| Fair Value of Financial Assets and Liabilities | Fair Value of Financial Assets and Liabilities We measure and classify fair value measurements in accordance with the hierarchy as defined by GAAP. 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 we 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 Fair Value of Financial Liabilities Recorded at Amortized Cost The following tables present the carrying amounts and fair values of our long-term debt and the SNF obligation as of December 31, 2024 and 2023. We have no financial liabilities classified as Level 1. The carrying amounts of the short-term liabilities as presented in the Consolidated Balance Sheets are representative of their fair value (Level 2) because of the short-term nature of these instruments. December 31, 2024 December 31, 2023 Carrying Amount Fair Value Carrying Amount Fair Value Level 2 Level 3 Total Level 2 Level 3 Total Long-Term Debt, including amounts due within one year $ 8,412 $ 7,805 $ 716 $ 8,521 $ 7,617 $ 7,140 $ 774 $ 7,914 SNF Obligation 1,366 1,278 — 1,278 1,296 1,222 — 1,222 We use the following methods and assumptions to estimate fair value of our financial liabilities recorded at carrying cost: Type Level Valuation Long-term Debt, including amounts due within one year Taxable Debt Securities 2 The fair value is determined by a valuation model that is based on a conventional discounted cash flow methodology and utilizes assumptions of current market pricing curves. We obtain credit spreads based on trades of our existing debt securities as well as other issuers in the utility sector with similar credit ratings. 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. Variable Rate Financing Debt 2 Debt rates are reset on a regular basis and the carrying value approximates fair value. Government-Backed Fixed Rate Project Financing Debt 3 The fair value is similar to the process for taxable debt securities. 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 U.S. Treasury rate as well as a current market curve derived from government-backed securities. Non-Government-Backed Fixed Rate Nonrecourse Debt 3 Fair value 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. SNF Obligation SNF Obligation 2 The carrying amount is derived from a contract with the DOE to provide for disposal of SNF from certain of our nuclear generating stations. See Note 18 — Commitments and Contingencies for further details. 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 U.S. Treasury rate. The compounded obligation amount is discounted back to present value using our discount rate, which is calculated using the same methodology as described above for the taxable debt securities, and an estimated maturity date of 2040 and 2035 for the years ended December 31, 2024 and 2023, respectively. Recurring Fair Value Measurements The following tables present assets and liabilities measured and recorded at fair value in the Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2024 and 2023: As of December 31, 2024 As of December 31, 2023 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets Cash equivalents (a) $ 120 $ — $ — $ 120 $ 42 $ — $ — $ 42 NDT fund investments Cash equivalents (b) 187 163 — 350 356 87 — 443 Equities 5,230 1,897 — 7,127 4,574 1,990 1 6,565 Fixed income 2,089 1,462 368 3,919 2,043 1,523 277 3,843 Private credit — — 134 134 — — 151 151 Assets measured at NAV — — — 5,791 — — — 5,396 NDT fund investments subtotal (c) 7,506 3,522 502 17,321 6,973 3,600 429 16,398 Rabbi trust investments 58 41 1 100 48 33 1 82 Investments in equities 389 — — 389 372 — — 372 Mark-to-market derivative assets Economic hedges 1,278 5,306 2,641 9,225 2,330 5,821 3,143 11,294 Proprietary trading — — — — — — 2 2 Effect of netting and allocation of collateral (1,097) (4,790) (2,123) (8,010) (1,996) (5,195) (1,931) (9,122) Mark-to-market derivative assets subtotal 181 516 518 1,215 334 626 1,214 2,174 DPP consideration — — — — — 1,216 — 1,216 Total assets measured at fair value 8,254 4,079 1,021 19,145 7,769 5,475 1,644 20,284 Liabilities Mark-to-market derivative liabilities Economic hedges (1,222) (5,462) (2,778) (9,462) (2,681) (7,154) (2,736) (12,571) Proprietary trading — — — — — — (2) (2) Effect of netting and allocation of collateral 1,180 5,157 2,259 8,596 2,587 6,542 2,393 11,522 Mark-to-market derivative liabilities subtotal (42) (305) (519) (866) (94) (612) (345) (1,051) Deferred compensation obligation — (93) — (93) — (69) — (69) Total liabilities measured at fair value (42) (398) (519) (959) (94) (681) (345) (1,120) Total net assets $ 8,212 $ 3,681 $ 502 $ 18,186 $ 7,675 $ 4,794 $ 1,299 $ 19,164 __________ (a) CEG Parent has $130 million and $54 million of Level 1 cash equivalents as of December 31, 2024 and 2023, respectively. We exclude cash of $2,924 million and $349 million, and restricted cash of $71 million and $49 million, as of December 31, 2024 and 2023, respectively. CEG Parent has excluded an additional $4 million and $2 million of cash as of December 31, 2024 and 2023, respectively. (b) Includes net liabilities of $148 million and $115 million as of December 31, 2024 and 2023, respectively, which 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. (c) Includes total NDT derivative assets and liabilities that are not material, which have total notional amounts of $1,119 million and $948 million as of December 31, 2024 and 2023, respectively. The notional principal amounts provide one measure of the transaction volume outstanding as of the periods ended and do not represent the amount of our exposure to credit or market loss. As of December 31, 2024, our NDTs have outstanding commitments to invest in private credit, private equity, and real assets of $482 million, $311 million, and $791 million, respectively. These commitments will be funded by our existing NDT funds. Equity Security Investments without Readily Determinable Fair Values. We hold investments without readily determinable fair values with carrying amounts of $150 million and $103 million as of December 31, 2024 and 2023, respectively. Changes in fair value, cumulative adjustments, and impairments were not material for the years ended December 31, 2024 and 2023. Reconciliation of Level 3 Assets and Liabilities The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis during the years ended December 31, 2024 and 2023: For the Year Ended December 31, 2024 NDT Fund Investments Mark-to-Market Derivatives Rabbi Trust Investments Total Balance as of January 1, 2024 $ 429 $ 869 $ 1 $ 1,299 Total realized / unrealized gains (losses) Included in net income (loss) 5 (861) (a) — (856) Included in Payables related to Regulatory Agreement Units 16 — — 16 Change in collateral — (325) — (325) Purchases, sales, issuances and settlements Purchases 66 61 — 127 Sales — (83) — (83) Settlements (15) 29 — 14 Transfers into Level 3 1 44 (b) — 45 Transfers out of Level 3 — 265 (b) — 265 Balance as of December 31, 2024 $ 502 $ (1) $ 1 $ 502 The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of December 31, 2024 $ 5 $ (126) $ — $ (121) For the Year Ended December 31, 2023 NDT Fund Investments Mark-to-Market Derivatives Rabbi Trust Investments Total Balance as of January 1, 2023 $ 423 $ 219 $ 1 $ 643 Total realized / unrealized gains (losses) Included in net income (loss) 2 171 (a) — 173 Included in Payables related to Regulatory Agreement Units 10 — — 10 Change in collateral — 243 — 243 Purchases, sales, issuances and settlements Purchases — 160 — 160 Sales 1 (29) — (28) Settlements (7) 32 — 25 Transfers into Level 3 — 46 (b) — 46 Transfers out of Level 3 — 27 (b) — 27 Balance as of December 31, 2023 $ 429 $ 869 $ 1 $ 1,299 The amount of total gains (losses) included in income attributed to the change in unrealized gains (losses) related to assets and liabilities as of December 31, 2023 $ 2 $ 1,194 $ — $ 1,196 __________ (a) Includes a reduction of ($706) million and ($991) million for realized gains due to the settlement of derivative contracts for the years ended December 31, 2024 and 2023, respectively. (b) Transfers into and out of Level 3 generally occur when the contract tenor becomes less and more observable, respectively, primarily due to changes in market liquidity or assumptions for certain commodity contracts. The following table presents 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 years ended December 31, 2024, 2023, and 2022: Operating Revenues Purchased Power and Fuel Other, net 2024 2023 2022 2024 2023 2022 2024 2023 2022 Total gains (losses) included in net income $ (539) $ 706 $ (860) $ (293) $ (503) $ 5 $ 5 $ 2 $ (4) Total unrealized gains (losses) 207 1,673 (1,330) (333) (479) 65 5 2 (2) Valuation Techniques Used to Determine Fair Value Cash Equivalents. Investments with original maturities of three months or less when purchased, including mutual and money market funds, are considered cash equivalents. The fair values are based on observable market prices and, therefore, are included in the recurring fair value measurements hierarchy as Level 1. NDT Fund Investments. The trust fund investments have been established to satisfy our 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. Our 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, including private credit, private equity, and real assets. 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. Equities. These investments consist of individually held equity securities, equity mutual funds, and equity commingled funds in domestic and foreign markets. With respect to individually held equity securities, the trustees obtain prices from pricing services, whose prices are generally obtained from direct feeds from market exchanges, which we are able to independently corroborate. Equity securities held individually, including real estate investment trusts, rights, and warrants, are primarily traded on exchanges that contain only actively traded securities due to the volume trading requirements imposed by these exchanges. The equity securities that are held directly by the trust funds are valued based on quoted prices in active markets and categorized as 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. Certain private placement equity securities are categorized as Level 3 because they are not publicly traded and are priced using significant unobservable inputs. Equity commingled funds and mutual funds are maintained by investment companies, and fund investments are held in accordance with a stated set of fund objectives. The values of some of these funds are publicly quoted. For mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. For equity commingled funds and mutual funds which are not publicly quoted, the fund administrators value the funds using the NAV per fund share, derived from the quoted prices in active markets on the underlying securities and are not classified within the fair value hierarchy. These investments can typically be redeemed monthly or more frequently, with 30 or less days of notice and without further restrictions. Fixed income. For fixed income securities, which consist primarily of corporate debt securities, U.S. government securities, foreign government securities, municipal bonds, asset and mortgage-backed securities, commingled funds, mutual funds, and derivative instruments, the trustees obtain multiple prices from pricing vendors whenever possible, which enables cross-provider validations in addition to checks for unusual daily movements. A primary price source is identified based on asset type, class, or issue for each security. 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 preferable. We have obtained an understanding of how these prices are derived, including the nature and observability of the inputs used in deriving such prices. Additionally, we selectively corroborate the fair values of securities by comparison to other market-based price sources. Investments in U.S. Treasury securities have been categorized as Level 1 because they trade in highly-liquid and transparent markets. Certain private placement fixed income securities have been categorized as Level 3 because they are priced using certain significant unobservable inputs and are typically illiquid. The remaining fixed income securities, including certain other fixed income investments, are based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences and are categorized as Level 2. This includes equity investments sold short during the period, which represent liabilities. Other fixed income investments primarily consist of fixed income commingled funds and mutual funds, which are maintained by investment companies and hold fund investments in accordance with a stated set of fund objectives. The values of some of these funds are publicly quoted. For mutual funds which are publicly quoted, the funds are valued based on quoted prices in active markets and have been categorized as Level 1. For fixed income commingled funds and mutual funds which are not publicly quoted, the fund administrators value the funds using the NAV per fund share, derived from the quoted prices in active markets of the underlying securities and are not classified within the fair value hierarchy. These investments typically can be redeemed monthly or more frequently, with 30 or less days of notice and without further restrictions. Derivative instruments. These instruments, consisting primarily of futures and 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. Private credit. Private credit investments primarily consist of investments in private debt strategies. These investments are generally less liquid assets with an underlying term of 3 to 5 years and are intended to be held to maturity. The fair value of these investments is determined by the fund manager or administrator using a combination of valuation models including cost models, market models, and income models and typically cannot be redeemed until maturity of the term loan. Private credit investments held directly by us are categorized as Level 3 because they are based largely on inputs that are unobservable and utilize complex valuation models. For certain private credit funds, the fair value is determined using a combination of valuation models including cost models, market models, and income models and typically cannot be redeemed until maturity of the term loan. These investments are not classified within the fair value hierarchy because their fair value is determined using NAV or its equivalent as a practical expedient. Private equity. These investments include those in limited partnerships that invest in operating companies that are not publicly traded on a stock exchange such as leveraged buyouts, growth capital, venture capital, distressed investments, and investments in natural resources. These investments typically cannot be redeemed and are generally liquidated over a period of 8 to 10 years from the initial investment date, which is based on our understanding of the investment funds. Private equity valuations are reported by the fund manager and are based on the valuation of the underlying investments, which include unobservable inputs such as cost, operating results, discounted future cash flows, and market-based comparable data. These valuation inputs are unobservable. The fair value of private equity investments is determined using NAV or its equivalent as a practical expedient, and therefore, these investments are not classified within the fair value hierarchy. Real assets. These investments are funds with a direct investment in pools of real estate properties or infrastructure assets. These funds are reported by the fund manager and are generally based on independent appraisals of the underlying investments from sources with professional qualifications, typically using a combination of market-based comparable data and discounted cash flows. These valuation inputs are unobservable. Certain real asset investments cannot be redeemed and are generally liquidated over a period of 8 to 25 years from the initial investment date, which is based on our understanding of the investment funds. The remaining liquid real asset investments are generally redeemable from the investment vehicle quarterly, with 30 to 90 days of notice. The fair value of real asset investments is determined using NAV or its equivalent as a practical expedient, and therefore, these investments are not classified within the fair value hierarchy. We evaluated our NDT portfolios for the existence of significant concentrations of credit risk as of December 31, 2024. 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 December 31, 2024, there were no significant concentrations (generally defined as greater than 10 percent) of risk in the NDT assets. See Note 10 — Asset Retirement Obligations for additional information on the NDT fund investments. Rabbi Trust Investments. The Rabbi trusts were established to hold assets related to deferred compensation plans existing for certain active and retired members of executive management and directors. The Rabbi trusts' assets are included in investments in the Consolidated Balance Sheets and consist primarily of money market funds, mutual funds, and life insurance policies. Money market funds and mutual funds are publicly quoted and have been categorized as Level 1 given the clear observability of the prices. 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. Deferred Compensation Obligations. Our deferred compensation plans allow participants to defer certain cash compensation into a notional investment account. We include such plans in other current and noncurrent liabilities in the Consolidated Balance Sheets. The value of our 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 table 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. Investments in Equities. We hold certain investments in equity securities with readily determinable fair values in addition to those held within the NDT funds. These equity securities are valued based on quoted prices in active markets and are categorized as Level 1. Deferred Purchase Price Consideration. We had DPP consideration for the sale of certain receivables of retail electricity. This amount was valued based on the sales price of the receivables net of allowance for credit losses (see Note 1 — Basis of Presentation for additional details on our policy for credit losses). Since the DPP consideration was based on the sales price of the receivables, it was categorized as Level 2 in the fair value hierarchy. See Note 7 — Accounts Receivable for additional information on the sale of certain customer accounts receivables. Mark-to-Market Derivatives. 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, over-the-counter, or 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 we 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 considers 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. Our derivatives are predominantly 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. 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. We consider credit and non-performance risk in the valuation of derivative contracts categorized in Level 2 and 3, including both historical and current market data, in our assessment of credit and non-performance risk by counterparty. Due to master netting agreements and collateral posting requirements, the impacts of credit and non-performance risk were not material to the consolidated financial statements. Disclosed below is detail surrounding our significant Level 3 valuations. The calculated fair value includes marketability discounts for margining provisions and other attributes. The Level 3 balance generally consists of forward sales and purchases of power and natural gas and certain transmission congestion contracts. We utilize 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. For commodity derivatives, the primary input to the valuation models is the forward commodity price curve for each instrument. 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, we discount future cash flows using risk-free interest rates with adjustments to reflect the credit quality of each counterparty for assets and our 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 $48.71 and $3.68 for power and natural gas, respectively as of December 31, 2024. 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. See Note 15 — Derivative Financial Instruments for additional information on mark-to-market derivatives. The following table presents the significant inputs to the forward curve used to value these positions: Type of trade Fair Value as of December 31, 2024 Fair Value as of December 31, 2023 Valuation Technique Unobservable Input 2024 Range & Arithmetic Average 2023 Range & Arithmetic Average Mark-to-market derivatives—Economic hedges (a)(b) $ (137) $ 407 Discounted Cash Flow Forward power price $2.57 - $140 $49 $9.64 - $216 $48 Forward gas price $2.09 - $15 $3.68 $1.20 - $14 $3.09 Option Model Volatility percentage 23% - 141% 57% 23% - 200% 87% __________ (a) The valuation techniques, unobservable inputs, ranges, and arithmetic averages are the same for the asset and liability positions. (b) The fair values do not include cash collateral posted (received) on Level 3 positions of $136 million and $462 million as of December 31, 2024 and 2023, respectively. The inputs listed above, which are as of the balance sheet date, 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 our 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 us the obligation or option to purchase a commodity), with offsetting impacts to short positions (contracts that give us 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 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. |
