XML 64 R20.htm IDEA: XBRL DOCUMENT v3.10.0.1
Risk Management and Hedging Activities (Notes)
 12 Months Ended
Dec. 31, 2018
PacifiCorp [Member]  
Derivative [Line Items]  
Risk Management and Hedging Activities [Text Block]
Risk Management and Hedging Activities

PacifiCorp is exposed to the impact of market fluctuations in commodity prices and interest rates. PacifiCorp is principally exposed to electricity, natural gas, coal and fuel oil commodity price risk as it has an obligation to serve retail customer load in its service territories. PacifiCorp's load and generating facilities represent substantial underlying commodity positions. Exposures to commodity prices consist mainly of variations in the price of fuel required to generate electricity and wholesale electricity that is purchased and sold. Commodity prices are subject to wide price swings as supply and demand are impacted by, among many other unpredictable items, weather, market liquidity, generating facility availability, customer usage, storage, and transmission and transportation constraints. Interest rate risk exists on variable-rate debt and future debt issuances. PacifiCorp does not engage in a material amount of proprietary trading activities.

PacifiCorp has established a risk management process that is designed to identify, assess, manage, mitigate, monitor and report, each of the various types of risk involved in its business. To mitigate a portion of its commodity price risk, PacifiCorp uses commodity derivative contracts, which may include forwards, options, swaps and other agreements, to effectively secure future supply or sell future production generally at fixed prices. PacifiCorp manages its interest rate risk by limiting its exposure to variable interest rates primarily through the issuance of fixed-rate long-term debt and by monitoring market changes in interest rates. Additionally, PacifiCorp may from time to time enter into interest rate derivative contracts, such as interest rate swaps or locks, to mitigate PacifiCorp's exposure to interest rate risk. No interest rate derivatives were in place during the periods presented. PacifiCorp does not hedge all of its commodity price and interest rate risks, thereby exposing the unhedged portion to changes in market prices.

There have been no significant changes in PacifiCorp's accounting policies related to derivatives. Refer to Notes 2 and 12 for additional information on derivative contracts.

The following table, which reflects master netting arrangements and excludes contracts that have been designated as normal under the normal purchases or normal sales exception afforded by GAAP, summarizes the fair value of PacifiCorp's derivative contracts, on a gross basis, and reconciles those amounts to the amounts presented on a net basis on the Consolidated Balance Sheets (in millions):

 
Other
 
 
 
Other
 
Other
 
 
 
Current
 
Other
 
Current
 
Long-term
 
 
 
Assets
 
Assets
 
Liabilities
 
Liabilities
 
Total
 
 
 
 
 
 
 
 
 
 
As of December 31, 2018:
 
 
 
 
 
 
 
 
 
Not designated as hedging contracts(1):
 
 
 
 
 
 
 
 
 
Commodity assets
$
36

 
$
4

 
$
10

 
$
1

 
$
51

Commodity liabilities
(9
)
 
(1
)
 
(67
)
 
(71
)
 
(148
)
Total
27

 
3

 
(57
)
 
(70
)
 
(97
)
 
 
 
 
 
 
 
 
 
 
Total derivatives
27

 
3

 
(57
)
 
(70
)
 
(97
)
Cash collateral (payable) receivable
(2
)
 
—

 
16

 
45

 
59

Total derivatives - net basis
$
25

 
$
3

 
$
(41
)
 
$
(25
)
 
$
(38
)
 
 
 
 
 
 
 
 
 
 
As of December 31, 2017:
 
 
 
 
 
 
 
 
 
Not designated as hedging contracts(1):
 
 
 
 
 
 
 
 
 
Commodity assets
$
11

 
$
1

 
$
1

 
$
—

 
$
13

Commodity liabilities
(3
)
 
—

 
(32
)
 
(82
)
 
(117
)
Total
8

 
1

 
(31
)
 
(82
)
 
(104
)
 
 
 
 
 
 
 
 
 
 
Total derivatives
8

 
1

 
(31
)
 
(82
)
 
(104
)
Cash collateral receivable
—

 
—

 
17

 
57

 
74

Total derivatives - net basis
$
8

 
$
1

 
$
(14
)
 
$
(25
)
 
$
(30
)
(1)
PacifiCorp's commodity derivatives are generally included in rates and as of December 31, 2018 and 2017, a regulatory asset of $96 million and $101 million, respectively, was recorded related to the net derivative liability of $97 million and $104 million, respectively.
The following table reconciles the beginning and ending balances of PacifiCorp's regulatory assets and summarizes the pre-tax gains and losses on commodity derivative contracts recognized in regulatory assets, as well as amounts reclassified to earnings for the years ended December 31 (in millions):
 
2018
 
2017
 
2016
 
 
 
 
 
 
Beginning balance
$
101

 
$
73

 
$
133

Changes in fair value recognized in regulatory assets
12

 
47

 
(27
)
Net (losses) gains reclassified to operating revenue
(68
)
 
9

 
10

Net gains (losses) reclassified to energy costs
51

 
(28
)
 
(43
)
Ending balance
$
96

 
$
101

 
$
73



Derivative Contract Volumes

The following table summarizes the net notional amounts of outstanding commodity derivative contracts with fixed price terms that comprise the mark-to-market values as of December 31 (in millions):
 
Unit of
 
 
 
 
 
Measure
 
2018
 
2017
 
 
 
 
 
 
Electricity sales
Megawatt hours
 
(6
)
 
(9
)
Natural gas purchases
Decatherms
 
117

 
113

Fuel oil purchases
Gallons
 
—

 
—



Credit Risk

PacifiCorp is exposed to counterparty credit risk associated with wholesale energy supply and marketing activities with other utilities, energy marketing companies, financial institutions and other market participants. Credit risk may be concentrated to the extent PacifiCorp's counterparties have similar economic, industry or other characteristics and due to direct or indirect relationships among the counterparties. Before entering into a transaction, PacifiCorp analyzes the financial condition of each significant wholesale counterparty, establishes limits on the amount of unsecured credit to be extended to each counterparty and evaluates the appropriateness of unsecured credit limits on an ongoing basis. To further mitigate wholesale counterparty credit risk, PacifiCorp enters into netting and collateral arrangements that may include margining and cross-product netting agreements and obtains third-party guarantees, letters of credit and cash deposits. If required, PacifiCorp exercises rights under these arrangements, including calling on the counterparty's credit support arrangement.

Collateral and Contingent Features

In accordance with industry practice, certain wholesale derivative contracts contain credit support provisions that in part base certain collateral requirements on credit ratings for senior unsecured debt as reported by one or more of the three recognized credit rating agencies. These derivative contracts may either specifically provide bilateral rights to demand cash or other security if credit exposures on a net basis exceed specified rating-dependent threshold levels ("credit-risk-related contingent features") or provide the right for counterparties to demand "adequate assurance" in the event of a material adverse change in PacifiCorp's creditworthiness. These rights can vary by contract and by counterparty. As of December 31, 2018, PacifiCorp's credit ratings for its senior secured debt and its issuer credit ratings for senior unsecured debt by Moody's Investor Service and Standard & Poor's Rating Services were investment grade.

The aggregate fair value of PacifiCorp's derivative contracts in liability positions with specific credit-risk-related contingent features totaled $113 million and $110 million as of December 31, 2018 and 2017, respectively, for which PacifiCorp had posted collateral of $61 million and $74 million, respectively, in the form of cash deposits. If all credit-risk-related contingent features for derivative contracts in liability positions had been triggered as of December 31, 2018 and 2017, PacifiCorp would have been required to post $35 million and $34 million, respectively, of additional collateral. PacifiCorp's collateral requirements could fluctuate considerably due to market price volatility, changes in credit ratings, changes in legislation or regulation or other factors.