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Fair Value Measurements and Credit Concentration (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value of Assets and Liabilities Measured on Recurring Basis

The assets and liabilities measured at fair value were:

	March 31, 2016																December 31, 2015
	Total				Level 1				Level 2				Level 3				Total				Level 1				Level 2				Level 3
Assets
Cash and cash equivalents	$	393			$	393			$	—			$	—			$	141			$	141			$	—			$	—
Restricted cash and cash equivalents (a)	72				72				—				—				106				106				—				—
Price risk management assets:
Energy commodities	840				—				751				89				693				—				597				96
Total price risk management assets	840				—				751				89				693				—				597				96
NDT funds:
Cash and cash equivalents	7				7				—				—				11				11				—				—
Equity securities
U.S. large-cap	623				462				161				—				616				457				159				—
U.S. mid/small-cap	87				37				50				—				87				37				50				—
Debt securities
U.S. Treasury	106				106				—				—				98				98				—				—
U.S. government sponsored agency	5				—				5				—				6				—				6				—
Municipality	87				—				87				—				83				—				83				—
Investment-grade corporate	44				—				44				—				47				—				47				—
Other	3				—				3				—				3				—				3				—
Receivables (payables), net	2				(1		)		3				—				—				(2		)		2				—
Total NDT funds	964				611				353				—				951				601				350				—
Auction rate securities (b)	6				—				—				6				6				—				—				6
Total assets	$	2,275			$	1,076			$	1,104			$	95			$	1,897			$	848			$	947			$	102
Liabilities
Price risk management liabilities:
Energy commodities	$	619			$	—			$	598			$	21			$	539			$	—			$	497			$	42
Total price risk management liabilities	$	619			$	—			$	598			$	21			$	539			$	—			$	497			$	42

(a) Current portion is included in "Restricted cash and cash equivalents" and long-term portion is included in "Other noncurrent assets" on the Balance Sheets.     

(b) Included in "Other investments" on the Balance Sheets. 

Reconciliation of Net Assets and Liabilities Classified as Level 3

A reconciliation of net assets and liabilities classified as Level 3 for the period ended March 31, 2016 is as follows:

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Three Months
	Energy Commodities, net				Auction Rate Securities				Total
Balance at beginning of period	$	54			$	6			$	60
Total realized/unrealized gains (losses) included in earnings	60				—				60
Settlements	(45		)		—				(45		)
Transfers into Level 3	1				—				1
Transfers out of Level 3	(2		)		—				(2		)
Balance at end of period	$	68			$	6			$	74

A reconciliation of net assets and liabilities classified as Level 3 for the period ended March 31, 2015 is as follows:

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Three Months
		Energy Commodities, net				Auction Rate Securities				Total
Balance at beginning of period		$	111			$	8			$	119
Total realized/unrealized gains (losses) included in earnings		(17		)		—				(17		)
Settlements		30				—				30
Transfers into Level 3		4				—				4
Transfers out of Level 3		1				—				1
Balance at end of period		$	129			$	8			$	137

Significant Unobservable Inputs Used in Fair Value Measurement of Assets and Liabilities Classified as Level 3

The significant unobservable inputs used in and quantitative information about the fair value measurement of assets and liabilities classified as Level 3 are as follows:

	March 31, 2016
	Fair Value, net Asset (Liability)				Valuation Technique		Significant Unobservable Input(s)		Range (Weighted Average) (a)
Energy commodities
Natural gas contracts (b)	$	57			Discounted cash flow		Proprietary model used to calculate forward prices		11% - 100% (57%)
Power sales contracts (c)	16				Discounted cash flow		Proprietary model used to calculate forward prices		21% - 100% (69%)
FTR purchase contracts (d)	(2		)		Discounted cash flow		Historical settled prices used to model forward prices		100% (100%)
Heat rate call options (e)	(1		)		Discounted cash flow		Proprietary model used to calculate forward prices		100% (100%)
CRR purchase contracts (d)	(2		)		Discounted cash flow		Proprietary model used to calculate forward prices		100% (100%)
Auction rate securities (f)	6				Discounted cash flow		Modeled from SIFMA Index		45% - 47% (46%)

	December 31, 2015
	Fair Value, net Asset (Liability)				Valuation Technique		Significant Unobservable Input(s)		Range (Weighted Average) (a)
Energy commodities
Natural gas contracts (b)	$	55			Discounted cash flow		Proprietary model used to calculate forward prices		10% - 100% (50%)
Power sales contracts (c)	13				Discounted cash flow		Proprietary model used to calculate forward prices		10% - 100% (100%)
FTR purchase contracts (d)	(2		)		Discounted cash flow		Historical settled prices used to model forward prices		100% (100%)
Heat rate call options (e)	(10		)		Discounted cash flow		Proprietary model used to calculate forward prices		100% (100%)
CRR purchase contracts (d)	(2		)		Discounted cash flow		Proprietary model used to calculate forward prices		100% (100%)
Auction rate securities (f)	6				Discounted cash flow		Modeled from SIFMA Index		46% - 47% (46.5%)

(a) The range and weighted average represent the percentage of fair value derived from the unobservable inputs.    

(b) As the forward price of natural gas increases/(decreases), the fair value of purchase contracts increases/(decreases).  As the forward price of natural gas increases/(decreases), the fair value of sales contracts (decreases)/increases.    

(c) As forward market prices increase/(decrease), the fair value of contracts (decreases)/increases.  As volumetric assumptions for contracts in a gain position increase/(decrease), the fair value of contracts increases/(decreases).  As volumetric assumptions for contracts in a loss position increase/(decrease), the fair value of the contracts (decreases)/increases.    

(d) As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases).  

(e) The proprietary model used to calculate fair value incorporates market heat rates, correlations and volatilities.  As the market implied heat rate increases/(decreases), the fair value of purchased calls increases/(decreases).   As the market implied heat rate increases/(decreases), the fair value of sold calls (decreases)/increases.    

(f) The model used to calculate fair value incorporates an assumption that the auctions will continue to fail.  As the modeled forward rates of the SIFMA Index increase/(decrease), the fair value of the securities increases/(decreases).    

Fair Value of Assets and Liabilities Classified as Level 3 Measured on Recurring Basis Included in Earnings

Net gains and losses on assets and liabilities classified as Level 3 and included in earnings for the periods ended March 31 are reported in the Statements of Income as follows:

		Three Months
		Energy Commodities, net
		Wholesale Energy								Retail Energy								Fuel and Energy Purchases
		2016				2015				2016				2015				2016				2015
Total gains (losses) included in earnings		$	41			$	21			$	18			$	(40	)		$	1			$	2
Change in unrealized gains (losses) relating to positions still held at the reporting date		13				25				7				(9		)		(1		)		1

Fair Value of Financial Instruments Not Recorded at Fair Value - Other

The carrying amounts of long-term debt on the Balance Sheets and its estimated fair values are set forth below.  The fair value was primarily estimated using an income approach by discounting future cash flows at estimated current cost of funding rates, which incorporates the credit risk of Talen Energy Supply.  Long-term debt is classified primarily as Level 2.           

	March 31, 2016								December 31, 2015
	Carrying Amount				Fair Value				Carrying Amount				Fair Value
Long-term debt	$	4,268			$	3,808			$	4,203			$	3,343

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