for cleanup of any conditions in the river that are determined to be attributable to past activities at the Benning Road site.

The initial RI field work began in January 2013 and was completed in December 2014. In April 2015, Pepco and Pepco Energy Services submitted a draft RI Report to DOEE. After review, DOEE determined that additional field investigation and data analysis was required to complete the RI process (much of which was beyond the scope of the original DOEE-approved RI work plan). In the meantime, Pepco and Pepco Energy Services revised the draft RI Report to address DOEE’s comments and DOEE released the draft RI Report for public review in February 2016. Once the additional RI work has been completed, Pepco and Pepco Energy Services will issue a draft “final” RI report for review and comment by DOEE and the public. Pepco and Pepco Energy Services will then proceed to develop an FS to evaluate possible remedial alternatives for submission to DOEE. The Court has established a schedule for completion of the RI and FS, and approval by the DOEE, by June 2018.

Upon DOEE’s approval of the final RI and FS Reports, Pepco and Pepco Energy Services will have satisfied their obligations under the consent decree. At that point, DOEE will prepare a Proposed Plan regarding further response actions. After considering public comment on the Proposed Plan, DOEE will issue a Record of Decision identifying any further response actions determined to be necessary.

PHI, Pepco and Pepco Energy Services have determined that a loss associated with this matter for PHI, Pepco and Pepco Energy Services is probable and an estimated liability for this issue has been accrued, which is included in the table above. As the remedial investigation proceeds and potential remedies are identified, it is possible that additional accruals could be established in amounts that could be material to PHI, Pepco and Pepco Energy Services. Pursuant to Exelon’s March 2016 acquisition of PHI, Pepco Energy Services was transferred to Generation. The ultimate resolution of this matter is currently not expected to have any significant financial impact on Generation.

Anacostia River Tidal Reach. Contemporaneous with the Benning RI/FS being performed by Pepco and Pepco Energy Services, DOEE and certain federal agencies have been conducting a separate RI/FS focused on the entire tidal reach of the Anacostia River extending from just north of the Maryland-D.C. boundary line to the confluence of the Anacostia and Potomac Rivers. In March 2016, DOEE released a draft of the river-wide RI

161

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Report for public review and comment. The river-wide RI incorporated the results of the river sampling performed by Pepco and Pepco Energy Services as part of the Benning RI/FS, as well as similar sampling efforts conducted by owners of other sites adjacent to this segment of the river and supplemental river sampling conducted by DOEE’s contractor. DOEE asked Pepco, along with parties responsible for other sites along the river, to participate in a “Consultative Working Group” to provide input into the process for future remedial actions addressing the entire tidal reach of the river and to ensure proper coordination with the other river cleanup efforts currently underway, including cleanup of the river segment adjacent to the Benning Road site resulting from the Benning Road RI/FS. Pepco responded that it will participate in the Consultative Working Group but its participation is not an acceptance of any financial responsibility beyond the work that will be performed at the Benning Road site described above. DOEE has advised the Consultative Working Group that the federal and DOEE authorities are conducting phase 2 of a remedial investigation. DOEE has targeted June 2018 as the date for remedy selection for clean-up of sediments in this section of the river. The Consultative Working Group and the other possible PRPs have provided input into the proposed clean-up process and schedule. At this time, it is not possible to predict the extent of Pepco’s participation in the river-wide RI/FS process, and Pepco cannot estimate the reasonably possible range of loss for response costs beyond those associated with the Benning RI/FS component of the river-wide initiative. It is possible, however, that resolution of this matter could have a material, unfavorable impact on Exelon’s and Pepco’s future results of operations and cash flows.

Conectiv Energy Wholesale Power Generation Sites. In July 2010, PHI sold the wholesale power generation business of Conectiv Energy Holdings, Inc. and substantially all of its subsidiaries (Conectiv Energy) to Calpine Corporation (Calpine). Under New Jersey’s Industrial Site Recovery Act (ISRA), the transfer of ownership triggered an obligation on the part of Conectiv Energy to remediate any environmental contamination at each of the nine Conectiv Energy generating facility sites located in New Jersey. Under the terms of the sale, Calpine has assumed responsibility for performing the ISRA-required remediation and for the payment of all related ISRA compliance costs up to $10 million. PHI is obligated to indemnify Calpine for any ISRA compliance remediation costs in excess of $10 million. According to PHI’s estimates, the costs of ISRA-required remediation activities at the 9 generating facility sites located in New Jersey are in the range of approximately $7 million to $18 million, and PHI has established an appropriate accrual for its share of the estimated clean-up costs, which is included in the table above. Pursuant to Exelon’s March 2016 acquisition of PHI, Conectiv Energy was transferred to Generation, however, the responsibility to indemnify Calpine remained at PHI. The ultimate resolution of this matter is currently not expected to have any significant financial impact on PHI.

Rock Creek Mineral Oil Release. In late August 2015, a Pepco underground transmission line in the District of Columbia suffered a breach, resulting in the release of non-toxic mineral oil surrounding the transmission line into the surrounding soil, and a small amount reached Rock Creek through a storm drain. Pepco notified regulatory authorities, and Pepco and its spill response contractors placed booms in Rock Creek, blocked the storm drain to prevent the release of mineral oil into the creek and commenced remediation of soil around the transmission line and the Rock Creek shoreline. Pepco estimates that approximately 6,100 gallons of mineral oil were released and that its remediation efforts recovered approximately 80% of the amount released. Pepco’s remediation efforts are ongoing under the direction of the DOEE, including the requirements of a February 29, 2016 compliance order which requires Pepco to prepare a full incident investigation report and prepare a removal action work plan to remove all impacted soils in the vicinity of the storm drain outfall, and in collaboration with the National Park Service, the Smithsonian Institution/National Zoo and EPA. Pepco’s investigation presently indicates that the damage to Pepco’s facilities occurred prior to the release of mineral oil when third-party excavators struck the Pepco underground transmission line while installing cable for another utility.

To the extent recovery is available against any party who contributed to this loss, PHI and Pepco will pursue such action. Exelon, PHI and Pepco continue to investigate the cause of the incident, the parties involved, and

162

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

legal responsibility under District of Columbia law, but do not believe that the remediation costs to resolve this matter will have a material adverse effect on their respective financial condition, results of operations or cash flows.

Brandywine Fly Ash Disposal Site. In February 2013, Pepco received a letter from the MDE requesting that Pepco investigate the extent of waste on a Pepco right-of-way that traverses the Brandywine fly ash disposal site in Brandywine, Prince George’s County, Maryland, owned by NRG Energy, Inc. (as successor to GenOn MD Ash Management, LLC) (NRG). In July 2013, while reserving its rights and related defenses under a 2000 agreement covering the sale of this site, Pepco indicated its willingness to investigate the extent of, and propose an appropriate closure plan to address, ash on the right-of-way. Pepco submitted a schedule for development of a closure plan to MDE on September 30, 2013 and, by letter dated October 18, 2013, MDE approved the schedule.

Exelon, PHI and Pepco have determined that a loss associated with this matter is probable and have estimated that the costs for implementation of a closure plan and cap on the site are in the range of approximately $3 million to $6 million, for which an appropriate reserve has been established and is included in the table above. Exelon, PHI and Pepco believe that the costs incurred in this matter will be recoverable from NRG under the 2000 sale agreement.

Litigation and Regulatory Matters

Asbestos Personal Injury Claims (Exelon, Generation, ComEd, PECO and BGE)

Exelon, Generation and PECO. Generation maintains a reserve for claims associated with asbestos-related personal injury actions in certain facilities that are currently owned by Generation or were previously owned by ComEd and PECO. The reserve is recorded on an undiscounted basis and excludes the estimated legal costs associated with handling these matters, which could be material.

At March 31, 2017 and December 31, 2016, Generation had reserved approximately $82 million and $83 million, respectively, in total for asbestos-related bodily injury claims. As of March 31, 2017, approximately $23 million of this amount related to 240 open claims presented to Generation, while the remaining $59 million of the reserve is for estimated future asbestos-related bodily injury claims anticipated to arise through 2050, based on actuarial assumptions and analyses, which are updated on an annual basis. On a quarterly basis, Generation monitors actual experience against the number of forecasted claims to be received and expected claim payments and evaluates whether an adjustment to the reserve is necessary.

On November 22, 2013, the Supreme Court of Pennsylvania held that the Pennsylvania Workers Compensation Act does not apply to an employee’s disability or death resulting from occupational disease, such as diseases related to asbestos exposure, which manifests more than 300 weeks after the employee’s last employment-based exposure, and that therefore the exclusivity provision of the Act does not preclude such employee from suing his or her employer in court. The Supreme Court’s ruling reverses previous rulings by the Pennsylvania Superior Court precluding current and former employees from suing their employers in court, despite the fact that the same employee was not eligible for workers compensation benefits for diseases that manifest more than 300 weeks after the employee’s last employment-based exposure to asbestos. Since the Pennsylvania Supreme Court’s ruling in November 2013, Exelon, Generation, and PECO have experienced an increase in asbestos-related personal injury claims brought by former PECO employees, all of which have been reserved for on a claim by claim basis. Those additional claims are taken into account in projecting estimates of future asbestos-related bodily injury claims.

On November 4, 2015, the Illinois Supreme Court found that the provisions of the Illinois’ Workers’ Compensation Act and the Workers’ Occupational Diseases Act barred an employee from bringing a direct civil

163

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

action against an employer for latent diseases, including asbestos-related diseases that fall outside the 25-year limit of the statute of repose. The Illinois Supreme Court’s ruling reversed previous rulings by the Illinois Court of Appeals, which initially ruled that the Illinois Worker’s Compensation law should not apply in cases where the diagnosis of an asbestos related disease occurred after the 25-year maximum time period for filing a Worker’s Compensation claim. Since the Illinois Supreme Court’s ruling in November 2015, Exelon, Generation, and ComEd have not experienced a significant increase in asbestos-related personal injury claims brought by former ComEd employees.

There is a reasonable possibility that Exelon may have additional exposure to estimated future asbestos-related bodily injury claims in excess of the amount accrued and the increases could have a material adverse effect on Exelon’s, Generation’s, ComEd’s, PECO and BGE’s future results of operations and cash flows.

BGE. Since 1993, BGE and certain Constellation (now Generation) subsidiaries have been involved in several actions concerning asbestos. The actions are based upon the theory of “premises liability,” alleging that BGE and Generation knew of and exposed individuals to an asbestos hazard. In addition to BGE and Generation, numerous other parties are defendants in these cases.

To date, most asbestos claims which have been resolved relating to BGE and certain Constellation subsidiaries have been dismissed or resolved without any payment and a small minority of these cases has been resolved for amounts that were not material to BGE or Generation’s financial results. Presently, there are an immaterial number of asbestos cases pending against BGE and certain Constellation subsidiaries.

Continuous Power Interruption (Exelon and ComEd)

Section 16-125 of the Illinois Public Utilities Act provides that in the event an electric utility, such as ComEd, experiences a continuous power interruption of four hours or more that affects (in ComEd’s case) more than 30,000 customers, the utility may be liable for actual damages suffered by customers as a result of the interruption and may be responsible for reimbursement of local governmental emergency and contingency expenses incurred in connection with the interruption. Recovery of consequential damages is barred. The affected utility may seek from the ICC a waiver of these liabilities when the utility can show that the cause of the interruption was unpreventable damage due to weather events or conditions, customer tampering, or certain other causes enumerated in the law. As of March 31, 2017 and December 31, 2016, ComEd did not have any material liabilities recorded for these storm events.

Baltimore City Franchise Taxes (Exelon and BGE)

The City of Baltimore claims that BGE has maintained electric facilities in the City’s public right-of-ways for over one hundred years without the proper franchise rights from the City. BGE has reviewed the City’s claim and believes that it lacks merit. BGE has not recorded an accrual for payment of franchise fees for past periods as a range of loss, if any, cannot be reasonably estimated at this time. Franchise fees assessed in future periods may be material to BGE’s results of operations and cash flows.

Conduit Lease with City of Baltimore (Exelon and BGE)

On September 23, 2015, the Baltimore City Board of Estimates approved an increase in annual rental fees for access to the Baltimore City underground conduit system effective November 1, 2015, from $12 million to $42 million, subject to an annual increase thereafter based on the Consumer Price Index. BGE subsequently entered into litigation with the City regarding the amount of and basis for establishing the conduit fee. On November 30, 2016, the Baltimore City Board of Estimates approved a settlement agreement entered into

164

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

between BGE and the City to resolve the disputes and pending litigation related to BGE’s use of and payment for the underground conduit system. As a result of the settlement, the parties have entered into a six-year lease that reduces the annual expense to $25 million in the first three years and caps the annual expense in the last three years to not more than $29 million. BGE recorded a credit to Operating and maintenance expense in the fourth quarter of approximately $28 million for the reversal of the previously higher fees accrued in the current year as well as the settlement of prior year disputed fee true-up amounts.

Deere Wind Energy Assets (Exelon and Generation)

In 2013, Deere & Company (“Deere”) filed a lawsuit against Generation in the Delaware Superior Court relating to Generation’s acquisition of the Deere wind energy assets. Under the purchase agreement, Deere was entitled to receive earn-out payments if certain specific wind projects already under development in Michigan met certain development and construction milestones following the sale. In the complaint, Deere seeks to recover a $14 million earn-out payment associated with one such project, which was never completed. Generation has filed counterclaims against Deere for breach of contract, with a right of recoupment and set off. On June 2, 2016, the Delaware Superior Court entered summary judgment in favor of Deere. On January 17, 2017, Generation filed an appeal of the Superior Court’s summary judgment decision with the Supreme Court of Delaware. Generation has accrued an amount to cover its potential liability.

General (All Registrants)

The Registrants are involved in various other litigation matters that are being defended and handled in the ordinary course of business. The assessment of whether a loss is probable or a reasonable possibility, and whether the loss or a range of loss is estimable, often involves a series of complex judgments about future events. The Registrants maintain accruals for such losses that are probable of being incurred and subject to reasonable estimation. Management is sometimes unable to estimate an amount or range of reasonably possible loss, particularly where (1) the damages sought are indeterminate, (2) the proceedings are in the early stages, or (3) the matters involve novel or unsettled legal theories. In such cases, there is considerable uncertainty regarding the timing or ultimate resolution of such matters, including a possible eventual loss.

Income Taxes (Exelon, Generation, ComEd, PECO and BGE)

See Note 11 — Income Taxes for information regarding the Registrants’ income tax refund claims and certain tax positions, including the 1999 sale of fossil generating assets.

165

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

18. Supplemental Financial Information (All Registrants)

Supplemental Statement of Operations Information

The following tables provide additional information about the Registrants’ Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2017 and 2016.


	Three Months Ended March 31, 2017
													Successor
	Exelon			Generation			ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Other, Net
Decommissioning-related activities:
Net realized income on decommissioning trust funds^(a)
Regulatory agreement units	$	68		$	68		$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-regulatory agreement units		32			32			—		—		—		—		—		—		—
Net unrealized gains on decommissioning trust funds
Regulatory agreement units		222			222			—		—		—		—		—		—		—
Non-regulatory agreement units		166			166			—		—		—		—		—		—		—
Net unrealized losses on pledged assets
Zion Station decommissioning		(1	)		(1	)		—		—		—		—		—		—		—
Regulatory offset to decommissioning trust fund-related activities^(b)		(234	)		(234	)		—		—		—		—		—		—		—

Total decommissioning-related activities		253			253			—		—		—		—		—		—		—

Investment income		2			2			—		—		—		—		—		—		—
Interest income related to uncertain income tax positions		1			—			—		—		—		—		—		—		—
AFUDC — Equity		17			—			2		2		4		9		5		2		2
Other		10			4			2		—		—		4		3		1		—

Other, net	$	283		$	259		$	4	$	2	$	4	$	13	$	8	$	3	$	2


																			Successor		Predecessor
	Three Months Ended March 31, 2016																		March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
	Exelon			Generation			ComEd		PECO		BGE		Pepco		DPL		ACE		PHI		PHI
Other, Net
Decommissioning-related activities:
Net realized income on decommissioning trust funds^(a)
Regulatory agreement units	$	34		$	34		$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-regulatory agreement units		21			21			—		—		—		—		—		—		—		—
Net unrealized gains on decommissioning trust funds
Regulatory agreement units		79			79			—		—		—		—		—		—		—		—
Non-regulatory agreement units		52			52			—		—		—		—		—		—		—		—
Net unrealized gains on pledged assets
Zion Station decommissioning		2			2			—		—		—		—		—		—		—		—
Regulatory offset to decommissioning trust fund-related activities^(b)		(95	)		(95	)		—		—		—		—		—		—		—		—

Total decommissioning-related activities		93			93			—		—		—		—		—		—		—		—

Investment income		6			1			—		—		1		—		—		—		—		—
Long-term lease income		4			—			—		—		—		—		—		—		—		—
Interest income related to uncertain income tax positions		1			—			—		—		—		1		—		1		—		—
AFUDC—Equity		8			—			2		2		3		4		1		2		1		7
Loss on debt extinguishment		(2	)		(2	)		—		—		—		—		—		—		—		—
Other		4			1			2		—		—		4		2		1		1		(11	)

Other, net	$	114		$	93		$	4	$	2	$	4	$	9	$	3	$	4	$	2	$	(4	)

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COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(a)	Includes investment income and realized gains and losses on sales of investments of the trust funds.

(b)

Includes the elimination of NDT fund activity for the Regulatory Agreement Units, including the elimination of net income taxes related to all NDT fund activity for those units. See Note 16 — Asset Retirement Obligations of the Exelon 2016 Form 10-K for additional information regarding the accounting for nuclear decommissioning.

The following utility taxes are included in revenues and expenses for the three months ended March 31, 2017 and 2016. Generation’s utility tax expense represents gross receipts tax related to its retail operations, and the utility registrants’ utility tax expense represents municipal and state utility taxes and gross receipts taxes related to their operating revenues. The offsetting collection of utility taxes from customers is recorded in revenues on the Registrants’ Consolidated Statements of Operations and Comprehensive Income.


	Three Months Ended March 31, 2017
											Successor
	Exelon		Generation		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Utility taxes	$	224	$	32	$	59	$	31	$	26	$	76	$	71	$	5	$	—


																	Successor		Predecessor
	Three Months Ended March 31, 2016																March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
	Exelon		Generation		ComEd		PECO		BGE		Pepco		DPL		ACE		PHI		PHI
Utility taxes	$	153	$	28	$	59	$	35	$	24	$	79	$	5	$	—	$	7	$	77

Supplemental Cash Flow Information

The following tables provide additional information regarding the Registrants’ Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016.


	Three Months Ended March 31, 2017
											Successor
	Exelon		Generation		ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Depreciation, amortization and accretion
Property, plant and equipment^(a)	$	754	$	289	$	190	$	64	$	80	$	112	$	50	$	30	$	21
Amortization of regulatory assets^(a)		128		—		18		7		48		55		32		9		14
Amortization of intangible assets, net^(a)		14		13		—		—		—		—		—		—		—
Amortization of energy contract assets and liabilities^(b)		2		2		—		—		—		—		—		—		—
Nuclear fuel^(c)		264		264		—		—		—		—		—		—		—
ARO accretion^(d)		112		110		—		—		—		—		—		—		—

Total depreciation, amortization and accretion	$	1,274	$	678	$	208	$	71	$	128	$	167	$	82	$	39	$	35

167

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


																			Successor		Predecessor
	Three Months Ended March 31, 2016																		March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
	Exelon			Generation			ComEd		PECO		BGE		Pepco		DPL		ACE		PHI		PHI
Depreciation, amortization and accretion
Property, plant and equipment^(a)	$	606		$	278		$	170	$	60	$	75	$	42	$	27	$	20	$	9	$	94
Amortization of regulatory assets^(a)		65			—			19		7		34		33		12		20		5		58
Amortization of intangible assets, net^(a)		14			11			—		—		—		—		—		—		—		—
Amortization of energy contract assets and liabilities^(b)		(14	)		(14	)		—		—		—		—		—		—		—		—
Nuclear fuel^(c)		283			283			—		—		—		—		—		—		—		—
ARO accretion^(d)		109			109			—		—		—		—		—		—		—		—

Total depreciation, amortization and accretion	$	1,063		$	667		$	189	$	67	$	109	$	75	$	39	$	40	$	14	$	152

(a)	Included in Depreciation and amortization on the Registrants’ Consolidated Statements of Operations and Comprehensive Income.

(b)	Included in Operating revenues or Purchased power and fuel expense on the Registrants’ Consolidated Statements of Operations and Comprehensive Income.

(c)	Included in Purchased power and fuel expense on the Registrants’ Consolidated Statements of Operations and Comprehensive Income.

(d)	Included in Operating and maintenance expense on the Registrants’ Consolidated Statements of Operations and Comprehensive Income.


	Three Months Ended March 31, 2017
																Successor
	Exelon			Generation			ComEd			PECO			BGE			PHI			Pepco			DPL			ACE
Other non-cash operating activities:
Pension and non-pension postretirement benefit costs	$	157		$	54		$	44		$	7		$	16		$	24		$	7		$	3		$	3
Loss from equity method investments		10			10			—			—			—			—			—			—			—
Provision for uncollectible accounts		34			9			7			17			5			(4	)		(5	)		(1	)		1
Stock-based compensation costs		31			—			—			—			—			—			—			—			—
Other decommissioning-related activity^(a)		(84	)		(84	)		—			—			—			—			—			—			—
Energy-related options^(b)		(4	)		(4	)		—			—			—			—			—			—			—
Amortization of regulatory asset related to debt costs		2			—			1			—			—			1			—			—			—
Amortization of rate stabilization deferral		(14	)		—			—			—			7			(21	)		(15	)		(6	)		—
Amortization of debt fair value adjustment		(5	)		(3	)		—			—			—			(2	)		—			—			—
Discrete impacts from EIMA^(c)		(24	)		—			(24	)		—			—			—			—			—			—
Amortization of debt costs		9			4			1			—			—			—			—			—			—
Provision for excess and obsolete inventory		2			1			1			—			—			—			—			—			—
Other		4			3			1			(1	)		(4	)		(6	)		(2	)		(3	)		(2	)

Total other non-cash operating activities	$	118		$	(10	)	$	31		$	23		$	24		$	(8	)	$	(15	)	$	(7	)	$	2

Non-cash investing and financing activities:
Change in capital expenditures not paid	$	(298	)	$	(354	)	$	25		$	—		$	41		$	(5	)	$	(6	)	$	9		$	—
Non-cash financing of capital projects		10			10			—			—			—			—			—			—			—
Dividends on stock compensation		2			—			—			—			—			—			—			—			—

168

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)


																									Successor			Predecessor
	Three Months Ended March 31, 2016																								March 24, 2016 to March 31, 2016			January 1, 2016 to March 23, 2016
	Exelon			Generation			ComEd			PECO			BGE			Pepco			DPL			ACE			PHI			PHI
Other non-cash operating activities:
Pension and non-pension postretirement benefit costs	$	136		$	54		$	41		$	8		$	16		$	8		$	5		$	4		$	3		$	23
Loss from equity method investments		3			3			—			—			—			—			—			—			—			—
Provision for uncollectible accounts		41			6			9			16			12			5			5			7			(2	)		16
Stock-based compensation costs		44			—			—			—			—			—			—			—			—			3
Other decommissioning-related activity^(a)		(55	)		(55	)		—			—			—			—			—			—			—			—
Energy-related options^(b)		(9	)		(9	)		—			—			—			—			—			—			—			—
Amortization of regulatory asset related to debt costs		1			—			1			—			—			1			—			—			—			1
Amortization of rate stabilization deferral		20			—			—			—			20			1			4			—			—			5
Amortization of debt fair value adjustment		(3	)		(3	)		—			—			—			—			—			—			—			—
Discrete impacts from EIMA^(c)		(14	)		—			(14	)		—			—			—			—			—			—			—
Amortization of debt costs		8			4			1			1			1			—			—			—			—			—
Provision for excess and obsolete inventory		1			1			—			—			—			1			1			1			—			1
Merger-related commitments^(d)(e)		503			3			—			—			—			138			100			120			358			—
Severance costs		69			4			—			—			—			—			—			—			52			—
Asset retirement costs		—			—			—			—			—			—			4			2			—			—
Lower of cost or net realizable value inventory adjustment		36			36			—			—			—			—			—			—			—			—
Other		23			7			(6	)		(1	)		(5	)		(1	)		(1	)		(2	)		(1	)		(3	)

Total other non-cash operating activities	$	804		$	51		$	32		$	24		$	44		$	153		$	118		$	132		$	410		$	46

Non-cash investing and financing activities:
Change in capital expenditures not paid	$	(290	)	$	(234	)	$	25		$	(65	)	$	(4	)	$	9		$	8		$	(9	)	$	(7	)	$	11
Fair value of net assets contributed to Generation in connection with the PHI Merger, net of cash^(d)(f)		—			119			—			—			—			—			—			—			—			—
Fair value of net assets distributed to Exelon in connection with the PHI Merger, net of cash^(d)(f)		—			—			—			—			—			—			—			—			127			—
Fair value of pension obligation transferred in connection with the PHI Merger		—			—			—			—			—			—			—			—			45			—
Assumption of member purchase liability		—			—			—			—			—			—			—			—			29			—
Change in PPE related to ARO update		62			62			—			—			—			—			—			—			—			—
Indemnification of like-kind exchange position^(g)		—			—			1			—			—			—			—			—			—			—
Non-cash financing of capital projects		31			31			—			—			—			—			—			—			—			—
Dividends on stock compensation		1			—			—			—			—			—			—			—			—			—

(a)

Includes the elimination of NDT fund activity for the Regulatory Agreement Units, including the elimination of operating revenues, ARO accretion, ARC amortization, investment income and income taxes related to all NDT fund activity for these units. See Note 16 — Asset Retirement Obligations of the Exelon 2016 Form 10-K for additional information regarding the accounting for nuclear decommissioning.

(b)	Includes option premiums reclassified to realized at the settlement of the underlying contracts and recorded in Operating revenues.

(c)	Reflects the change in distribution rates pursuant to EIMA, which allows for the recovery of costs by a utility through a pre-established performance-based formula rate tariff. See Note 5 — Regulatory Matters for more information.

(d)	See Note 4 — Mergers, Acquisitions and Dispositions for additional information related to the merger with PHI.

(e)	Excludes $5 million of forgiveness of Accounts receivable related to merger commitments recorded in connection with the PHI Merger, the balance is included within Provision for uncollectible accounts.

(f)	Immediately following closing of the PHI Merger, the net assets associated with PHI’s unregulated business interests were distributed by PHI to Exelon. Exelon contributed a portion of such net assets to Generation.

(g)	See Note 11 — Income Taxes for discussion of the like-kind exchange tax position.

169

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Supplemental Balance Sheet Information

The following tables provide additional information about assets and liabilities of the Registrants as of March 31, 2017 and December 31, 2016.


													Successor
March 31, 2017	Exelon			Generation			ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Property, plant and equipment:
Accumulated depreciation and amortization	$	19,716	^(a)	$	10,801	^(a)	$	4,040	$	3,293	$	3,311	$	281	$	3,090	$	1,195	$	1,032
Accounts receivable:
Allowance for uncollectible accounts	$	346		$	97		$	80	$	72	$	35	$	61	$	18	$	20	$	23

													Successor
December 31, 2016	Exelon			Generation			ComEd		PECO		BGE		PHI		Pepco		DPL		ACE
Property, plant and equipment:
Accumulated depreciation and amortization	$	19,169	^(b)	$	10,562	^(b)	$	3,937	$	3,253	$	3,254	$	195	$	3,050	$	1,175	$	1,016
Accounts receivable:
Allowance for uncollectible accounts	$	334		$	91		$	70	$	61	$	32	$	80	$	29	$	24	$	27

(a)	Includes accumulated amortization of nuclear fuel in the reactor core of $3,171 million.

(b)	Includes accumulated amortization of nuclear fuel in the reactor core of $3,186 million.

PECO Installment Plan Receivables (Exelon and PECO)

PECO enters into payment agreements with certain delinquent customers, primarily residential, seeking to restore their service, as required by the PAPUC. Customers with past due balances that meet certain income criteria are provided the option to enter into an installment payment plan, some of which have terms greater than one year, to repay past due balances in addition to paying for their ongoing service on a current basis. The receivable balance for these payment agreement receivables is recorded in accounts receivable for the current portion and other deferred debits and other assets for the noncurrent portion. The net receivable balance for installment plans with terms greater than one year was $9 million and $9 million as of March 31, 2017 and December 31, 2016, respectively. The allowance for uncollectible accounts reserve methodology and assessment of the credit quality of the installment plan receivables are consistent with the customer accounts receivable methodology discussed in Note 1 — Significant Accounting Policies of the Exelon 2016 Form 10-K. The allowance for uncollectible accounts balance associated with these receivables at March 31, 2017 of $11 million consists of $0 million, $3 million and $8 million for low risk, medium risk and high risk segments, respectively. The allowance for uncollectible accounts balance at December 31, 2016 of $13 million consists of $1 million, $3 million and $9 million for low risk, medium risk and high risk segments, respectively. The balance of the payment agreement is billed to the customer in equal monthly installments over the term of the agreement. Installment receivables outstanding as of March 31, 2017 and December 31, 2016 include balances not yet presented on the customer bill, accounts currently billed and an immaterial amount of past due receivables. When a customer defaults on its payment agreement, the terms of which are defined by plan type, the entire balance of the agreement becomes due and the balance is reclassified to current customer accounts receivable and reserved for in accordance with the methodology discussed in Note 1 — Significant Accounting Policies of the Exelon 2016 Form 10-K.

170

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

19. Segment Information (All Registrants)

Operating segments for each of the Registrants are determined based on information used by the chief operating decision maker(s) (CODM) in deciding how to evaluate performance and allocate resources at each of the Registrants.

In the first quarter of 2016, following the consummation of the PHI Merger, three new reportable segments were added: Pepco, DPL and ACE. As a result, Exelon has twelve reportable segments, which include ComEd, PECO, BGE, PHI’s three reportable segments consisting of Pepco, DPL, and ACE, and Generation’s six reportable segments consisting of the Mid-Atlantic, Midwest, New England, New York, ERCOT and all other power regions referred to collectively as “Other Power Regions”, which includes activities in the South, West and Canada. ComEd, PECO, BGE, Pepco, DPL and ACE each represent a single reportable segment, and as such, no separate segment information is provided for these Registrants. Exelon, ComEd, PECO, BGE, Pepco, DPL and ACE’s CODMs evaluate the performance of and allocate resources to ComEd, PECO, BGE, Pepco, DPL and ACE based on net income and return on equity.

Effective with the consummation of the PHI Merger, PHI’s reportable segments have changed based on the information used by the CODM to evaluate performance and allocate resources. PHI’s reportable segments consist of Pepco, DPL and ACE. PHI’s Predecessor periods’ segment information has been recast to conform to the current presentation. The reclassification of the segment information did not impact PHI’s reported consolidated revenues or net income. PHI’s CODM evaluates the performance of and allocates resources to Pepco, DPL and ACE based on net income and return on equity.

The basis for Generation’s reportable segments is the integrated management of its electricity business that is located in different geographic regions, and largely representative of the footprints of ISO/RTO and/or NERC regions, which utilize multiple supply sources to provide electricity through various distribution channels (wholesale and retail). Generation’s hedging strategies and risk metrics are also aligned to these same geographic regions. Descriptions of each of Generation’s six reportable segments are as follows:

•

Mid-Atlantic represents operations in the eastern half of PJM, which includes New Jersey, Maryland, Virginia, West Virginia, Delaware, the District of Columbia and parts of Pennsylvania and North Carolina.

•

Midwest represents operations in the western half of PJM, which includes portions of Illinois, Pennsylvania, Indiana, Ohio, Michigan, Kentucky and Tennessee, and the United States footprint of MISO, excluding MISO’s Southern Region, which covers all or most of North Dakota, South Dakota, Nebraska, Minnesota, Iowa, Wisconsin, the remaining parts of Illinois, Indiana, Michigan and Ohio not covered by PJM, and parts of Montana, Missouri and Kentucky.

•

New England represents the operations within ISO-NE covering the states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

•

New York represents operations within ISO-NY, which covers the state of New York in its entirety.

•

ERCOT represents operations within Electric Reliability Council of Texas, covering most of the state of Texas.

•

Other Power Regions:

•

South represents operations in the FRCC, MISO’s Southern Region, and the remaining portions of the SERC not included within MISO or PJM, which includes all or most of Florida, Arkansas, Louisiana, Mississippi, Alabama, Georgia, Tennessee, North Carolina, South Carolina and parts of Missouri, Kentucky and Texas. Generation’s South region also includes operations in the SPP,

171

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

covering Kansas, Oklahoma, most of Nebraska and parts of New Mexico, Texas, Louisiana, Missouri, Mississippi and Arkansas.

•

West represents operations in the WECC, which includes California ISO, and covers the states of California, Oregon, Washington, Arizona, Nevada, Utah, Idaho, Colorado and parts of New Mexico, Wyoming and South Dakota.

•

Canada represents operations across the entire country of Canada and includes AESO, OIESO and the Canadian portion of MISO.

The CODMs for Exelon and Generation evaluate the performance of Generation’s electric business activities and allocate resources based on revenues net of purchased power and fuel expense (RNF). Generation believes that RNF is a useful measurement of operational performance. RNF is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report. Generation’s operating revenues include all sales to third parties and affiliated sales to the Utility Registrants. Purchased power costs include all costs associated with the procurement and supply of electricity including capacity, energy and ancillary services. Fuel expense includes the fuel costs for Generation’s owned generation and fuel costs associated with tolling agreements. The results of Generation’s other business activities are not regularly reviewed by the CODM and are therefore not classified as operating segments or included in the regional reportable segment amounts. These activities include natural gas, as well as other miscellaneous business activities that are not significant to Generation’s overall operating revenues or results of operations. Further, Generation’s unrealized mark-to-market gains and losses on economic hedging activities and its amortization of certain intangible assets and liabilities relating to commodity contracts recorded at fair value from mergers and acquisitions are also excluded from the regional reportable segment amounts. Exelon and Generation do not use a measure of total assets in making decisions regarding allocating resources to or assessing the performance of these reportable segments.

172

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

An analysis and reconciliation of the Registrants’ reportable segment information to the respective information in the consolidated financial statements for the three months ended March 31, 2017 and 2016 is as follows:

Three Months Ended March 31, 2017 and 2016


									Successor
	Generation^(a)		ComEd		PECO		BGE		PHI^(b)			Other^(c)			Intersegment Eliminations			Exelon
Operating revenues^(d):
2017
Competitive businesses electric revenues	$	3,720	$	—	$	—	$	—	$	—		$	—		$	(328	)	$	3,392
Competitive businesses natural gas revenues		918		—		—		—		—			—			—			918
Competitive businesses other revenues		250		—		—		—		—			—			—			250
Rate-regulated electric revenues		—		1,298		590		667		1,097			—			(8	)		3,644
Rate-regulated natural gas revenues		—		—		206		284		66			—			(3	)		553
Shared service and other revenues		—		—		—		—		12			419			(431	)		—
2016
Competitive businesses electric revenues	$	3,695	$	—	$	—	$	—	$	—		$	—		$	(266	)	$	3,429
Competitive businesses natural gas revenues		822		—		—		—		—			—			—			822
Competitive businesses other revenues		222		—		—		—		—			—			—			222
Rate-regulated electric revenues		—		1,249		644		680		90			—			(6	)		2,657
Rate-regulated natural gas revenues		—		—		197		249		3			—			(5	)		444
Shared service and other revenues		—		—		—		—		12			405			(418	)		(1	)
Intersegment revenues^(e):
2017	$	328	$	5	$	1	$	5	$	12		$	419		$	(770	)	$	—
2016		266		5		1		5		12			405			(695	)		(1	)
Net income (loss):
2017	$	409	$	141	$	127	$	125	$	140		$	39		$	—		$	981
2016		257		115		124		101		(309	)		(164	)		(1	)		123
Total assets:
March 31, 2017	$	48,609	$	28,756	$	10,932	$	8,821	$	21,018		$	10,700		$	(11,768	)	$	117,068
December 31, 2016		46,974		28,335		10,831		8,704		21,025			10,369			(11,334	)		114,904

(a)

Generation includes the six reportable segments shown below: Mid-Atlantic, Midwest, New England, New York, ERCOT and Other Power Regions. Intersegment revenues for Generation for the three months ended March 31, 2017 include revenue from sales to PECO of $45 million, sales to BGE of $134 million, sales to Pepco of $83 million, sales to DPL of $51 million, and sales to ACE of $9 million in the Mid-Atlantic region, and sales to ComEd of $5 million in the Midwest region. For the three months ended March 31, 2016, intersegment revenues for Generation include revenue from sales to PECO of $79 million and sales to BGE of $173 million in the Mid-Atlantic region, and sales to ComEd of $5 million in the Midwest region. For the Successor period of March 24, 2016 to March 31, 2016, intersegment revenues for Generation include revenue from sales to Pepco of $6 million, sales to DPL of $4 million, and sales to ACE of $1 million in the Mid-Atlantic region.

173

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(b)

Amounts included represent activity for PHI’s successor period, March 24, 2016 through March 31, 2016. PHI includes the three reportable segments: Pepco, DPL and ACE. See tables below for PHI’s predecessor periods, including Pepco, DPL and ACE, for January 1, 2016 to March 23, 2016 and for the three months ended March 31, 2016.

(c)	Other primarily includes Exelon’s corporate operations, shared service entities and other financing and investment activities.

(d)

Includes gross utility tax receipts from customers. The offsetting remittance of utility taxes to the governing bodies is recorded in expenses on the Registrants’ Consolidated Statements of Operations and Comprehensive Income. See Note 18 — Supplemental Financial Information for total utility taxes for the three months ended March 31, 2017 and 2016.

(e)

Intersegment revenues exclude sales to unconsolidated affiliates. The intersegment profit associated with Generation’s sale of certain products and services by and between Exelon’s segments is not eliminated in consolidation due to the recognition of intersegment profit in accordance with regulatory accounting guidance. For Exelon, these amounts are included in Operating revenues in the Consolidated Statements of Operations and Comprehensive Income.

Successor and Predecessor PHI:


	Pepco			DPL			ACE			Other^(b)			Intersegment Eliminations			PHI
Operating revenues^(a):
Three Months Ended March 31, 2017 —Successor
Rate-regulated electric revenues	$	530		$	296		$	275		$	—		$	(4	)	$	1,097
Rate-regulated natural gas revenues		—			66			—			—			—			66
Shared service and other revenues		—			—			—			12			—			12
March 24, 2016 to March 31, 2016 —Successor
Rate-regulated electric revenues	$	40		$	24		$	23		$	3		$	—		$	90
Rate-regulated natural gas revenues		—			3			—			—			—			3
Shared service and other revenues		—			—			—			12			—			12
January 1, 2016 to March 23, 2016 —Predecessor
Rate-regulated electric revenues	$	511		$	279		$	268		$	42		$	(4	)	$	1,096
Rate-regulated natural gas revenues		—			56			—			1			—			57
Shared service and other revenues		—			—			—			—			—			—
Intersegment revenues:
Three Months Ended March 31, 2017 —Successor	$	1		$	2		$	1		$	13		$	(5	)	$	12
March 24, 2016 to March 31, 2016 —Successor		—			—			—			12			—			12
January 1, 2016 to March 23, 2016 —Predecessor		1			2			1			—			(4	)		—
Net income (loss):
Three Months Ended March 31, 2017 —Successor	$	58		$	57		$	28		$	(15	)	$	12		$	140
March 24, 2016 to March 31, 2016 —Successor		(140	)		(98	)		(105	)		22			12			(309	)
January 1, 2016 to March 23, 2016 —Predecessor		32			26			5			(44	)		—			19
Total assets:
March 31, 2017 — Successor	$	7,417		$	4,191		$	3,451		$	10,785		$	(4,826	)	$	21,018
December 31, 2016 — Successor		7,335			4,153			3,457			10,804			(4,724	)		21,025

174

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

(a)

(b)

Other primarily includes PHI’s corporate operations, shared service entities and other financing and investment activities. For the predecessor periods presented, Other includes the activity of PHI’s unregulated businesses which were distributed to Exelon and Generation as a result of the PHI Merger.

Generation total revenues:


	Three Months Ended March 31, 2017							Three Months Ended March 31, 2016
	Revenues from external customers^(a)		Intersegment revenues			Total Revenues		Revenues from external customers^(a)		Intersegment revenues			Total Revenues
Mid-Atlantic	$	1,429	$	(4	)	$	1,425	$	1,532	$	(12	)	$	1,520
Midwest		1,051		2			1,053		1,089		6			1,095
New England		549		(2	)		547		471		(1	)		470
New York		310		(3	)		307		218		(15	)		203
ERCOT		192		(1	)		191		163		—			163
Other Power Regions		189		(5	)		184		222		1			223

Total Revenues for Reportable Segments		3,720		(13	)		3,707		3,695		(21	)		3,674

Other^(b)		1,168		13			1,181		1,044		21			1,065

Total Generation Consolidated Operating Revenues	$	4,888	$	—		$	4,888	$	4,739	$	—		$	4,739

__________

(a)	Includes all wholesale and retail electric sales to third parties and affiliated sales to the Utility Registrants.

(b)

Other represents activities not allocated to a region. See text above for a description of included activities. Includes a $3 million decrease to revenues and a $20 million increase to revenues for the amortization of intangible assets and liabilities related to commodity contracts recorded at fair value for the three months ended March 31, 2017 and 2016, respectively, unrealized mark-to-market gains of $44 million and $63 million for the three months ended March 31, 2017 and 2016, respectively, and elimination of intersegment revenues.

175

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Dollars in millions, except per share data, unless otherwise noted)

Generation total revenues net of purchased power and fuel expense:


	Three Months Ended March 31, 2017							Three Months Ended March 31, 2016
	RNF from external customers^(a)		Intersegment RNF			Total RNF		RNF from external customers^(a)		Intersegment RN			Total RNF
Mid-Atlantic	$	755	$	18		$	773	$	832	$	9		$	841
Midwest		704		11			715		715		3			718
New England		115		(4	)		111		86		(5	)		81
New York		153		—			153		141		(11	)		130
ERCOT		94		(25	)		69		81		(20	)		61
Other Power Regions		108		(44	)		64		86		(10	)		76

Total Revenues net of purchased power and fuel expense for Reportable Segments		1,929		(44	)		1,885		1,941		(34	)		1,907

Other^(b)		161		44			205		356		34			390

Total Generation Revenues net of purchased power and fuel expense	$	2,090	$	—		$	2,090	$	2,297	$	—		$	2,297

(a)	Includes purchases and sales from/to third parties and affiliated sales to the Utility Registrants.

(b)

Other represents activities not allocated to a region. See text above for a description of included activities. Includes a $3 million decrease to RNF and a $19 million increase to RNF for the amortization of intangible assets and liabilities related to commodity contracts for the three months ended March 31, 2017 and 2016, respectively, unrealized mark-to-market losses of $49 million and gains of $103 million for the three months ended March 31, 2017 and 2016, respectively, and the elimination of intersegment revenue net of purchased power and fuel expense.

20. Subsequent Events (Exelon and Generation)

EGTP, a Delaware limited liability company, was formed in 2014 with the purpose of financing a portfolio of assets comprised of two combined-cycle gas turbines (CCGTs) and three peaking/simple cycle facilities consisting of approximately 3.4 GW of generation capacity in ERCOT North and Houston Zones. EGTP is an indirect wholly owned subsidiary of Exelon and Generation. Each of the aforementioned facilities is held through a wholly-owned direct subsidiary of EGTP. EGTP also owns two equity method investments in shared facility companies. EGTP, its direct parent and its wholly owned subsidiaries secure a nonrecourse senior secured term loan facility, a revolving loan facility and certain commodity and interest rate swaps.

EGTP’s operating cash flows have been negatively impacted by certain market conditions including, but not limited to: low power prices, higher fuel prices and the seasonality of its cash flows. Despite the declining operating cash flows, EGTP remained in compliance with its covenants related to the project financing through March 31, 2017. On May 2, 2017, EGTP entered into a consent agreement with its lenders to permit EGTP to draw on its revolving credit facility and initiate an orderly sales process to sell the assets of its wholly-owned subsidiaries, the proceeds from which will first be used to pay the administrative costs of administering the sale, the normal and ordinary costs of operating the plants and repayment of the secured debt of EGTP, including the revolving credit facility. As a result, in the second quarter, Exelon and Generation will reclassify certain EGTP’s assets and liabilities on Exelon’s and Generation’s Consolidated Balance Sheets as held for sale at their respective fair values. Exelon and Generation estimate a pre-tax impairment charge upon reclassification ranging from $300 million to $400 million will be recognized in the second quarter of 2017. See Note 10 — Debt and Credit Agreements for details regarding the nonrecourse debt associated with EGTP. The resolution of this matter has no direct effect on any other Exelon or Generation debt or credit facilities.

176

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars in millions except per share data, unless otherwise noted)

Exelon

Executive Overview

Exelon, a utility services holding company, operates through the following principal subsidiaries:

•

Generation, whose integrated business consists of the generation, physical delivery and marketing of power across multiple geographical regions through its customer-facing business, Constellation, which sells electricity and natural gas to both wholesale and retail customers. Generation also sells renewable energy and other energy-related products and services.

•

ComEd, whose business consists of the purchase and regulated retail sale of electricity and the provision of electricity transmission and distribution services in northern Illinois, including the City of Chicago.

•

PECO, whose business consists of the purchase and regulated retail sale of electricity and the provision of electricity distribution and transmission services in southeastern Pennsylvania, including the City of Philadelphia, and the purchase and regulated retail sale of natural gas and the provision of natural gas distribution services in the Pennsylvania counties surrounding the City of Philadelphia.

•

BGE, whose business consists of the purchase and regulated retail sale of electricity and natural gas and the provision of electricity distribution and transmission and natural gas distribution services in central Maryland, including the City of Baltimore.

•

Pepco, whose business consists of the purchase and regulated retail sale of electricity and the provision of electricity distribution and transmission in the District of Columbia and major portions of Prince George’s County and Montgomery County in Maryland.

•

DPL, whose business consists of the purchase and regulated retail sale of electricity and the provision of electricity distribution and transmission services in portions of Maryland and Delaware, and the purchase and regulated retail sale of natural gas and the provision of natural gas distribution services in northern Delaware.

•

ACE, whose business consists of the purchase and regulated retail sale of electricity and the provision of electricity transmission and distribution services in southern New Jersey.

Pepco, DPL and ACE are operating companies of PHI, which is a utility services holding company and a wholly owned subsidiary of Exelon.

Exelon has twelve reportable segments consisting of Generation’s six reportable segments (Mid-Atlantic, Midwest, New England, New York, ERCOT and Other Power Regions in Generation), ComEd, PECO, BGE and PHI’s three utility reportable segments (Pepco, DPL and ACE). See Note 19 — Segment Information of the Combined Notes to Consolidated Financial Statements for additional information regarding Exelon’s reportable segments.

Through its business services subsidiary BSC, Exelon provides its operating subsidiaries with a variety of support services at cost. The costs of these services are directly charged or allocated to the applicable operating segments. Additionally, the results of Exelon’s corporate operations include costs for corporate governance and interest costs and income from various investment and financing activities.

PHI Service Company, a wholly owned subsidiary of PHI, provides a variety of support services at cost, including legal, accounting, engineering, distribution and transmission planning, asset management, system operations, and power procurement, to PHI and its operating subsidiaries. These services are directly charged or allocated pursuant to service agreements among PHI Service Company and the participating operating subsidiaries.

177

Exelon’s consolidated financial information includes the results of its eight separate operating subsidiary registrants, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE, which, along with Exelon, are collectively referred to as the Registrants. The following combined Management’s Discussion and Analysis of Financial Condition and Results of Operations is separately filed by Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE. However, none of the Registrants makes any representation as to information related solely to any of the other Registrants.

Financial Results of Operations

GAAP Results of Operations

The following table sets forth Exelon’s GAAP consolidated results of operations for the three months ended March 31, 2017 compared to the same period in 2016. The 2016 amounts include the operations of PHI, Pepco, DPL and ACE from March 24, 2016 through March 31, 2016. All amounts presented below are before the impact of income taxes, except as noted.


	Three Months Ended March 31,																								Favorable (Unfavorable) Variance
	2017																					2016
	Generation			ComEd			PECO			BGE			PHI			Other			Exelon			Exelon^(b)
Operating revenues	$	4,888		$	1,298		$	796		$	951		$	1,175		$	(351	)	$	8,757		$	7,573		$	1,184
Purchased power and fuel expense		2,798			334			287			350			461			(331	)		3,899			3,254			(645	)

Revenue net of purchased power and fuel expense^(a)		2,090			964			509			601			714			(20	)		4,858			4,319			539

Other operating expenses
Operating and maintenance		1,488			370			208			183			256			(45	)		2,460			2,835			375
Depreciation and amortization		302			208			71			128			167			20			896			685			(211	)
Taxes other than income		143			72			38			62			111			10			436			325			(111	)

Total other operating expenses		1,933			650			317			373			534			(15	)		3,792			3,845			53
Gain on sales of assets		4			—			—			—			—			—			4			9			(5	)
Bargain purchase gain		226			—			—			—			—			—			226			—			226

Operating income (loss)		387			314			192			228			180			(5	)		1,296			483			813

Other income and (deductions)
Interest expense, net		(100	)		(85	)		(31	)		(27	)		(62	)		(68	)		(373	)		(287	)		(86	)
Other, net		259			4			2			4			13			1			283			114			169

Total other income and (deductions)		159			(81	)		(29	)		(23	)		(49	)		(67	)		(90	)		(173	)		83

Income (loss) before income taxes		546			233			163			205			131			(72	)		1,206			310			896
Income taxes		127			92			36			80			(9	)		(111	)		215			184			(31	)
Equity in losses of unconsolidated affiliates		(10	)		—			—			—			—			—			(10	)		(3	)		(7	)

Net income		409			141			127			125			140			39			981			123			858
Net loss attributable to noncontrolling interests and preference stock dividends		(14	)		—			—			—			—			—			(14	)		(50	)		(36	)

Net income attributable to common shareholders	$	423		$	141		$	127		$	125		$	140		$	39		$	995		$	173		$	822

(a)	The Registrants evaluate operating performance using the measure of revenues net of purchased power and fuel expense. The Registrants believe that revenues net of purchased power and fuel expense is a useful measurement because it

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provides information that can be used to evaluate their operational performance. Revenues net of purchased power and fuel expense is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

(b)	As a result of the PHI Merger, Exelon includes the consolidated results of PHI, Pepco, DPL and ACE from March 24, 2016 through March 31, 2016.

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Exelon’s net income attributable to common shareholders was $995 million for the three months ended March 31, 2017 as compared to $173 million for the three months ended March 31, 2016, and diluted earnings per average common share were $1.07 for the three months ended March 31, 2017 as compared to $0.19 for the three months ended March 31, 2016.

Revenue net of purchased power and fuel expense, which is a non-GAAP measure discussed below, increased by $539 million for the three months ended March 31, 2017 as compared to the same period in 2016. The year-over-year increase in revenue net of purchased power and fuel expense was primarily due to the following favorable factors:

•

Increase of $63 million at ComEd primarily due to revenue decoupling impacts, increased capital investment, increased depreciation expense and higher allowed ROE due to an increase in treasury rates;

•

Increase of $45 million at BGE primarily due to increased distribution revenue as a result of electric and natural gas rates increases effective in June 2016; and

•

Increase of $647 million in revenue net of purchased power and fuel due to the inclusion of PHI’s results for the three months ended March 31, 2017 compared to the period March 24, 2016 to March 31, 2016.

The year-over-year increase in revenue net of purchased power and fuel expense was partially offset by the following factors:

•

Decrease of $152 million at Generation due to mark-to-market losses of $49 million in 2017 from economic hedging activities as compared to gains of $103 million in 2016; and

•

Decrease of $55 million at Generation primarily due to the impacts of declining natural gas prices on Generation’s natural gas portfolio, decreased capacity prices and lower realized energy prices, partially offset by the impact of the Ginna Reliability Support Services Agreement and the absence of oil inventory write downs in 2017.

Operating and maintenance expense decreased by $375 million for the three months ended March 31, 2017 as compared to the same period in 2016 primarily due to the following favorable factors:

•

Decrease of $141 million at Corporate due to merger commitments of $1 million in 2017 compared to $142 million in 2016;

•

Decrease of $109 million at Generation due to long-lived asset impairments of $10 million in 2017 compared to $119 million in 2016;

•

Decrease of $34 million at Corporate due to the absence of certain merger and integration costs in 2017 compared to $34 million in 2016;

•

Decrease of $12 million at BGE due to lower incremental storm costs in the first quarter of 2017 compared to the first quarter of 2016; and

•

Decrease of $425 million at PHI primarily due to the deferral of previously expensed merger-related costs of $6 million for the three months ended March 31, 2017 compared to merger commitment and other merger-related costs of $419 million for the period March 24, 2016 to March 31, 2016.

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The year-over-year decrease in operating and maintenance expense was partially offset by the following unfavorable factors:

•

Increase in Generation’s labor, contracting and materials cost of $95 million primarily due to increased merger and integration costs, the inclusion of Pepco Energy Services results for the three months ended March 31, 2017 compared to the period March 24, 2016 to March 31, 2016 and increased contracting costs related to energy efficiency projects; and

•

Increase of $28 million at Generation due to increased nuclear outage costs; and

•

Increase of $232 million, exclusive of merger-related costs discussed above, in operating and maintenance expense due to the inclusion of PHI’s results for the three months ended March 31, 2017 compared to the period March 24, 2016 to March 31, 2016.

Depreciation and amortization expense increased by $211 million primarily due to increased depreciation expense as a result of ongoing capital expenditures across all operating companies and the inclusion of PHI’s results for the three months ended March 31, 2017 compared to the period March 24, 2016 to March 31, 2016.

Taxes other than income increased by $111 million primarily due to increased property and utility taxes as a result of the inclusion of PHI’s results for the three months ended March 31, 2017 compared to the period March 24, 2016 to March 31, 2016.

Bargain purchase gain increased by $226 million due to the gain associated with the FitzPatrick acquisition.

Interest expense, net increased by $86 million primarily due to higher outstanding debt and the inclusion of PHI’s results for the three months ended March 31, 2017 compared to the period March 24, 2016 to March 31, 2016.

Other, net increased by $169 million primarily due to the change in realized and unrealized gains and losses on NDT funds at Generation.

Exelon’s effective income tax rates for the three months ended March 31, 2017 and 2016 were 17.8% and 59.4%, respectively. See Note 11 — Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the effective income tax rates.

For further detail regarding the financial results for the three months ended March 31, 2017, including explanation of the non-GAAP measure revenue net of purchased power and fuel expense, see the discussions of Results of Operations by Segment below.

Adjusted (non-GAAP) Operating Earnings

Exelon’s adjusted (non-GAAP) operating earnings for the three months ended March 31, 2017 were $605 million, or $0.65 per diluted share, compared with adjusted (non-GAAP) operating earnings of $632 million, or $0.68 per diluted share for the same period in 2016. In addition to net income, Exelon evaluates its operating performance using the measure of adjusted (non-GAAP) operating earnings because management believes it represents earnings directly related to the ongoing operations of the business. Adjusted (non-GAAP) operating earnings exclude certain costs, expenses, gains and losses and other specified items. This information is intended to enhance an investor’s overall understanding of period-over-period operating results and provide an indication of Exelon’s baseline operating performance excluding items that are considered by management to be not directly related to the ongoing operations of the business. In addition, this information is among the primary indicators management uses as a basis for evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting of future periods. Adjusted (non-GAAP) operating earnings is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

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The following table provides a reconciliation between net income attributable to common shareholders as determined in accordance with GAAP and adjusted (non-GAAP) operating earnings for the three months ended March 31, 2017 as compared to the same period in 2016. The footnotes below the table provide tax expense (benefit) impacts:


	Three Months Ended March 31,
	2017						2016
(All amounts after tax)				Earnings per Diluted Share						Earnings per Diluted Share
Net Income Attributable to Common Shareholders	$	995		$	1.07		$	173		$	0.19
Mark-to-Market Impact of Economic Hedging Activities^(a)		30			0.03			(64	)		(0.07	)
Unrealized (Gains) Related to NDT Fund Investments^(b)		(99	)		(0.10	)		(31	)		(0.03	)
Merger and Integration Costs^(c)		25			0.03			76			0.08
Merger Commitments^(d)		(137	)		(0.15	)		394			0.42
Long-Lived Asset Impairments^(e)		—			—			71			0.07
Amortization of Commodity Contract Intangibles^(f)		3			—			(12	)		(0.01	)
Cost Management Program^(g)		4			—			14			0.02
Tax Settlements^(h)		(5	)		(0.01	)		—			—
Reassessment of State Deferred Income Taxes⁽ⁱ⁾		(20	)		(0.02	)		—			—
Bargain Purchase Gain^(j)		(226	)		(0.24	)		—			—
CENG Noncontrolling Interests^(k)		35			0.04			11			0.01

Adjusted (non-GAAP) Operating Earnings	$	605		$	0.65		$	632		$	0.68

(a)

Reflects the impact of net losses (gains) for the three months ended March 31, 2017 and 2016 (net of taxes of $19 million and $39 million, respectively), on Generation’s economic hedging activities. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional detail related to Generation’s hedging activities.

(b)

Reflects the impact of net unrealized (gains) losses for the three months ended March 31, 2017 and 2016 (net of taxes of $65 million and $19 million, respectively) on Generation’s NDT fund investments for Non-Regulatory Agreement Units. See Note 12 — Nuclear Decommissioning of the Combined Notes to Consolidated Financial Statements for additional detail related to Generation’s NDT fund investments.

(c)

Reflects certain costs incurred for the PHI acquisition for the three months ended March 31, 2017 and 2016 (net of taxes of $3 million and $26 million, respectively), and the FitzPatrick acquisition for the three months ended March 31, 2017 (net of taxes of $12 million), including professional fees, employee-related expenses, integration activities and upfront credit facilities fees. See Note 4 — Mergers, Acquisitions and Dispositions of the Combined Notes to Consolidated Financial Statements for additional detail related to merger and acquisition costs.

(d)

Represents a decrease in reserves for uncertain tax positions related to the deductibility of certain merger commitments associated with the 2012 CEG and 2016 PHI acquisitions for the three months ended March 31, 2017, and costs and adjustments incurred as part of the settlement orders approving the PHI acquisition for the three months ended March 31, 2016 (net of taxes of $114 million). See Note 4 — Mergers, Acquisitions and Dispositions of the Combined Notes to Consolidated Financial Statements for additional detail related to PHI Merger commitments.

(e)	Reflects the impairment of Upstream assets at Generation for the three months ended March 31, 2016 (net of taxes of $49 million).

(f)

Reflects the non-cash impact for the three months ended March 31, 2017 and 2016 (net of taxes of $2 million and $7 million, respectively), of the amortization of intangible assets, net, primarily related to commodity contracts recorded at fair value for the Integrys acquisition in 2016 and the ConEdison Solutions acquisition in 2017.

(g)	Reflects reorganization costs, and in 2016 severance costs, related to a cost management program for the three months ended March 31, 2017 and 2016 (net of taxes of $3 million and $9 million, respectively).

(h)	Reflects benefits related to the favorable settlement of certain income tax positions related to PHI’s unregulated business interests for the three months ended March 31, 2017.

(i)	Reflects the non-cash impact of the remeasurement of state deferred income taxes, primarily as a result of changes in forecasted apportionment related to the PHI acquisition in 2016 and a change in the statutory tax rate in 2017.

(j)	Represents the excess of the fair value of assets and liabilities acquired over the purchase price for the FitzPatrick acquisition.

(k)	Represents Generation’s noncontrolling interest related to CENG exclusion items, primarily related to the impact of unrealized gains and losses on NDT fund investments and mark-to-market activity.

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Merger and Acquisition Costs

On March 23, 2016, the Exelon and PHI Merger was completed. On the merger date, PHI shareholders received $27.25 of cash in exchange for each share of PHI common stock. The resulting company retained the Exelon name and is headquartered in Chicago.

As a result of the PHI Merger, Exelon has incurred costs associated with evaluating, structuring and executing the PHI Merger transaction itself, and will continue to incur cost associated with meeting the various commitments set forth by regulators and agreed-upon with other interested parties as part of the merger approval process, and integrating the former PHI businesses into Exelon.

For the three months ended March 31, 2017 and 2016, expense has been recognized for the PHI Merger and FitzPatrick acquisition as follows:


	Pre-tax Expense
	Three Months Ended March 31, 2017
Merger, Integration and Acquisition Costs:	Exelon		Generation		ComEd		PECO		BGE		PHI			Pepco		DPL			ACE
Transaction^(b)	$	1	$	1	$	—	$	—	$	—	$	—		$	—	$	—		$	—
Other^(d)		40		41		—		1		2		(5	)		1		(7	)		1

Total	$	41	$	42	$	—	$	1	$	2	$	(5	)	$	1	$	(7	)	$	1


	Pre-tax Expense
	Three Months Ended March 31, 2016
Merger and Integration Costs:	Exelon^(a)			Generation^(a)		ComEd			PECO		BGE		PHI^(a)		Pepco^(a)		DPL^(a)		ACE^(a)
Transaction^(b)	$	35		$	—	$	—		$	—	$	—	$	—	$	—	$	—	$	—
Employee-Related^(c)		71			12		1			1		1		56		27		16		13
Other^(d)		(4	)		4		(9	)		1		1		—		—		—		—

Total	$	102		$	16	$	(8	)	$	2	$	2	$	56	$	27	$	16	$	13

(a)	For Exelon, Generation, PHI, Pepco, DPL, and ACE, includes the operations of the acquired businesses beginning on March 24, 2016.

(b)	External, third party costs paid to advisors, consultants, lawyers and other experts to assist in the due diligence and regulatory approval processes and in the closing of transactions.

(c)	Costs primarily for employee severance, pension and OPEB expense and retention bonuses.

(d)

Costs to integrate PHI processes and systems into Exelon. For the three months ended March 31, 2017, also includes costs to integrate FitzPatrick processes and systems into Exelon. For the three months ended March 31, 2016, also includes the reversal of previously incurred acquisition, integration and financing costs of $9 million incurred at ComEd that have been deferred and recorded as a regulatory asset for anticipated recovery. See Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for more information.

As of March 31, 2017, Exelon expects to incur total PHI acquisition and integration related costs of approximately $700 million, excluding merger commitments. Of this amount, including costs incurred from 2014 through March 31, 2017, Exelon and PHI have incurred approximately $640 million. Included in this amount are costs to fund the merger of which $76 million has been expensed, $56 million has been paid and recorded as deferred debt issuance costs and $60 million has been incurred and charged to common stock. The remaining costs will be primarily within Operating and maintenance expense within Exelon’s Consolidated Statements of Operations and Comprehensive Income and will also include approximately $25 million for integration costs expected to be capitalized to Property, plant and equipment.

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Significant 2017 Transactions and Developments

Acquisition of James A. FitzPatrick Nuclear Generating Station

On March 31, 2017, Generation acquired the 838 MW single-unit James A. FitzPatrick (FitzPatrick) nuclear generating station for a total purchase price of $293 million. In accounting for the acquisition as a business combination, Exelon and Generation recorded an after-tax bargain purchase gain of $226 million which is included within Exelon’s and Generation’s Consolidated Statements of Operations and Comprehensive Income. See Note 4 — Mergers, Acquisitions and Dispositions of the Combined Notes to the Consolidated Financial Statements for additional information regarding the Generation’s acquisition of Fitzpatrick and related costs.

Generation Renewables Joint Venture Transaction

On March 31, 2017, ExGen Renewables Holdings, LLC, a wholly-owned subsidiary of Generation, entered into an arrangement to sell 49% of its sole membership interest of ExGen Renewables Partners, LLC, a newly formed owner and operator of approximately 1,296 megawatts of Generation’s operating wind and solar electric generating facilities. This portfolio consists of 30 different projects located in 13 states and represents approximately 34.9% of Generation’s renewable generation assets and 4.0% of Generation’s total generation assets. The purchase price is $400 million, subject to certain working capital and other post-closing adjustments. These proceeds, net of approximately $115 million of income taxes on the sale, will be used by Generation to pay down debt and for general corporate purposes. Upon consummation of the transaction, ExGen Renewables Holdings will be the managing member and have day-to-day control and management over the joint venture and its renewable generation portfolio. Consummation of the transaction is expected in the late second quarter or early third quarter and is subject to various customary closing conditions, including receipt of regulatory approvals from the Federal Energy Regulatory Commission and Public Utility Commission of Texas.

Distribution Formula Rate

On April 13, 2017, ComEd filed its annual distribution formula rate with the ICC pursuant to EIMA. The filing establishes the revenue requirement used to set the rates that will take effect in January 2018 after the ICC’s review and approval, which is due by December 2017. The revenue requirement requested is based on 2016 actual costs plus projected 2017 capital additions as well as an annual reconciliation of the revenue requirement in effect in 2016 to the actual costs incurred that year. ComEd’s 2017 filing request includes a total increase to the revenue requirement of $96 million, reflecting an increase of $78 million for the initial revenue requirement for 2017 and a increase of $18 million related to the annual reconciliation for 2016. See Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for further information related to distribution formula rate updates.

Illinois Future Energy Jobs Act

On December 7, 2016, FEJA was signed into law by the Governor of Illinois. FEJA is effective June 1, 2017, and includes, among other provisions, (1) a ZES providing compensation for certain nuclear-powered generating facilities, (2) an extension of and certain adjustments to ComEd’s electric distribution formula rate, (3) new cumulative persisting annual energy efficiency MWh savings goals for ComEd, (4) revisions to the Illinois RPS requirements, (5) provisions for adjustments to or termination of FEJA programs if the average impact on ComEd’s customer rates exceeds specified limits, (6) revisions to the existing net metering statute to (i) mandate net metering for community generation projects, and establish billing procedures for subscribers to those projects, (ii) provide immediately for netting at the energy-only rate for nonresidential customers, and (iii) transition from netting at the full retail rate to the energy-only rate for certain residential net metering customers once the net meter customer load equals 5% of total peak demand supplied in the previous year and (7) support for low income rooftop and community solar programs. FEJA establishes new or adjusts existing rate recovery mechanisms for ComEd to recover costs associated with the new or expanded energy efficiency and RPS requirements. Regulatory or legal challenges over the validity of FEJA are possible. See Note 5 — Regulatory Matters of the Combined Notes to the Consolidated Financial Statements for additional

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information regarding FEJA. See Note 7 — Early Nuclear Plant Retirements of the Combined Notes to the Consolidated Financial Statements for the impacts of ZES on Generation’s Consolidated Balance Sheets and Consolidated Statements of Operations and Comprehensive Income.

Pepco Maryland Electric Distribution Rates

On March 24, 2017, Pepco filed an application with the MDPSC requesting an increase of $69 million based on a ROE of 10.1%. The application includes a request for an income tax adjustment to reflect full normalization of removal costs associated with pre-1981 property, which accounts for $18 million of the requested increase. Pepco expects a decision in the matter in the fourth quarter of 2017, but cannot predict how much of the requested rate increase the MDPSC will approve or if it will approve the requested income tax adjustment.

DPL Maryland Electric Distribution Rates

On February 15, 2017, the MDPSC approved an increase in DPL electric distribution rates of $38 million based on a ROE of 9.6%. The new rates became effective for services rendered on or after February 15, 2017. The MDPSC also denied DPL’s request to continue its Grid Resiliency Program, through which DPL proposed to invest $4.6 million a year for two years to improve priority feeders and install single-phase reclosing fuse technology. The final order did not result in the recognition of any incremental regulatory assets or liabilities during the first quarter of 2017.

DPL Delaware Electric and Natural Gas Distribution Rates

On March 8, 2017, DPL entered into a settlement agreement with the Division of the Public Advocate, Delaware Electric Users Group and the DPSC Staff in its electric distribution rate proceeding, which provides for an increase in DPL electric distribution rates of $31.5 million based on an ROE of 9.7%. The settlement agreement also provides that the rates currently in effect, as approved by the DPSC, effective July 16, 2016 and December 17, 2016, will remain in effect until the date of the final DPSC order and that no refund will be required. As a result, during the first quarter of 2017, DPL established a regulatory asset of $8 million for costs incurred to achieve the merger and reversed a regulatory liability of $1 million for electric revenues that are no longer subject to refund which resulted in an increase in net income of $5 million. DPL currently expects a final order on the settlement agreement during the second quarter of 2017.

On April 6, 2017, DPL entered into a settlement agreement with the Division of the Public Advocate and the DPSC Staff in its natural gas distribution rate proceeding, which provides for an increase in DPL natural gas distribution rates of $4.9 million based on an ROE of 9.7%. The settlement agreement also provides that DPL will refund amounts in excess of the $4.9 million increase collected under the temporary rates effective July 16, 2016 and December 17, 2016, and that the new rates will be effective within thirty days of DPSC approval of the settlement agreement. In the event that the final order reflects the settlement agreement, DPL does not expect the impact to be material to its financial statements. DPL currently expects a final order on the settlement agreement during the second quarter of 2017.

ACE New Jersey Electric Distribution Rates

On March 30, 2017, ACE submitted an application with the NJBPU to increase its electric distribution rates by approximately $70 million (before New Jersey sales and use tax), based upon a requested ROE of 10.1%. The application also requests approval of a rate surcharge mechanism called the “System Renewal Recovery Charge,” which would permit accelerated recovery of certain costs associated with reliability and system renewal-related capital investments. ACE currently expects a decision in this matter in the first quarter of 2018, but cannot predict if the NJBPU will approve the application as filed.

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Transmission Formula Rate

The following total increases/(decreases) were included in ComEd’s and BGE’s electric transmission formula rate filings:


	2017
Annual Transmission Filings^(a)	ComEd			BGE
Initial revenue requirement increase	$	44		$	31
Annual reconciliation (decrease) increase		(33	)		3
Dedicated facilities decrease^(b)		—			(8	)

Total revenue requirement increase	$	11		$	26

Allowed return on rate base^(c)		8.43	%		7.47	%
Allowed ROE^(d)		11.50	%		10.50	%

(a)	All rates are effective June 2017, subject to review by the FERC and other parties, which is due by fourth quarter 2017.

(b)	BGE’s transmission revenues include a FERC approved dedicated facilities charge to recover the costs of providing transmission service to specifically designated load by BGE.

(c)	Represents the weighted average debt and equity return on transmission rate bases.

(d)

PECO Transmission Formula Rate

On May 1, 2017, PECO filed a request with FERC seeking approval to update its transmission rates and change the manner in which PECO’s transmission rate is determined from a fixed rate to a formula rate. The formula rate would be updated annually to ensure that under this rate customers pay the actual costs of providing transmission services. The formula rate filing includes a requested increase of $22 million to PECO’s annual transmission revenues and a requested rate of return on common equity of 11%, inclusive of a 50 basis point adder for being a member of a regional transmission organization. PECO requested that the new transmission rate be effective as of July 2017. PECO cannot predict how much, if any, of a transmission rate increase FERC may approve or when the rate increase may go into effect.

Westinghouse Electric Company LLC Bankruptcy

On March 29, 2017, Westinghouse Electric Company LLC (Westinghouse) and its affiliated debtors filed petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. In the petitions and supporting documents, Westinghouse makes clear that its requests for relief center on one business area that is losing money — the construction of nuclear power plants in Georgia and South Carolina. Through the bankruptcy, Westinghouse seeks to reorganize around its profitable core business, which includes nuclear fuel fabrication and related services and other services provided to existing nuclear power plants in the U.S. and around the world. For these reasons, at this time, Generation does not anticipate disruption to the Westinghouse fuel fabrication contracts for Braidwood, Byron, or Ginna or other existing contracts for Generation’s nuclear power plants. Generation is monitoring the bankruptcy proceeding to ensure that its rights are protected.

Merger Commitment Unrecognized Tax Benefits

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2016. In the first quarter 2017, as a part of its examination of Exelon’s return, the IRS National Office issued guidance concurring with Exelon’s position that the merger commitments were deductible. As a result, Exelon, Generation, PHI, Pepco, DPL, and ACE decreased their liability for unrecognized tax benefits by $146 million, $19 million, $59 million, $21 million, $16 million, and $22 million, respectively, as of March 31, 2017, resulting in a benefit to Income taxes on Exelon’s, Generation’s, PHI’s, Pepco’s, DPL’s and ACE’s Consolidated Statements of Operations and Comprehensive Income and corresponding decreases in their effective tax rates.

EGTP Consent Agreement

In September 2014, EGTP, an indirect subsidiary of Exelon and Generation, issued $675 million aggregate principal amount of a nonrecourse senior secured term loan. On May 2, 2017, EGTP entered into a consent agreement with its lenders to permit EGTP to draw on its revolving credit facility and initiate an orderly sales process to sell the assets of its wholly-owned subsidiaries, the proceeds from which will first be used to pay the administrative costs of administering the sale, the normal and ordinary costs of operating the plants and repayment of the secured debt of EGTP, including the revolving credit facility. As a result, in the second quarter, Exelon and Generation will reclassify certain EGTP’s assets and liabilities on Exelon’s and Generation’s Consolidated Balance Sheets as held for sale at their respective fair values. Exelon and Generation estimate a pre-tax impairment charge upon reclassification ranging from $300 million to $400 million will be recognized in the second quarter of 2017. See Note 10 — Debt and Credit Agreements and Note 20 — Subsequent Events for additional information regarding EGTP and the associated nonrecourse debt.

Exelon’s Strategy and Outlook for 2017 and Beyond

Exelon’s value proposition and competitive advantage come from its scope and its core strengths of operational excellence and financial discipline. Exelon leverages its integrated business model to create value. Exelon’s regulated and competitive businesses feature a mix of attributes that, when combined, offer shareholders and customers a unique value proposition:

•

Exelon’s utilities provide a foundation for steadily growing earnings, which translates to a stable currency in our stock.

•

Generation’s competitive businesses provide free cash flow to invest primarily in the utilities and in long-term, contracted assets and to reduce debt.

Exelon believes its strategy provides a platform for optimal success in an energy industry experiencing fundamental and sweeping change.

Exelon’s utility strategy is to improve reliability and operations and enhance the customer experience, while ensuring ratemaking mechanisms provide the utilities fair financial returns. The Exelon utilities only invest in rate base where it provides a benefit to customers and the community by improving reliability and the service experience or otherwise meeting customer needs. The Exelon utilities make these investments at the lowest reasonable cost to customers. Exelon seeks to leverage its scale and expertise across the utilities platform through enhanced standardization and sharing of resources and best practices to achieve improved operational and financial results. Additionally, the Utility Registrants anticipate making significant future investments in smart meter technology, transmission projects, gas infrastructure, and electric system improvement projects, providing greater reliability and improved service for our customers and a stable return for the company.

Generation’s competitive businesses create value for customers by providing innovative energy solutions and reliable, clean and affordable energy. Generation’s electricity generation strategy is to pursue opportunities that provide stable revenues and generation to load matching to reduce earnings volatility. Generation leverages its energy generation portfolio to deliver energy to both wholesale and retail customers. Generation’s customer-facing activities foster development and delivery of other innovative energy-related products and services for its customers. Generation operates in well-developed energy markets and employs an integrated hedging strategy to manage commodity price volatility. Its generation fleet, including its nuclear plants which consistently operate at

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high capacity factors, also provide geographic and supply source diversity. These factors help Generation mitigate the current challenging conditions in competitive energy markets.

Exelon’s financial priorities are to maintain investment grade credit metrics at each of the Registrants, to maintain optimal capital structure and to return value to Exelon’s shareholders with an attractive dividend throughout the energy commodity market cycle and through stable earnings growth. Exelon’s Board of Directors has approved a dividend policy providing a raise of 2.5% each year for three years, beginning with the June 2016 dividend.

Various market, financial, regulatory, legislative and operational factors could affect the Registrants’ success in pursuing their strategies. Exelon continues to assess infrastructure, operational, commercial, policy, and legal solutions to these issues. See ITEM 1A. RISK FACTORS of the Exelon 2016 Form 10-K for additional information regarding market and financial factors.

Continually optimizing the cost structure is a key component of Exelon’s financial strategy. Through a recent focused cost management program, the company has committed to reducing operation and maintenance expenses and capital costs by approximately $350 million and $50 million, respectively, of which approximately 35% of run-rate savings was achieved by the end of 2016. Approximately 60% of run-rate savings are expected to be achieved by the end of 2017 and fully realized in 2018. At least 75% of the savings are expected to be related to Generation, with the remaining amount related to the Utility Registrants.

Growth Opportunities

Management continually evaluates growth opportunities aligned with Exelon’s businesses, assets and markets, leveraging Exelon’s expertise in those areas and offering sustainable returns.

Regulated Energy Businesses. The PHI merger provides an opportunity to accelerate Exelon’s regulated growth to provide stable cash flows, earnings accretion, and dividend support. Additionally, the Utility Registrants anticipate investing approximately $25 billion over the next five years in electric and natural gas infrastructure improvements and modernization projects, including smart meter and smart grid initiatives, storm hardening, advanced reliability technologies, and transmission projects, which is projected to result in an increase to current rate base of approximately $9 billion by the end of 2021. The Utility Registrants invest in rate base where beneficial to customers and the community by increasing reliability and the service experience or otherwise meeting customer needs. These investments are made at the lowest reasonable cost to customers.

See Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information on the Smart Meter and Smart Grid Initiatives and infrastructure development and enhancement programs.

Competitive Energy Businesses. Generation continually assesses the optimal structure and composition of its generation assets as well as explores wholesale and retail opportunities within the power and gas sectors. Generation’s long-term growth strategy is to prioritize investments in long-term contracted generation across multiple technologies and identify and capitalize on opportunities that provide generation to load matching as a means to provide stable earnings, while identifying emerging technologies where strategic investments provide the option for significant future growth or influence in market development. As of March 31, 2017, Generation has currently approved plans to invest a total of approximately $600 million over the next two years to complete new plant construction currently in progress.

Liquidity Considerations

Each of the Registrants annually evaluates its financing plan, dividend practices and credit line sizing, focusing on maintaining its investment grade ratings while meeting its cash needs to fund capital requirements, retire debt, pay dividends, fund pension and OPEB obligations and invest in new and existing ventures. A broad spectrum of financing alternatives beyond the core financing options can be used to meet its needs and fund growth including monetizing assets in the portfolio via project financing, asset sales, and the use of other

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financing structures (e.g., joint ventures, minority partners, etc.). The Registrants expect cash flows to be sufficient to meet operating expenses, financing costs and capital expenditure requirements.

Exelon, Generation, ComEd, PECO, BGE, Pepco, DPL and ACE have unsecured syndicated revolving credit facilities with aggregate bank commitments of $0.6 billion, $5.3 billion, $1 billion, $0.6 billion, $0.6 billion, $0.3 billion, $0.3 billion and $0.3 billion, respectively. Generation also has bilateral credit facilities with aggregate maximum availability of $0.5 billion. See Liquidity and Capital Resources — Credit Matters — Exelon Credit Facilities below.

For further detail regarding the Registrants’ liquidity for the three months ended March 31, 2017, see Liquidity and Capital Resources discussion below.

Project Financing

Generation utilizes individual project financings as a means to finance the construction of various generating asset projects. Project financing is based upon a nonrecourse financial structure, in which project debt and equity used to finance the project are paid back from the cash generated by the newly constructed asset once operational. Borrowings under these agreements are secured by the assets and equity of each respective project. The lenders do not have recourse against Exelon or Generation in the event of a default. If a specific project financing entity does not maintain compliance with its specific debt financing covenants, there could be a requirement to accelerate repayment of the associated debt or other project-related borrowings earlier than the stated maturity dates. In these instances, if such repayment was not satisfied, or restructured, the lenders or security holders would generally have rights to foreclose against the project-specific assets and related collateral. The potential requirement to satisfy its associated debt or other borrowings earlier than otherwise anticipated could lead to impairments due to a higher likelihood of disposing of the respective project-specific assets significantly before the end of their useful lives. See Note 10 — Debt and Credit Agreements of the Combined Notes to the Consolidated Financial Statements for additional information on nonrecourse debt.

Other Key Business Drivers and Management Strategies

Utility Rates and Rate Proceedings

The Utility Registrants file rate cases with their regulatory commissions seeking increases or decreases to their electric transmission and distribution, and gas distribution rates to recover their costs and earn a fair return on their investments. The outcomes of these regulatory proceedings impact the Utility Registrants’ current and future results of operations, cash flows and financial position. See Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for further details on these regulatory proceedings.

Power Markets

Price of Fuels

The use of new technologies to recover natural gas from shale deposits is increasing natural gas supply and reserves, which places downward pressure on natural gas prices and, therefore, on wholesale and retail power prices, which results in a reduction in Exelon’s revenues. Forward natural gas prices have declined significantly over the last several years; in part reflecting an increase in supply due to strong natural gas production (due to shale gas development).

Capacity Market Changes in PJM

In the wake of the January 2014 Polar Vortex that blanketed much of the Eastern and Midwestern United States, it became clear that while a major outage event was narrowly avoided, resources in PJM were not providing the level of reliability expected by customers. As a result, on December 12, 2014, PJM filed at FERC a proposal to make significant changes to its current capacity market construct, the Reliability Pricing Model (RPM). PJM’s proposed changes generally sought to improve resource performance and reliability largely by

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limiting the excuses for non-performance and by increasing the penalties for performance failures. The proposal permits suppliers to include in capacity market offers additional costs and risk so they can meet these higher performance requirements. While offers are expected to put upward pressure on capacity clearing prices, operational improvements made as a result of PJM’s proposal are expected to improve reliability, to reduce energy production costs as a result of more efficient operations and to reduce the need for out of market energy payments to suppliers. Generation participated actively in PJM’s stakeholder process through which PJM developed the proposal and also actively participated in the FERC proceeding including filing comments. On June 9, 2015, FERC approved PJM’s filing largely as proposed by PJM, including transitional auction rules for delivery years 2016/2017 through 2017/2018. As a result of this and several related orders, PJM hosted its 2018/2019 Base Residual Auction (results posted on August 21, 2015) and its transitional auction for delivery year 2016/2017 (results posted on August 31, 2015) and its transitional auction for delivery years 2017/2018 (results posted on September 9, 2015). On May 10, 2016, FERC largely denied rehearing, and a number of parties appealed to the U.S. Court of Appeals for the DC Circuit for review of the decision. It is too early in the process to predict the appeal outcome.

MISO Capacity Market Results

On April 14, 2015, the Midcontinent Independent System Operator (MISO) released the results of its capacity auction covering the June 2015 through May 2016 delivery year. As a result of the auction, capacity prices for the zone 4 region in downstate Illinois increased to $150 per MW per day beginning in June 2015, an increase from the prior pricing of $16.75 per MW per day that was in effect from June 2014 to May 2015. Generation had an offer that was selected in the auction. However, due to Generation’s ratable hedging strategy, the results of the capacity auction have not had a material impact on Exelon’s and Generation’s consolidated results of operations and cash flows.

Additionally, in late May and June 2015, separate complaints were filed at the FERC by each of the State of Illinois, the Southwest Electric Cooperative, Public Citizens, Inc., and the Illinois Industrial Energy Consumers challenging the results of this MISO capacity auction for the 2015/2016 delivery in MISO delivery zone 4. The complaints allege generally that 1) the results of the capacity auction for zone 4 are not just and reasonable, 2) the results should be suspended, set for hearing and replaced with a new just and reasonable rate, 3) a refund date should be established and that 4) certain alleged behavior by one of the market participants other than Exelon or Generation, be investigated.

On October 1, 2015, FERC announced that it was conducting a non-public investigation (that does not involve Exelon or Generation) into whether market manipulation or other potential violations occurred related to the auction. On December 31, 2015, FERC issued a decision that certain of the rules governing the establishment of capacity prices in downstate Illinois are “not just and reasonable” on a prospective basis. FERC ordered that certain rules be changed prior to the April 2016 auction which set capacity prices for the 2016/2017 planning year. In response to this order, MISO filed certain rule changes with FERC. On March 18, 2016, FERC largely denied rehearing of its December 31, 2015 order. FERC continues to conduct its non-public investigation to determine if the April 2015 auction results were manipulated and, if so, whether refunds are appropriate. FERC did establish May 28, 2015, the day the first complaint was filed, as the date from which refunds (if ordered) would be calculated, and it also made clear that the findings in the December 31, 2015 order do not prejudge the investigation or related proceedings. Generation cannot predict the impact the FERC order may ultimately have on future auction results, capacity pricing or decisions related to the potential early retirement of the Clinton nuclear plant, however, such impacts could be material to Generation’s future results of operations and cash flows. See Note 7 — Early Nuclear Plant Retirements of the Combined Notes to the Consolidated Financial Statements for additional information on the impacts of the MISO announcement.

Subsidized Generation

The rate of expansion of subsidized generation, in the markets in which Generation’s output is sold can negatively impact wholesale power prices, and in turn, Generation’s results of operations.

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Various states have attempted to implement or propose legislation, regulations or other policies to subsidize new generation development which may result in artificially depressed wholesale energy and capacity prices. For example, the New Jersey legislature enacted into law in January 2011, the Long Term Capacity Pilot Program Act (LCAPP). LCAPP provides eligible generators with 15-year fixed contracts for the sale of capacity in the PJM capacity market. Under LCAPP, the local utilities in New Jersey are required to pay (or receive) the difference between the price eligible generators receive in the capacity market and the price guaranteed under the 15-year contract. New Jersey ultimately selected three proposals to participate in LCAPP and build new generation in the state. In addition, on April 12, 2012, the MDPSC issued an order directing the Maryland electric utilities to enter into a 20-year contract for differences (CfD) with CPV Maryland, LLC (CPV), under which CPV was required to construct an approximately 700 MW combined cycle gas turbine in Waldorf, Maryland. The CfD mandated that utilities (including BGE, Pepco and DPL) pay (or receive) the difference between CPV’s contract price and the revenues it receives for capacity and energy from clearing the unit in the PJM capacity market.

Exelon and others challenged the constitutionality and other aspects of the New Jersey legislation in federal court. The actions taken by the MDPSC were also challenged in federal court in an action to which Exelon was not a party. The federal trial courts in both the New Jersey and Maryland actions effectively invalidated the actions taken by the New Jersey legislature and the MDPSC, respectively. Each of those decisions was upheld by the U.S. Court of Appeals for the Third Circuit and the U.S. Court of Appeals for the Fourth Circuit, respectively. On April 19, 2016, the U.S. Supreme Court affirmed the decision of the U.S. Court of Appeals for the Fourth Circuit, and subsequently denied certiorari with respect to the appeal from the U.S. Court of Appeals for the Third Circuit, leaving in place that Court’s decision. The matter is now considered closed.

As required under their contracts, generator developers who were selected in the New Jersey and Maryland programs (including CPV) offered and cleared in PJM’s capacity market auctions. To the extent that the state-required customer subsidies are included under their respective contracts, Exelon believes that these projects may have artificially suppressed capacity prices in PJM in these auctions and may continue to do so in future auctions to the detriment of Exelon. While the court decisions are positive developments, continuation of these state efforts, if successful and unabated by an effective minimum offer price rule (MOPR) for future capacity auctions, could continue to result in artificially depressed wholesale capacity and/or energy prices. Other states could seek to establish programs, which could substantially impact Exelon’s position and could have a significant effect on Exelon’s financial results of operations, financial position and cash flows.

One such state is Ohio, where state-regulated utility companies FirstEnergy Ohio (FE) and AEP Ohio (AEP) initiated actions at the Public Utilities Commission of Ohio (PUCO) to obtain approval for Riders that would effectively allow these two companies to pass through to all customers in their service territories the differences between their costs and market revenues on PPAs entered into between the utility and its merchant generation affiliate for what was collectively more than 6,000MW of primarily coal-fired generation. Thus, the Riders were similar to the CfDs described above (except that the PPA Riders in Ohio would apply to existing generation facilities whereas the CfDs applied to new generation facilities). While FERC orders on April 27, 2016 largely alleviated the concerns related to the Riders by holding that the PPAs ran afoul of affiliate restrictions on FE and AEP, we continue to closely monitor developments in Ohio.

In addition, Exelon continues to monitor developments in Maryland, New Jersey, and other states and participates in stakeholder and other processes to ensure that similar state subsidies are not developed. Exelon remains active in advocating for competitive markets, while opposing policies that require taxpayers and/ or consumers to subsidize or give preferential treatment to generation providers or technologies that do not provide superior reliability or environmental benefits, or that would threaten the reliability and value of the integrated electricity grid.

Complaints at FERC Seeking to Mitigate Illinois and New York Programs Providing ZECs

PJM and NYISO capacity markets include a Minimum Offer Price Rule (MOPR) that is intended to preclude buyers from exercising buyer market power. If a resource is subjected to a MOPR, its offer is adjusted to remove the revenues it receives through a federal, state or other government-provided financial support

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program — resulting in a higher offer that may not clear the capacity market. Currently, the MOPRs in PJM and NYISO apply only to certain new resources. Exelon has generally opposed policies that required subsidies or give preferential treatment to generation providers or technologies that do not provide superior reliability or environmental benefits, or that would threaten the reliability and value of the integrated electricity grid. Thus, Exelon has supported a MOPR as a means of minimizing the detrimental impact of certain subsidized resources could have on capacity markets (such as the New Jersey (LCAPP) and Maryland (CfD) programs. However, in Exelon’s view, MOPRs should not be applied to resources that receive compensation for providing superior reliability or environmental benefits.

Energy Demand

Modest economic growth partially offset by energy efficiency initiatives is resulting in flat to declining load growth in electricity for the utilities. There is a decrease in projected load for electricity for ComEd, PECO, BGE, and ACE, and an essentially flat projected load for electricity for DPL. ComEd, PECO, BGE, Pepco, ACE and DPL are projecting load volumes to increase (decrease) by (0.1)%, (0.2)%, (2.4)%, (1.4)%, (1.9)%, and 0.0% respectively, in 2017 compared to 2016.

Retail Competition

Generation’s retail operations compete for customers in a competitive environment, which affect the margins that Generation can earn and the volumes that it is able to serve. The market experienced high price volatility in the first quarter of 2014 which contributed to bankruptcies and consolidations within the industry during the year. However, forward natural gas and power prices are expected to remain low and thus we expect retail competitors to stay aggressive in their pursuit of market share, and that wholesale generators (including Generation) will continue to use their retail operations to hedge generation output.

Strategic Policy Alignment

As part of its strategic business planning process, Exelon routinely reviews its hedging policy, dividend policy, operating and capital costs, capital spending plans, strength of its balance sheet and credit metrics, and sufficiency of its liquidity position, by performing various stress tests with differing variables, such as commodity price movements, increases in margin-related transactions, changes in hedging practices, and the impacts of hypothetical credit downgrades.

Exelon’s board of directors declared first quarter 2017 dividends of $0.3275 per share on Exelon’s common stock. The first quarter 2017 dividend was paid on March 10, 2017. The dividend increased from fourth quarter 2016 amount to reflect the Board’s decision to raise Exelon’s dividend 2.5% each year for the next three years, beginning with the June 2016 dividend.

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Exelon’s Board of Directors declared the second quarter 2017 dividends of $0.3275 per share each on Exelon’s common stock and is payable on June 9, 2017.

All future quarterly dividends require approval by Exelon’s Board of Directors.

Hedging Strategy

Exelon’s policy to hedge commodity risk on a ratable basis over three-year periods is intended to reduce the financial impact of market price volatility. Generation is exposed to commodity price risk associated with the unhedged portion of its electricity portfolio. Generation enters into non-derivative and derivative contracts, including financially-settled swaps, futures contracts and swap options, and physical options and physical forward contracts, all with credit-approved counterparties, to hedge this anticipated exposure. Generation has hedges in place that significantly mitigate this risk for 2017 and 2018. However, Generation is exposed to relatively greater commodity price risk in the subsequent years with respect to which a larger portion of its electricity portfolio is currently unhedged. As of March 31, 2017, the percentage of expected generation hedged for the major reportable segments was 97%-100%, 60%-63% and 30%-33% for 2017, 2018, and 2019 respectively. The percentage of expected generation hedged is the amount of equivalent sales divided by the expected generation. Expected generation is the volume of energy that best represents our commodity position in energy markets from owned or contracted generating facilities based upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market quotes for power, fuel, load following products, and options. Equivalent sales represent all hedging products, such as wholesale and retail sales of power, options and swaps. Generation has been and will continue to be proactive in using hedging strategies to mitigate commodity price risk in subsequent years as well.

Generation procures oil and natural gas through long-term and short-term contracts and spot-market purchases. Nuclear fuel is obtained predominantly through long-term uranium concentrate supply contracts, contracted conversion services, contracted enrichment services, or a combination thereof, and contracted fuel fabrication services. The supply markets for uranium concentrates and certain nuclear fuel services, coal, oil and natural gas are subject to price fluctuations and availability restrictions. Supply market conditions may make Generation’s procurement contracts subject to credit risk related to the potential non-performance of counterparties to deliver the contracted commodity or service at the contracted prices. Approximately 49% of Generation’s uranium concentrate requirements from 2017 through 2021 are supplied by three producers. In the event of non-performance by these or other suppliers, Generation believes that replacement uranium concentrate can be obtained, although at prices that may be unfavorable when compared to the prices under the current supply agreements. Non-performance by these counterparties could have a material adverse impact on Exelon’s and Generation’s results of operations, cash flows and financial position.

The Utility Registrants mitigate commodity price risk through regulatory mechanisms that allow them to recover procurement costs from retail customers.

Tax Matters

Potential Corporate Tax Reform

The results of the November 2016 U.S. elections have introduced greater uncertainty with respect to federal tax policies. President Trump has stated that one of his top priorities is comprehensive tax reform and House Republicans plan to advance their tax reform “blueprint”. Tax reform proposals call for a reduction in the corporate federal income tax rate from the current 35% to as low as 15%. Other proposals provide, among other items, for the immediate deduction of capital investment expenditures and full or partial elimination of debt interest expense deductions. It is uncertain whether, to what extent or when these or any other changes in federal tax policies will be enacted or the transition time frame for such changes. Further, for the Utility Registrants,

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regulators may impose rate reductions to provide the benefit of any income tax expense reductions to customers and refund “excess” deferred income taxes previously collected through rates. The amounts and timing of any such rate changes would be subject to the discretion of the rate regulator in each specific jurisdiction. For these reasons, the Registrants cannot predict the impact any potential changes may have on their future results of operations, cash flows or financial position, and such changes could be material.

See Note 11 — Income Taxes of the Combined Notes to the Consolidated Financial Statements for additional information

Environmental Legislative and Regulatory Developments

Exelon was actively involved in the Obama Administration’s development and implementation of environmental regulations for the electric industry, in pursuit of its business strategy to provide reliable, clean, affordable and innovative energy products. These efforts have most frequently involved air, water and waste controls for fossil-fueled electric generating units, as set forth in the discussion below. These regulations have had a disproportionate adverse impact on coal-fired power plants, requiring significant expenditures of capital and variable operating and maintenance expense, and have resulted in the retirement of older, marginal facilities. Due to its low emission generation portfolio, Generation has not been significantly affected by these regulations, representing a competitive advantage relative to electric generators that are more reliant on fossil-fuel plants.

Through the issuance of a series of Executive Orders (EO), President Trump has initiated review of a number of EPA and other regulations issued during the Obama Administration, with the expectation that the Administration will seek repeal or significant revision of these rules. Under these EOs, each executive agency is required to evaluate existing regulations and make recommendations regarding repeal, replacement, or modification. The Administration’s actions are intended to result in less stringent compliance requirements under air, water, and waste regulations. The exact nature, extent, and timing of the regulatory changes are unknown, as well as the ultimate impact on Exelon’s and its subsidiaries results of operations and cash flows.

In particular, the Administration has targeted existing EPA regulations for repeal, including notably the Clean Power Plan, as well as revoking many Executive Orders, reports, and guidance issued by the Obama Administration on the topic of climate change or the regulation of greenhouse gases. The Executive Order also disbanded the Interagency Working Group that developed the social cost of carbon used in rulemakings, and withdrew all technical support documents supporting the calculation. Other regulations that have been specifically identified for review are the Clean Water Act rule relating to jurisdictional waters of the U.S., the Steam Electric Effluent Guidelines relating to waste water discharges from coal-fired power plants, and the 2015 National Ambient Air Quality Standard (NAAQS) for ozone. The review of final rules could extend over several years as formal notice and comment rulemaking process proceeds.

Air Quality

Mercury and Air Toxics Standard Rule (MATS). On December 16, 2011, the EPA signed a final rule to reduce emissions of toxic air pollutants from power plants and signed revisions to the NSPS for electric generating units. The final rule, known as MATS, requires coal-fired electric generation plants to achieve high removal rates of mercury, acid gases and other metals, and to make capital investments in pollution control equipment and incur higher operating expenses. The initial compliance deadline to meet the new standards was April 16, 2015; however, facilities may have been granted an additional one or two year extension in limited cases. Numerous entities challenged MATS in the D.C. Circuit Court, and Exelon intervened in support of the rule. In April 2014, the D.C. Circuit Court issued an opinion upholding MATS in its entirety. On appeal, the U.S. Supreme Court decided in June 2015 that the EPA unreasonably refused to consider costs in determining whether it is appropriate and necessary to regulate hazardous air pollutants emitted by electric utilities. The U.S. Supreme Court, however, did not vacate the rule; rather, it was remanded to the D.C. Circuit Court to take further action

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consistent with the U.S. Supreme Court’s opinion on this single issue. As such, the MATS rule remains in effect. Exelon will continue to participate in the remanded proceedings before the D.C. Circuit Court as an intervenor in support of the rule.

Water Quality

Section 316(b) of the Clean Water Act requires that cooling water intake structures at electric power plants reflect the best technology available to minimize adverse environmental impacts, and is implemented through state-level NPDES permit programs. All of Generation’s power generation facilities with cooling water systems are subject to the regulations. Facilities without closed-cycle recirculating systems (e.g., cooling towers) are potentially most affected by changes to the existing regulations. Those facilities are Calvert Cliffs, Clinton, Dresden, Eddystone, Fairless Hills, Fitzpatrick, Ginna, Gould Street, Handley, Mountain Creek, Mystic 7, Nine Mile Point Unit 1, Oyster Creek, Peach Bottom, Quad Cities, Riverside and Salem. See ITEM 1. — BUSINESS, “Water Quality” of the Exelon 2016 Form 10-K for further discussion.

Solid and Hazardous Waste

In October 2015, the first federal regulation for the disposal of coal combustion residuals (CCR) from power plants became effective. The rule classifies CCR as non-hazardous waste under RCRA. Under the regulation, CCR will continue to be regulated by most states subject to coordination with the federal regulations. Generation has previously recorded accruals consistent with state regulation for its owned coal ash sites, and as such, the regulation is not expected to impact Exelon’s and Generation’s financial results. Generation does not have sufficient information to reasonably assess the potential likelihood or magnitude of any remediation requirements that may be asserted under the new federal regulations for coal ash disposal sites formerly owned by Generation. For these reasons, Generation is unable to predict whether and to what extent it may ultimately be held responsible for remediation and other costs relating to formerly owned coal ash disposal sites under the new regulations.

See Note 17 — Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements for further detail related to environmental matters, including the impact of environmental regulation.

Employees

During 2016, BSC and ComEd extended the collective bargaining agreement (CBA) with IBEW Local 15 by three years; with an expiration date of September 30, 2022. Generation extended its CBA with both the IBEW Local 15 (covering the five Midwest nuclear plants) and IBEW Local 51 (Clinton) by three years; with expiration dates of April 30, 2022 and December 15, 2023, respectively. Additionally, Exelon Nuclear Security successfully ratified its CBA with the UGSOA Local 17 at Oyster Creek to an extension of five years, and Exelon Power successfully ratified its CBA with the IBEW Local 614 to a three year extension. In January 2017, an election was held at BGE which resulted in union representation for approximately 1,400 employees. BGE and IBEW Local 410 will begin negotiations for an initial agreement which could result in some modifications to wages, hours and other terms and conditions of employment. No agreement has been finalized to date and management cannot predict the outcome of such negotiations. In April 2017, Exelon Nuclear Security successfully ratified its CBA with the SPFPA Local 238 at Quad Cities to an extension of three years.

Critical Accounting Policies and Estimates

Management of each of the Registrants makes a number of significant estimates, assumptions and judgments in the preparation of its financial statements. See ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS — CRITICAL ACCOUNTING POLICIES AND ESTIMATES in Exelon’s, Generation’s, ComEd’s, PECO’s, BGE’s, PHI’s,

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Pepco’s, DPL’s and ACE’s combined 2016 Form 10-K for a discussion of the estimates and judgments necessary in the Registrants’ accounting for AROs, goodwill, purchase accounting, unamortized energy assets and liabilities, asset impairments, depreciable lives of property, plant and equipment, defined benefit pension and other postretirement benefits, regulatory accounting, derivative instruments, taxation, contingencies, revenue recognition, and allowance for uncollectible accounts. At March 31, 2017, the Registrants’ critical accounting policies and estimates had not changed significantly from December 31, 2016.

Results of Operations By Business Segment

Net Income (Loss) Attributable to Common Shareholders by Registrant


	Three Months Ended March 31,					Favorable (Unfavorable) Variance
	2017		2016^(a)			Favorable (Unfavorable) Variance
Exelon	$	995	$	173		$	822
Generation		423		310			113
ComEd		141		115			26
PECO		127		124			3
BGE		125		98			27
Pepco		58		(108	)		166
DPL		57		(72	)		129
ACE		28		(100	)		128

(a)	For Pepco, DPL and ACE, reflects that Registrant’s operations for the three months ended March 31, 2016. For Exelon and Generation, includes the operations of the PHI acquired businesses for the period of March 24, 2016 through March 31, 2016.


	Successor					Predecessor
	Three Months Ended March 31, 2017		March 24, 2016 to March 31, 2016			January 1, 2016 to March 23, 2016
PHI	$	140	$	(309	)	$	19

Results of Operations — Generation


	Three Months Ended March 31,						Favorable (Unfavorable) Variance
	2017			2016			Favorable (Unfavorable) Variance
Operating revenues	$	4,888		$	4,739		$	149
Purchased power and fuel expense		2,798			2,442			(356	)

Revenues net of purchased power and fuel expense^(a)		2,090			2,297			(207	)
Other operating expenses
Operating and maintenance		1,488			1,467			(21	)
Depreciation and amortization		302			289			(13	)
Taxes other than income		143			126			(17	)

Total other operating expenses		1,933			1,882			(51	)

Gain on sales of assets		4			—			4
Bargain purchase gain		226			—			226

Operating income		387			415			(28	)

Other income and (deductions)
Interest expense, net		(100	)		(97	)		(3	)
Other, net		259			93			166

Total other income and (deductions)		159			(4	)		163

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	Three Months Ended March 31,						Favorable (Unfavorable) Variance
	2017			2016			Favorable (Unfavorable) Variance
Income before income taxes		546			411			135
Income taxes		127			151			24
Equity in losses of unconsolidated affiliates		(10	)		(3	)		(7	)

Net income		409			257			152
Net loss attributable to noncontrolling interests		(14	)		(53	)		(39	)

Net income attributable to membership interest	$	423		$	310		$	113

(a)

Generation evaluates its operating performance using the measure of revenue net of purchased power and fuel expense. Generation believes that revenue net of purchased power and fuel expense is a useful measurement because it provides information that can be used to evaluate its operational performance. Revenue net of purchased power and fuel expense is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

Net Income Attributable to Membership Interest

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Generation’s net income attributable to membership interest for the three months ended March 31, 2017 increased compared to the same period in 2016, primarily due to a bargain purchase gain associated with the acquisition of FitzPatrick, increased other income, and lower income taxes, partially offset by lower revenue net of purchased power and fuel expense, higher operating and maintenance expense and higher depreciation and amortization expense . The bargain purchase gain relates to the excess of the fair value of assets and liabilities acquired over the purchase price related to the FitzPatrick acquisition. The increase in other income is primarily due to the change in realized and unrealized gains and losses on NDT funds. The decrease in revenues net of purchased power and fuel expense primarily relates to mark-to-market losses in 2017 compared to mark-to-market gains in 2016, the impacts of declining natural gas prices on Generation’s natural gas portfolio, decreased capacity prices and lower realized energy prices, partially offset by the impact of the Ginna Reliability Support Services Agreement and the absence of oil inventory write downs in 2017. The increase in operating and maintenance expense is primarily related to an increase in the number of nuclear outage days in 2017.

Revenues Net of Purchased Power and Fuel Expense

The basis for Generation’s reportable segments is the integrated management of its electricity business that is located in different geographic regions, and largely representative of the footprints of ISO/RTO and/or NERC regions, which utilize multiple supply sources to provide electricity through various distribution channels (wholesale and retail). Generation’s hedging strategies and risk metrics are also aligned with these same geographic regions. Descriptions of each of Generation’s six reportable segments are as follows:

•

New England represents the operations within ISO-NE covering the states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont.

•

New York represents operations within ISO-NY, which covers the state of New York in its entirety.

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•

ERCOT represents operations within Electric Reliability Council of Texas, covering most of the state of Texas.

•

Other Power Regions:

•

West represents operations in the WECC, which includes California ISO, and covers the states of California, Oregon, Washington, Arizona, Nevada, Utah, Idaho, Colorado, and parts of New Mexico, Wyoming and South Dakota.

•

Canada represents operations across the entire country of Canada and includes AESO, OIESO and the Canadian portion of MISO.

The following business activities are not allocated to a region, and are reported under Other: natural gas, as well as other miscellaneous business activities that are not significant to Generation’s overall operating revenues or results of operations. Further, the following activities are not allocated to a region, and are reported in Other: amortization of certain intangible assets relating to commodity contracts recorded at fair value from mergers and acquisitions; accelerated nuclear fuel amortization associated with nuclear decommissioning; and other miscellaneous revenues.

Generation evaluates the operating performance of its electric business activities using the measure of revenue net of purchased power and fuel expense, which is a non-GAAP measurement. Generation’s operating revenues include all sales to third parties and affiliated sales to the Utility Registrants. Purchased power costs include all costs associated with the procurement and supply of electricity including capacity, energy and ancillary services. Fuel expense includes the fuel costs for owned generation and fuel costs associated with tolling agreements.

For the three months ended March 31, 2017 and 2016, Generation’s revenue net of purchased power and fuel expense by region were as follows:


	Three Months Ended March 31,					Variance			% Change
	2017			2016		Variance			% Change
Mid-Atlantic^(a)	$	773		$	841	$	(68	)		(8.1	)%
Midwest^(b)		715			718		(3	)		(0.4	)%
New England		111			81		30			37.0	%
New York		153			130		23			17.7	%
ERCOT		69			61		8			13.1	%
Other Power Regions		64			76		(12	)		(15.8	)%

Total electric revenue net of purchased power and fuel expense		1,885			1,907		(22	)		(1.2	)%
Proprietary Trading		—			3		(3	)		(100.0	)%
Mark-to-market (losses) gains		(49	)		103		(152	)		(147.6	)%
Other^(c)		254			284		(30	)		(10.6	)%

Total revenue net of purchased power and fuel expense	$	2,090		$	2,297	$	(207	)		(9.0	)%

(a)	Results of transactions with PECO and BGE are included in the Mid-Atlantic region. Results of transactions with Pepco, DPL, and ACE are included in the Mid-Atlantic region beginning on March 24, 2016, the day after the PHI merger was completed.

(b)	Results of transactions with ComEd are included in the Midwest region.

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(c)

Other represents activities not allocated to a region. See text above for a description of included activities. Includes amortization of intangible assets related to commodity contracts recorded at fair value of a $3 million decrease and $19 million increase to revenue net of purchased power and fuel expense for the three months ended March 31, 2017 and 2016, respectively.

Generation’s supply sources by region are summarized below:


	Three Months Ended March 31,				Variance			% Change
Supply source (GWh)	2017		2016		Variance			% Change
Nuclear generation
Mid-Atlantic^(a)		16,545		16,208		337			2.1	%
Midwest^(a)		22,468		23,662		(1,194	)		(5.0	)%
New York^(a)		4,491		4,932		(441	)		(8.9	)%

Total Nuclear Generation		43,504		44,802		(1,298	)		(2.9	)%
Fossil and Renewables
Mid-Atlantic		836		898		(62	)		(6.9	)%
Midwest		418		449		(31	)		(6.9	)%
New England		2,077		1,924		153			8.0	%
New York		1		1		—			—	%
ERCOT		1,370		1,376		(6	)		(0.4	)%
Other Power Regions		1,423		2,147		(724	)		(33.7	)%

Total Fossil and Renewables		6,125		6,795		(670	)		(9.9	)%
Purchased Power
Mid-Atlantic		3,398		3,755		(357	)		(9.5	)%
Midwest		388		706		(318	)		(45.0	)%
New England		5,064		4,155		909			21.9	%
New York^(b)		28		—		28			N/A
ERCOT		2,655		2,294		361			15.7	%
Other Power Regions		2,384		2,600		(216	)		(8.3	)%

Total Purchased Power		13,917		13,510		407			3.0	%
Total Supply/Sales by Region^(b)
Mid-Atlantic^(c)		20,779		20,861		(82	)		(0.4	)%
Midwest^(c)		23,274		24,817		(1,543	)		(6.2	)%
New England		7,141		6,079		1,062			17.5	%
New York		4,520		4,933		(413	)		(8.4	)%
ERCOT		4,025		3,670		355			9.7	%
Other Power Regions		3,807		4,747		(940	)		(19.8	)%

Total Supply/Sales by Region		63,546		65,107		(1,561	)		(2.4	)%

(a)	Includes the proportionate share of output where Generation has an undivided ownership interest in jointly-owned generating plants and includes the total output of plants that are fully consolidated (e.g. CENG).

(b)	Excludes physical proprietary trading volumes of 1,850 GWh and 1,220 GWh for the three months ended March 31, 2017 and 2016, respectively.

(c)	Includes affiliate sales to PECO and BGE in the Mid-Atlantic region and affiliate sales to ComEd in the Midwest region. As a result of the PHI Merger, includes affiliate sales to Pepco, DPL and ACE in the Mid-Atlantic region beginning on March 24, 2016.

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Mid-Atlantic

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The $68 million decrease in revenue net of purchased power and fuel expense in the Mid-Atlantic primarily reflects lower realized energy prices and decreased capacity prices, partially offset by the absence of oil inventory write-downs in 2017.

Midwest

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The $3 million decrease in revenue net of purchased power and fuel expense in the Midwest primarily reflects increased nuclear outage days and decreased capacity prices, partially offset by decreased nuclear fuel prices and higher realized energy prices.

New England

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The $30 million increase in revenue net of purchased power and fuel expense in New England was driven by the absence of oil inventory write-downs in 2017 and increased capacity prices.

New York

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The $23 million increase in revenue net of purchased power and fuel expense in New York was primarily due to the impact of the Ginna Reliability Support Service Agreement, partially offset by increased nuclear outage days.

ERCOT

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The $8 million increase in revenue net of purchased power and fuel expense in ERCOT was primarily due to higher realized energy prices.

Other Power Regions

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The $12 million decrease in revenue net of purchased power and fuel expense in Other Power Regions was primarily due to lower realized energy prices.

Proprietary Trading

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The $3 million decrease in revenue net of purchased power and fuel expense in Proprietary Trading was primarily due to congestion activity.

Mark-to-market

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Mark-to-market losses on economic hedging activities were $49 million for the three months ended March 31, 2017 compared to gains of $103 million for the three months ended March 31, 2016. See Notes 8—Fair Value of Financial Assets and Liabilities and 9 — Derivative Financial Instruments of the Combined Notes to the Consolidated Financial Statements for information on gains and losses associated with mark-to-market derivatives.

Other

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The $30 million decrease in other revenue net of purchased power and fuel was primarily due to the impacts of declining natural

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gas prices on Generation’s natural gas portfolio and amortization of energy contracts recorded at fair value associated with prior acquisitions, partially offset by revenue related to the inclusion of Pepco Energy Services results in 2017 and revenue related to energy efficiency projects.

Nuclear Fleet Capacity Factor

The following table presents nuclear fleet operating data for the three months ended March 31, 2017 as compared to the same period in 2016, for the Generation-operated plants. The nuclear fleet capacity factor presented in the table is defined as the ratio of the actual output of a plant over a period of time to its output if the plant had operated at full average annual mean capacity for that time period. Generation considers capacity factor to be a useful measure to analyze the nuclear fleet performance between periods. Generation has included the analysis below as a complement to the financial information provided in accordance with GAAP. However, these measures are not a presentation defined under GAAP and may not be comparable to other companies’ presentations or be more useful than the GAAP information provided elsewhere in this report.


	Three Months Ended March 31,
	2017			2016
Nuclear fleet capacity factor^(a)		94.0	%		95.8	%

(a)	Excludes Salem, which is operated by PSEG Nuclear, LLC. Reflects ownership percentage of stations operated by Exelon.

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The nuclear fleet capacity factor decreased primarily due to more refueling outage days, excluding Salem outages, during the three months ended March 31, 2017 compared to the same period in 2016. For the three months ended March 31, 2017 and 2016, planned refueling outage days totaled 95 and 70, respectively, and non-refueling outage days totaled 8 and 10, respectively.

Operating and Maintenance

The changes in operating and maintenance expense for the three months ended March 31, 2017 as compared to the same period in 2016, consisted of the following:


	Three Months Ended March 31,
	Increase (Decrease)
Labor, other benefits, contracting, materials^(a)	$	80
Nuclear refueling outage costs, including the co-owned Salem plants^(b)		28
Corporate allocations		4
Merger and integration costs^(c)		27
Merger commitments		(3	)
Cost management program^(d)		(14	)
Long-Lived Asset Impairments^(e)		(109	)
Pension and non-pension postretirement benefits expense		(3	)
Allowance for uncollectible accounts		3
Accretion expense		6
Other		2

Increase in operating and maintenance expense	$	21

(a)	Primarily reflects the inclusion of Pepco Energy Services results in 2017 and increased contracting costs related to energy efficiency projects.

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(b)	Primarily reflects an increase in nuclear outage days in 2017 versus 2016.

(c)	Reflects certain costs associated with mergers and acquisitions, including, if and when applicable, professional fees, employee-related expenses, integration activities and upfront credit facilities fees related to the PHI and FitzPatrick acquisitions.

(d)	Represents reorganization costs, and in 2016 severance costs, related to a cost management program in 2016 and 2017.

(e)	Primarily relates to the impairment of Upstream assets in 2016.

Depreciation and Amortization

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Depreciation and amortization expense increased primarily due to increased nuclear decommissioning amortization and ongoing capital expenditures.

Taxes Other Than Income

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Taxes other than income taxes, which can vary period to period, include non-income municipal and state utility taxes, real estate taxes and payroll taxes. The increase primarily relates to gross receipts and sales and use tax.

Gain on Sales of Assets

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Gain on sales of assets increased primarily as a result of the gain associated with Generation’s sale of Conectiv Thermal Systems.

Bargain Purchase Gain

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Bargain purchase gain increased as a result of the gain associated with Generation’s Fitzpatrick acquisition. Refer to Note 4 — Mergers, Acquisitions and Dispositions of the Combined Notes to the Consolidated Financial Statements for additional information.

Interest Expense, net

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Interest expense remained relatively stable.

Other, Net

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Other, net increased primarily due to the change in the realized and unrealized gains and losses related to NDT funds of Non-Regulatory Agreement Units as described in the table below. Other, net also reflects $56 million and $20 million for the three months ended March 31, 2017 and 2016, respectively, related to the contractual elimination of income tax expense (benefit) associated with the NDT funds of the Regulatory Agreement Units. Refer to Note 12 — Nuclear Decommissioning of the Combined Notes to the Consolidated Financial Statements for additional information regarding NDT funds.

The following table provides unrealized and realized gains and losses on the NDT funds of the Non-Regulatory Agreement Units recognized in Other, net for the three months ended March 31, 2017 and 2016:


	Three Months Ended March 31,
	2017		2016
Net unrealized gains on decommissioning trust funds	$	166	$	52
Net realized gains on sale of decommissioning trust funds		9		3

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Equity in Losses of Unconsolidated Affiliates

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. The equity in losses of unconsolidated affiliates increased as a result of losses on equity investments.

Effective Income Tax Rate

Generation’s effective income tax rate was 23.3% and 36.7% for the three months ended March 31, 2017 and 2016, respectively. See Note 11 — Income Taxes of the Combined Notes to the Consolidated Financial Statements for further discussion of the change in the effective income tax rate.

Results of Operations — ComEd


	Three Months Ended March 31,						Favorable (Unfavorable) Variance
	2017			2016			Favorable (Unfavorable) Variance
Operating revenues	$	1,298		$	1,249		$	49
Purchased power expense		334			348			14

Revenues net of purchased power expense^(a)(b)		964			901			63

Other operating expenses
Operating and maintenance		370			368			(2	)
Depreciation and amortization		208			189			(19	)
Taxes other than income		72			75			3

Total other operating expenses		650			632			(18	)

Gain on sales of assets		—			5			(5	)

Operating income		314			274			40

Other income and (deductions)
Interest expense, net		(85	)		(86	)		1
Other, net		4			4			—

Total other income and (deductions)		(81	)		(82	)		1

Income before income taxes		233			192			41
Income taxes		92			77			(15	)

Net income	$	141		$	115		$	26

(a)

ComEd evaluates its operating performance using the measure of Revenue net of purchased power expense. ComEd believes that Revenue net of purchased power expense is a useful measurement because it provides information that can be used to evaluate its operational performance. In general, ComEd only earns margin based on the delivery and transmission of electricity. ComEd has included its discussion of Revenue net of purchased power expense below as a complement to the financial information provided in accordance with GAAP. However, Revenue net of purchased power expense is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

(b)

For regulatory recovery mechanisms, including ComEd’s electric distribution and transmission formula rates, and riders, revenues increase and decrease i) as fully recoverable costs fluctuate (with no impact on net earnings), and ii) pursuant to changes in rate base, capital structure and ROE (which impact net earnings).

Net Income

Three months ended March 31, 2017 Compared to Three months ended March 31, 2016. ComEd’s Net income for the three months ended March 31, 2017 was higher than the same period in 2016, primarily due to increased electric distribution and transmission formula rate earnings (reflecting the effects of increased capital investment and higher allowed electric distribution ROE).

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Revenues Net of Purchased Power Expense

There are certain drivers of Operating revenues that are fully offset by their impact on Purchased power expense, such as commodity procurement costs and participation in customer choice programs. ComEd is permitted to recover electricity procurement costs from retail customers without mark-up. Therefore, fluctuations in electricity procurement costs have no impact on Revenue net of purchased power expense. See Note 3 — Regulatory Matters of the Exelon 2016 Form 10-K for additional information on ComEd’s electricity procurement process.

All ComEd customers have the choice to purchase electricity from a competitive electric generation supplier. Customer choice programs do not impact ComEd’s volume of deliveries, but do affect ComEd’s Operating revenues related to supplied energy, which is fully offset in Purchased power expense. Therefore, customer choice programs have no impact on Revenue net of purchased power expense.

Retail deliveries purchased from competitive electric generation suppliers (as a percentage of kWh sales) for the three months ended March 31, 2017 and 2016, consisted of the following:


	Three Months Ended March 31,
	2017			2016
Electric		71	%		73	%

Retail customers purchasing electric generation from competitive electric generation suppliers at March 31, 2017 and 2016 consisted of the following:


March 31, 2017					March 31, 2016
Number of customers		% of total retail customers			Number of customers		% of total retail customers
	1,453,000		36	%		1,649,700		42	%

The changes in ComEd’s Revenue net of purchased power expense for the three months ended March 31, 2017, compared to the same period in 2016 consisted of the following:


	Three Months Ended March 31, 2017
	Increase (Decrease)
Weather^(a)	$	8
Volume^(a)		(1	)
Electric distribution revenue		24
Transmission revenue		17
Regulatory required programs		20
Uncollectible accounts recovery, net		(2	)
Pricing and customer mix^(a)		(3	)

Total increase	$	63

(a)

These changes only reflect the 2016 impacts of weather, volume, and pricing and customer mix. As further described below, pursuant to the revenue decoupling provision in FEJA, ComEd began recording an adjustment to revenue in the first quarter of 2017 to eliminate the favorable or unfavorable impacts associated with variations in delivery volumes associated with above or below normal weather, number of customers or usage per customer.

Revenue Decoupling. The demand for electricity is affected by weather conditions. Very warm weather in summer months and very cold weather in other months are referred to as “favorable weather conditions” because these weather conditions result in increased customer usage. Conversely, mild weather reduces demand.

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Under EIMA, ComEd’s electric distribution formula rate provided for an adjustment to future billings if its earned ROE fell outside a 50 bps collar of its allowed ROE, which partially eliminated the impacts of weather and load on ComEd’s revenue. As allowed under FEJA, ComEd will revise its electric distribution formula rate to eliminate the ROE collar beginning with the reconciliation filed in 2018 for the 2017 calendar year. Elimination of the ROE collar effectively offsets the favorable or unfavorable impacts to Operating revenues associated with variations in delivery volumes associated with above or below normal weather, numbers of customers or usage per customer. ComEd began recognizing the impacts of this change beginning in the first quarter of 2017. As of March 31, 2017, ComEd recorded an increase to Electric distribution revenues of approximately $16 million to eliminate the unfavorable weather and load impacts during the first quarter of 2017.

Heating and cooling degree days are quantitative indices that reflect the demand for energy needed to heat or cool a home or business. Normal weather is determined based on historical average heating and cooling degree days for a 30-year period in ComEd’s service territory with cooling degree days generally having a more significant impact to ComEd, particularly during the summer months. The changes in heating and cooling degree days in ComEd’s service territory for the three months ended March 31, 2017 and 2016, consisted of the following:


Heating and Cooling Degree-Days							% Change
Three Months Ended March 31,	2017		2016		Normal		2017 vs. 2016			2017 vs. Normal
Heating Degree-Days		2,650		2,900		3,141		(8.6	)%		(15.6	)%
Cooling Degree-Days		—		—		—		n/a			n/a

Electric Distribution Revenue. EIMA provides for a performance-based formula rate, which requires an annual reconciliation of the revenue requirement in effect to the actual costs that the ICC determines are prudently and reasonably incurred in a given year. Under EIMA, electric distribution revenue varies from year to year based upon fluctuations in the underlying costs, investments being recovered, and allowed ROE. ComEd’s allowed ROE is the annual average rate on 30-year treasury notes plus 580 basis points. In addition, ComEd’s allowed ROE is subject to reduction if ComEd does not deliver the reliability and customer service benefits to which it has committed over the ten-year life of the investment program. During the three months ended March 31, 2017, electric distribution revenue increased primarily due to revenue decoupling impacts (as described above), increased capital investment, increased Depreciation expense, and higher allowed ROE due to an increase in treasury rates, as compared to the same period in 2016. See Depreciation and amortization expense discussions below, and Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.

Transmission Revenue. Under a FERC-approved formula, transmission revenue varies from year to year based upon fluctuations in the underlying costs, investments being recovered and the highest daily peak load, which is updated annually in January based on the prior calendar year. Generally, increases/decreases in the highest daily peak load will result in higher/lower transmission revenue. For the three months ended March 31, 2017, ComEd recorded increased transmission revenue due to increased capital investment, higher depreciation expense and increased highest daily peak load as compared to the same period in 2016. See Operating and maintenance expense below and Note 3 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.

Regulatory Required Programs. This represents the change in Operating revenues collected under approved riders to recover costs incurred for regulatory programs such as ComEd’s energy efficiency and demand response and purchased power administrative costs. The riders are designed to provide full and current cost recovery. An equal and offsetting amount has been included in Operating and maintenance expense. See Operating and maintenance expense discussion below for additional information on included programs.

Uncollectible Accounts Recovery, Net. Uncollectible accounts recovery, net represents recoveries under ComEd’s uncollectible accounts tariff. See Operating and maintenance expense discussion below for additional information on this tariff.

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Other. Other revenue, which can vary period to period, includes rental revenue, revenue related to late payment charges, assistance provided to other utilities through mutual assistance programs, recoveries of environmental costs associated with MGP sites, and recoveries of energy procurement costs.

Operating and Maintenance Expense


	Three Months Ended March 31,				Increase (Decrease)
	2017		2016		Increase (Decrease)
Operating and maintenance expense — baseline	$	313	$	331	$	(18	)
Operating and maintenance expense — regulatory required programs^(a)		57		37		20

Total operating and maintenance expense	$	370	$	368	$	2

(a)	Operating and maintenance expense for regulatory required programs are costs for various legislative and/or regulatory programs that are recoverable from customers on a full and current basis through approved regulated rates. An equal and offsetting amount has been reflected in Operating revenues.

The increase in Operating and maintenance expense for the three months ended March 31, 2017 compared to the same period in 2016, consisted of the following:


	Three Months Ended March 31, 2017
	Increase (Decrease)
Baseline
Labor, other benefits, contracting and materials	$	(6	)
Pension and non-pension postretirement benefits expense		1
Storm-related costs		(7	)
Uncollectible accounts expense — provision^(a)		(3	)
Uncollectible accounts expense — recovery, net^(a)		1
BSC costs		1
Other		(5	)

		(18	)
Regulatory required programs
Energy efficiency and demand response programs		20

Increase in operating and maintenance expense	$	2

(a)

ComEd is allowed to recover from or refund to customers the difference between the utility’s annual uncollectible accounts expense and the amounts collected in rates annually through a rider mechanism. During the three months ended March 31, 2017, ComEd recorded a net decrease in Operating and maintenance expense related to uncollectible accounts due to the timing of regulatory cost recovery. An equal and offsetting decrease has been recognized in Operating revenues for the period presented.

Depreciation and Amortization Expense

The increase in Depreciation and amortization expense during the three months ended March 31, 2017, compared to the same period in 2016, consisted of the following:


	Three Months Ended March 31, 2017 Increase (Decrease)
Depreciation expense^(a)	$	16
Regulatory asset amortization		(1	)
Other		4

Total increase	$	19

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(a)	Primarily reflects ongoing capital expenditures for the three months ended March 31, 2017.

Taxes Other Than Income

Taxes other than income, which can vary year to year, include municipal and state utility taxes, real estate taxes and payroll taxes. Taxes other than income taxes remained relatively consistent for the three months ended March 31, 2017, compared to the same period in 2016.

Gain on Sales of Assets

The decrease in Gain on sales of assets during the three months ended March 31, 2017, compared to the same period in 2016, is primarily due to the sale of land during March 2016.

Interest Expense, Net

Interest expense, net, remained relatively consistent during the three months ended March 31, 2017, compared to the same period in 2016.

Other, Net

Other, net, remained relatively consistent during the three months ended March 31, 2017, compared to the same period in 2016.

Effective Income Tax Rate

ComEd’s effective income tax rate was 39.5% and 40.1% for the three months ended March 31, 2017 and 2016, respectively. See Note 11 — Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the effective income tax rates.

ComEd Electric Operating Statistics and Revenue Detail


	Three Months Ended March 31,							Weather-Normal % Change
Retail Deliveries to Customers (in GWhs)	2017		2016		% Change			Weather-Normal % Change
Retail Deliveries^(a)
Residential		6,241		6,376		(2.1	)%		0.3	%
Small commercial & industrial		7,709		7,879		(2.2	)%		(1.0	)%
Large commercial & industrial		6,683		6,756		(1.1	)%		(0.3	)%
Public authorities & electric railroads		344		361		(4.7	)%		(3.4	)%

Total retail deliveries		20,977		21,372		(1.8	)%		(0.4	)%


	As of March 31,
Number of Electric Customers	2017		2016
Residential		3,605,498		3,566,896
Small commercial & industrial		375,617		372,254
Large commercial & industrial		2,000		1,955
Public authorities & electric railroads		4,818		4,821

Total		3,987,933		3,945,926

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	Three Months Ended March 31,
Electric Revenue	2017		2016		% Change
Retail Sales^(a)
Residential	$	627	$	609		3.0	%
Small commercial & industrial		335		321		4.4	%
Large commercial & industrial		108		107		0.9	%
Public authorities & electric railroads		12		12		—	%

Total retail		1,082		1,049		3.1	%

Other revenue^(b)		216		200		8.0	%

Total electric revenue^(c)	$	1,298	$	1,249		3.9	%

(a)

Reflects delivery revenue and volume from customers purchasing electricity directly from ComEd and customers purchasing electricity from a competitive electric generation supplier, as all customers are assessed delivery charges. For customers purchasing electricity from ComEd, revenue also reflects the cost of energy and transmission.

(b)	Other revenue primarily includes transmission revenue from PJM. Other revenue also includes rental revenue, revenue related to late payment charges, revenue from other utilities for mutual assistance programs and recoveries of remediation costs associated with MGP sites.

(c)	Includes operating revenues from affiliates totaling $5 million and $5 million for the three months ended March 31, 2017 and 2016, respectively.

Results of Operations — PECO


	Three Months Ended March 31,						Favorable (Unfavorable) Variance
	2017			2016			Favorable (Unfavorable) Variance
Operating revenues	$	796		$	841		$	(45	)
Purchased power and fuel expense		287			321			34

Revenues net of purchased power and fuel expense^(a)		509			520			(11	)

Other operating expenses
Operating and maintenance		208			215			7
Depreciation and amortization		71			67			(4	)
Taxes other than income		38			42			4

Total other operating expenses		317			324			7

Operating income		192			196			(4	)

Other income and (deductions)
Interest expense, net		(31	)		(31	)		—
Other, net		2			2			—

Total other income and (deductions)		(29	)		(29	)		—

Income before income taxes		163			167			(4	)
Income taxes		36			43			7

Net income	$	127		$	124		$	3

(a)

PECO evaluates its operating performance using the measures of revenue net of purchased power expense for electric sales and revenue net of fuel expense for gas sales. PECO believes revenue net of purchased power expense and revenue net of fuel expense are useful measurements of its performance because they provide information that can be used to evaluate its net revenue from operations. PECO has included the analysis below as a complement to the financial information provided in accordance with GAAP. However, revenue net of purchased power expense and revenue net of fuel expense figures are not presentations defined under GAAP and may not be comparable to other companies’ presentations or more useful than the GAAP information provided elsewhere in this report.

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Net Income

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. PECO’s Net income increased from the same period in 2016, primarily due to lower income tax expense as a result of a higher tax repairs deduction.

Revenues Net of Purchased Power and Fuel Expense

Electric and natural gas revenue and purchased power and fuel expense are affected by fluctuations in commodity procurement costs. PECO’s electric supply and natural gas cost rates charged to customers are subject to adjustments at least quarterly that are designed to recover or refund the difference between the actual cost of electric supply and natural gas and the amount included in rates in accordance with the PAPUC’s GSA and PGC, respectively. Therefore, fluctuations in electric supply and natural gas procurement costs have no impact on electric and natural gas revenue net of purchased power and fuel expense.

Electric and natural gas revenue and purchased power and fuel expense are also affected by fluctuations in participation in the Customer Choice Program. All PECO customers have the choice to purchase electricity and natural gas from competitive electric generation and natural gas suppliers, respectively. The customers’ choice of suppliers does not impact the volume of deliveries, but affects revenue collected from customers related to supplied energy and natural gas service. Customer choice program activity has no impact on electric and natural gas revenue net of purchased power and fuel expense.

Retail deliveries purchased from competitive electric generation and natural gas suppliers (as a percentage of kWh and mmcf sales, respectively) for the three months ended March 31, 2017 and 2016, consisted of the following:


	Three Months Ended March 31,
	2017			2016
Electric		70	%		69	%
Natural Gas		25	%		25	%

Retail customers purchasing electric generation and natural gas from competitive electric generation and natural gas suppliers at March 31, 2017 and 2016 consisted of the following:


	March 31, 2017					March 31, 2016
	Number of customers		% of total retail customers			Number of customers		% of total retail customers
Electric		589,700		36	%		570,000		35	%
Natural Gas		81,300		16	%		80,600		16	%

The changes in PECO’s Operating revenues net of purchased power and fuel expense for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	Three Months Ended March 31, 2017
	Increase (Decrease)
	Electric			Natural Gas			Total
Weather	$	2		$	1		$	3
Volume		(5	)		—			(5	)
Pricing		(2	)		—			(2	)
Regulatory required programs		(9	)		—			(9	)
Other		3			(1	)		2

Total decrease	$	(11	)	$	—		$	(11	)

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Weather. The demand for electricity and natural gas is affected by weather conditions. With respect to the electric business, very warm weather in summer months and, with respect to the electric and natural gas businesses, very cold weather in winter months are referred to as “favorable weather conditions” because these weather conditions result in increased deliveries of electricity and natural gas. Conversely, mild weather reduces demand. During the three months ended March 31, 2017 compared to the same period in 2016, Operating revenue net of purchased power and fuel expense was relatively consistent.

Heating and cooling degree days are quantitative indices that reflect the demand for energy needed to heat or cool a home or business. Normal weather is determined based on historical average heating and cooling degree days for a 30-year period in PECO’s service territory. The changes in heating and cooling degree days in PECO’s service territory for the three months ended March 31, 2017 compared to the same periods in 2016 and normal weather consisted of the following:


Heating and Cooling Degree-Days					Normal		% Change
Three Months Ended March 31,	2017		2016		Normal		2017 vs. 2016			2017 vs. Normal
Heating Degree-Days		2,094		2,137		2,476		(2.0	)%		(15.4	)%
Cooling Degree-Days		—		5		—		(100.0	)%		n/a

Volume. The decrease in Operating revenue net of purchased power expense related to delivery volume, exclusive of the effects of weather, for the three months ended March 31, 2017 compared to the same period in 2016, primarily reflects the impacts of energy efficiency initiatives on customer usage as well as the impacts of an extra day of usage due to the leap year in 2016, partially offset by moderate economic and customer growth. Operating revenue net of purchased fuel expense related to delivery volume, exclusive of the effects of weather, for the three months ended March 31, 2017 compared to the same period in 2016, remained relatively consistent.

Pricing. Operating revenues net of purchased power and fuel expense as a result of pricing for the three months ended March 31, 2017 compared to the same period in 2016 remained relatively consistent.

Regulatory Required Programs. This represents the change in Operating revenue collected under approved riders to recover costs incurred for regulatory programs such as energy efficiency and the GSA. The riders are designed to provide full and current cost recovery as well as a return. The costs of these programs are included in Operating and maintenance expense, Depreciation and amortization expense and Income taxes. Refer to the Operating and maintenance expense discussion below for additional information on included programs.

Other. Other revenue, which can vary period to period, primarily includes wholesale transmission revenue, rental revenue, revenue related to late payment charges and assistance provided to other utilities through mutual assistance programs.

Operating and Maintenance Expense


	Three Months Ended March 31,				Increase (Decrease)
	2017		2016		Increase (Decrease)
Operating and maintenance expense — baseline	$	196	$	195	$	1
Operating and maintenance expense — regulatory required programs^(a)		12		20		(8	)

Total operating and maintenance expense	$	208	$	215	$	(7	)

(a)	Operating and maintenance expenses for regulatory required programs are costs for various legislative and/or regulatory programs that are recoverable from customers on a full and current basis through approved regulated rates. An equal and offsetting amount has been reflected in operating revenue.

209

The changes in Operating and maintenance expense for the three months ended March 31, 2017 compared to the same period in 2016, consisted of the following:


	Three months ended March 31, 2017
	Increase (Decrease)
Baseline
Labor, other benefits, contracting and materials	$	3
Storm-related costs		(1	)
Pension and non-pension postretirement benefits expense		(1	)
BSC costs		(4	)
Uncollectible accounts expense		1
Other		3

		1
Regulatory Required Programs
Energy efficiency		(8	)

		(8	)

Total decrease	$	(7	)

Depreciation and Amortization Expense

The changes in Depreciation and amortization expense for the three months ended March 31, 2017 compared to the same period in 2016, consisted of an increase of $4 million.

Taxes Other Than Income

Taxes other than income, which can vary period to period, include municipal and state utility taxes, real estate taxes and payroll taxes. Taxes other than income decreased for the three months ended March 31, 2017 compared to the same period in 2016 due to a decrease in gross receipts tax driven by decreases in electric revenue, which was impacted primarily by energy efficiency programs.

Interest Expense, Net

Interest expense, net for the three months ended March 31, 2017 remained consistent compared to the same period in 2016.

Other, Net

Other, net for the three months ended March 31, 2017 remained consistent compared to the same period in 2016.

Effective Income Tax Rate

PECO’s effective income tax rate was 22.1% and 25.7% for the three months ended March 31, 2017 and 2016, respectively. See Note 11 — Income Taxes of the Combined Notes to the Consolidated Financial Statements for further discussion of the change in effective income tax rate.

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PECO Electric Operating Statistics and Revenue Detail


	Three Months Ended March 31,				% Change			Weather - Normal % Change
Retail Deliveries to Customers (in GWhs)	2017		2016		% Change			Weather - Normal % Change
Retail Deliveries^(a)
Residential		3,378		3,415		(1.1	)%		(1.5	)%
Small commercial & industrial		1,976		2,025		(2.4	)%		(3.0	)%
Large commercial & industrial		3,626		3,594		0.9	%		0.6	%
Public authorities & electric railroads		224		227		(1.3	)%		(1.3	)%

Total retail deliveries		9,204		9,261		(0.6	)%		(1.0	)%


	As of March 31,
Number of Electric Customers	2017		2016
Residential		1,461,662		1,449,470
Small commercial & industrial		150,580		149,388
Large commercial & industrial		3,100		3,092
Public authorities & electric railroads		9,798		9,807

Total		1,625,140		1,611,757


	Three Months Ended March 31,				% Change
Electric Revenue	2017		2016		% Change
Retail Sales^(a)
Residential	$	382	$	410		(6.8	)%
Small commercial & industrial		97		119		(18.5	)%
Large commercial & industrial		52		58		(10.3	)%
Public authorities & electric railroads		8		8		—	%

Total retail		539		595		(9.4	)%

Other revenue^(b)		51		49		4.1	%

Total electric revenue^(c)	$	590	$	644		(8.4	)%

(a)

Reflects delivery volumes and revenue from customers purchasing electricity directly from PECO and customers purchasing electricity from a competitive electric generation supplier as all customers are assessed distribution charges. For customers purchasing electricity from PECO, revenue also reflects the cost of energy and transmission.

(b)	Other revenue primarily includes transmission revenue from PJM and wholesale electric revenue, in addition to rental income.

(c)	Includes operating revenues from affiliates totaling $1 million and $2 million for the three months ended March 31, 2017 and 2016, respectively.

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PECO Natural Gas Operating Statistics and Revenue Detail


	Three Months Ended March 31,				% Change			Weather - Normal % Change
Deliveries to Customers (in mmcf)	2017		2016		% Change			Weather - Normal % Change
Retail Delivery
Retail sales^(a)		27,211		27,111		0.4	%		(0.4	)%
Transportation and other		7,689		7,696		(0.1	)%		(0.8	)%

Total natural gas deliveries		34,900		34,807		0.3	%		(0.4	)%


	As of March 31,
Number of Natural Gas Customers	2017		2016
Residential		473,972		468,808
Commercial & industrial		43,709		43,313

Total retail		517,681		512,121
Transportation		775		817

Total		518,456		512,938


	Three Months Ended March 31,				% Change
Natural Gas Revenue	2017		2016		% Change
Retail Sales
Retail sales^(a)	$	197	$	187		5.3	%
Transportation and other		9		10		(10.0	)%

Total natural gas revenues^(b)	$	206	$	197		4.6	%

(a)

Reflects delivery volumes and revenue from customers purchasing natural gas directly from PECO and customers purchasing natural gas from a competitive natural gas supplier as all customers are assessed distribution charges. For customers purchasing natural gas from PECO, revenue also reflects the cost of natural gas.

(b)	Includes operating revenues from affiliates totaling less than $1 million for both three months ended March 31, 2017 and 2016.

212

Results of Operations — BGE


	Three Months Ended March 31,						Favorable (Unfavorable) Variance
	2017			2016			Favorable (Unfavorable) Variance
Operating revenues	$	951		$	929		$	22
Purchased power and fuel expense		350			373			23

Revenues net of purchased power and fuel expense^(a)		601			556			45

Other operating expenses
Operating and maintenance		183			202			19
Depreciation and amortization		128			109			(19	)
Taxes other than income		62			58			(4	)

Total other operating expenses		373			369			(4	)

Operating income		228			187			41

Other income and (deductions)
Interest expense, net		(27	)		(24	)		(3	)
Other, net		4			4			—

Total other income and (deductions)		(23	)		(20	)		(3	)

Income before income taxes		205			167			38
Income taxes		80			66			(14	)

Net income		125			101			24
Preference stock dividends		—			3			3

Net income attributable to common shareholder	$	125		$	98		$	27

(a)

BGE evaluates its operating performance using the measures of revenue net of purchased power expense for electric sales and revenue net of fuel expense for gas sales. BGE believes revenues net of purchased power and fuel expense are useful measurements of its performance because they provide information that can be used to evaluate its net revenue from operations. BGE has included the analysis below as a complement to the financial information provided in accordance with GAAP. However, revenues net of purchased power and fuel expense figures are not a presentation defined under GAAP and may not be comparable to other companies’ presentations or more useful than the GAAP information provided elsewhere in this report.

Net Income Attributable to Common Shareholder

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. BGE’s Net income attributable to common shareholder for the three months ended March 31, 2017 was higher than the same period in 2016, primarily due to an increase in Revenues net of purchased power and fuel, predominantly as a result of higher electric and natural gas revenues as a result of the distribution rate orders issued by the MDPSC in June 2016 and July 2016, and lower Operating and maintenance expense mostly due to decreased storm costs. These items were partially offset by an increase in Depreciation and amortization expense primarily related to increased amortization of AMI meters and Income tax expense driven by higher taxable income.

Revenues Net of Purchased Power and Fuel Expense

There are certain drivers to Operating revenues that are offset by their impact on Purchased power and fuel expense, such as commodity procurement costs and programs allowing customers to select a competitive electric or natural gas supplier. Operating revenues and Purchased power and fuel expense are affected by fluctuations in commodity procurement costs. BGE’s electric and natural gas rates charged to customers are subject to periodic adjustments that are designed to recover or refund the difference between the actual cost of purchased electric

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power and purchased natural gas and the amount included in rates in accordance with the MDPSC’s market-based SOS and gas commodity programs, respectively.

Electric and natural gas revenue and purchased power and fuel expense are also affected by fluctuations in the number of customers electing to use a competitive electric generation or natural gas supplier. All BGE customers have the choice to purchase electricity and natural gas from competitive electric generation and natural gas suppliers, respectively. The customers’ choice of suppliers does not impact the volume of deliveries, but does affect revenue collected from customers related to supplied energy and natural gas service.


	Three Months Ended March 31,
	2017			2016
Electric		58	%		57	%
Natural Gas		48	%		49	%

The number of retail customers purchasing electric generation and natural gas from competitive electric generation and natural gas suppliers at March 31, 2017 and 2016 consisted of the following:


	March 31, 2017					March 31, 2016
	Number of Customers		% of total retail customers			Number of customers		% of total retail customers
Electric		339,600		27	%		341,800		27	%
Natural Gas		149,300		22	%		153,500		23	%

The changes in BGE’s operating revenues net of purchased power and fuel expense for the three months ended March 31, 2017, compared to the same period in 2016, consisted of the following:


	Three Months Ended March 31, 2017
	Increase (Decrease)
	Electric			Gas		Total
Distribution rate increase	$	12		$	26	$	38
Regulatory required programs		3			1		4
Transmission revenue		(1	)		—		(1	)
Other, net		3			1		4

Total increase	$	17		$	28	$	45

Distribution Rate Increase. The increase in distribution revenues for the three months ended March 31, 2017, compared to the same period in 2016, was primarily due to the impact of the new electric and natural gas distribution rates charged to customers that became effective in June 2016 in accordance with the MDPSC approved electric and natural gas distribution rate case orders in June 2016 and July 2016. See Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.

Revenue Decoupling. The demand for electricity and natural gas is affected by weather and usage conditions. The MDPSC allows BGE to record a monthly adjustment to its electric and natural gas distribution revenue from all residential customers, commercial electric customers, the majority of large industrial electric customers, and all firm service natural gas customers to eliminate the effect of abnormal weather and usage patterns per customer on BGE’s electric and natural gas distribution volumes, thereby recovering a specified

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dollar amount of distribution revenue per customer, by customer class, regardless of changes in actual consumption levels. This allows BGE to recognize revenue at MDPSC-approved levels per customer, regardless of what BGE’s actual distribution volumes were for a billing period. Therefore, while this revenue is affected by customer growth (i.e., increase in the number of customers), it will not be affected by actual weather or usage conditions (i.e., changes in consumption per customer). BGE bills or credits customers in subsequent months for the difference between approved revenue levels under revenue decoupling and actual customer billings.

Heating and cooling degree days are quantitative indices that reflect the demand for energy needed to heat or cool a home or business. Normal weather is determined based on historical average heating and cooling degree days for a 30-year period in BGE’s service territory. The changes in heating and cooling degree days in BGE’s service territory for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	2017		2016		Normal		% Change
Heating and Cooling Degree-Days							2017 vs. 2016			2017 vs. Normal
Three Months Ended March 31,
Heating Degree-Days		2,063		2,280		2,404		(9.5	)%		(14.2	)%
Cooling Degree-Days		—		—		—		n/a			n/a

Regulatory Required Programs. This represents the change in revenue collected under approved riders to recover costs incurred for the energy efficiency and demand response programs. The riders are designed to provide full recovery, as well as a return in certain instances. The costs of these programs are included in Operating and maintenance expense, Depreciation and amortization expense and Taxes other than income in BGE’s Consolidated Statements of Operations and Comprehensive Income.

Transmission Revenue. Under a FERC approved formula, transmission revenue varies from year to year based upon fluctuations in the underlying costs, investments being recovered and other billing determinants. The transmission revenue stayed relatively consistent during the three months ended March 31, 2017 compared to the same period in 2016. See Operating and Maintenance Expense below and Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.

Other, Net. Other net revenue, which can vary from period to period, includes commodity electric and gas revenue and other miscellaneous revenue such as service application and late payment fees; partially offset by commodity electric and gas purchased fuel and energy.

Operating and Maintenance Expense

The changes in operating and maintenance expense for the three months ended March 31, 2017 compared to the same period in 2016, consisted of the following:


	Increase (Decrease)
Storm-related costs	$	(12	)
Uncollectible accounts expense^(a)		(7	)
City of Baltimore conduit fees		(4	)
BSC costs		3
Other		1

Total decrease	$	(19	)

(a)	Uncollectible accounts decreased primarily due to milder weather and improved customer behavior for the three months ended March 31, 2017 compared to the same period in 2016.

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Depreciation and Amortization

The changes in depreciation and amortization expense for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	Increase (Decrease)
Depreciation expense^(a)	$	4
Regulatory asset amortization^(b)		14
Other		1

Total increase	$	19

(a)	Depreciation expense increased due to ongoing capital expenditures.

(b)

Regulatory asset amortization increased for the three months ended March 31, 2017 compared to the same period in 2016 primarily due to an increase in regulatory asset amortization related to energy efficiency programs and the initiation of cost recovery of the AMI programs under the final electric and natural gas distribution rate case order issued by the MDPSC in June 2016. See Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.

Taxes Other Than Income

Taxes other than income, which can vary period to period, include municipal and state utility taxes, real estate taxes and payroll taxes. Taxes other than income for the three months ended March 31, 2017 compared to the same period in 2016 remained relatively consistent.

Interest Expense, Net

Interest expense, net increased during the three months ended March 31, 2017, compared to the same period in 2016 primarily due to the issuance of Notes in August 2016.

Effective Income Tax Rate

BGE’s effective income tax rate was 39.0% and 39.5% for the three months ended March 31, 2017 and 2016, respectively. See Note 11 — Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the effective income tax rates.

BGE Electric Operating Statistics and Revenue Detail


	Three Months Ended March 31,				% Change			Weather - Normal % Change
Retail Deliveries to Customers (in GWhs)	2017		2016		% Change			Weather - Normal % Change
Retail Deliveries^(a)
Residential		3,127		3,479		(10.1	)%		(6.6	)%
Small commercial & industrial		748		774		(3.4	)%		(3.2	)%
Large commercial & industrial		3,268		3,219		1.5	%		(1.7	)%
Public authorities & electric railroads		68		71		(4.2	)%		(4.8	)%

Total electric deliveries		7,211		7,543		(4.4	)%		(4.1	)%


	As of March 31,
Number of Electric Customers	2017		2016
Residential		1,153,688		1,141,814
Small commercial & industrial		113,238		113,034
Large commercial & industrial		12,084		11,932
Public authorities & electric railroads		279		282

Total		1,279,289		1,267,062

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	Three Months Ended March 31,				% Change
Electric Revenue	2017		2016		% Change
Retail Sales^(a)
Residential	$	405	$	428		(5.4	)%
Small commercial & industrial		72		73		(1.4	)%
Large commercial & industrial		113		100		13.0	%
Public authorities & electric railroads		7		9		(22.2	)%

Total retail		597		610		(2.1	)%

Other revenue^(b)		70		70		—	%

Total electric revenue	$	667	$	680		(1.9	)%

(a)

Reflects delivery volumes and revenue from customers purchasing electricity directly from BGE and customers purchasing electricity from a competitive electric generation supplier as all customers are assessed distribution charges. For customers purchasing electricity from BGE, revenue also reflects the cost of energy and transmission.

(b)	Includes operating revenues from affiliates totaling $2 million for the three months ended March 31, 2017 and 2016.

BGE Natural Gas Operating Statistics and Revenue Detail


	Three Months Ended March 31,				% Change			Weather - Normal % Change
Deliveries to Customers (in mmcf)	2017		2016		% Change			Weather - Normal % Change
Retail Deliveries^(a)
Retail sales		36,371		38,584		(5.7	)%		2.3	%
Transportation and other^(b)		2,279		2,496		(8.7	)%		n/a

Total natural gas deliveries		38,650		41,080		(5.9	)%		2.3	%


	As of March 31,
Number of Gas Customers	2017		2016
Residential		625,642		619,130
Commercial & industrial		44,237		44,224

Total		669,879		663,354


	Three Months Ended March 31,				% Change
Natural Gas Revenue	2017		2016		% Change
Retail Sales^(a)
Retail sales	$	269	$	238		13.0	%
Transportation and other^(b)		15		11		36.4	%

Total natural gas revenues^(c)	$	284	$	249		14.1	%

(a)

Reflects delivery volumes and revenue from customers purchasing natural gas directly from BGE and customers purchasing natural gas from a competitive natural gas supplier as all customers are assessed distribution charges. The cost of natural gas is charged to customers purchasing natural gas from BGE.

(b)	Transportation and other gas revenue includes off-system revenue of 2,279 mmcfs ($12 million) and 2,496 mmcfs ($9 million) for the three months ended March 31, 2017 and 2016, respectively.

(c)	Includes operating revenues from affiliates totaling $3 million for the three months ended March 31, 2017 and 2016.

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Results of Operations — PHI

PHI’s results of operations include the results of its three reportable segments, Pepco, DPL and ACE for all periods presented below. For “Predecessor” reporting periods, PHI’s results of operations also include the results of PES and PCI. See Note 19 — Segment Information of the Combined Notes to Consolidated Financial Statements for additional information regarding PHI’s reportable segments. All material intercompany accounts and transactions have been eliminated in consolidation. A separate specific discussion of the results of operations for Pepco, DPL and ACE is presented elsewhere in this report.

As a result of the PHI Merger, the following consolidated financial results present two separate reporting periods for 2016. The “Predecessor” reporting period represents PHI’s results of operations for the period from January 1, 2016 to March 23, 2016. The “Successor” reporting periods represent PHI’s results of operations for the three months ended March 31, 2017 and for the period from March 24, 2016 to March 31, 2016. All amounts presented below are before the impact of income taxes, except as noted.


	Successor						Predecessor
	Three Months Ended March 31, 2017			March 24 to March 31, 2016			January 1 to March 23, 2016
Operating revenues	$	1,175		$	105		$	1,153
Purchased power and fuel expense		461			38			497

Revenue net of purchased power and fuel expense^(a)		714			67			656

Other operating expenses
Operating and maintenance		256			449			294
Depreciation and amortization		167			14			152
Taxes other than income		111			15			105

Total other operating expenses		534			478			551

Operating income (loss)		180			(411	)		105

Other income and (deductions)
Interest expense, net		(62	)		(6	)		(65	)
Other, net		13			2			(4	)

Total other income and (deductions)		(49	)		(4	)		(69	)

Income (loss) before income taxes		131			(415	)		36
Income taxes		(9	)		(106	)		17

Net income (loss)	$	140		$	(309	)	$	19

(a)

PHI evaluates its operating performance using the measure of revenue net of purchased power and fuel expense for electric and natural gas sales. PHI believes revenue net of purchased power and fuel expense is a useful measurement because it provides information that can be used to evaluate its operational performance. PHI has included the analysis below as a complement to the financial information provided in accordance with GAAP. However, Revenue net of purchased power and fuel expense is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

Successor Period Three Months Ended March 31, 2017

PHI’s net income for the Successor period of three months ended March 31, 2017 was $140 million. There were no significant changes in the underlying trends affecting PHI’s operations during the Successor period of three months ended March 31, 2017 except for the impact of increases in electric distribution and natural gas rates within revenue net of purchased power expense (Pepco electric distribution rates effective November 2016 in Maryland, DPL electric distribution rates effective February 2017 in Maryland, DPL electric distribution and natural gas rates effective July 2016 and December 2016 in Delaware, and ACE electric distribution rates

218

effective August 2016 in New Jersey). Lower uncollectible accounts expense and the deferral of merger-related costs to a regulatory asset contributed to lower Operating and maintenance expense. Income taxes were lower due to unrecognized tax benefits of $59 million for uncertain tax positions related to the deductibility of certain merger commitments.

PHI’s effective income tax rate for the Successor period of three months ended March 31, 2017 was (6.9)%. See Note 11 — Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the effective income tax rates.

Successor Period March 24, 2016 to March 31, 2016

PHI’s net loss for the Successor period from March 24, 2016 to March 31, 2016 was $309 million. There were no significant changes in the underlying trends affecting PHI’s results of operations during the Successor period of March 24, 2016 to March 31, 2016 except for the pre-tax recording of $419 million of non-recurring merger-related costs within Operating and maintenance expense.

PHI’s effective income tax rate for the Successor period of March 24, 2016 to March 31, 2016 was 25.5%. See Note 11 — Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the effective income tax rates.

Predecessor Period January 1, 2016 to March 23, 2016

PHI’s net income for the Predecessor period of January 1, 2016 to March 23, 2016 was $19 million. There were no significant changes in the underlying trends affecting PHI’s results of operations during the Predecessor period of January 1, 2016 to March 23, 2016 except for the pre-tax recording of $29 million of non-recurring merger-related costs within Operating and maintenance expense and $18 million of preferred stock derivative expense within Other, net.

PHI’s effective income tax rate for the Predecessor period of January 1, 2016 to March 23, 2016 was 47.2%. See Note 11 — Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the effective income tax rates.

Results of Operations — Pepco


	Three Months Ended March 31,						Favorable (Unfavorable) Variance
	2017			2016			Favorable (Unfavorable) Variance
Operating revenues	$	530		$	551		$	(21	)
Purchased power expense		166			197			31

Revenue net of purchased power expense^(a)		364			354			10

Other operating expenses
Operating and maintenance		113			290			177
Depreciation and amortization		82			75			(7	)
Taxes other than income		90			94			4

Total other operating expenses		285			459			174

Operating income (loss)		79			(105	)		184

Other income and (deductions)
Interest expense, net		(29	)		(37	)		8
Other, net		8			9			(1	)

Total other income and (deductions)		(21	)		(28	)		7

Income (loss) before income taxes		58			(133	)		191
Income taxes		—			(25	)		(25	)

Net income (loss)	$	58		$	(108	)	$	166

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(a)

Pepco evaluates its operating performance using the measure of revenue net of purchased power expense for electric sales. Pepco believes revenue net of purchased power expense is a useful measurement because it provides information that can be used to evaluate its operational performance. Pepco has included the analysis below as a complement to the financial information provided in accordance with GAAP. However, Revenue net of purchased power expense is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

Net Income (Loss)

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. Pepco’s net income for the three months ended March 31, 2017, was higher than the same period in 2016, primarily due to an increase in revenue net of purchased power expense resulting from higher electric distribution revenues as a result of the distribution rate orders issued by the MDPSC in November 2016, lower Operating and maintenance expense due to merger-related costs recognized in March 2016 and lower uncollectible accounts expense, and a decrease in income tax reserves for uncertain tax positions related to the deductibility of certain merger commitments.

Operating Revenue Net of Purchased Power Expense

Operating revenues include revenue from the distribution and supply of electricity to Pepco’s customers within its service territories at regulated rates. Operating revenues also include transmission service revenue that Pepco receives as a transmission owner from PJM at rates regulated by FERC. Transmission rates are updated annually based on a FERC-approved formula methodology.

Electric revenues and purchased power expense are also affected by fluctuations in participation in the Customer Choice Program. All Pepco customers have the choice to purchase electricity from competitive electric generation suppliers. The customers’ choice of supplier does not impact the volume of deliveries, but affects revenue collected from customers related to supplied energy service.

Retail deliveries purchased from competitive electric generation suppliers (as a percentage of kWh sales) for the three months ended March 31, 2017, compared to the same period in 2016, consisted of the following:


	Three Months Ended March 31,
	2017			2016
Electric		64	%		65	%

Retail customers purchasing electric generation from competitive electric generation suppliers at March 31, 2017 and 2016 consisted of the following:


	March 31, 2017					March 31, 2016
	Number of customers		% of total retail customers			Number of customers		% of total retail customers
Electric		179,241		21	%		173,221		21	%

Retail deliveries purchased from competitive electric generation suppliers represented 73% of Pepco’s retail kWh sales to the District of Columbia customers and 58% of Pepco’s retail kWh sales to Maryland customers for the three months ended March 31, 2017 and 73% of Pepco’s retail kWh sales to the District of Columbia customers and 58% of Pepco’s retail kWh sales to Maryland customers for the three months ended March 31, 2016.

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Operating revenues include transmission enhancement credits that Pepco receives as a transmission owner from PJM in consideration for approved regional transmission expansion plan expenditures.

Operating revenues also include work and services performed on behalf of customers, including other utilities, which is generally not subject to price regulation. Work and services includes mutual assistance to other utilities, highway relocation, rentals of pole attachments, late payment fees and collection fees.

Purchased power expense consists of the cost of electricity purchased by Pepco to fulfill its default electricity supply obligation and, as such, is recoverable from customers in accordance with the terms of public service commission orders.

The changes in Pepco’s operating revenues net of purchased power expense for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	Increase (Decrease)
Volume	$	4
Pricing — distribution revenues		16
Regulatory required programs		(10	)
Transmission revenues		2
Other		(2	)

Total increase	$	10

Revenue Decoupling. Pepco’s results historically have been seasonal, generally producing higher revenue and income in the warmest and coldest periods of the year. For retail customers of Pepco in Maryland and in the District of Columbia, revenues are not affected by unseasonably warmer or colder weather because a bill stabilization adjustment (BSA) for retail customers was implemented that provides for a fixed distribution charge per customer. The BSA has the effect of decoupling the distribution revenue recognized in a reporting period from the amount of power delivered during the period. As a result, the only factors that will cause distribution revenue from customers in Maryland and the District of Columbia to fluctuate from period to period are changes in the number of customers and changes in the approved distribution charge per customer. Changes in customer usage (due to weather conditions, energy prices, energy efficiency programs or other reasons) from period to period have no impact on reported distribution revenue for customers to whom the BSA applies.

In accounting for the BSA in Maryland and the District of Columbia, a Revenue Decoupling Adjustment is recorded representing either (i) a positive adjustment equal to the amount by which revenue from Maryland and the District of Columbia retail distribution sales falls short of the revenue that Pepco is entitled to earn based on the approved distribution charge per customer or (ii) a negative adjustment equal to the amount by which revenue from such distribution sales exceeds the revenue that Pepco is entitled to earn based on the approved distribution charge per customer.

Heating and cooling degree days are quantitative indices that reflect the demand for energy needed to heat or cool a home or business. Normal weather is determined based on historical average heating and cooling degree days for a 20-year period in Pepco’s service territory. The changes in heating and cooling degree days in Pepco’s service territory for the three months ended March 31, 2017 compared to the same period in 2016 and normal weather consisted of the following:


							% Change
	2017		2016		Normal		2017 vs. 2016			2017 vs. Normal
Three Months Ended March 31,
Heating Degree-Days		1,748		2,010		2,138		(13.0	)%		(18.2	)%
Cooling Degree-Days		4		3		3		33.3	%		33.3	%

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Volume. The increase in operating revenue net of purchased power and fuel expense related to delivery volume, exclusive of the effects of weather, for the three months ended March 31, 2017 compared to the same period in 2016, primarily reflects the impact of moderate economic and customer growth.

Pricing — Distribution Revenues. The increase in electric operating revenues net of purchased power expense as a result of pricing for the three months ended March 31, 2017 compared to the same period in 2016 was primarily due to the impact of the new electric distribution rates charged to customers in Maryland that became effective in November 2016. See Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.

Regulatory Required Programs. This represents the change in operating revenues collected under approved riders to recover costs incurred for regulatory programs such as energy efficiency programs. The riders are designed to provide full and current cost recovery as well as a return. The costs of these programs are included in operating and maintenance expense, depreciation and amortization expense and other taxes. Refer to the operating and maintenance expense discussion below for additional information on included programs.

Transmission Revenues. Under a FERC-approved formula, transmission revenue varies from year to year based upon fluctuations in the underlying costs, investments being recovered and other billing adjustments. The increase in revenue net of purchased power expense for the three months ended March 31, 2017 compared to the same period in 2016 is a result of higher rates effective June 1, 2016 related to increases in transmission plant investment and operating expenses, partially offset by lower revenue related to the MAPP abandonment recovery period that ended in March 2016.

Operating and Maintenance Expense


	Three Months Ended March 31,					Increase (Decrease)
	2017			2016		Increase (Decrease)
Operating and maintenance expense — baseline	$	114		$	287	$	(173	)
Operating and maintenance expense — regulatory required programs^(a)		(1	)		3		(4	)

Total operating and maintenance expense	$	113		$	290	$	(177	)

(a)	Operating and maintenance expenses for regulatory required programs are costs for various legislative and/or regulatory programs that are recoverable from customers on a full and current basis through approved regulated rates. An equal and offsetting amount has been reflected in Operating revenues.

The changes in operating and maintenance expense for the three months ended March 31, 2017 compared to the same period in 2016, consisted of the following:


	Increase (Decrease)
Baseline
Labor, other benefits, contracting and materials	$	5
Storm-related costs		1
Uncollectible accounts expense		(9	)
Deferral of merger-related costs to regulatory asset		(1	)
BSC and PHISCO allocations^(a)		(27	)
Merger commitments^(b)		(139	)
Other		(3	)

		(173	)
Regulatory required programs
Purchased power administrative costs		(4	)

Total decrease	$	(177	)

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(a)	Primarily related to merger severance and compensation costs recognized in 2016.

(b)	Primarily related to merger-related commitments for customer rate credits and charitable contributions recognized in 2016.

Depreciation and Amortization Expense

The changes in depreciation and amortization expense for the three months ended March 31, 2017 compared to the same period in 2016, consisted of the following:


	Increase (Decrease)
Depreciation expense^(a)	$	8
Regulatory asset amortization		(1	)

Total increase	$	7

(a)	Depreciation expense increased due to higher depreciation rates in Maryland effective November 2016 and due to ongoing capital expenditures.

Taxes Other Than Income

Taxes other than income for the three months ended March 31, 2017 compared to the same period in 2016 decreased primarily due to lower utility taxes that are collected and passed through by Pepco, partially offset by higher property taxes in Maryland.

Interest Expense, Net

Interest expense, net for the three months ended March 31, 2017 compared to the same period in 2016 decreased primarily due to the recording of interest expense for an uncertain tax position in the first quarter of 2016 and an increase in capitalized AFUDC interest.

Other, Net

Other, net for the three months ended March 31, 2017 compared to the same period in 2016 remained relatively constant.

Effective Income Tax Rate

Pepco’s effective income tax rate was 0.0% and 18.8% for the three months ended March 31, 2017 and 2016, respectively. In the first quarter of 2017, Pepco decreased its liability for unrecognized tax benefits by $21 million resulting in a benefit to Income taxes and a corresponding decrease in its effective tax rate. See Note 11—Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the change in effective income tax rates.

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Pepco Electric Operating Statistics and Revenue Detail


	Three Months Ended March 31,
Retail Deliveries to Customers (in GWhs)	2017		2016		% Change			Weather - Normal % Change
Retail Deliveries^(a)
Residential		2,000		2,218		(9.8	)%		(4.4	)%
Small commercial & industrial		326		381		(14.4	)%		(12.4	)%
Large commercial & industrial		3,485		3,945		(11.7	)%		(10.8	)%
Public authorities & electric railroads		190		189		0.5	%		0.5	%

Total retail deliveries		6,001		6,733		(10.9	)%		(8.4	)%


	As of March 31,
Number of Electric Customers	2017		2016
Residential		785,016		769,934
Small commercial & industrial		53,640		53,853
Large commercial & industrial		21,413		20,996
Public authorities & electric railroads		136		126

Total		860,205		844,909


	Three Months Ended March 31,
Electric Revenue	2017		2016		% Change
Retail Sales^(a)
Residential	$	240	$	255		(5.9	)%
Small commercial & industrial		34		37		(8.1	)%
Large commercial & industrial		195		200		(2.5	)%
Public authorities & electric railroads		8		8		—	%

Total retail		477		500		(4.6	)%
Other revenue^(b)		53		51		3.9	%

Total electric revenue^(c)	$	530	$	551		(3.8	)%

(a)

Reflects delivery volumes and revenues from customers purchasing electricity directly from Pepco and customers purchasing electricity from a competitive electric generation supplier as all customers are assessed distribution charges. For customers purchasing electricity from Pepco, revenue also reflects the cost of energy and transmission.

(b)	Other revenue includes transmission revenue from PJM and wholesale electric revenues.

(c)	Includes operating revenues from affiliates totaling $1 million and $1 million for the three months ended March 31, 2017 and 2016, respectively.

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Results of Operations — DPL


	Three Months Ended March 31,						Favorable (Unfavorable) Variance
	2017			2016			Favorable (Unfavorable) Variance
Operating revenues	$	362		$	362		$	—
Purchased power and fuel expense		157			176			19

Revenues net of purchased power and fuel expense^(a)		205			186			19

Other operating expenses
Operating and maintenance		73			204			131
Depreciation and amortization		39			39			—
Taxes other than income		15			15			—

Total other operating expenses		127			258			131

Operating income (loss)		78			(72	)		150

Other income and (deductions)
Interest expense, net		(13	)		(12	)		(1	)
Other, net		3			3			—

Total other income and (deductions)		(10	)		(9	)		(1	)

Income (loss) before income taxes		68			(81	)		149
Income taxes		11			(9	)		(20	)

Net income (loss)	$	57		$	(72	)	$	129

(a)

DPL evaluates its operating performance using the measure of revenue net of purchased power expense for electric sales and revenue net of fuel expense for natural gas sales. DPL believes revenue net of purchased power expense and revenue net of fuel expense are useful measurements because they provide information that can be used to evaluate its operational performance. DPL has included the analysis below as a complement to the financial information provided in accordance with GAAP. However, Revenue net of purchased power expense and Revenue net of fuel expense is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

Net Income (Loss)

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. DPL’s net income for the three months ended March 31, 2017, was higher than the same period in 2016 as a result of an increase in revenue net of purchased power and fuel expense primarily resulting from higher electric distribution and natural gas revenues as a result of the distribution rate orders issued by the DPSC in July 2016 and December 2016 and by the MDPSC in February 2017, lower Operating and maintenance expense due to merger-related costs recognized in March 2016, lower uncollectible accounts expense, and the deferral of merger-related costs to a regulatory asset in 2017, and a decrease in income tax reserves for uncertain tax positions related to the deductibility of certain merger commitments.

Revenues Net of Purchased Power and Fuel Expense

Operating revenues include revenue from the distribution and supply of electricity to DPL’s customers within its service territories at regulated rates. Operating revenues also include transmission service revenue that DPL receives as a transmission owner from PJM at rates regulated by FERC. Transmission rates are updated annually based on a FERC-approved formula methodology.

Electric and natural gas revenues and purchased power and fuel expense are also affected by fluctuations in participation in the Customer Choice Program. All DPL customers have the choice to purchase electricity and

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natural gas from competitive electric generation and natural gas suppliers, respectively. The customers’ choice of suppliers does not impact the volume of deliveries, but affects revenue collected from customers related to supplied energy and natural gas service.


	Three Months Ended March 31,
	2017			2016
Electric		50	%		49	%
Natural Gas		27	%		25	%

Retail customers purchasing electric generation and natural gas from competitive electric generation and natural gas suppliers at March 31, 2017 and 2016 consisted of the following:


	March 31, 2017					March 31, 2016
	Number of customers		% of total retail customers			Number of customers		% of total retail customers
Electric		79,270		15	%		77,014		15	%
Natural Gas		156		0.1	%		158		0.1	%

Retail deliveries purchased from competitive electric generation suppliers represented 53% of DPL’s retail kWh sales to Delaware customers and 45% of DPL retail kWh sales to Maryland customers for the three months ended March 31, 2017 and 51% to Delaware customers and 44% to Maryland customers for the three months ended March 31, 2016.

Operating revenues include transmission enhancement credits that DPL receives as a transmission owner from PJM in consideration for approved regional transmission expansion plan expenditures.

Natural gas operating revenue includes sources that are subject to price regulation (Regulated Gas Revenue) and those that generally are not subject to price regulation (Other Gas Revenue). Regulated gas revenue includes the revenue DPL receives from on-system natural gas delivered sales and the transportation of natural gas for customers within its service territory at regulated rates. Other gas revenue consists of off-system natural gas sales and the short-term release of interstate pipeline transportation and storage capacity not needed to serve customers. Off-system sales are made possible when low demand for natural gas by regulated customers creates excess pipeline capacity.

Purchased power expense consists of the cost of electricity purchased by DPL to fulfill its default electricity supply obligation and, as such, is recoverable from customers in accordance with the terms of public service commission orders. Purchased fuel expense consists of the cost of gas purchased by DPL to fulfill its obligation to regulated gas customers and, as such, is recoverable from customers in accordance with the terms of public service commission orders. It also includes the cost of gas purchased for off-system sales.

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The changes in DPL’s operating revenues net of purchased power and fuel expense for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	Increase (Decrease)
	Electric			Gas			Total
Weather	$	(2	)	$	(6	)	$	(8	)
Volume		(1	)		6			5
Pricing — distribution revenues		19			3			22
Regulatory required programs		1			—			1
Transmission revenues		(2	)		—			(2	)
Other		1			—			1

Total increase	$	16		$	3		$	19

Revenue Decoupling. DPL’s results historically have been seasonal, generally producing higher revenue and income in the warmest and coldest periods of the year. For retail customers of DPL in Maryland, revenues are not affected by unseasonably warmer or colder weather because a bill stabilization adjustment (BSA) for retail customers was implemented that provides for a fixed distribution charge per customer. The BSA has the effect of decoupling the distribution revenue recognized in a reporting period from the amount of power delivered during the period. As a result, the only factors that will cause distribution revenue from customers in Maryland to fluctuate from period to period are changes in the number of customers and changes in the approved distribution charge per customer. A modified fixed variable rate design, which would provide for a charge not tied to a customer’s volumetric consumption of electricity or natural gas, has been proposed for DPL electricity and natural gas customers in Delaware. Changes in customer usage (due to weather conditions, energy prices, energy efficiency programs or other reasons) from period to period have no impact on reported distribution revenue for customers to whom the BSA applies.

In accounting for the BSA in Maryland, a Revenue Decoupling Adjustment is recorded representing either (i) a positive adjustment equal to the amount by which revenue from Maryland retail distribution sales falls short of the revenue that DPL is entitled to earn based on the approved distribution charge per customer or (ii) a negative adjustment equal to the amount by which revenue from such distribution sales exceeds the revenue that DPL is entitled to earn based on the approved distribution charge per customer.

Weather. The demand for electricity and natural gas in areas not subject to the BSA is affected by weather conditions. With respect to the electric business, very warm weather in summer months and, with respect to the electric and natural gas businesses, very cold weather in winter months are referred to as “favorable weather conditions” because these weather conditions result in increased deliveries of electricity and natural gas. Conversely, mild weather reduces demand. During the three months ended March 31, 2017 compared to the same period in 2016, operating revenue net of purchased power and fuel expense was lower due to the impact of unfavorable winter weather conditions in DPL’s service territory.

Heating and cooling degree days are quantitative indices that reflect the demand for energy needed to heat or cool a home or business. Normal weather is determined based on historical average heating and cooling degree days for a 20-year period in DPL’s electric service territory and a 30-year period in DPL’s natural gas service territory. The changes in heating and cooling degree days in DPL’s service territory for the three months ended March 31, 2017 compared to the same period in 2016 and normal weather consisted of the following:


Electric Service Territory							% Change
Three Months Ended March 31,	2017		2016		Normal		2017 vs. 2016			2017 vs. Normal
Heating Degree-Days		2,002		2,247		2,417		(10.9	)%		(17.2	)%
Cooling Degree-Days		—		3		2		(100.0	)%		(100.0	)%

227


Natural Gas Service Territory							% Change
Three Months Ended March 31,	2017		2016		Normal		2017 vs. 2016			2017 vs. Normal
Heating Degree-Days		2,031		2,335		2,516		(13.0	)%		(19.3	)%

Pricing — Distribution Revenues. The increase in electric operating revenues net of purchased power expense as a result of pricing for the three months ended March 31, 2017 compared to the same period in 2016 was primarily due to the impact of the new electric distribution and natural gas rates charged to Delaware customers that became effective in July and December 2016 and the impact of new electric distribution rates charged to Maryland customers that became effective in February 2017. See Note 5—Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.

Regulatory Required Programs. This represents the change in operating revenues collected under approved riders to recover costs incurred for regulatory programs such as energy efficiency programs. The riders are designed to provide full and current cost recovery as well as a return. The costs of these programs are included in operating and maintenance expense, depreciation and amortization expense and income taxes. Refer to the operating and maintenance expense discussion below for additional information on included programs.

Transmission Revenues. Under a FERC-approved formula, transmission revenue varies from year to year based upon fluctuations in the underlying costs, investments being recovered and other billing adjustments. The decrease in revenue net of purchased power expense for the three months ended March 31, 2017 compared to the same period in 2016 is a result of lower revenue related to the MAPP abandonment recovery period that ended in March 2016, partially offset by higher rates effective June 1, 2016 related to increases in transmission plant investment and operating expenses.

Operating and Maintenance Expense


	Three Months Ended March 31,				Increase (Decrease)
	2017		2016		Increase (Decrease)
Operating and maintenance expense — baseline	$	72	$	201	$	(129	)
Operating and maintenance expense — regulatory required programs^(a)		1		3		(2	)

Total operating and maintenance expense	$	73	$	204	$	(131	)

(a)	Operating and maintenance expenses for regulatory required programs are costs for various legislative and/or regulatory programs that are recoverable from customers on a full and current basis through approved regulated rates. An equal and offsetting amount has been reflected in Operating revenues.

228

The changes in operating and maintenance expense for the three months ended March 31, 2017 compared to the same period in 2016, consisted of the following:


	Increase (Decrease)
Baseline
Labor, other benefits, contracting and materials	$	(4	)
Storm-related costs		7
Uncollectible accounts expense		(5	)
Deferral of merger-related costs to regulatory asset		(9	)
Write-off of construction work in progress		3
BSC and PHISCO allocations^(a)		(16	)
Merger commitments^(b)		(103	)
Other		(2	)

		(129	)
Regulatory required programs
Purchased power administrative costs		(2	)

Total decrease	$	(131	)

(a)	Primarily related to merger severance and compensation costs recognized in 2016.

(b)	Primarily related to merger-related commitments for customer rate credits and charitable contributions recognized in 2016.

Depreciation and Amortization Expense

The changes in depreciation and amortization expense for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	Increase (Decrease)
Depreciation expense^(a)	$	2
Regulatory asset amortization^(b)		(2	)

Total increase	$	—

(a)	Depreciation expense increased due to higher depreciation rates in Maryland effective February 2017 and due to ongoing capital expenditures.

(b)	Regulatory asset amortization decreased for the three months ended March 31, 2017 compared to the same period in 2016 due to lower amortization of MAPP abandonment costs.

Taxes Other Than Income

Taxes other than income for the three months ended March 31, 2017 compared to the same period in 2016 remained relatively constant.

Interest Expense, Net

Interest expense, net for the three months ended March 31, 2017 compared to the same period in 2016 remained relatively constant.

Other, Net

Other, net for the three months ended March 31, 2017 compared to the same period in 2016 remained relatively constant.

Effective Income Tax Rate

DPL’s effective income tax rate was 16.2% and 11.1% for the three months ended March 31, 2017 and 2016, respectively. In the first quarter of 2017, DPL decreased its liability for unrecognized tax benefits by

229

$16 million resulting in a benefit to Income taxes and a corresponding decrease in its effective tax rate. See Note 11 — Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the effective income tax rates.

DPL Electric Operating Statistics and Revenue Detail


	Three Months Ended March 31,				% Change			Weather - Normal % Change
Retail Deliveries to Customers (in GWhs)	2017		2016
Retail Deliveries^(a)
Residential		1,359		1,428		(4.8	)%		(0.3	)%
Small commercial & industrial		531		572		(7.2	)%		(6.0	)%
Large commercial & industrial		1,064		1,078		(1.3	)%		(0.6	)%
Public authorities & electric railroads		13		14		(7.1	)%		(7.1	)%

Total retail deliveries		2,967		3,092		(4.0	)%		(1.5	)%


	As of March 31,
Number of Electric Customers	2017		2016
Residential		457,663		453,670
Small commercial & industrial		60,289		59,860
Large commercial & industrial		1,411		1,418
Public authorities & electric railroads		642		643

Total		520,005		515,591


	Three Months Ended March 31,				% Change
Electric Revenue	2017		2016		% Change
Retail Sales^(a)
Residential	$	181	$	182		(0.5	)%
Small commercial & industrial		45		49		(8.2	)%
Large commercial & industrial		25		25		—	%
Public authorities & electric railroads		4		4		—	%

Total retail		255		260		(1.9	)%
Other revenue^(b)		41		43		(4.7	)%

Total electric revenue^(c)	$	296	$	303		(2.3	)%

(a)

Reflects delivery volumes and revenues from customers purchasing electricity directly from DPL and customers purchasing electricity from a competitive electric generation supplier as all customers are assessed distribution charges. For customers purchasing electricity from DPL, revenue also reflects the cost of energy and transmission.

(b)	Other revenue includes transmission revenue from PJM and wholesale electric revenues.

(c)	Includes operating revenues from affiliates totaling $2 million and $2 million for the three months ended March 31, 2017 and 2016, respectively.

DPL Natural Gas Operating Statistics and Revenue Detail


	Three Months Ended March 31,				% Change			Weather - Normal % Change
Retail Deliveries to Customers (in mmcf)	2017		2016		% Change			Weather - Normal % Change
Retail Deliveries
Residential		5,932		6,060		(2.1	)%		9.5	%
Transportation & other		2,168		1,968		10.2	%		13.7	%

Total natural gas deliveries		8,100		8,028		0.9	%		10.5	%

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	As of March 31,
Number of Gas Customers	2017		2016
Residential		121,362		120,046
Commercial & industrial		9,855		9,772
Transportation & other		156		158

Total		131,373		129,976


	Three Months Ended March 31,				% Change
Natural Gas Revenue	2017		2016		% Change
Retail Sales^(a)
Retail sales	$	59	$	53		11.3	%
Transportation & other^(b)		7		6		16.7	%

Total natural gas revenues	$	66	$	59		11.9	%

(a)

Reflects delivery volumes and revenues from customers purchasing natural gas directly from DPL and customers purchasing natural gas from a competitive natural gas supplier as all customers are assessed distribution charges. For customers purchasing natural gas from DPL, revenue also reflects the cost of natural gas.

(b)	Transportation and other revenue includes off-system natural gas sales and the short-term release of interstate pipeline transportation and storage capacity not needed to serve customers.

Results of Operations — ACE


	Three Months Ended March 31,						Favorable (Unfavorable) Variance
	2017			2016			Favorable (Unfavorable) Variance
Operating revenues	$	275		$	291		$	(16	)
Purchased power expense		137			158			21

Revenues net of purchased power expense^(a)		138			133			5

Other operating expenses
Operating and maintenance		76			212			136
Depreciation and amortization		35			40			5
Taxes other than income		2			2			—

Total other operating expenses		113			254			141

Operating income (loss)		25			(121	)		146

Other income and (deductions)
Interest expense, net		(15	)		(16	)		1
Other, net		2			4			(2	)

Total other income and (deductions)		(13	)		(12	)		(1	)

Income (loss) before income taxes		12			(133	)		145
Income taxes		(16	)		(33	)		(17	)

Net income (loss)	$	28		$	(100	)	$	128

(a)

ACE evaluates its operating performance using the measure of revenue net of purchased power expense for electric sales. ACE believes Revenue net of purchased power expense is a useful measurement of its performance because it provides information that can be used to evaluate its operational performance. ACE has included the analysis below as a complement to the financial information provided in accordance with GAAP. However, Revenue net of purchased power expense is not a presentation defined under GAAP and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report.

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Net Income (Loss)

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016. ACE’s net income for the three months ended March 31, 2017, was higher than the same period in 2016, primarily due to an increase in operating revenue net of purchased power expense resulting from higher electric distribution revenues as a result of the distribution rate order issued by the NJBPU in August 2016, lower Operating and maintenance expense mostly due to merger-related costs recognized in March 2016 and a decrease in income tax reserves for uncertain tax positions related to the deductibility of certain merger commitments.

Revenues Net of Purchased Power Expense

Operating revenues include revenue from the distribution and supply of electricity to ACE’s customers within its service territories at regulated rates. Operating revenues also include transmission service revenue that ACE receives as a transmission owner from PJM at rates regulated by FERC. Transmission rates are updated annually based on a FERC-approved formula methodology.

Electric revenues and purchased power expense are also affected by fluctuations in participation in the Customer Choice Program. All ACE customers have the choice to purchase electricity from competitive electric generation suppliers. The customer’s choice of supplier does not impact the volume of deliveries, but affects revenue collected from customers related to supplied energy service.


	Three Months Ended March 31,
	2017			2016
Electric		49	%		47	%

Retail customers purchasing electric generation from competitive electric generation suppliers at March 31, 2017 and 2016 consisted of the following:


	March 31, 2017					March 31, 2016
	Number of customers		% of total retail customers			Number of customers		% of total retail customers
Electric		93,896		17	%		76,522		14	%

Operating revenues include revenue from Transition Bond Charges that ACE receives, and pays to ACE Funding, to fund the principal and interest payments on Transition Bonds, revenue from the resale in the PJM wholesale markets for energy and capacity purchased under contacts with unaffiliated NUGs, and revenue from transmission enhancement credits.

Purchased power expense consists of the cost of electricity purchased by ACE to fulfill its default electricity supply obligation and, as such, is recoverable from customers in accordance with the terms of public service commission orders.

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The changes in ACE’s operating revenue net of purchased power expense for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	Increase (Decrease)
Weather		(1	)
Volume		(5	)
Pricing — distribution revenues		10
Regulatory required programs		(5	)
Transmission revenues		7
Other		(1	)

Total increase		5

Weather. The demand for electricity is affected by weather conditions. With respect to the electric business, very warm weather in summer months and very cold weather in winter months are referred to as “favorable weather conditions” because these weather conditions result in increased deliveries of electricity. Conversely, mild weather reduces demand. During the three months ended March 31, 2017 compared to the same period in 2016, operating revenue net of purchased power and fuel expense was lower due to the impact of slightly unfavorable winter weather conditions in ACE’s service territory.

For retail customers of ACE, distribution revenues are not decoupled from the distribution of electricity by ACE, and thus are subject to variability due to changes in customer consumption. Therefore, changes in customer usage (due to weather conditions, energy prices, energy savings programs or other reasons) from period to period have a direct impact on reported distribution revenue for customers in ACE’s service territory.

Heating and cooling degree days are quantitative indices that reflect the demand for energy needed to heat or cool a home or business. Normal weather is determined based on historical average heating and cooling degree days for a 20-year period in ACE’s service territory. The changes in heating and cooling degree days in ACE’s service territory for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


					Normal		% Change
Three Months Ended March 31,	2017		2016				2017 vs. 2016			2017 vs. Normal
Three Months Ended March 31,	2017		2016				2017 vs. 2016			2017 vs. Normal
Heating Degree-Days		2,150		2,270		2,488		(5.3	)%		(13.6	)%
Cooling Degree-Days		—		4		1		(100.0	)%		(100.0	)%

Volume. The decrease in operating revenue net of purchased power expense related to delivery volume, exclusive of the effects of weather, for the three months ended March 31, 2017 compared to the same period in 2016, primarily reflects lower average customer usage, partially offset by the impact of customer growth.

Pricing — Distribution Revenues. The increase in operating revenue net of purchased power expense for the three months ended March 31, 2017, compared to the same period in 2016, was primarily due to the impact of the new electric distribution base rate charged to customers that became effective in August 2016. See Note 5—Regulatory Matters of the Combined Notes to Consolidated Financial Statements for additional information.

Regulatory Required Programs. This represents the change in operating revenues collected under approved riders to recover costs incurred for regulatory programs such as energy efficiency programs. The riders are designed to provide full and current cost recovery as well as a return. The costs of these programs are included in operating and maintenance expense, depreciation and amortization expense and income taxes. Refer to the depreciation and amortization expense discussion below for additional information on included programs.

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Operating and Maintenance Expense


	Three Months Ended March 31,				Increase (Decrease)
	2017		2016		Increase (Decrease)
Operating and maintenance expense — baseline	$	75	$	211	$	(136	)
Operating and maintenance expense — regulatory required programs^(a)		1		1		—

Total operating and maintenance expense	$	76	$	212	$	(136	)

(a)	Operating and maintenance expenses for regulatory required programs are costs for various legislative and/or regulatory programs that are recoverable from customers on a full and current basis through approved regulated rates. An equal and offsetting amount has been reflected in Operating revenues.

The changes in operating and maintenance expense for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	Increase (Decrease)
Baseline
Labor, other benefits, contracting and materials	$	(2	)
Storm-related costs		1
BSC and PHISCO allocations^(a)		(13	)
Uncollectible accounts expense		(1	)
Merger commitments^(b)		(120	)
Other		(1	)

Total decrease	$	(136	)

(a)	Primarily related to merger severance and compensation costs recognized in 2016.

(b)	Primarily related to merger-related commitments for customer rate credits and charitable contributions recognized in 2016.

Depreciation and Amortization Expense

The changes in depreciation and amortization expense for the three months ended March 31, 2017 compared to the same period in 2016 consisted of the following:


	Increase (Decrease)
Depreciation expense^(a)	$	1
Regulatory asset amortization^(b)		(6	)

Total decrease	$	(5	)

(a)	Depreciation expense increased due to ongoing capital expenditures.

(b)	Regulatory asset amortization decreased for the three months ended March 31, 2017 compared to the same period in 2016 as a result of lower revenue due to a rate decrease effective October 2016 for the ACE Market Transition charge tax.

Taxes Other Than Income

Taxes other than income for the three months ended March 31, 2017 compared to the same period in 2016, remained relatively constant.

Interest Expense, Net

Interest expense, net for the three months ended March 31, 2017 compared to the same period in 2016 remained relatively constant.

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Other, Net

Other, net for the three months ended March 31, 2017 compared to the same period in 2016 decreased primarily due to lower interest income on uncertain tax positions.

Effective Income Tax Rate

ACE’s effective income tax rate was (133.3)% and 24.8% for the three months ended March 31, 2017 and 2016, respectively. In the first quarter of 2017, ACE decreased its liability for unrecognized tax benefits by $22 million resulting in a benefit to Income taxes and a corresponding decrease in its effective tax rate. See Note 11 — Income Taxes of the Combined Notes to Consolidated Financial Statements for additional information regarding the components of the effective income tax rates.

ACE Electric Operating Statistics and Revenue Detail


	Three Months Ended March 31,				% Change			Weather - Normal % Change
Retail Deliveries to Customers (in GWhs)	2017		2016		% Change			Weather - Normal % Change
Retail Deliveries^(a)
Residential		879		938		(6.3	)%		(4.4	)%
Small commercial & industrial		283		289		(2.1	)%		(1.4	)%
Large commercial & industrial		765		820		(6.7	)%		(6.9	)%
Public authorities & electric railroads		13		15		(13.3	)%		(13.3	)%

Total retail deliveries		1,940		2,062		(5.9	)%		(5.0	)%


	As of March 31,
Number of Electric Customers	2017		2016
Residential		485,691		482,718
Small commercial & industrial		60,999		60,858
Large commercial & industrial		3,761		3,828
Public authorities & electric railroads		612		583

Total		551,063		547,987


	Three Months Ended March 31,				% Change
Electric Revenue	2017		2016		% Change
Retail Sales^(a)
Residential	$	142	$	150		(5.3	)%
Small commercial & industrial		36		39		(7.7	)%
Large commercial & industrial		45		51		(11.8	)%
Public authorities & electric railroads		3		3		—	%

Total retail		226		243		(7.0	)%
Other revenue^(b)		49		48		2.1	%

Total electric revenue^(c)	$	275	$	291		(5.5	)%

(a)

Reflects delivery volumes and revenues from customers purchasing electricity directly from ACE and customers purchasing electricity from a competitive electric generation supplier as all customers are assessed distribution charges. For customers purchasing electricity from ACE, revenue also reflects the cost of energy and transmission.

(b)	Other revenue includes transmission revenue from PJM and wholesale electric revenues.

(c)	Includes operating revenues from affiliates totaling $1 million and $1 million for the three months ended March 31, 2017 and 2016, respectively.

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Liquidity and Capital Resources

Exelon activity presented below includes the activity of PHI, Pepco, DPL and ACE, from the PHI Merger effective date of March 24, 2016 through March 31, 2017. Exelon prior year activity is unadjusted for the effects of the PHI Merger. Due to the application of push-down accounting to the PHI entity, PHI’s activity is presented in two separate reporting periods, the legacy PHI activity through March 23, 2016 (Predecessor), and PHI activity for the remainder of the period after the PHI merger date (Successor). For each of Pepco, DPL and ACE the activity presented below include its activity for the three months ended March 31, 2017 and 2016. All results included throughout the liquidity and capital resources section are presented on a GAAP basis.

The Registrants’ operating and capital expenditures requirements are provided by internally generated cash flows from operations as well as funds from external sources in the capital markets and through bank borrowings. The Registrants’ businesses are capital intensive and require considerable capital resources. Each Registrant’s access to external financing on reasonable terms depends on its credit ratings and current overall capital market business conditions, including that of the utility industry in general. If these conditions deteriorate to the extent that the Registrants no longer have access to the capital markets at reasonable terms, the Registrants have access to unsecured revolving credit facilities with aggregate bank commitments of $9 billion. In addition, Generation has $525 million in bilateral facilities with banks which have various expirations between October 2017 and January 2019. The Registrants utilize their credit facilities to support their commercial paper programs, provide for other short-term borrowings and to issue letters of credit. See the “Credit Matters” section below for further discussion. The Registrants expect cash flows to be sufficient to meet operating expenses, financing costs and capital expenditure requirements.

The Registrants primarily use their capital resources, including cash, to fund capital requirements, including construction expenditures, retire debt, pay dividends, fund pension and other postretirement benefit obligations and invest in new and existing ventures. The Registrants spend a significant amount of cash on capital improvements and construction projects that have a long-term return on investment. Additionally, ComEd, PECO, BGE, Pepco, DPL and ACE operate in rate-regulated environments in which the amount of new investment recovery may be delayed or limited and where such recovery takes place over an extended period of time. See Note 10 — Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements for further discussion of the Registrants’ debt and credit agreements.

NRC Minimum Funding Requirements

NRC regulations require that licensees of nuclear generating facilities demonstrate reasonable assurance that sufficient funds will be available in certain minimum amounts to decommission the facility. These NRC minimum funding levels are based upon the assumption that decommissioning activities will commence after the end of the current licensed life of each unit. If a unit fails the NRC minimum funding test, then the plant’s owners or parent companies would be required to take steps, such as providing financial guarantees through letters of credit or parent company guarantees or making additional cash contributions to the NDT fund to ensure sufficient funds are available. See Note 12 — Nuclear Decommissioning to the Combined Notes to Consolidated Financial Statements for additional information on the NRC minimum funding requirements.

If a nuclear plant were to early retire there is a risk that it will no longer meet the NRC minimum funding requirements due to the earlier commencement of decommissioning activities and a shorter time period over which the NDT fund investments could appreciate in value. A shortfall could require Exelon to post parental guarantees for Generation’s share of the obligations. However, the amount of any required guarantees will ultimately depend on the decommissioning approach adopted at each site, the associated level of costs, and the decommissioning trust fund investment performance going forward. Within two years after shutting down a plant, Generation must submit a post-shutdown decommissioning activities report (PSDAR) to the NRC that includes the planned option for decommissioning the site. As discussed in Note 12 — Nuclear Decommissioning, Generation filed its biennial decommissioning funding status report with the NRC on March 31, 2017 and

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demonstrated adequate funding assurance for all nuclear units currently operating, as compared to previous estimates prior to the reversal of the early retirement decision for Clinton and Quad Cities. As of March 31, 2017, TMI passes the NRC minimum funding test based on its current license life. However, in the event of an early retirement of TMI, the most costly estimates could require parental guarantees of up to $35 million.

Upon issuance of any required financial guarantees, each site would be able to utilize the respective NDT funds for radiological decommissioning costs, which represent the majority of the total expected decommissioning costs. However, the NRC must approve an additional exemption in order for the plant’s owner(s) to utilize the NDT fund to pay for non-radiological decommissioning costs (i.e. spent fuel management and site restoration costs). If a unit does not receive this exemption, the costs would be borne by the owner(s). While the ultimate amounts may vary greatly and could be reduced by alternate decommissioning scenarios and/or reimbursement of certain costs under the United States Department of Energy reimbursement agreements or future litigation, across the three alternative decommissioning approaches available, if an early retirement decision is made and TMI were to fail the exemption test, Generation could incur spent fuel management and site restoration costs over the next ten years of up to $145 million net of taxes.

Junior Subordinated Notes

Cash Flows from Operating Activities

General

Generation’s cash flows from operating activities primarily result from the sale of electric energy and energy-related products and services to customers. Generation’s future cash flows from operating activities may be affected by future demand for and market prices of energy and its ability to continue to produce and supply power at competitive costs as well as to obtain collections from customers.

The Utility Registrants’ cash flows from operating activities primarily result from the transmission and distribution of electricity and, in the case of PECO, BGE, and DPL, gas distribution services. The Utility Registrants’ distribution services are provided to an established and diverse base of retail customers. The Utility Registrants’ future cash flows may be affected by the economy, weather conditions, future legislative initiatives, future regulatory proceedings with respect to their rates or operations, competitive suppliers, and their ability to achieve operating cost reductions.

See Notes 3 — Regulatory Matters and 24 — Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements of the Exelon 2016 Form 10-K for further discussion of regulatory and legal proceedings and proposed legislation.

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The following table provides a summary of the major items affecting Exelon’s cash flows from operations for the three months ended March 31, 2017 and 2016:


	Three Months Ended March 31,
	2017			2016^(c)			Variance
Net income	$	981		$	123		$	858
Add (subtract):
Non-cash operating activities^(a)		1,233			1,942			(709	)
Pension and non-pension postretirement benefit contributions		(307	)		(239	)		(68	)
Income taxes		50			47			3
Changes in working capital and other noncurrent assets and liabilities^(b)		(640	)		(623	)		(17	)
Option premiums (paid) received, net		(6	)		17			(23	)
Collateral (posted) received, net		(110	)		206			(316	)

Net cash flows provided by operations	$	1,201		$	1,473		$	(272	)

(a)

Represents, when applicable, depreciation, amortization and accretion, net fair value changes related to derivatives, deferred income taxes, provision for uncollectible accounts, pension and other postretirement benefit expense, equity in earnings and losses of unconsolidated affiliates and investments, decommissioning-related items, stock compensation expense, impairment of long-lived assets, PHI merger commitment and severance charges, and other non-cash charges. See Note 18 — Supplemental Financial Information for further detail on non-cash operating activity.

(b)	Changes in working capital and other noncurrent assets and liabilities exclude the changes in commercial paper, income taxes and the current portion of long-term debt.

(c)	Includes PHI Consolidated activity from March 24, 2016 to December 31, 2016.

Pension and Other Postretirement Benefits

Management considers various factors when making pension funding decisions, including actuarially determined minimum contribution requirements under ERISA, contributions required to avoid benefit restrictions and at-risk status as defined by the Pension Protection Act of 2006, management of the pension obligation and regulatory implications. On July 6, 2012, President Obama signed into law the Moving Ahead for Progress in the Twenty-first Century Act, which contains a pension funding provision that results in lower pension contributions in the near term while increasing the premiums pension plans pay to the Pension Benefit Guaranty Corporation. On August 8, 2014, this funding relief was extended for five years. On November 2, 2015 the funding relief was extended for an additional three years and premiums pension plans pay to the Pension Benefit Guaranty Corporation were further increased.

OPEB funding generally follows accounting cost; however, Exelon’s management has historically considered several factors in determining the level of contributions to its funded other postretirement benefit plans, including liabilities management, levels of benefit claims paid and regulatory implications (amounts deemed prudent to meet regulator expectations and best assure continued recovery).

To the extent interest rates decline significantly or the pension plans do not earn the expected asset return rates, annual pension contribution requirements in future years could increase. Additionally, expected contributions could change if Exelon changes its pension or OPEB funding strategy.

Tax Matters

The Registrants’ future cash flows from operating activities may be affected by the following tax matters:

•

In order to appeal the Tax Court’s like-kind exchange decision, Exelon is required to pay the tax, penalty and interest at the time Exelon files its appeal (expected in the third quarter of 2017). While the final calculation of tax, penalties and interest has not yet been finalized by the IRS, Exelon estimates

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that a payment of approximately $1.3 billion related to the like-kind exchange will be due, including $300 million from ComEd, in the third quarter of 2017. While Exelon will receive a tax benefit of approximately $350 million associated with the deduction for the interest, Exelon currently has a net operating loss carryforward and thus does not expect to realize the cash benefit until 2018. Exelon’s total estimated cash outflow for the like-kind exchange is approximately $950 million, of which approximately $300 million would be attributable to ComEd after giving consideration to Exelon’s agreement to hold ComEd harmless from any unfavorable impacts of the after-tax interest and penalty amounts on ComEd’s equity. ComEd will fund the $300 million with a combination of debt and equity in a manner to maintain its current capital structure. Upon a final appellate decision, which could take up to several years, Exelon expects to receive $80 million related to final interest computations.

•

State and local governments continue to face increasing financial challenges, which may increase the risk of additional income tax levies, property taxes and other taxes or the imposition, extension or permanence of temporary tax levies.

Cash flows from operations for the three months ended March 31, 2017 and 2016 by Registrant were as follows:


	Three Months Ended March 31,
	2017		2016
Exelon	$	1,201	$	1,473
Generation		740		782
ComEd		145		284
PECO		64		138
BGE		168		273
Pepco		29		258
DPL		122		147
ACE		58		246


	Successor					Predecessor
	Three Months Ended March 31, 2017		March 24, 2016 to March 31, 2016			January 1, 2016 to March 23, 2016
PHI	$	194	$	(3	)	$	264

Changes in the Registrants’ cash flows from operations were generally consistent with changes in each Registrant’s respective results of operations, as adjusted by changes in working capital in the normal course of business, except as discussed below. In addition, significant operating cash flow impacts for the Registrants for the three months ended March 31, 2017 and 2016 were as follows:

Generation

•

Depending upon whether Generation is in a net mark-to-market liability or asset position, collateral may be required to be posted with or collected from its counterparties. In addition, the collateral posting and collection requirements differ depending on whether the transactions are on an exchange or in the OTC markets. During the three months ended March 31, 2017 and 2016, Generation had net (payments)/collections of counterparty cash collateral of $(102) million and $198 million, respectively, primarily due to market conditions that resulted in changes to Generation’s net mark-to-market position.

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•

During the three months ended March 31, 2017 and 2016, Generation had net (payments)/collections of approximately $(6) million and $17 million, respectively, related to purchases and sales of options. The level of option activity in a given period may vary due to several factors, including changes in market conditions as well as changes in hedging strategy.

ComEd

•

During three months ended March 31, 2017 and 2016, ComEd posted approximately $8 million and received a return of $7 million of cash collateral with PJM, respectively. ComEd’s collateral posted with PJM has increased year over year primarily due to a reduction in ComEd’s share of Exelon’s unsecured credit with PJM. As of March 31, 2017 and 2016, ComEd had approximately $32 million and $24 million cash collateral posted with PJM, respectively.

For further discussion regarding changes in non-cash operating activities, please refer to Note 18 — Supplemental Financial Information of the Combined Notes to the Financial Statements.

Cash Flows from Investing Activities

Cash flows used in investing activities for the three months ended March 31, 2017 and 2016 by Registrant were as follows:


	Three Months Ended March 31,
	2017			2016
Exelon	$	(2,411	)	$	(8,548	)
Generation		(1,212	)		(1,204	)
ComEd		(529	)		(626	)
PECO		(27	)		(351	)
BGE		(181	)		(191	)
Pepco		(144	)		(136	)
DPL		(80	)		(81	)
ACE		(85	)		(100	)


	Successor						Predecessor
	Three Months Ended March 31, 2017			March 24, 2016 to March 31, 2016			January 1, 2016 to March 23, 2016
PHI	$	(321	)	$	(30	)	$	(343	)

Significant investing cash flow impacts for the Registrants for three months ended March 31, 2017 and 2016 were as follows:

Exelon

•

During the three months ended March 31, 2017, Exelon had expenditures of $23 million and $182 million relating to the acquisitions of ConEdison Solutions and the FitzPatrick facility, respectively. During the three months ended March 31, 2016, Exelon had expenditures of $6.6 billion relating to the acquisition of PHI.

•

During the three months ended March 31, 2016, Exelon had proceeds of $360 million as a result of early termination of direct financing leases.

Generation

•

During the three months ended March 31, 2017, Exelon had expenditures of $23 million and $182 million relating to the acquisitions of ConEdison Solutions and the FitzPatrick facility, respectively.

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Capital Expenditure Spending

Generation

Generation has entered into several agreements to acquire equity interests in privately held and development stage entities which develop energy-related technologies. The agreements contain a series of scheduled investment commitments, including in-kind service contributions. There are approximately $19 million of anticipated expenditures remaining through 2019 to fund anticipated planned capital and operating needs of the associated companies. See Note 24 — Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements of the Exelon 2016 Form 10-K for further details of Generation’s equity interests.

Capital expenditures by Registrant for the three months ended March 31, 2017 and 2016 and projected amounts for the full year 2017 are as follows:


	Projected Full Year 2017^(a)		Three Months Ended March 31,
	Projected Full Year 2017^(a)		2017		2016
Exelon^(c)	$	8,225	$	2,114	$	2,202
Generation		2,625		923		1,125
ComEd^(b)		2,200		535		639
PECO		775		159		195
BGE		925		166		176
Pepco		600		139		109
DPL		400		82		81
ACE		325		88		101


	Projected Full Year 2017^(a)		Successor				Predecessor
	Projected Full Year 2017^(a)		Three Months Ended March 31, 2017		March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
PHI^(d)	$	1,400	$	320	$	29	$	273

(a)	Total projected capital expenditures do not include adjustments for non-cash activity.

(b)	The 2017 projections include approximately $280 million of expected incremental spending pursuant to EIMA, ComEd has committed to invest approximately $2.6 billion over a ten year period, through 2022, to modernize and storm-harden its distribution system and to implement smart grid technology.

(c)	Includes corporate operations, BSC, and PHISCO rounded to the nearest $25 million.

(d)	Includes PHISCO rounded to the nearest $25 million.

Projected capital expenditures and other investments are subject to periodic review and revision to reflect changes in economic conditions and other factors.

Generation

Approximately 35% and 22% of the projected 2017 capital expenditures at Generation are for the acquisition of nuclear fuel and growth (primarily new plant construction and distributed generation), respectively, with the remaining amounts reflecting additions and upgrades to existing facilities (including material condition improvements during nuclear refueling outages). Generation anticipates that they will fund capital expenditures with internally generated funds and borrowings.

ComEd, PECO, BGE, Pepco, DPL and ACE

Approximately 89% of the projected 2017 capital expenditures at ComEd and 100% of the projected of the projected 2017 capital expenditures at PECO, BGE, Pepco, DPL, and ACE are for continuing projects to

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maintain and improve operations, including enhancing reliability and adding capacity to the transmission and distribution systems such as ComEd’s reliability related investments required under EIMA, and the Utility Registrants’ construction commitments under PJM’s RTEP. In addition to the capital expenditure for continuing projects, ComEd’s total expenditures include smart grid/smart meter technology required under EIMA.

The Utility Registrants as transmission owners are subject to NERC compliance requirements. NERC provides guidance to transmission owners regarding assessments of transmission lines. The results of these assessments could require the Utility Registrants to incur incremental capital or operating and maintenance expenditures to ensure their transmission lines meet NERC standards. In 2010, NERC provided guidance to transmission owners that recommended the Utility Registrants perform assessments of their transmission lines. ComEd, PECO and BGE submitted their final bi-annual reports to NERC in January 2014. ComEd, PECO and BGE will be incurring incremental capital expenditures associated with this guidance following the completion of the assessments. Specific projects and expenditures are identified as the assessments are completed. ComEd’s, PECO’s and BGE’s forecasted 2017 capital expenditures above reflect capital spending for remediation to be completed through 2018. Pepco, DPL and ACE have substantially completed their assessments and thus do not expect significant capital expenditures related to this guidance in 2017.

The Utility Registrants anticipate that they will fund their capital expenditures with a combination of internally generated funds and borrowings and additional capital contributions from parent, including ComEd’s capital expenditures associated with EIMA as further discussed in Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements.

Cash Flows from Financing Activities

Cash flows provided by (used in) financing activities for the three months ended March 31, 2017 and 2016 by Registrant were as follows:


	Three Months Ended March 31,
	2017			2016
Exelon	$	1,184		$	1,533
Generation		582			368
ComEd		359			296
PECO		(72	)		(69	)
BGE		1			(86	)
Pepco		114			(103	)
DPL		(44	)		(68	)
ACE		(20	)		(27	)


	Successor					Predecessor
	Three Months Ended March 31, 2017		March 24, 2016 to March 31, 2016			January 1, 2016 to March 23, 2016
PHI	$	66	$	(135	)	$	372

Debt

See Note 10 — Debt and Credit Agreements of the Combined Notes to Consolidated Financial Statements for further details of the Registrants’ debt issuances.

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Dividends

Cash dividend payments and distributions during the three months ended March 31, 2017 and 2016 by Registrant were as follows:


	Three Months Ended March 31,
	2017		2016
Exelon	$	303	$	287
Generation		164		55
ComEd		105		91
PECO		72		69
BGE^(a)		49		48
Pepco		30		39
DPL		30		38
ACE		10		11


	Successor				Predecessor
	Three Months Ended March 31, 2017		March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
PHI	$	69	$	108	$	—

(a)	Includes dividends paid on BGE’s preference stock.

Quarterly dividends declared by the Exelon Board of Directors during the three months ended March 31, 2017 and for the second quarter of 2017 were as follows:


Period	Declaration Date	Shareholder of Record Date	Dividend Payable Date	Cash per Share^(a)
First Quarter 2017	January 31, 2017	February 15, 2017	March 10, 2017	$	0.3275
Second Quarter 2017	April 25, 2017	May 15, 2017	June 9, 2017	$	0.3275

(a)	Exelon’s Board of Directors approved a revised dividend policy. The approved policy will raise the dividend 2.5% each year for the next three years, beginning with the June 2016 dividend and subject to Board approval.

Short-Term Borrowings

Short-term borrowings incurred (repaid) during the three months ended March 31, 2017 and 2016 by Registrant were as follows:


	Three Months Ended March 31,
	2017		2016
Exelon	$	781	$	1,770
Generation		18		1,500
ComEd		365		349
BGE		50		(60	)
Pepco		144		(64	)
DPL		—		(30	)
ACE		—		(5	)


	Successor						Predecessor
	Three Months Ended March 31, 2017			March 24, 2016 to March 31, 2016			January 1, 2016 to March 23, 2016
PHI	$	(355	)	$	(20	)	$	379

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Contributions from Parent/Member

Contributions received from Parent/Member for the three months ended March 31, 2017 and 2016 by Registrant were as follows:


	Three Months Ended March 31,
	2017		2016
Generation	$	—	$	44
ComEd^(a)(b)		100		39
BGE^(b)		—		21


	Successor				Predecessor
	Three Months Ended March 31, 2017		March 24, 2016 to March 31, 2016		January 1, 2016 to March 23, 2016
PHI^(b)	$	500	$	—	$	—

(a)	Additional contributions from parent or external debt financing may be required as a result of increased capital investment in infrastructure improvements and modernization pursuant to EIMA and transmission upgrades.

(b)	Contribution paid by Exelon.

Other

For the three months ended March 31, 2017, other financing activities primarily consist of debt issuance costs. See Note 10 — Debt and Credit Agreements of the Combined Notes to the Consolidated Financial Statements for further details of the Registrants’ debt issuances.

Credit Matters

The Registrants fund liquidity needs for capital investment, working capital, energy hedging and other financial commitments through cash flows from continuing operations, public debt offerings, commercial paper markets and large, diversified credit facilities. The credit facilities include $9.5 billion in aggregate total commitments of which $8.0 billion was available as of March 31, 2017, and of which no financial institution has more than 7% of the aggregate commitments for the Registrants. The Registrants had access to the commercial paper market during the first quarter of 2017 to fund their short-term liquidity needs, when necessary. The Registrants routinely review the sufficiency of their liquidity position, including appropriate sizing of credit facility commitments, by performing various stress test scenarios, such as commodity price movements, increases in margin-related transactions, changes in hedging levels and the impacts of hypothetical credit downgrades. The Registrants have continued to closely monitor events in the financial markets and the financial institutions associated with the credit facilities, including monitoring credit ratings and outlooks, credit default swap levels, capital raising and merger activity. See PART I. ITEM 1A. RISK FACTORS of the Exelon 2016 Form 10-K for further information regarding the effects of uncertainty in the capital and credit markets.

The Registrants believe their cash flow from operating activities, access to credit markets and their credit facilities provide sufficient liquidity. If Generation lost its investment grade credit rating as of March 31, 2017, it would have been required to provide incremental collateral of $1.8 billion to meet collateral obligations for derivatives, non-derivatives, normal purchase normal sales contracts and applicable payables and receivables, net of the contractual right of offset under master netting agreements, which is well within its current available credit facility capacities of $4.3 billion.

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The following table presents the incremental collateral that each utility registrant would have been required to provide in the event each Utility Registrant lost its investment grade credit rating at March 31, 2017 and available credit facility capacity prior to any incremental collateral at March 31, 2017:


	PJM Credit Policy Collateral		Other Incremental Collateral Required^(a)		Available Credit Facility Capacity Prior to Any Incremental Collateral
ComEd	$	11	$	—	$	998
PECO		2		27		598
BGE		11		47		598
Pepco		6		—		300
DPL		4		11		300
ACE		—		—		300

(a)	Represents incremental collateral related to natural gas procurement contracts.

Exelon Credit Facilities

Exelon, Pepco, DPL and ACE meet their short-term liquidity requirements primarily through the issuance of commercial paper and short-term notes. ComEd and BGE meet their short-term liquidity requirements primarily through the issuance of commercial paper. Generation and PECO meet their short-term liquidity requirements primarily through the issuance of commercial paper and borrowings from the Exelon intercompany money pool. PHI meets its short-term liquidity requirements primarily through the issuance of short-term notes and the Exelon intercompany money pool. The Registrants may use their respective credit facilities for general corporate purposes, including meeting short-term funding requirements and the issuance of letters of credit.

The following table reflects the Registrants’ commercial paper programs supported by the revolving credit agreements and bilateral credit agreements at March 31, 2017:

Commercial Paper Programs


Commercial Paper Issuer	Maximum Program Size^(a)(b)		Outstanding Commercial Paper at March 31, 2017		Average Interest Rate on Commercial Paper Borrowings for the Three Months Ended March 31, 2017
Exelon Corporate	$	600	$	204		1.15	%
Generation		5,300		579		1.11	%
ComEd		1,000		365		1.07	%
PECO		600		—		1.12	%
BGE		600		95		1.01	%
Pepco		500		167		1.05	%
DPL		500		—		—	%
ACE		350		—		—	%

(a)	Excludes $525 million bilateral credit facilities that do not back Generation’s commercial paper program.

(b)

Excludes additional credit facility agreements for Generation, ComEd, PECO, BGE, Pepco, DPL and ACE with aggregate commitments of $50 million, $34 million, $34 million, $5 million, $2 million, $2 million and $2 million, respectively, arranged with minority and community banks located primarily within utilities’ service territories. These facilities expire on October 13, 2017. These facilities are solely utilized to issue letters of credit. As of March 31, 2017, letters of credit issued under these agreements for Generation, ComEd, PECO and BGE totaled $7 million, $12 million, $21 million and $2 million, respectively.

In order to maintain their respective commercial paper programs in the amounts indicated above, each Registrant must have credit facilities in place, at least equal to the amount of its commercial paper program.

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While the amount of its commercial paper outstanding does not reduce available capacity under a Registrant’s credit facility, a Registrant does not issue commercial paper in an aggregate amount exceeding the then available capacity under its credit facility. At March 31, 2017, the Registrants had the following aggregate bank commitments, credit facility borrowings and available capacity under their respective credit facilities:

Credit Agreements


Borrower	Facility Type	Aggregate Bank Commitment^(a)(b)(c)		Facility Draws		Outstanding Letters of Credit		Available Capacity at March 31, 2017
Borrower	Facility Type	Aggregate Bank Commitment^(a)(b)(c)		Facility Draws		Outstanding Letters of Credit		Actual		To Support Additional Commercial Paper^(d)
Exelon Corporate	Syndicated Revolver	$	600	$	—	$	44	$	556	$	352
Generation^(e)	Syndicated Revolver		5,300		—		1,039		4,261		3,683
Generation	Bilaterals		525		135		329		61		—
ComEd	Syndicated Revolver		1,000		—		2		998		633
PECO	Syndicated Revolver		600		—		2		598		598
BGE	Syndicated Revolver		600		—		3		598		503
Pepco	Syndicated Revolver		300		—		—		300		133
DPL	Syndicated Revolver		300		—		—		300		300
ACE	Syndicated Revolver		300		—		—		300		300

(a)

Excludes $129 million of credit facility agreements arranged at minority and community banks at Generation, ComEd, PECO, BGE, Pepco, DPL and ACE. These facilities expire on October 13, 2017. These facilities are solely utilized to issue letters of credit. As of March 31, 2017, letters of credit issued under these agreements for Generation, ComEd, PECO and BGE totaled $7 million, $12 million, $21 million and $2 million, respectively.

(b)

Pepco, DPL and ACE’s revolving credit facility is subject to available borrowing capacity. The borrowing capacity may be increased or decreased during the term of the facility, except that (i) the sum of the borrowing capacity must equal the total amount of the facility, and (ii) the aggregate amount of credit used at any given time by each of Pepco, DPL or ACE may not exceed $900 million or the maximum amount of short-term debt the company is permitted to have outstanding by its regulatory authorities. The total number of the borrowing reallocations may not exceed eight per year during the term of the facility

(c)	Excludes nonrecourse debt letters of credit, see Note 14 — Debt and Credit Agreements in the Exelon 2016 Form 10-K for further information on Continental Wind nonrecourse debt.

(d)	Excludes $525 million bilateral credit facilities that do not back Generation’s commercial paper program.

(e)	Excludes ExGen Texas Power Financing’s $4 million of borrowed debt on its revolving credit facility.

As of March 31, 2017, there was $135 million of borrowings under Generation’s bilateral credit facilities.

Borrowings under Exelon Corporate’s, Generation’s, ComEd’s, PECO’s, BGE’s, Pepco’s, DPL’s, and ACE’s revolving credit agreements bear interest at a rate based upon either the prime rate or a LIBOR-based rate, plus an adder based upon the particular Registrant’s credit rating. The adders for the prime based borrowings and LIBOR-based borrowings are presented in the following table:


	Exelon		Generation		ComEd		PECO		BGE		Pepco		DPL		ACE
Prime based borrowings		27.5		27.5		7.5		0.0		0.0		7.5		7.5		7.5
LIBOR-based borrowings		127.5		127.5		107.5		90.0		100.0		107.5		107.5		107.5

The maximum adders for prime rate borrowings and LIBOR-based rate borrowings are 90 basis points and 165 basis points, respectively. The credit agreements also require the borrower to pay a facility fee based upon the aggregate commitments. The fee varies depending upon the respective credit ratings of the borrower.

Each revolving credit agreement for Exelon, Generation, ComEd, PECO, BGE, Pepco, DPL and ACE requires the affected borrower to maintain a minimum cash from operations to interest expense ratio for the

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twelve-month period ended on the last day of any quarter. The following table summarizes the minimum thresholds reflected in the credit agreements for the three months ended March 31, 2017:

Exelon

Generation

ComEd

PECO

BGE

Pepco

DPL

ACE

Credit agreement threshold

2.50 to 1

3.00 to 1

2.00 to 1

At March 31, 2017, the interest coverage ratios at Exelon, Generation, ComEd, PECO, BGE, Pepco, DPL and ACE were as follows:


	Exelon		Generation		ComEd		PECO		BGE		Pepco		DPL		ACE
Interest coverage ratio		6.64		11.29		7.25		8.84		10.85		6.93		8.69		6.23

An event of default under Exelon, Generation, ComEd, PECO or BGE’s indebtedness will not constitute an event of default under any of the others’ credit facilities, except that a bankruptcy or other event of default in the payment of principal, premium or indebtedness in principal amount in excess of $100 million in the aggregate by Generation will constitute an event of default under the Exelon Corporate credit facility. An event of default under Pepco, DPL or ACE’s indebtedness will not constitute an event of default under any of the others’ credit facilities, except that a bankruptcy or other event of default in the payment of principal, premium or indebtedness in principal amount in excess of $50 million in the aggregate will constitute an event of default under the credit facility.

The absence of a material adverse change in Exelon’s or PHI’s business, property, results of operations or financial condition is not a condition to the availability of credit under the credit agreement. The credit agreement does not include any rating triggers.

Security Ratings

The Registrants’ access to the capital markets, including the commercial paper market, and their respective financing costs in those markets, may depend on the securities ratings of the entity that is accessing the capital markets.

The Registrants’ borrowings are not subject to default or prepayment as a result of a downgrading of securities, although such a downgrading of a Registrant’s securities could increase fees and interest charges under that Registrant’s credit agreements.

As part of the normal course of business, the Registrants enter into contracts that contain express provisions or otherwise permit the Registrants and their counterparties to demand adequate assurance of future performance when there are reasonable grounds for doing so. In accordance with the contracts and applicable contracts law, if the Registrants are downgraded by a credit rating agency, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of future performance, which could include the posting of collateral. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information on collateral provisions.

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Intercompany Money Pool

To provide an additional short-term borrowing option that will generally be more favorable to the borrowing participants than the cost of external financing, both Exelon and PHI operate intercompany money pools. Maximum amounts contributed to and borrowed from the money pool by participant and the net contribution or borrowing as of March 31, 2017, are presented in the following table:


Exelon Intercompany Money Pool	During the Three Months Ended March 31, 2017					As of March 31, 2017
Contributed (borrowed)	Maximum Contributed		Maximum Borrowed			Contributed (Borrowed)
Exelon Corporate	$	379		n/a		$	330
Generation		—		(245	)		(54	)
PECO		180		—			—
BSC		—		(423	)		(317	)
PHI Corporate^(a)		n/a		(47	)		(13	)
PCI^(a)		55		—			54

(a)	As a result of the merger, PHI Corporate and PCI began to participate in the Exelon Intercompany Money Pool effective March 24, 2016.


PHI Intercompany Money Pool	During the Three Months Ended March 31, 2017					As of March 31, 2017
Contributed (borrowed)	Maximum Contributed		Maximum Borrowed			Contributed (Borrowed)
PHI Corporate	$	46	$	—		$	32
Pepco		—		—			—
DPL		—		—			—
ACE		—		—			—
PHISCO		1		(46	)		(32	)

Investments in Nuclear Decommissioning Trust Funds

Exelon, Generation and CENG maintain trust funds, as required by the NRC, to fund certain costs of decommissioning nuclear plants. The mix of securities in the trust funds is designed to provide returns to be used to fund decommissioning and to offset inflationary increases in decommissioning costs. Generation actively monitors the investment performance of the trust funds and periodically reviews asset allocations in accordance with Generation’s NDT fund investment policy. Generation’s and CENG’s investment policies establish limits on the concentration of holdings in any one company and also in any one industry. See Note 12 — Nuclear Decommissioning of the Combined Notes to Consolidated Financial Statements for further information regarding the trust funds, the NRC’s minimum funding requirements and related liquidity ramifications.

Shelf Registration Statements

Exelon, Generation, ComEd, PECO, BGE, Pepco, DPL and ACE have a currently effective combined shelf registration statement unlimited in amount, filed with the SEC, that will expire in August 2019. The ability of each Registrant to sell securities off the shelf registration statement or to access the private placement markets will depend on a number of factors at the time of the proposed sale, including other required regulatory approvals, as applicable, the current financial condition of the Registrant, its securities ratings and market conditions.

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Regulatory Authorizations

Generation, ComEd, PECO, BGE, Pepco, DPL and ACE are required to obtain short-term and long-term financing authority from Federal and State Commissions as follows:

Short-term Financing Authority^(a)

Long-term Financing Authority

Commission

Expiration Date

Amount
(in millions)

Commission

Expiration Date

Amount
(in millions)

ComEd^(b)

FERC

December 31, 2017

2,500

ICC

2019

2,383

PECO

FERC

December 31, 2017

1,500

PAPUC

December 31, 2018

1,600

BGE

FERC

December 31, 2017

700

MDPSC

N/A

1,000

Pepco

FERC

June 30, 2018

500

MDPSC / DCPSC

September 25, 2017

550

DPL

FERC

June 30, 2018

500

MDPSC / DPSC

December 31, 2017

125

ACE

NJPU

January 1, 2018

350

NJBPU

December 31, 2017

300

_________

(a)	Generation currently has blanket financing authority it received from FERC in connection with its market-based rate authority.

(b)	ComEd had $1,565 million available in long-term debt refinancing authority and $818 million available in new money long term debt financing authority from the ICC as of March 31, 2017 and has an expiration date of June 1, 2019 and March 1, 2019, respectively.

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual obligations represent cash obligations that are considered to be firm commitments and commercial commitments triggered by future events. See Note 24 — Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements in the Exelon 2016 Form 10-K.

Generation, ComEd, PECO, BGE, Pepco, DPL and ACE have obligations related to contracts for the purchase of power and fuel supplies, and ComEd, PECO, and BGE have obligations related to their financing trusts. The power and fuel purchase contracts and the financing trusts have been considered for consolidation in the Registrants’ respective financial statements pursuant to the authoritative guidance for VIEs. See Note 1 — Significant Accounting Policies of the Combined Notes to Consolidated Financial Statements for further information.

For an in-depth discussion of the Registrants’ contractual obligations and off-balance sheet arrangements, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Off-Balance Sheet Arrangements” in the Exelon 2016 Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Commercial Commitments.”

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Item 3.

Quantitative and Qualitative Disclosures about Market Risk

The Registrants are exposed to market risks associated with adverse changes in commodity prices, counterparty credit, interest rates and equity prices. Exelon’s RMC approves risk management policies and objectives for risk assessment, control and valuation, counterparty credit approval, and the monitoring and reporting of risk exposures. The RMC is chaired by the chief executive officer and includes the chief risk officer, chief strategy officer, chief executive officer of Exelon Utilities, chief commercial officer, chief financial officer and chief executive officer of Constellation. The RMC reports to the Finance and Risk Committee of the Exelon Board of Directors on the scope of the risk management activities. The following discussion serves as an update to ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK of Exelon’s 2016 Annual Report on Form 10-K incorporated herein by reference.

Commodity Price Risk (All Registrants)

Commodity price risk is associated with price movements resulting from changes in supply and demand, fuel costs, market liquidity, weather conditions, governmental regulatory and environmental policies and other factors. To the extent the amount of energy Exelon generates differs from the amount of energy it has contracted to sell, Exelon has price risk from commodity price movements. Exelon seeks to mitigate its commodity price risk through the sale and purchase of electricity, fossil fuel and other commodities.

Generation

Normal Operations and Hedging Activities. Electricity available from Generation’s owned or contracted generation supply in excess of Generation’s obligations to customers, including portions of the Utility Registrants’ retail load, is sold into the wholesale markets. To reduce price risk caused by market fluctuations, Generation enters into non-derivative contracts as well as derivative contracts, including forwards, futures, swaps and options, with approved counterparties to hedge anticipated exposures. Generation believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices. Generation expects the settlement of the majority of its economic hedges will occur during 2017 through 2019.

In general, increases and decreases in forward market prices have a positive and negative impact, respectively, on Generation’s owned and contracted generation positions which have not been hedged. Exelon’s hedging program involves the hedging of commodity risk for Exelon’s expected generation, typically on a ratable basis over a three-year period. As of March 31, 2017, the proportion of expected generation hedged is 97%-100%, 60%-63% and 30%-33% for 2017, 2018 and 2019, respectively. The percentage of expected generation hedged is the amount of equivalent sales divided by the expected generation. Expected generation is the volume of energy that best represents our commodity position in energy markets from owned or contracted generating facilities based upon a simulated dispatch model that makes assumptions regarding future market conditions, which are calibrated to market quotes for power, fuel, load following products and options. Equivalent sales represent all hedging products, which include economic hedges and certain non-derivative contracts including Generation’s sales to the Utility Registrants to serve their retail load.

A portion of Generation’s hedging strategy may be accomplished with fuel products based on assumed correlations between power and fuel prices, which routinely change in the market. Market price risk exposure is the risk of a change in the value of unhedged positions. The forecasted market price risk exposure for Generation’s entire non-proprietary trading portfolio associated with a $5 reduction in the annual average around-the-clock energy price based on March 31, 2017 market conditions and hedged position would be an increase in pre-tax net income of approximately $15 million for 2017 and decreases of approximately $350 million and $665 million, respectively, for 2018 and 2019. Power price sensitivities are derived by adjusting power price assumptions while keeping all other price inputs constant. Generation expects to actively manage its portfolio to mitigate market price risk exposure for its unhedged position. Actual results could differ depending on the specific timing of, and markets affected by, price changes, as well as future changes in Generation’s portfolio.

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Proprietary Trading Activities. Generation also enters into certain energy-related derivatives for proprietary trading purposes. Proprietary trading includes all contracts entered into with the intent of benefiting from shifts or changes in market prices as opposed to those entered into with the intent of hedging or managing risk. Proprietary trading activities are subject to limits established by Exelon’s RMC. The proprietary trading portfolio is subject to a risk management policy that includes stringent risk management limits, including volume, stop loss and Value-at-Risk (VaR) limits to manage exposure to market risk. Additionally, the Exelon risk management group and Exelon’s RMC monitor the financial risks of the proprietary trading activities. The proprietary trading activities, which included physical volumes of 1,850 GWhs and 1,220 GWhs for the three months ended March 31, 2017 and 2016, respectively, are a complement to Generation’s energy marketing portfolio, but represent a small portion of Generation’s overall revenue from energy marketing activities. Proprietary trading portfolio activity for the three months ended March 31, 2017 resulted in immaterial pre-tax gains due to net mark-to-market losses of $2 million and realized gains of $2 million. Generation uses a 95% confidence interval, assuming standard normal distribution, one day holding period and a one-tailed statistical measure in calculating its VaR. The daily VaR on proprietary trading activity averaged $0.3 million of exposure during the quarter. Generation has not segregated proprietary trading activity within the following discussion because of the relative size of the proprietary trading portfolio in comparison to Generation’s total Revenue net of purchase power and fuel expense for the three months ended March 31, 2017 of $2,090 million.

Fuel Procurement. Generation procures natural gas through long-term and short-term contracts and spot-market purchases. Nuclear fuel assemblies are obtained predominantly through long-term uranium concentrate supply contracts, contracted conversion services, contracted enrichment services, or a combination thereof, and contracted fuel fabrication services. The supply markets for uranium concentrates and certain nuclear fuel services are subject to price fluctuations and availability restrictions. Supply market conditions may make Generation’s procurement contracts subject to credit risk related to the potential non-performance of counterparties to deliver the contracted commodity or service at the contracted prices. Approximately 49% of Generation’s uranium concentrate requirements from 2017 through 2021 are supplied by three producers. In the event of non-performance by these or other suppliers, Generation believes that replacement uranium concentrates can be obtained, although at prices that may be unfavorable when compared to the prices under the current supply agreements. Non-performance by these counterparties could have a material adverse impact on Exelon’s and Generation’s results of operations, cash flows and financial positions.

ComEd

ComEd entered into 20-year contracts for renewable energy and RECs beginning in June 2012. ComEd is permitted to recover its renewable energy and REC costs from retail customers with no mark-up. The annual commitments represent the maximum settlements with suppliers for renewable energy and RECs under the existing contract terms. Pursuant to the ICC’s Order on December 19, 2012, ComEd’s commitments under the existing long-term contracts were reduced for the June 2013 through May 2014 procurement period. In addition, the ICC’s December 18, 2013 Order approved the reduction of ComEd’s commitments under those contracts for the June 2014 through May 2015 procurement period, and the amount of the reduction was approved by the ICC in March 2014. See Note 5 — Regulatory Matters and Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information regarding energy procurement and derivatives. ComEd does not enter into derivatives for speculative or proprietary trading purposes.

PECO

PECO has contracts to procure electric supply that were executed through the competitive procurement process outlined in its PAPUC-approved DSP Programs, which are further discussed in Note 5 — Regulatory Matters of the Combined Notes to Consolidated Financial Statements. PECO has certain full requirements contracts which are considered derivatives and qualify for the normal purchases and normal sales scope exception under current derivative authoritative guidance, and as a result are accounted for on an accrual basis of accounting. Under the DSP Programs, PECO is permitted to recover its electric supply procurement costs from retail customers with no mark-up.

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PECO has also entered into derivative natural gas contracts, which either qualify for the normal purchases and normal sales exception or have no mark-to-market balances because the derivatives are index priced, to hedge its long-term price risk in the natural gas market. PECO’s hedging program for natural gas procurement has no direct impact on its financial position or results of operations as natural gas costs are fully recovered from customers under the PGC.

PECO does not enter into derivatives for speculative or proprietary trading purposes. For additional information on these contracts, see Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements.

BGE

BGE procures electric supply for default service customers through full requirements contracts pursuant to BGE’s MDPSC-approved SOS program. BGE’s full requirements contracts that are considered derivatives qualify for the normal purchases and normal sales scope exception under current derivative authoritative guidance, and as a result, are accounted for on an accrual basis of accounting. Under the SOS program, BGE is permitted to recover its electricity procurement costs from retail customers, plus an administrative fee which includes a shareholder return component and an incremental cost component.

BGE has also entered into natural gas contracts, which qualify for the normal purchases and normal sales scope exception, to hedge its price risk in the natural gas market. The hedging program for natural gas procurement has no direct impact on BGE’s financial position. However, under BGE’s market-based rates incentive mechanism, BGE’s actual cost of gas is compared to a market index (a measure of the market price of gas in a given period). The difference between BGE’s actual cost and the market index is shared equally between shareholders and customers.

BGE does not enter into derivatives for speculative or proprietary trading purposes. For additional information on these contracts, see Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements.

Pepco

Pepco does not enter into derivatives for speculative or proprietary trading purposes. For additional information on these contracts, see Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements.

DPL

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its administrative costs. DPL locks in fixed prices for all of its SOS requirements through full requirements contracts. DPL’s price risk related to electric supply procurement is limited. Certain of DPL’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other DPL full requirements contracts are not derivatives.

DPL provides natural gas to its customers under a GCR mechanism approved by the DPSC. The demand portion of the GCR is based upon DPL’s firm transportation and storage contracts. DPL has firm deliverability of swing and seasonal storage; a liquefied natural gas facility and firm transportation capacity to meet customer demand and provide a reserve margin. The commodity portion of the GCR includes a commission approved hedging program which is intended to reduce gas commodity price volatility while limiting the firm natural gas customers’ exposure to adverse changes in the market price of natural gas.

DPL does not enter into derivatives for speculative or proprietary trading purposes. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information regarding energy procurement and derivatives.

ACE

ACE has contracts to procure BGS electric supply that are executed through a competitive procurement process approved by the NJBPU. The BGS rates charged recover ACE’s wholesale power supply costs. ACE does not make any profit or incur any loss on the supply component of the BGS it supplies to customers. ACE’s price risk related to electric supply procurement is limited. ACE locks in fixed prices for all of its BGS requirements through full requirements contracts. ACE’s full requirements contracts, which are considered derivatives, qualify for the NPNS scope exception under current derivative authoritative guidance. Other ACE full requirements contracts are not derivatives.

ACE does not enter into derivatives for speculative or proprietary trading purposes. For additional information on these contracts, see Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements.

Trading and Non-Trading Marketing Activities. The following detailed presentation of Exelon’s, Generation’s, ComEd’s, PHI’s and DPL’s trading and non-trading marketing activities is included to address the recommended disclosures by the energy industry’s Committee of Chief Risk Officers (CCRO).

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The following table provides detail on changes in Exelon’s, Generation’s, ComEd’s, PHI’s and DPL’s commodity mark-to-market net asset or liability balance sheet position from December 31, 2016 to March 31, 2017. It indicates the drivers behind changes in the balance sheet amounts. This table incorporates the mark-to-market activities that are immediately recorded in earnings. This table excludes all normal purchase and normal sales contracts and does not segregate proprietary trading activity. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information on the balance sheet classification of the mark-to-market energy contract net assets (liabilities) recorded as of March 31, 2017 and December 31, 2016.


	Exelon			Generation			ComEd			PHI			DPL
Total mark-to-market energy contract net assets (liabilities) at December 31, 2016^(a)	$	719		$	977		$	(258	)	$	—		$	—
Total change in fair value during 2017 of contracts recorded in results of operations		(42	)		(42	)		—			—			—
Reclassification to realized of contracts recorded in results of operations		(6	)		(6	)		—			—			—
Contracts received at acquisition date		—			—			—			—			—
Changes in fair value — recorded through regulatory assets and liabilities^(b)		(26	)		—			(24	)		(2	)		(2	)
Changes in allocated collateral		117			115			—			2			2
Changes in net option premium paid/(received)		6			6			—			—			—
Option premium amortization		4			4			—			—			—
Upfront payments and amortizations^(c)		(43	)		(43	)		—			—			—

Total mark-to-market energy contract net assets (liabilities) at March 31, 2017^(a)	$	729		$	1,011		$	(282	)	$	—		$	—

(a)	Amounts are shown net of collateral paid to and received from counterparties.

(b)

For ComEd and DPL, the changes in fair value are recorded as a change in regulatory assets or liabilities. As of March 31, 2017, ComEd recorded a regulatory liability of $282 million related to its mark-to-market derivative liabilities with Generation and unaffiliated suppliers. For the three months ended March 31, 2017, ComEd also recorded $30 million of decreases in fair value and an increase for realized losses due to settlements of $6 million recorded in purchased power expense associated with floating-to-fixed energy swap contracts with unaffiliated suppliers.

(c)	Includes derivative contracts acquired or sold by Generation through upfront payments or receipts of cash, excluding option premiums, and the associated amortization.

Fair Values. The following tables present maturity and source of fair value for Exelon, Generation and ComEd mark-to-market commodity contract net assets (liabilities). The tables provide two fundamental pieces of information. First, the tables provide the source of fair value used in determining the carrying amount of the Registrants’ total mark-to-market net assets (liabilities), net of allocated collateral. Second, the tables show the maturity, by year, of the Registrants’ commodity contract net assets (liabilities), net of allocated collateral, giving an indication of when these mark-to-market amounts will settle and either generate or require cash. See Note 8 — Fair Value of Financial Assets and Liabilities of the Combined Notes to Consolidated Financial Statements for additional information regarding fair value measurements and the fair value hierarchy.

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Exelon


	Maturities Within																	Total Fair Value
	2017		2018			2019			2020			2021			2022 and Beyond			Total Fair Value
Normal Operations, Commodity derivative contracts^(a)(b):
Actively quoted prices (Level 1)	$	100	$	(8	)	$	(39	)	$	(16	)	$	(1	)	$	—		$	36
Prices provided by external sources (Level 2)		283		121			8			(3	)		1			—			410
Prices based on model or other valuation methods (Level 3)^(c)		145		224			73			13			(29	)		(143	)		283

Total	$	528	$	337		$	42		$	(6	)	$	(29	)	$	(143	)	$	729

(a)	Mark-to-market gains and losses on other economic hedge and trading derivative contracts that are recorded in results of operations.

(b)	Amounts are shown net of collateral paid to and received from counterparties (and offset against mark-to-market assets and liabilities) of $444 million at March 31, 2017.

(c)	Includes ComEd’s net liabilities associated with the floating-to-fixed energy swap contracts with unaffiliated suppliers.

Generation


	Maturities Within																Total Fair Value
	2017		2018			2019			2020			2021			2022 and Beyond		Total Fair Value
Normal Operations, Commodity derivative contracts^(a)(b):
Actively quoted prices (Level 1)	$	100	$	(8	)	$	(39	)	$	(16	)	$	(1	)	$	—	$	36
Prices provided by external sources (Level 2)		283		121			8			(3	)		1			—		410
Prices based on model or other valuation methods (Level 3)		160		244			94			34			(7	)		40		565

Total	$	543	$	357		$	63		$	15		$	(7	)	$	40	$	1,011

(a)	Mark-to-market gains and losses on other economic hedge and trading derivative contracts that are recorded in the results of operations.

(b)	Amounts are shown net of collateral paid to and received from counterparties (and offset against mark-to-market assets and liabilities) of $444 million at March 31, 2017.

ComEd


	Maturities Within																		Total Fair Value
	2017			2018			2019			2020			2021			2022 and Beyond			Total Fair Value
Commodity derivative contracts^(a):
Prices based on model or other valuation methods (Level 3)	$	(15	)	$	(20	)	$	(21	)	$	(21	)	$	(22	)	$	(183	)	$	(282	)

(a)	Represents ComEd’s net liabilities associated with the floating-to-fixed energy swap contracts with unaffiliated suppliers.

Credit Risk, Collateral and Contingent Related Features (All Registrants)

255

by the fair value of contracts at the reporting date. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for a detailed discussion of credit risk, collateral and contingent related features.

Generation

The following tables provide information on Generation’s credit exposure for all derivative instruments, normal purchase normal sales agreements, and applicable payables and receivables, net of collateral and instruments that are subject to master netting agreements, as of March 31, 2017. The tables further delineate that exposure by credit rating of the counterparties and provide guidance on the concentration of credit risk to individual counterparties and an indication of the duration of a company’s credit risk by credit rating of the counterparties. The figures in the tables below exclude credit risk exposure from individual retail customers, uranium procurement contracts, and exposure through RTOs, ISOs, NYMEX, ICE, NASDAQ, NGX and Nodal commodity exchanges, which are discussed below. Additionally, the figures in the tables below exclude exposures with affiliates, including net receivables with ComEd, PECO, BGE, Pepco, DPL and ACE of $13 million, $31 million, $24 million, $40 million, $13 million, and $7 million as of March 31, 2017, respectively.


Rating as of March 31, 2017	Total Exposure Before Credit Collateral		Credit Collateral^(a)		Net Exposure		Number of Counterparties Greater than 10% of Net Exposure		Net Exposure of Counterparties Greater than 10% of Net Exposure
Investment grade	$	964	$	16	$	948		1	$	313
Non-investment grade		75		3		72		—		—
No external ratings
Internally rated — investment grade		324		—		324		—		—
Internally rated — non-investment grade		127		14		113		—		—

Total	$	1,490	$	33	$	1,457		1	$	313


	Maturity of Credit Risk Exposure
Rating as of March 31, 2017	Less than 2 Years		2-5 Years		Exposure Greater than 5 Years		Total Exposure Before Credit Collateral
Investment grade	$	753	$	208	$	3	$	964
Non-investment grade		62		13		—		75
No external ratings
Internally rated — investment grade		253		46		25		324
Internally rated — non-investment grade		93		34		—		127

Total	$	1,161	$	301	$	28	$	1,490


Net Credit Exposure by Type of Counterparty	As of March 31, 2017
Financial institutions	$	101
Investor-owned utilities, marketers, power producers		600
Energy cooperatives and municipalities		663
Other		93

Total	$	1,457

(a)	As of March 31, 2017, credit collateral held from counterparties where Generation had credit exposure included $23 million of cash and $10 million of letters of credit.

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ComEd, PECO, BGE, PHI, Pepco, DPL and ACE

There have been no significant changes or additions to ComEd’s, PECO’s, BGE’s, PHI’s, Pepco’s, DPL’s or ACE’s exposures to credit risk that are described in ITEM 1A. RISK FACTORS of Exelon’s 2016 Annual Report on Form 10-K.

See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for information regarding credit exposure to suppliers.

Collateral (All Registrants)

Generation

As part of the normal course of business, Generation routinely enters into physical or financial contracts for the sale and purchase of electricity, natural gas and other commodities. These contracts either contain express provisions or otherwise permit Generation and its counterparties to demand adequate assurance of future performance when there are reasonable grounds for doing so. In accordance with the contracts and applicable law, if Generation is downgraded by a credit rating agency, especially if such downgrade is to a level below investment grade, it is possible that a counterparty would attempt to rely on such a downgrade as a basis for making a demand for adequate assurance of future performance. Depending on Generation’s net position with a counterparty, the demand could be for the posting of collateral. In the absence of expressly agreed-to provisions that specify the collateral that must be provided, collateral requested will be a function of the facts and circumstances of the situation at the time of the demand. In this case, Generation believes an amount of several months of future payments (i.e., capacity payments) rather than a calculation of fair value is the best estimate for the contingent collateral obligation, which has been factored into the disclosure below. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for information regarding collateral requirements.

Generation transacts output through bilateral contracts. The bilateral contracts are subject to credit risk, which relates to the ability of counterparties to meet their contractual payment obligations. Any failure to collect these payments from counterparties could have a material impact on Exelon’s and Generation’s results of operations, cash flows and financial position. As market prices rise above or fall below contracted price levels, Generation is required to post collateral with purchasers; as market prices fall below contracted price levels, counterparties are required to post collateral with Generation. In order to post collateral, Generation depends on access to bank credit facilities, which serve as liquidity sources to fund collateral requirements. See Liquidity and Capital Resources — Credit Matters — Exelon Credit Facilities for additional information.

As of March 31, 2017, Generation had cash collateral of $471 million posted and cash collateral held of $35 million for external counterparties with derivative positions, of which $444 million and an immaterial amount in net cash collateral deposits were offset against energy derivative and interest rate and foreign exchange derivative related to underlying energy contracts, respectively. As of March 31, 2017, $8 million of cash collateral held was not offset against net derivative positions because it was not associated with energy-related derivatives or as of the balance sheet date there were no positions to offset. See Note 17 — Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements for information regarding the letters of credit supporting the cash collateral.

ComEd

As of March 31, 2017, ComEd held $1 million in collateral from suppliers in association with energy procurement contracts and held approximately $19 million in the form of cash and letters of credit for both annual and long-term renewable energy contracts. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements in this report and Note 3 — Regulatory Matters of the 2016 Exelon Form 10-K for additional information.

257

PECO

As of March 31, 2017, PECO was not required to post collateral under its energy and natural gas procurement contracts. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.

BGE

BGE is not required to post collateral under its electric supply contracts nor was it holding collateral under its electric supply procurement contracts as of March 31, 2017. As of March 31, 2017, BGE was not required to post collateral under its natural gas procurement contracts but was holding an immaterial amount of collateral under its natural gas procurement contracts. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.

Pepco

Pepco is not required to post collateral under its energy procurement contracts. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.

DPL

DPL is not required to post collateral under its energy procurement contracts. As of March 31, 2017, DPL was not required to post collateral under its natural gas procurement contracts. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.

ACE

ACE is not required to post collateral under its energy procurement contracts. See Note 9 — Derivative Financial Instruments of the Combined Notes to Consolidated Financial Statements for additional information.

RTOs and ISOs (All Registrants)

Generation, ComEd, PECO, BGE, Pepco, DPL and ACE participate in all, or some, of the established wholesale spot energy markets that are administered by PJM, ISO-NE, ISO-NY, CAISO, MISO, SPP, AESO, OIESO and ERCOT. In these areas, power is traded through bilateral agreements between buyers and sellers and on the spot energy markets that are administered by the RTOs or ISOs, as applicable. In areas where there are no spot energy markets, electricity is purchased and sold solely through bilateral agreements. For sales into the spot energy markets administered by an RTO or ISO, the RTO or ISO maintains financial assurance policies that are established and enforced by those administrators. The credit policies of the RTOs and ISOs may, under certain circumstances, require that losses arising from the default of one member on spot energy market transactions be shared by the remaining participants. Non-performance or non-payment by a major counterparty could result in a material adverse impact on the Registrants’ results of operations, cash flows and financial positions.

Exchange Traded Transactions (Exelon, Generation, PHI and DPL)

Generation enters into commodity transactions on NYMEX, ICE, NASDAQ, NGX and the Nodal exchange (“the Exchanges”). DPL enters into commodity transactions on ICE. The Exchange clearinghouses act as the counterparty to each trade. Transactions on the Exchanges must adhere to comprehensive collateral and margining requirements. As a result, transactions on the Exchanges are significantly collateralized and have limited counterparty credit risk.

Interest Rate and Foreign Exchange Risk (All Registrants)

The Registrants use a combination of fixed-rate and variable-rate debt to manage interest rate exposure. The Registrants may also utilize fixed-to-floating interest rate swaps, which are typically designated as fair value

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hedges, as a means to manage their interest rate exposure. In addition, the Registrants may utilize interest rate derivatives to lock in rate levels in anticipation of future financings, which are typically designated as cash flow hedges. These strategies are employed to manage interest rate risks. At March 31, 2017, Exelon had $800 million of notional amounts of fixed-to-floating hedges outstanding and Exelon and Generation had $657 million of notional amounts of floating-to-fixed hedges outstanding. Assuming the fair value and cash flow interest rate hedges are 100% effective, a hypothetical 50 bps increase in the interest rates associated with unhedged variable-rate debt (excluding Commercial Paper) and fixed-to-floating swaps would result in approximately a $2 million decrease in Exelon Consolidated pre-tax income for the three months ended March 31, 2017. To manage foreign exchange rate exposure associated with international energy purchases in currencies other than U.S. dollars, Generation utilizes foreign currency derivatives, which are typically designated as economic hedges.

Equity Price Risk (Exelon and Generation)

Generation maintains trust funds, as required by the NRC, to fund certain costs of decommissioning its nuclear plants. As of March 31, 2017, Generation’s decommissioning trust funds are reflected at fair value on its Consolidated Balance Sheets. The mix of securities in the trust funds is designed to provide returns to be used to fund decommissioning and to compensate Generation for inflationary increases in decommissioning costs; however, the equity securities in the trust funds are exposed to price fluctuations in equity markets, and the value of fixed-rate, fixed-income securities are exposed to changes in interest rates. Generation actively monitors the investment performance of the trust funds and periodically reviews asset allocation in accordance with Generation’s NDT fund investment policy. A hypothetical 10% increase in interest rates and decrease in equity prices would result in a $595 million reduction in the fair value of the trust assets. This calculation holds all other variables constant and assumes only the discussed changes in interest rates and equity prices. See ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for further discussion of equity price risk as a result of the current capital and credit market conditions.

Item 4.

Controls and Procedures

During the first quarter of 2017, each of Exelon’s, Generation’s, ComEd’s, PECO’s, BGE’s, PHI’s, Pepco’s, DPL’s and ACE’s management, including its principal executive officer and principal financial officer, evaluated its disclosure controls and procedures related to the recording, processing, summarizing and reporting of information in its periodic reports that it files with the SEC. These disclosure controls and procedures have been designed by all Registrants to ensure that (a) material information relating to that Registrant, including its consolidated subsidiaries, is accumulated and made known to Exelon’s management, including its principal executive officer and principal financial officer, by other employees of that Registrant and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and (b) this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC’s rules and forms. Due to the inherent limitations of control systems, not all misstatements may be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls could be circumvented by the individual acts of some persons or by collusion of two or more people.

Accordingly, as of March 31, 2017, the principal executive officer and principal financial officer of each of Exelon, Generation, ComEd, PECO, BGE, PHI, Pepco, DPL and ACE concluded that such Registrant’s disclosure controls and procedures were effective to accomplish its objectives. All Registrants continually strive to improve their disclosure controls and procedures to enhance the quality of its financial reporting and to maintain dynamic systems that change as conditions warrant.

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PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

The Registrants are parties to various lawsuits and regulatory proceedings in the ordinary course of their respective businesses. For information regarding material lawsuits and proceedings, see (a) ITEM 3. LEGAL PROCEEDINGS of Exelon’s 2016 Form 10-K and (b) Notes 5 — Regulatory Matters and 17 — Commitments and Contingencies of the Combined Notes to Consolidated Financial Statements in PART I, ITEM 1. FINANCIAL STATEMENTS of this Report. Such descriptions are incorporated herein by these references.

Item 1A.

Risk Factors

Risks Related to Exelon

At March 31, 2017, the Registrants’ risk factors were consistent with the risk factors described in the Registrants’ combined 2016 Form 10-K in ITEM 1A. RISK FACTORS.

Item 4.

Mine Safety Disclosures

All Registrants

Not applicable to the Registrants.

Item 5.

Other Information

Exelon and Generation

See Note 10 — Debt and Credit Agreements and Note 20 — Subsequent Events of the Combined Notes to the Consolidated Financial Statements for recent developments related to EGTP.

Item 6.

Exhibits

Certain of the following exhibits are incorporated herein by reference under Rule 12b-32 of the Securities and Exchange Act of 1934, as amended. Certain other instruments which would otherwise be required to be listed below have not been so listed because such instruments do not authorize securities in an amount which exceeds 10% of the total assets of the applicable registrant and its subsidiaries on a consolidated basis and the relevant registrant agrees to furnish a copy of any such instrument to the Commission upon request.


Exhibit No.		Description

4.1		Form of Exelon Generation Company, LLC 2.950% senior notes due 2020 (File No. 333-85496, Form 8-K dated March 10, 2017, Exhibit 4.1)

4.2		Form of Exelon Generation Company, LLC 3.400% notes due 2022 (File No. 333-85496, Form 8-K dated March 10, 2017, Exhibit 4.2)

4.3		Second Supplemental Indenture, dated April 3, 2017, between Exelon and The Bank of New York Mellon Trust Company, N.A., as trustee, to that certain Indenture (For Unsecured Subordinated Debt Securities), dated June 17, 2014 (File No. 001-16169, Form 8-K dated April 4, 2017, Exhibit 4.3)

4.4		Form of Exelon Corporation 3.497% junior subordinated notes due 2022 (File No. 001-16169, Form 8-K dated April 4, 2017, Exhibit 4.4)

4.5		One Hundred and Nineteenth Supplemental Indenture, dated April 5, 2017, between DPL and The Bank of New York Mellon, trustee

101.INS		XBRL Instance

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation

101.DEF		XBRL Taxonomy Extension Definition

101.LAB		XBRL Taxonomy Extension Labels

101.PRE		XBRL Taxonomy Extension Presentation

260

Certifications Pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities and Exchange Act of 1934 as to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 filed by the following officers for the following companies:


31-1		— Filed by Christopher M. Crane for Exelon Corporation

31-2		— Filed by Jonathan W. Thayer for Exelon Corporation

31-3		— Filed by Kenneth W. Cornew for Exelon Generation Company, LLC

31-4		— Filed by Bryan P. Wright for Exelon Generation Company, LLC

31-5		— Filed by Anne R. Pramaggiore for Commonwealth Edison Company

31-6		— Filed by Joseph R. Trpik, Jr. for Commonwealth Edison Company

31-7		— Filed by Craig L. Adams for PECO Energy Company

31-8		— Filed by Phillip S. Barnett for PECO Energy Company

31-9		— Filed by Calvin G. Butler, Jr. for Baltimore Gas and Electric Company

31-10		— Filed by David M. Vahos for Baltimore Gas and Electric Company

31-11		— Filed by David M. Velazquez for Pepco Holdings LLC

31-12		— Filed by Donna J. Kinzel for Pepco Holdings LLC

31-13		— Filed by David M. Velazquez for Potomac Electric Power Company

31-14		— Filed by Donna J. Kinzel for Potomac Electric Power Company

31-15		— Filed by David M. Velazquez for Delmarva Power & Light Company

31-16		— Filed by Donna J. Kinzel for Delmarva Power & Light Company

31-17		— Filed by David M. Velazquez for Atlantic City Electric Company

31-18		— Filed by Donna J. Kinzel for Atlantic City Electric Company

Certifications Pursuant to Section 1350 of Chapter 63 of Title 18 United States Code (Sarbanes — Oxley Act of 2002) as to the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 filed by the following officers for the following companies:


32-1		— Filed by Christopher M. Crane for Exelon Corporation

32-2		— Filed by Jonathan W. Thayer for Exelon Corporation

32-3		— Filed by Kenneth W. Cornew for Exelon Generation Company, LLC

32-4		— Filed by Bryan P. Wright for Exelon Generation Company, LLC

32-5		— Filed by Anne R. Pramaggiore for Commonwealth Edison Company

32-6		— Filed by Joseph R. Trpik, Jr. for Commonwealth Edison Company

32-7		— Filed by Craig L. Adams for PECO Energy Company

32-8		— Filed by Phillip S. Barnett for PECO Energy Company

32-9		— Filed by Calvin G. Butler, Jr. for Baltimore Gas and Electric Company

32-10		— Filed by David M. Vahos for Baltimore Gas and Electric Company

32-11		— Filed by David M. Velazquez for Pepco Holdings LLC

32-12		— Filed by Donna J. Kinzel for Pepco Holdings LLC

32-13		— Filed by David M. Velazquez for Potomac Electric Power Company

32-14		— Filed by Donna J. Kinzel for Potomac Electric Power Company

32-15		— Filed by David M. Velazquez for Delmarva Power & Light Company

32-16		— Filed by Donna J. Kinzel for Delmarva Power & Light Company

32-17		— Filed by David M. Velazquez for Atlantic City Electric Company

32-18		— Filed by Donna J. Kinzel for Atlantic City Electric Company

261

SIGNATURES

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXELON CORPORATION


/S/ CHRISTOPHER M. CRANE		/S/ JONATHAN W. THAYER
Christopher M. Crane		Jonathan W. Thayer
President and Chief Executive Officer (Principal Executive Officer) and Director		Senior Executive Vice President and Chief Financial Officer (Principal Financial Officer)

/S/ DUANE M. DESPARTE
Duane M. DesParte
Senior Vice President and Corporate Controller (Principal Accounting Officer)

May 3, 2017

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EXELON GENERATION COMPANY, LLC


/S/ KENNETH W. CORNEW		/S/ BRYAN P. WRIGHT
Kenneth W. Cornew		Bryan P. Wright
President and Chief Executive Officer (Principal Executive Officer)		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

/S/ MATTHEW N. BAUER
Matthew N. Bauer
Vice President and Controller (Principal Accounting Officer)

May 3, 2017

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COMMONWEALTH EDISON COMPANY


/S/ ANNE R. PRAMAGGIORE		/S/ JOSEPH R. TRPIK, JR.
Anne R. Pramaggiore		Joseph R. Trpik, Jr.
President and Chief Executive Officer (Principal Executive Officer)		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

/S/ GERALD J. KOZEL
Gerald J. Kozel
Vice President and Controller (Principal Accounting Officer)

May 3, 2017

262

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PECO ENERGY COMPANY


/S/ CRAIG L. ADAMS		/S/ PHILLIP S. BARNETT
Craig L. Adams		Phillip S. Barnett
President and Chief Executive Officer (Principal Executive Officer) and Director		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

/S/ SCOTT A. BAILEY
Scott A. Bailey
Vice President and Controller (Principal Accounting Officer)

May 3, 2017

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BALTIMORE GAS AND ELECTRIC COMPANY


/S/ CALVIN G. BUTLER, JR.		/S/ DAVID M. VAHOS
Calvin G. Butler, Jr.		David M. Vahos
Chief Executive Officer (Principal Executive Officer)		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

/S/ ANDREW W. HOLMES
Andrew W. Holmes
Vice President and Controller (Principal Accounting Officer)

May 3, 2017

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PEPCO HOLDINGS LLC


/S/ DAVID M. VELAZQUEZ		/S/ DONNA J. KINZEL
David M. Velazquez		Donna J. Kinzel
President and Chief Executive Officer (Principal Executive Officer)		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

/S/ ROBERT M. AIKEN
Robert M. Aiken
Vice President and Controller (Principal Accounting Officer)

May 3, 2017

263

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

POTOMAC ELECTRIC POWER COMPANY


/S/ DAVID M. VELAZQUEZ		/S/ DONNA J. KINZEL
David M. Velazquez		Donna J. Kinzel
President and Chief Executive Officer (Principal Executive Officer)		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

/S/ ROBERT M. AIKEN
Robert M. Aiken
Vice President and Controller (Principal Accounting Officer)

May 3, 2017

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DELMARVA POWER & LIGHT COMPANY


/S/ DAVID M. VELAZQUEZ		/S/ DONNA J. KINZEL
David M. Velazquez		Donna J. Kinzel
President and Chief Executive Officer (Principal Executive Officer)		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

/S/ ROBERT M. AIKEN
Robert M. Aiken
Vice President and Controller (Principal Accounting Officer)

May 3, 2017

Pursuant to requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ATLANTIC CITY ELECTRIC COMPANY


/S/ DAVID M. VELAZQUEZ		/S/ DONNA J. KINZEL
David M. Velazquez		Donna J. Kinzel
President and Chief Executive Officer (Principal Executive Officer)		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

/S/ ROBERT M. AIKEN
Robert M. Aiken
Vice President and Controller (Principal Accounting Officer)

May 3, 2017

264