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Risk Management Activities and Derivative Transactions

9 Months Ended

Sep. 30, 2011

Risk Management Activities And Derivative Transactions Disclosure [Line Items]

Risk Management Activities And Derivative Transactions

12. RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

We are exposed to various risks related to changes in market conditions. We have a risk management committee that includes senior executives from various business groups. The risk management committee is responsible for administering risk management policies and monitoring compliance with those policies by all subsidiaries. Under our risk policy, we may use a variety of instruments, including swaps, options and forward contracts, to manage exposure to fluctuations in commodity prices and interest rates. Such instruments contain credit risk if the counterparty fails to perform under the contract. We minimize such risk by performing credit and financial reviews using a combination of financial analysis and publicly available credit ratings of such counterparties. Potential nonperformance by counterparties is not expected to have a material effect on our financial position or results of operations.

A. COMMODITY DERIVATIVES

GENERAL

Most of our physical commodity contracts are not derivatives or qualify as normal purchases or sales. Therefore, such contracts are not recorded at fair value.

ECONOMIC DERIVATIVES

Derivative products, primarily natural gas and oil contracts, may be entered into from time to time for economic hedging purposes. While management believes the economic hedges mitigate exposures to fluctuations in commodity prices, these instruments are not designated as hedges for accounting purposes and are monitored consistent with trading positions.

The Utilities have financial derivative instruments with settlement dates through 2015 related to their exposure to price fluctuations on fuel oil and natural gas purchases. The majority of our financial hedge agreements will settle in 2011 and 2012. Substantially all of these instruments receive regulatory accounting treatment. Related unrealized gains and losses are recorded in regulatory liabilities and regulatory assets, respectively, on the Balance Sheets until the contracts are settled. After settlement of the derivatives and the fuel is consumed, any realized gains or losses are passed through the fuel cost-recovery clause.

Certain hedge agreements may result in the receipt of, or posting of, derivative collateral with our counterparties, depending on the daily derivative position. Fluctuations in commodity prices that lead to our return of collateral received and/or our posting of collateral with our counterparties negatively impact our liquidity. We manage open positions with strict policies that limit our exposure to market risk and require daily reporting to management of potential financial exposures.

Certain counterparties have posted or held cash collateral in support of these instruments. Progress Energy had a cash collateral asset included in derivative collateral posted of $112 million and $164 million on the Progress Energy Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, respectively. At September 30, 2011, Progress Energy had 339.4 million MMBtu notional of natural gas and 12.3 million gallons notional of fuel oil related to outstanding commodity derivative swaps that were entered into to hedge forecasted natural gas and oil purchases.

PEC had a cash collateral asset included in prepayments and other current assets of $14 million and $24 million on the PEC Consolidated Balance Sheets at September 30, 2011 and December 31, 2010, respectively. At September 30, 2011, PEC had 98.4 million MMBtu notional of natural gas related to outstanding commodity derivative swaps that were entered into to hedge forecasted natural gas purchases.

PEF's cash collateral asset included in derivative collateral posted was $98 million and $140 million on the PEF Balance Sheets at September 30, 2011 and December 31, 2010, respectively. At September 30, 2011, PEF had 241.0 million MMBtu notional of natural gas and 12.3 million gallons notional of oil related to outstanding commodity derivative swaps that were entered into to hedge forecasted natural gas and oil purchases.

B. INTEREST RATE DERIVATIVES – FAIR VALUE OR CASH FLOW HEDGES

We use cash flow hedging strategies to reduce exposure to changes in cash flow due to fluctuating interest rates. We use fair value hedging strategies to reduce exposure to changes in fair value due to interest rate changes. Our cash flow hedging strategies are primarily accomplished through the use of forward starting swaps and our fair value hedging strategies are primarily accomplished through the use of fixed-to-floating swaps. The notional amounts of interest rate derivatives are not exchanged and do not represent exposure to credit loss. In the event of default by the counterparty, the exposure in these transactions is the cost of replacing the agreements at current market rates.

CASH FLOW HEDGES

At September 30, 2011, all open interest rate hedges will reach their mandatory termination dates in approximately two years. At September 30, 2011, including amounts related to terminated hedges, we had $140 million of after-tax losses, including $70 million and $26 million of after-tax losses at PEC and PEF, respectively, recorded in accumulated other comprehensive income (OCI) related to forward starting swaps. It is expected that in the next twelve months losses of $12 million, net of tax, primarily related to terminated hedges, will be reclassified to interest expense at Progress Energy, including $6 million and $2 million at PEC and PEF, respectively. The actual amounts that will be reclassified to earnings may vary from the expected amounts as a result of changes in interest rates, changes in the timing of debt issuances at the Parent and the Utilities and changes in market value of currently open forward starting swaps.

At December 31, 2010, including amounts related to terminated hedges, we had $63 million of after-tax losses, including $33 million and $4 million of after-tax losses at PEC and PEF, respectively, recorded in accumulated OCI related to forward starting swaps.

At December 31, 2010, Progress Energy had $1.050 billion notional of open forward starting swaps, including $350 million at PEC and $200 million at PEF. At September 30, 2011, Progress Energy had $500 million notional of open forward starting swaps, including $250 million at PEC and $50 million at PEF.

FAIR VALUE HEDGES

For interest rate fair value hedges, the change in the fair value of the hedging derivative is recorded in net interest charges and is offset by the change in the fair value of the hedged item. At September 30, 2011, and December 31, 2010, neither we nor the Utilities had any outstanding positions in such contracts.

C. CONTINGENT FEATURES

Certain of our commodity derivative instruments contain provisions defining fair value thresholds requiring the posting of collateral for hedges in a liability position greater than such threshold amounts. The thresholds are tiered and based on the individual company's credit rating with Moody's Investors Service, Inc. (Moody's), Standard & Poor's Rating Services (S&P) and/or Fitch Ratings (Fitch). Higher credit ratings have a higher threshold requiring a lower amount of the outstanding liability position to be covered by posted collateral. Conversely, lower credit ratings require a higher amount of the outstanding liability position to be covered by posted collateral. If our credit ratings were to be downgraded, we may have to post additional collateral on certain hedges in liability positions.

In addition, certain of our commodity derivative instruments contain provisions that require our debt to maintain an investment grade credit rating from Moody's, S&P and/or Fitch. If our debt were to fall below investment grade, we would be in violation of these provisions, and the counterparties to the commodity derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on commodity derivative instruments in net liability positions.

The aggregate fair value of all commodity derivative instruments at Progress Energy with credit risk-related contingent features that are in a net liability position was $377 million at September 30, 2011, for which Progress Energy has posted collateral of $112 million in the normal course of business. If the credit risk-related contingent features underlying these agreements were triggered at September 30, 2011, Progress Energy would have been required to post an additional $265 million of collateral with its counterparties.

The aggregate fair value of all commodity derivative instruments at PEC with credit risk-related contingent features that are in a liability position was $116 million at September 30, 2011, for which PEC has posted collateral of $14 million in the normal course of business. If the credit risk-related contingent features underlying these agreements were triggered at September 30, 2011, PEC would have been required to post an additional $102 million of collateral with its counterparties.

The aggregate fair value of all commodity derivative instruments at PEF with credit risk-related contingent features that are in a net liability position was $261 million at September 30, 2011, for which PEF has posted collateral of $98 million in the normal course of business. If the credit risk-related contingent features underlying these agreements were triggered on September 30, 2011, PEF would have been required to post an additional $163 million of collateral with its counterparties.

D. DERIVATIVE INSTRUMENT AND HEDGING ACTIVITY INFORMATION

PROGRESS ENERGY

The following table presents the fair value of derivative instruments at September 30, 2011 and December 31, 2010:

Instrument / Balance sheet location				September 30, 2011				December 31, 2010
(in millions)				Asset	Liability			Asset	Liability
Derivatives designated as hedging instruments
Commodity cash flow derivatives
	Derivative liabilities, current				$	1			$	-
Interest rate derivatives
	Prepayments and other current assets		$	-			$	1
	Other assets and deferred debits			-				3
	Derivative liabilities, current					70				32
	Derivative liabilities, long-term					16				7
		Total derivatives designated as hedging instruments		0		87		4		39

Derivatives not designated as hedging instruments
Commodity derivatives^(a)
	Prepayments and other current assets			6				11
	Other assets and deferred debits			1				4
	Derivative liabilities, current					231				226
	Derivative liabilities, long-term					237				268
CVOs^(b)
	Other current liabilities					74				-
	Other liabilities and deferred credits					-				15
		Fair value of derivatives not designated as hedging instruments		7		542		15		509
Fair value loss transition adjustment^(c)
	Derivative liabilities, current					1				1
	Derivative liabilities, long-term					2				3
		Total derivatives not designated as hedging instruments		7		545		15		513
		Total derivatives	$	7	$	632	$	19	$	552

^(a)	Substantially all of these contracts receive regulatory treatment.
^(b)	As discussed in Note 10, the Parent issued 98.6 million CVOs in connection with the acquisition of Florida Progress during 2000.
^(c)	In 2003, PEC recorded a $38 million pre-tax ($23 million after-tax) fair value loss transition adjustment pursuant to the adoption of new accounting guidance for derivatives. The related liability is being amortized to earnings over the term of the related contracts.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Consolidated Statements of Income for the three months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument		Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Commodity cash flow derivatives^(d)		$	(1)	$	0	$	0	$	0	$	0	$	0
Interest rate derivatives^{(c) (e)}			(68)		(30)		(2)		(1)		(1)		-
	Total	$	(69)	$	(30)	$	(2)	$	(1)	$	(1)	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Consolidated Statements of Income are classified in fuel used in electric generation.
^(e)	Amounts recorded in the Consolidated Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(91)	$	(114)	$	(157)	$	(181)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Consolidated Balance Sheets until derivatives are settled.

Instrument		Amount of Gain or (Loss) Recognized in Income on Derivatives
(in millions)			2011		2010
Fair value loss transition adjustment^(a)		$	1	$	1
CVOs^(a)			(63)		-
	Total	$	(62)	$	1

^(a)	Amounts recorded in the Consolidated Statements of Income are classified in other, net.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Consolidated Statements of Income for the nine months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument		Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Commodity cash flow derivatives^(d)		$	(1)	$	0	$	0	$	0	$	0	$	0
Interest rate derivatives^{(c) (e)}			(82)		(80)		(5)		(4)		(3)		-
	Total	$	(83)	$	(80)	$	(5)	$	(4)	$	(3)	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Consolidated Statements of Income are classified in fuel used in electric generation.
^(e)	Amounts recorded in the Consolidated Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(219)	$	(264)	$	(201)	$	(417)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Consolidated Balance Sheets until derivatives are settled.

Instrument		Amount of Gain or (Loss) Recognized in Income on Derivatives
(in millions)			2011		2010
Commodity derivatives^(a)		$	1	$	-
Fair value loss transition adjustment^(a)			1		1
CVOs^(a)			(59)		-
	Total	$	(57)	$	1

^(a)	Amounts recorded in the Consolidated Statements of Income are classified in other, net.

PEC

The following table presents the fair value of derivative instruments at September 30, 2011 and December 31, 2010:

Instrument / Balance sheet location			September 30, 2011				December 31, 2010
(in millions)				Asset	Liability			Asset	Liability
Derivatives designated as hedging instruments
Interest rate derivatives
	Other assets and deferred debits		$	-			$	3
	Derivative liabilities, current				$	35			$	7
	Other liabilities and deferred credits					8				4
		Total derivatives designated as hedging instruments		0		43		3		11

Derivatives not designated as hedging instruments
Commodity derivatives^(a)
	Prepayments and other current assets			-				1
	Other assets and deferred debits			-				1
	Derivative liabilities, current					57				45
	Other liabilities and deferred credits					77				78
		Fair value of derivatives not designated as hedging instruments		0		134		2		123
Fair value loss transition adjustment^(b)
	Derivative liabilities, current					1				1
	Other liabilities and deferred credits					2				3
		Total derivatives not designated as hedging instruments		0		137		2		127
		Total derivatives	$	0	$	180	$	5	$	138

^(a)	Substantially all of these contracts receive regulatory treatment.
^(b)	In 2003, PEC recorded a $38 million pre-tax ($23 million after-tax) fair value loss transition adjustment pursuant to the adoption of new accounting guidance for derivatives. The related liability is being amortized to earnings over the term of the related contracts.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Consolidated Statements of Income for the three months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument		Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Interest rate derivatives^{(c) (d)}		$	(35)	$	(10)	$	(1)	$	(1)	$	(1)	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Consolidated Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(20)	$	(17)	$	(42)	$	(38)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Consolidated Balance Sheets until derivatives are settled.

Instrument						Amount of Gain or (Loss) Recognized in Income on Derivatives
(in millions)							2011		2010
Fair value loss transition adjustment^(a)						$	1	$	1

^(a)	Amounts recorded in the Consolidated Statements of Income are classified in other, net.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Consolidated Statements of Income for the nine months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument			Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Interest rate derivatives^{(c) (d)}		$	(40)	$	(26)	$	(3)	$	(3)	$	(1)	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Consolidated Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(42)	$	(36)	$	(55)	$	(82)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Consolidated Balance Sheets until derivatives are settled.

Instrument						Amount of Gain or (Loss) Recognized in Income on Derivatives
(in millions)							2011		2010
Commodity derivatives^(a)						$	1	$	-
Fair value loss transition adjustment^(a)							1		1
	Total					$	2	$	1

^(a)	Amounts recorded in the Consolidated Statements of Income are classified in other, net.

PEF

The following table presents the fair value of derivative instruments at September 30, 2011 and December 31, 2010:

Instrument / Balance sheet location			September 30, 2011				December 31, 2010
(in millions)				Asset	Liability			Asset	Liability
Derivatives designated as hedging instruments
Commodity cash flow derivatives
	Derivative liabilities, current				$	1			$	-
Interest rate derivatives
	Derivative liabilities, current					-				7
	Derivative liabilities, long-term					8				-
		Total derivatives designated as hedging instruments				9				7

Derivatives not designated as hedging instruments
Commodity derivatives^(a)
	Prepayments and other current assets		$	6			$	10
	Other assets and deferred debits			1				3
	Derivative liabilities, current					174				181
	Derivative liabilities, long-term					160				190
		Total derivatives not designated as hedging instruments		7		334		13		371
		Total derivatives	$	7	$	343	$	13	$	378

^(a)	Substantially all of these contracts receive regulatory treatment.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Statements of Income for the three months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument		Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Commodity cash flow derivatives^(d)		$	(1)	$	-	$	-	$	-	$	-	$	-
Interest rate derivatives^{(c) (e)}			(16)		(6)		-		-		-		-
	Total	$	(17)	$	(6)	$	-	$	-	$	-	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Statements of Income are classified in fuel used in electric generation.
^(e)	Amounts recorded in the Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(71)	$	(97)	$	(115)	$	(143)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Balance Sheets until derivatives are settled.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Statements of Income for the nine months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument		Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Commodity cash flow derivatives^(d)		$	(1)	$	-	$	-	$	-	$	-	$	-
Interest rate derivatives^{(c) (e)}			(21)		(16)		-		-		-		-
	Total	$	(22)	$	(16)	$	-	$	-	$	-	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Consolidated Statements of Income are classified in fuel used in electric generation.
^(e)	Amounts recorded in the Consolidated Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(177)	$	(228)	$	(146)	$	(335)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Balance Sheets until derivatives are settled.

PEC

Risk Management Activities And Derivative Transactions Disclosure [Line Items]

Risk Management Activities And Derivative Transactions

12. RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

A. COMMODITY DERIVATIVES

GENERAL

Most of our physical commodity contracts are not derivatives or qualify as normal purchases or sales. Therefore, such contracts are not recorded at fair value.

ECONOMIC DERIVATIVES

B. INTEREST RATE DERIVATIVES – FAIR VALUE OR CASH FLOW HEDGES

CASH FLOW HEDGES

FAIR VALUE HEDGES

C. CONTINGENT FEATURES

D. DERIVATIVE INSTRUMENT AND HEDGING ACTIVITY INFORMATION

PEC

The following table presents the fair value of derivative instruments at September 30, 2011 and December 31, 2010:

Instrument / Balance sheet location			September 30, 2011				December 31, 2010
(in millions)				Asset	Liability			Asset	Liability
Derivatives designated as hedging instruments
Interest rate derivatives
	Other assets and deferred debits		$	-			$	3
	Derivative liabilities, current				$	35			$	7
	Other liabilities and deferred credits					8				4
		Total derivatives designated as hedging instruments		0		43		3		11

Derivatives not designated as hedging instruments
Commodity derivatives^(a)
	Prepayments and other current assets			-				1
	Other assets and deferred debits			-				1
	Derivative liabilities, current					57				45
	Other liabilities and deferred credits					77				78
		Fair value of derivatives not designated as hedging instruments		0		134		2		123
Fair value loss transition adjustment^(b)
	Derivative liabilities, current					1				1
	Other liabilities and deferred credits					2				3
		Total derivatives not designated as hedging instruments		0		137		2		127
		Total derivatives	$	0	$	180	$	5	$	138

^(a)	Substantially all of these contracts receive regulatory treatment.
^(b)	In 2003, PEC recorded a $38 million pre-tax ($23 million after-tax) fair value loss transition adjustment pursuant to the adoption of new accounting guidance for derivatives. The related liability is being amortized to earnings over the term of the related contracts.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Consolidated Statements of Income for the three months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument		Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Interest rate derivatives^{(c) (d)}		$	(35)	$	(10)	$	(1)	$	(1)	$	(1)	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Consolidated Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(20)	$	(17)	$	(42)	$	(38)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Consolidated Balance Sheets until derivatives are settled.

Instrument						Amount of Gain or (Loss) Recognized in Income on Derivatives
(in millions)							2011		2010
Fair value loss transition adjustment^(a)						$	1	$	1

^(a)	Amounts recorded in the Consolidated Statements of Income are classified in other, net.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Consolidated Statements of Income for the nine months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument			Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Interest rate derivatives^{(c) (d)}		$	(40)	$	(26)	$	(3)	$	(3)	$	(1)	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Consolidated Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(42)	$	(36)	$	(55)	$	(82)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Consolidated Balance Sheets until derivatives are settled.

Instrument						Amount of Gain or (Loss) Recognized in Income on Derivatives
(in millions)							2011		2010
Commodity derivatives^(a)						$	1	$	-
Fair value loss transition adjustment^(a)							1		1
	Total					$	2	$	1

^(a)	Amounts recorded in the Consolidated Statements of Income are classified in other, net.

PEF

Risk Management Activities And Derivative Transactions Disclosure [Line Items]

Risk Management Activities And Derivative Transactions

12. RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS

A. COMMODITY DERIVATIVES

GENERAL

Most of our physical commodity contracts are not derivatives or qualify as normal purchases or sales. Therefore, such contracts are not recorded at fair value.

ECONOMIC DERIVATIVES

B. INTEREST RATE DERIVATIVES – FAIR VALUE OR CASH FLOW HEDGES

CASH FLOW HEDGES

FAIR VALUE HEDGES

C. CONTINGENT FEATURES

D. DERIVATIVE INSTRUMENT AND HEDGING ACTIVITY INFORMATION

PEF

The following table presents the fair value of derivative instruments at September 30, 2011 and December 31, 2010:

Instrument / Balance sheet location			September 30, 2011				December 31, 2010
(in millions)				Asset	Liability			Asset	Liability
Derivatives designated as hedging instruments
Commodity cash flow derivatives
	Derivative liabilities, current				$	1			$	-
Interest rate derivatives
	Derivative liabilities, current					-				7
	Derivative liabilities, long-term					8				-
		Total derivatives designated as hedging instruments				9				7

Derivatives not designated as hedging instruments
Commodity derivatives^(a)
	Prepayments and other current assets		$	6			$	10
	Other assets and deferred debits			1				3
	Derivative liabilities, current					174				181
	Derivative liabilities, long-term					160				190
		Total derivatives not designated as hedging instruments		7		334		13		371
		Total derivatives	$	7	$	343	$	13	$	378

^(a)	Substantially all of these contracts receive regulatory treatment.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Statements of Income for the three months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument		Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Commodity cash flow derivatives^(d)		$	(1)	$	-	$	-	$	-	$	-	$	-
Interest rate derivatives^{(c) (e)}			(16)		(6)		-		-		-		-
	Total	$	(17)	$	(6)	$	-	$	-	$	-	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Statements of Income are classified in fuel used in electric generation.
^(e)	Amounts recorded in the Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(71)	$	(97)	$	(115)	$	(143)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Balance Sheets until derivatives are settled.

The following tables present the effect of derivative instruments on OCI (See Note 5C) and the Statements of Income for the nine months ended September 30, 2011 and 2010:

Derivatives Designated as Hedging Instruments
Instrument		Amount of Gain or (Loss) Recognized in OCI, Net of Tax on Derivatives^(a)				Amount of Gain or (Loss), Net of Tax Reclassified from Accumulated OCI into Income^(a)				Amount of Pre-tax Gain or (Loss) Recognized in Income on Derivatives^(b)
(in millions)			2011		2010		2011		2010		2011		2010
Commodity cash flow derivatives^(d)		$	(1)	$	-	$	-	$	-	$	-	$	-
Interest rate derivatives^{(c) (e)}			(21)		(16)		-		-		-		-
	Total	$	(22)	$	(16)	$	-	$	-	$	-	$	-

^(a)	Effective portion.
^(b)	Related to ineffective portion and amount excluded from effectiveness testing.
^(c)	Amounts in accumulated OCI related to terminated hedges are reclassified to earnings as the interest expense is recorded. The effective portion of the hedges will be amortized to interest expense over the term of the related debt.
^(d)	Amounts recorded in the Consolidated Statements of Income are classified in fuel used in electric generation.
^(e)	Amounts recorded in the Consolidated Statements of Income are classified in interest charges.

Derivatives Not Designated as Hedging Instruments
Instrument		Realized Gain or (Loss)^(a)				Unrealized Gain or (Loss)^(b)
(in millions)			2011		2010		2011		2010
Commodity derivatives		$	(177)	$	(228)	$	(146)	$	(335)

^(a)	After settlement of the derivatives and the fuel is consumed, gains or losses are passed through the fuel cost-recovery clause.
^(b)	Amounts are recorded in regulatory liabilities and assets, respectively, on the Balance Sheets until derivatives are settled.

- Definition

The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items.

+ References

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+ Details