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Accounting for Derivative Instruments and Hedging Activities
12 Months Ended
Dec. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Accounting for derivative instruments and hedging activities Accounting for Derivative Instruments and Hedging Activities
ASC 815 requires the Company to recognize all derivative instruments on the balance sheet as either assets or liabilities and to measure them at fair value each reporting period unless they qualify for a NPNS exception. The Company may elect to designate certain derivatives as cash flow hedges, if certain conditions are met, and defer the change in fair value of the derivatives to accumulated OCI/OCL, until the hedged transactions occur and are recognized in earnings. For derivatives that are not designated as cash flow hedges or do not qualify for hedge accounting treatment, the changes in the fair value will be immediately recognized in earnings. Certain derivative instruments may qualify for the NPNS exception and are therefore exempt from fair value accounting treatment. ASC 815 applies to the Company's energy related commodity contracts and interest rate swaps.
Energy-Related Commodities
To manage the commodity price risk associated with its competitive supply activities and the price risk associated with wholesale power sales, the Company may enter into derivative hedging instruments, namely, forward contracts that commit the Company to sell energy commodities or purchase fuels/electricity in the future. The objectives for entering into derivatives contracts designated as hedges include fixing the price for a portion of anticipated future electricity sales and fixing the price of a portion of anticipated fuel/electricity purchases for the operation of its subsidiaries. As of December 31, 2019, the Company had forward contracts for the sale of electricity from renewable energy assets through 2029, forward contracts for the purchase of fuel commodities relating to the forecasted usage of the Company’s district energy centers extending through 2021, and electricity contracts to supply retail power to the Company's district energy centers extending through 2020. At December 31, 2019, these contracts were not designated as cash flow or fair value hedges.
Also, as of December 31, 2019, the Company had other energy-related contracts that did not meet the definition of a derivative instrument or qualified for the NPNS exception and were therefore exempt from fair value accounting treatment as follows:
Power purchase agreements through 2043, and
Natural gas transportation contracts through 2028.
Interest Rate Swaps
The Company is exposed to changes in interest rates through the issuance of variable rate debt. In order to manage interest rate risk, it enters into interest rate swap agreements.
As of December 31, 2019, the Company had interest rate derivative instruments on non-recourse debt extending through 2041, a portion of which are designated as cash flow hedges.
Volumetric Underlying Derivative Transactions
The following table summarizes the net notional volume buy/(sell) of the Company's open derivative transactions broken out by commodity as of December 31, 2019 and 2018:
 
 
 
Total Volume
 
 
 
December 31, 2019
 
December 31, 2018
Commodity
Units
 
(In millions)
Natural Gas
MMBtu
 
2

 
1

Power
MWh
 
(2
)
 

Interest
Dollars
 
$
1,788

 
$
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
 
December 31, 2018
 
December 31, 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

 
11

 
6

Total Derivatives Designated as Cash Flow Hedges
5

 
14

 
7

Derivatives Not Designated as Cash Flow Hedges:
 
 
 
 
 
Interest rate contracts current
1

 
13

 
3

Interest rate contracts long-term
5

 
56

 
11

Commodity contracts long-term 

 
9

 

Total Derivatives Not Designated as Cash Flow Hedges
6

 
78

 
14

Total Derivatives
$
11

 
$
92

 
$
21


 
(a) Derivative Asset balances classified as current are included within the prepayments and other current assets line item of the Consolidated Balance Sheet.
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 December 31, 2019 and 2018, there was no outstanding collateral paid or received. As of December 31, 2018, the commodity balances were not material. The following tables summarize the offsetting of derivatives by counterparty master agreement level:

Gross Amounts Not Offset in the Statement of Financial Position
As of December 31, 2019
Gross Amounts of Recognized Assets/Liabilities
 
Derivative Instruments
 
Net Amount
Commodity contracts:
(In millions)
Derivative liabilities
(9
)
 
(1
)
 
(10
)
Total commodity contracts
(9
)
 
(1
)
 
(10
)
Interest rate contracts:
 
 
 
 
 
Derivative liabilities
(83
)
 
1

 
(82
)
Total interest rate contracts
(83
)
 
1

 
(82
)
Total derivative instruments
$
(92
)
 
$

 
$
(92
)
 
Gross Amounts Not Offset in the Statement of Financial Position
As of December 31, 2018
Gross Amounts of Recognized Assets/Liabilities
 
Derivative Instruments
 
Net Amount
Interest rate contracts:
 
 
 
 
 
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:
 
Year ended December 31,
 
2019
 
2018
 
2017
 
(In millions)
Accumulated OCL beginning balance
$
(38
)
 
$
(60
)
 
$
(70
)
Reclassified from accumulated OCL to income due to realization of previously deferred amounts
16

 
14

 
10

Mark-to-market of cash flow hedge accounting contracts
(9
)
 
8

 

Accumulated OCL ending balance, net of income tax benefit of $6, $7 and $9, respectively
$
(31
)
 
$
(38
)
 
$
(60
)
Accumulated OCL attributable to noncontrolling interests
(16
)
 
(20
)
 
(32
)
Accumulated OCL attributable to Clearway Energy, Inc.
$
(15
)
 
$
(18
)
 
$
(28
)
Losses expected to be realized from OCL during the next 12 months, net of income tax benefit of $3
$
(7
)
 
 
 
 

Amounts reclassified from accumulated OCL into income are recorded to interest expense.
The Company's regression analysis for Marsh Landing, Walnut Creek and Avra Valley interest rate swaps, while positively correlated, no longer contain matching terms for cash flow hedge accounting. As a result, the Company voluntarily de-designated the Marsh Landing, Walnut Creek and Avra Valley cash flow hedges as of April 28, 2017, and marks these derivatives to market through the statement of operations.
Impact of Derivative Instruments on the Statements of Income
The Company has interest rate derivative instruments that are not designated as cash flow hedges. The effect of interest rate hedges is recorded to interest expense. For the years ended December 31, 2019, 2018 and 2017 the impact to the consolidated statements of income was a loss of $65 million, a gain of $15 million and a gain of $6 million, respectively.
During the year ended December 31, 2019, Elbow Creek entered into a new long-term power hedge, and the impact to the Company's consolidated statement of operations was a $9 million loss for the period recorded in total operating revenues.
A portion of the Company’s derivative commodity contracts relates to its Thermal Business for the purchase of fuel/electricity commodities based on the forecasted usage of the thermal district energy centers. Realized gains and losses on these contracts are reflected in the 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.
See Item 15 Note 6, Fair Value of Financial Instruments, for a discussion regarding concentration of credit risk.