Constellation Energy Corp

12. 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 table presents the carrying amounts and fair values of our long-term debt and the SNF obligation as of March 31, 2024 and December 31, 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.

Valuation Techniques Used to Determine Fair Value

Our valuation techniques used to measure the fair value of the assets and liabilities are in accordance with the policies discussed in Note 18 — Fair Value of Financial Assets and Liabilities of our 2023 Form 10-K.

Valuation Techniques Used to Determine Net Asset Value

Certain NDT Fund Investments are not classified within the fair value hierarchy and are included under the heading “Not subject to leveling” in the table below. These investments are measured at fair value using NAV per share as a practical expedient and include commingled funds, mutual funds which are not publicly quoted, managed private credit funds, private equity and real estate funds.

For commingled funds and mutual funds, which are not publicly quoted, the fair value is primarily derived from the quoted prices in active markets on the underlying securities and can typically be redeemed monthly with 30 or less days of notice and without further restrictions. For managed 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. 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. 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 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.

Recurring Fair Value Measurements

The following table 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 March 31, 2024 and December 31, 2023:

(a)CEG Parent has $55 million and $54 million of Level 1 cash equivalents as of March 31, 2024 and December 31, 2023, respectively. We exclude cash of $539 million and $349 million as of March 31, 2024 and December 31, 2023, respectively, and restricted cash of $46 million and $49 million as of March 31, 2024 and December 31, 2023, respectively. CEG Parent has excluded an additional $5 million and $2 million of cash as of March 31, 2024 and December 31, 2023, respectively.

(b)Includes net liabilities of $351 million and $115 million as of March 31, 2024 and December 31, 2023, respectively, which include certain derivative assets that have notional amounts of $126 million and $64 million as of March 31, 2024 and December 31, 2023, 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.

(c)Includes derivative assets and liabilities that are not material, which have total notional amounts of $882 million and $884 million as of March 31, 2024 and December 31, 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.

(d)Includes $1,331 million and $1,712 million of variation margin posted on the exchanges as of March 31, 2024 and December 31, 2023, respectively.

As of March 31, 2024, our NDTs have outstanding commitments to invest in private credit, private equity, and real estate investments of $372 million, $86 million, and $366 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 $113 million and $103 million as of March 31, 2024 and December 31, 2023, respectively. Changes in fair value, cumulative adjustments, and impairments were not material for the three months ended March 31, 2024 and the year ended December 31, 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 three months ended March 31, 2024 and 2023:

(a)Includes a reduction of ($337) million and ($206) million for realized gains due to the settlement of derivative contracts for the three months ended March 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 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, 2024 and 2023:

Mark-to-Market Derivatives

The following table presents the significant inputs to the forward curve used to value these positions:

(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 on Level 3 positions of $494 million and $462 million as of March 31, 2024 and December 31, 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.