Fair Value Measurements and Credit Concentration (Tables)
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9 Months Ended |
Sep. 30, 2015 |
Fair Value Disclosures [Abstract] |
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Fair Value of Assets and Liabilities Measured on Recurring Basis |
The assets and liabilities measured at fair value were: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | September 30, 2015 | | December 31, 2014 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | Assets | | | | | | | | | | | | | | | | Cash and cash equivalents | $ | 648 |
| | $ | 648 |
| | $ | — |
| | $ | — |
| | $ | 352 |
| | $ | 352 |
| | $ | — |
| | $ | — |
| Restricted cash and cash equivalents (a) | 83 |
| | 83 |
| | — |
| | — |
| | 193 |
| | 193 |
| | — |
| | — |
| Price risk management assets: | | | | | | | | | | | | | | | | Energy commodities | 802 |
| | — |
| | 739 |
| | 63 |
| | 1,318 |
| | 6 |
| | 1,171 |
| | 141 |
| Total price risk management assets | 802 |
| | — |
| | 739 |
| | 63 |
| | 1,318 |
| | 6 |
| | 1,171 |
| | 141 |
| NDT funds: | | | | | | | | | | | | | | | | Cash and cash equivalents | 13 |
| | 13 |
| | — |
| | — |
| | 19 |
| | 19 |
| | — |
| | — |
| Equity securities | | | | | | | | | | | |
| | |
| | | U.S. large-cap | 581 |
| | 433 |
| | 148 |
| | — |
| | 611 |
| | 454 |
| | 157 |
| | — |
| U.S. mid/small-cap | 84 |
| | 35 |
| | 49 |
| | — |
| | 89 |
| | 37 |
| | 52 |
| | — |
| Debt securities | | | | | | | | | | | |
| | |
| | |
| U.S. Treasury | 94 |
| | 94 |
| | — |
| | — |
| | 99 |
| | 99 |
| | — |
| | — |
| U.S. government sponsored agency | 7 |
| | — |
| | 7 |
| | — |
| | 9 |
| | — |
| | 9 |
| | — |
| Municipality | 81 |
| | — |
| | 81 |
| | — |
| | 76 |
| | — |
| | 76 |
| | — |
| Investment-grade corporate | 49 |
| | — |
| | 49 |
| | — |
| | 42 |
| | — |
| | 42 |
| | — |
| Other | 4 |
| | — |
| | 4 |
| | — |
| | 3 |
| | — |
| | 3 |
| | — |
| Receivables (payables), net | — |
| | (3 | ) | | 3 |
| | — |
| | 2 |
| | — |
| | 2 |
| | — |
| Total NDT funds | 913 |
| | 572 |
| | 341 |
| | — |
| | 950 |
| | 609 |
| | 341 |
| | — |
| Auction rate securities (b) | 6 |
| | — |
| | — |
| | 6 |
| | 8 |
| | — |
| | — |
| | 8 |
| Total assets | $ | 2,452 |
| | $ | 1,303 |
| | $ | 1,080 |
| | $ | 69 |
| | $ | 2,821 |
| | $ | 1,160 |
|
| $ | 1,512 |
|
| $ | 149 |
| Liabilities | | | | | | | | | | | | | | | | Price risk management liabilities: | | | | | | | | | | | | | | | | Energy commodities | $ | 684 |
| | $ | — |
| | $ | 626 |
| | $ | 58 |
| | $ | 1,217 |
| | $ | 5 |
| | $ | 1,182 |
| | $ | 30 |
| Total price risk management liabilities | $ | 684 |
| | $ | — |
| | $ | 626 |
| | $ | 58 |
| | $ | 1,217 |
| | $ | 5 |
|
| $ | 1,182 |
|
| $ | 30 |
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| | (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. |
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Reconciliation of Net Assets and Liabilities Classified as Level 3 |
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2015 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | Three Months | | Nine Months | | Energy Commodities, net | | Auction Rate Securities | | Total | | Energy Commodities, net | | Auction Rate Securities | | Total | Balance at beginning of period | $ | 10 |
| | $ | 7 |
| | $ | 17 |
| | $ | 111 |
| | $ | 8 |
| | $ | 119 |
| Total realized/unrealized gains (losses) | | | | | | | | | | | | Included in earnings | (7 | ) | | — |
| | (7 | ) | | (148 | ) | | — |
| | (148 | ) | Purchases (a) | — |
| | — |
| | — |
| | (39 | ) | | — |
| | (39 | ) | Sales | — |
| | (1 | ) | | (1 | ) | | 65 |
| | (2 | ) | | 63 |
| Settlements | (9 | ) | | — |
| | (9 | ) | | (6 | ) | | — |
| | (6 | ) | Transfers into Level 3 | — |
| | — |
| | — |
| | 10 |
| | — |
| | 10 |
| Transfers out of Level 3 | 11 |
| | — |
| | 11 |
| | 12 |
| | — |
| | 12 |
| Balance at end of period | $ | 5 |
|
| $ | 6 |
|
| $ | 11 |
|
| $ | 5 |
|
| $ | 6 |
|
| $ | 11 |
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| | (a) | Positions acquired through the acquisition of RJS Power. |
A reconciliation of net assets and liabilities classified as Level 3 for the periods ended September 30, 2014 is as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | | Three Months | | Nine Months | | Energy Commodities, net | | Auction Rate Securities | | Total | | Energy Commodities, net | | Auction Rate Securities | | Total | Balance at beginning of period | $ | 74 |
| | $ | 13 |
| | $ | 87 |
| | $ | 24 |
| | $ | 16 |
| | $ | 40 |
| Total realized/unrealized gains (losses) | | | | | | | | | | | | Included in earnings | (84 | ) | | — |
| | (84 | ) | | (147 | ) | | — |
| | (147 | ) | Purchases | — |
| | — |
| | — |
| | (6 | ) | | — |
| | (6 | ) | Sales | 67 |
| | (3 | ) | | 64 |
| | 67 |
| | (6 | ) | | 61 |
| Settlements | (37 | ) | | — |
| | (37 | ) | | 82 |
| | — |
| | 82 |
| Balance at end of period | $ | 20 |
|
| $ | 10 |
|
| $ | 30 |
|
| $ | 20 |
|
| $ | 10 |
|
| $ | 30 |
|
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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: | | | | | | | | | | | | September 30, 2015 | Talen Energy | Fair Value, net Asset (Liability) | | Valuation Technique | | Significant Unobservable Input(s) | | Range (Weighted Average) (a) | Energy commodities | | | | | | | | Natural gas contracts (b) | $ | 31 |
| | Discounted cash flow | | Proprietary model used to calculate forward prices | | 10% - 100% (37%) | Power sales contracts (c) | (2 | ) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 10% - 100% (70%) | FTR purchase contracts (d) | (1 | ) | | Discounted cash flow | | Historical settled prices used to model forward prices | | 100% (100%) | Heat rate call options (e) | (21 | ) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 100% (100%) | CRR purchase contracts (g) | (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 | | 52% - 57% (54%) |
| | | | | | | | | | | | December 31, 2014 | Talen Energy | Fair Value, net Asset (Liability) | | Valuation Technique | | Significant Unobservable Input(s) | | Range (Weighted Average) (a) | Energy commodities | | | | | | | | Natural gas contracts (b) | $ | 59 |
| | Discounted cash flow | | Proprietary model used to calculate forward prices | | 11% - 100% (52%) | Power sales contracts (c) | (1 | ) | | Discounted cash flow | | Proprietary model used to calculate forward prices | | 10% - 100% (59%) | FTR purchase contracts (d) | 3 |
| | Discounted cash flow | | Historical settled prices used to model forward prices | | 100% (100%) | Heat rate call options (e) | 50 |
| | Discounted cash flow | | Proprietary model used to calculate forward prices | | 23% - 51% (45%) | Auction rate securities (f) | 8 |
| | Discounted cash flow | | Modeled from SIFMA Index | | 51% - 69% (63%) |
| | (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). |
| | (g) | As the forward implied spread increases/(decreases), the fair value of the contracts increases/(decreases). |
The significant unobservable inputs used in and the quantitative information about the nonrecurring fair value measurement of assets and liabilities classified as Level 3 are as follows: | | | | | | | | | | | | | | Fair Value, net Asset (Liability) | | Valuation Technique | | Significant Unobservable Input(s) | | Range (Weighted Average)(a) | | | | | | | | | | | | | Kerr Dam Project (March 31, 2014) | $ | 29 |
| | Discounted cash flow | | Proprietary model used to calculate plant value | | 38% (38%) | | Sapphire portfolio and C.P. Crane plant (September 30, 2015) | 266 |
| | Discounted cash flow | | Proprietary model used to calculate plant value | | 100% (100%) |
| | (a) | The range and weighted average represent the percentage of fair value derived from the unobservable inputs. |
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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 September 30 are reported in the Statements of Income as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three Months | | | Energy Commodities, net | | | Wholesale Energy | | Retail Energy | | Energy Purchases | | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | Total gains (losses) included in earnings | | $ | 2 |
| | $ | (102 | ) | | $ | (1 | ) | | $ | 16 |
| | $ | (8 | ) | | $ | 2 |
| Change in unrealized gains (losses) relating to positions still held at the reporting date | | 8 |
| | 6 |
| | 12 |
| | 13 |
| | (1 | ) | | 1 |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | Nine Months | | | Energy Commodities, net | | | Wholesale Energy | | Retail Energy | | Energy Purchases | | | 2015 | | 2014 | | 2015 | | 2014 | | 2015 | | 2014 | Total gains (losses) included in earnings | | $ | (108 | ) | | $ | (133 | ) | | $ | (33 | ) | | $ | (35 | ) | | $ | (7 | ) | | $ | 21 |
| Change in unrealized gains (losses) relating to positions still held at the reporting date | | (31 | ) | | 5 |
| | 9 |
| | (12 | ) | | (5 | ) | | (3 | ) |
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Fair Value of Assets and Liabilities Measured on Nonrecurring Basis |
The following nonrecurring fair value measurements occurred during the periods ended September 30, 2015 and 2014 resulting in asset impairments: | | | | | | | | | | | | | | Carrying Amount (a) | | Fair Value Measurements Using Level 3 (b) | | Pre-tax Loss (c) | Kerr Dam Project (March 31, 2014) | $ | 47 |
| | $ | 29 |
| | $ | 18 |
| Sapphire portfolio and C.P. Crane plant (September 30, 2015) | 388 |
| | 266 |
| | 122 |
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| | (a) | Represents carrying value before fair value measurement. |
| | (b) | For the Sapphire portfolio, also reflects estimated cost to sell. |
| | (c) | The impairments on the Kerr Dam Project and Sapphire portfolio are included in "Income (Loss) from Discontinued Operations (net of income taxes)" on the Statement of Income. The impairment on the C.P. Crane plant is included in "Impairments" on the Statement of Income. |
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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 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 as Level 2.
| | | | | | | | | | | | | | | | | | September 30, 2015 | | December 31, 2014 | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | Long-term debt | $ | 4,030 |
| | $ | 3,717 |
| | $ | 2,218 |
| | $ | 2,204 |
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