Note 6 - Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 6 — Derivative Instruments and Hedging Activities

This footnote should be read in conjunction with the complete description under Note 7 — Accounting for Derivative Instruments and Hedging Activities, to the consolidated financial statements included in the Company's 2018 Form 10-K.

Interest Rate Swaps

The Company enters into interest rate swap agreements in order to hedge the variability of expected future cash interest payments. As of  September 30, 2019, the Company had interest rate derivative instruments on non-recourse debt extending through 2041, a portion of which were designated as cash flow hedges. Under the interest rate swap agreements, the Company pays a fixed rate and the counterparties to the agreements pay a variable interest rate.

Energy-Related Commodities

As of  September 30, 2019, the Company had energy-related derivative instruments extending through 2029. At  September 30, 2019, these contracts were not designated as cash flow or fair value hedges.

Volumetric Underlying Derivative Transactions

The following table summarizes the net notional volume buy of the Company's open derivative transactions broken out by type:

		Total Volume
(In millions)		September 30, 2019			December 31, 2018
Commodity	Units
Power	MWh		(2	)		—
Natural Gas	MMBtu		3			1
Interest	Dollars	$	1,756		$	1,862

Fair Value of Derivative Instruments

The following table summarizes the fair value within the derivative instrument valuation on the balance sheet:

	Fair Value
	Derivative Assets (a)				Derivative Liabilities
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
	(In millions)
Derivatives Designated as Cash Flow Hedges:
Interest rate contracts current	$	-	$	2	$	3	$	1
Interest rate contracts long-term		-		3		14		6
Total Derivatives Designated as Cash Flow Hedges		-		5		17		7
Derivatives Not Designated as Cash Flow Hedges:
Interest rate contracts current		-		1		12		3
Interest rate contracts long-term		-		5		72		11
Commodity contracts current		1		-		-		-
Commodity contracts long-term		-		-		9		-
Total Derivatives Not Designated as Cash Flow Hedges		1		6		93		14
Total Derivatives	$	1	$	11	$	110	$	21

^(a) Derivative Assets balances classified as current are included within the prepayments and other current assets line item of the consolidated balance sheets as of December 31, 2018.

The Company has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. As of  September 30, 2019 and  December 31, 2018, there was no outstanding collateral paid or received. The following tables summarize the offsetting of derivatives by the counterparty master agreement level as of  September 30, 2019 and  December 31, 2018:

As of September 30, 2019	Gross Amounts of Recognized Assets/Liabilities			Derivative Instruments			Net Amount
Commodity contracts:	(In millions)
Derivative assets	$	1		$	(1	)	$	-
Derivative liabilities		(9	)		1			(8	)
Total commodity contracts	$	(8	)	$	-		$	(8	)
Interest rate contracts:
Derivative assets		-			-			-
Derivative liabilities		(101	)		-			(101	)
Total interest rate contracts	$	(101	)	$	-		$	(101	)
Total derivative instruments	$	(109	)	$	-		$	(109	)

As of December 31, 2018	Gross Amounts of Recognized Assets/Liabilities			Derivative Instruments			Net Amount
Interest rate contracts:	(In millions)
Derivative assets	$	11		$	(1	)	$	10
Derivative liabilities		(21	)		1			(20	)
Total interest rate contracts	$	(10	)	$	-		$	(10	)
Total derivative instruments	$	(10	)	$	-		$	(10	)

Accumulated Other Comprehensive Loss

The following table summarizes the effects on the Company’s accumulated OCL balance attributable to interest rate swaps designated as cash flow hedge derivatives, net of tax:

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
	(In millions)
Accumulated OCL beginning balance	$	(35	)	$	(36	)	$	(38	)	$	(60	)
Reclassified from accumulated OCL to income due to realization of previously deferred amounts		(2	)		5			15			11
Mark-to-market of cash flow hedge accounting contracts		1			1			(13	)		19
Accumulated OCL ending balance, net of income tax benefit of $6 and $6, respectively		(36	)		(30	)		(36	)		(30	)
Accumulated OCL attributable to noncontrolling interests	$	(19	)	$	(16	)	$	(19	)	$	(16	)
Accumulated OCL attributable to Clearway Energy, Inc.	$	(17	)	$	(14	)	$	(17	)	$	(14	)
Losses expected to be realized from OCL during the next 12 months, net of income tax benefit of $3	$	(7	)				$	(7	)

Impact of Derivative Instruments on the Statements of Operations

Gains and losses related to the Company's derivatives are recorded in the consolidated statements of operations as follows:

	Three months ended September 30,					Nine months ended September 30,
	2019			2018		2019			2018
	(In millions)
Interest Rate Contracts (Interest Expense)	$	(28	)	$	9	$	(82	)	$	40

A portion of the Company’s derivative commodity contracts relates to its Thermal Business for the purchase of fuel commodities based on the forecasted usage of the thermal district energy centers. Realized gains and losses on these contracts are reflected in the fuel costs that are permitted to be billed to customers through the related customer contracts or tariffs and, accordingly, no gains or losses are reflected in the consolidated statements of operations for these contracts.

In connection with the repowering activities at Elbow Creek, the Company entered into a new long-term power hedge in January of 2019, and the impact to the consolidated statements of operations was a $9 million loss for the period ended September 30, 2019.  The loss was recorded in total operating revenues in the Company's consolidated statements of operations.

See Note 5 —  Fair Value of Financial Instruments, for a discussion regarding concentration of credit risk.