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Derivative Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2013
Derivative Instruments and Hedging Activities

Note O — Derivative Instruments and Hedging Activities

Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules.

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts.

Effective January 1, 2013, the Companies adopted Accounting Standards Updates (ASUs) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” and No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. The amendments require the Companies to disclose certain quantitative information concerning financial and derivative instruments that are offset in the balance sheet and a description of the rights of setoff, including the nature of such rights, associated with recognized assets and liabilities that are subject to an enforceable master netting arrangement or similar agreement.

The Companies enter into master agreements for their commodity derivatives. These agreements typically provide setoff in the event of contract termination. In such case, generally the non-defaulting or non-affected party’s payable will be set-off by the other party’s payable. The non-defaulting party will customarily notify the defaulting party within a specific time period and come to an agreement on the early termination amount.

 

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at December 31, 2013 were:

 

(Millions of Dollars)        
Commodity Derivatives    Gross Amounts of
Recognized
Assets/(Liabilities)		     Gross
Amounts Offset
in the
Statement of
Financial
Position		     Net Amounts of
Assets/(Liabilities)
Presented in the
Statement of
Financial Position		     Gross Amounts Not
Offset in the Statement
of Financial Position		      Net
Amount		  
                           Financial
instruments		      Cash
collateral
received		          

Con Edison

               

Derivative assets

    $ 166      $ (101 )    $ 65 (a)    $ -       $ -       $ 65 (a) 

Derivative liabilities

      (113 )      98        (15 )      -         -         (15 ) 

Net derivative assets/(liabilities)

    $ 53      $ (3 )    $ 50 (a)    $ -       $ -       $ 50 (a) 

CECONY

               

Derivative assets

    $ 41      $ (32 )    $ 9 (a)    $ -       $ -       $ 9 (a) 

Derivative liabilities

      (51 )      37        (14 )      -         -         (14 ) 

Net derivative assets/(liabilities)

    $ (10 )    $ 5      $ (5 )(a)    $ -       $ -       $ (5 )(a) 

 

(a) At December 31, 2013, Con Edison and CECONY had margin deposits of $17 million and $16 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.

 

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at December 31, 2012 were:

 

(Millions of Dollars)        
Commodity Derivatives    Gross Amounts of
Recognized
Assets/(Liabilities)		     Gross
Amounts
Offset in the
Statement  of
Financial
Position		     Net Amounts of
Assets/(Liabilities)
Presented in the
Statement of
Financial Position		     Gross Amounts Not
Offset in the Statement
of Financial Position		      Net
Amount		  
                           Financial
instruments		      Cash
collateral
received		          

Con Edison

               

Derivative assets

    $ 86      $ (57 )    $ 29 (a)    $ -       $ -       $ 29 (a) 

Derivative liabilities

      (176 )      104        (72 )      -         -         (72 ) 

Net derivative assets/(liabilities)

    $ (90 )    $ 47      $ (43 )(a)    $ -       $ -       $ (43 )(a) 

CECONY

               

Derivative assets

    $ 27      $ (15 )    $ 12 (a)    $ -       $ -       $ 12 (a) 

Derivative liabilities

      (83 )      44        (39 )      -         -         (39 ) 

Net derivative assets/(liabilities)

    $ (56 )    $ 29      $ (27 )(a)    $ -       $ -       $ (27 )(a) 

 

(a) At December 31, 2012, Con Edison and CECONY had margin deposits of $37 million and $18 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.

 

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. Credit risk relates to the loss that may result from a counterparty’s nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right of setoff.

At December 31, 2013, Con Edison and CECONY had $164 million and $20 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $84 million with independent system operators, $46 million with commodity exchange brokers, $33 million with investment-grade counterparties and $1 million with non-investment grade/non-rated counterparties. CECONY’s net credit exposure consisted of $17 million with commodity exchange brokers and $3 million with investment-grade counterparties.

Economic Hedges

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.

 

The fair values of the Companies’ commodity derivatives at December 31, 2013 were:

 

     Fair Value of Commodity Derivatives(a)              
(Millions of Dollars)   Balance Sheet Location   Con Edison     CECONY  
     Derivative Assets              

Current

   Other current assets   $ 134      $ 27   

Long-term

   Other deferred charges and noncurrent assets     32        14   

Total derivative assets

     $ 166      $ 41   

Impact of netting

         (84 )      (16 ) 

Net derivative assets

       $ 82      $ 25   
     Derivative Liabilities              

Current

   Fair value of derivative liabilities   $ 82      $ 32   

Long-term

   Fair value of derivative liabilities     31        19   

Total derivative liabilities

     $ 113      $ 51   

Impact of netting

         (98 )      (37 ) 

Net derivative liabilities

       $ 15      $ 14   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The fair values of the Companies’ commodity derivatives at December 31, 2012 were:

 

     Fair Value of Commodity Derivatives(a)              
(Millions of Dollars)   Balance Sheet Location   Con Edison     CECONY  
     Derivative Assets              

Current

   Other current assets   $ 64      $ 18   

Long-term

   Other deferred charges and noncurrent assets     22        9   

Total derivative assets

     $ 86      $ 27   

Impact of netting

         (20 )      3   

Net derivative assets

       $ 66      $ 30   
     Derivative Liabilities              

Current

   Fair value of derivative liabilities   $ 122      $ 58   

Long-term

   Fair value of derivative liabilities     54        25   

Total derivative liabilities

     $ 176      $ 83   

Impact of netting

         (104 )      (44 ) 

Net derivative liabilities

       $ 72      $ 39   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

 

The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. See “Recoverable Energy Costs” in Note A. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.

 

The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the year ended December 31, 2013:

 

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the Year Ended December 31, 2013

  
(Millions of Dollars)   Balance Sheet Location   Con Edison     CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

   Deferred derivative gains   $ 14      $ 11   

Long-term

   Deferred derivative gains     -        -   

Total deferred gains/(losses)

       $ 14      $ 11   

Current

   Deferred derivative losses   $ 47      $ 38   

Current

   Recoverable energy costs     (39 )      (37 ) 

Long-term

   Deferred derivative losses     27        13   

Total deferred gains/(losses)

     $ 35      $ 14   

Net deferred gains/(losses)

       $ 49      $ 25   
     Income Statement Location              

Pre-tax gain/(loss) recognized in income

  
  Purchased power expense   $ 90 (b)    $ -   
  Gas purchased for resale     (27 )      -   
    Non-utility revenue     9 (b)      -   

Total pre-tax gain/(loss) recognized in income

       $ 72      $ -   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the year ended December 31, 2013, Con Edison recorded in non-utility purchased power expense an unrealized pre-tax gain of $74 million.

The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the year ended December 31, 2012:

 

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the Year Ended December 31, 2012

  
(Millions of Dollars)   Balance Sheet Location   Con Edison     CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

   Deferred derivative gains   $ (1 )    $ (1 ) 

Long-term

   Regulatory liabilities     -        -   

Total deferred gains/(losses)

       $ (1 )    $ (1 ) 

Current

   Deferred derivative losses   $ 95      $ 80   

Current

   Recoverable energy costs     (220 )      (192 ) 

Long-term

   Deferred derivative losses     17        24   

Total deferred gains/(losses)

     $ (108 )    $ (88 ) 

Net deferred gains/(losses)

       $ (109 )    $ (89 ) 
     Income Statement Location              

Pre-tax gain/(loss) recognized in income

      

Purchased power expense

     $ (54 )(b)    $ -   

Gas purchased for resale

       (5 )      -   

Non-utility revenue

         (11 )(b)      -   

Total pre-tax gain/(loss) recognized in income

       $ (70 )    $ -   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the year ended December 31, 2012, Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax gain/(loss) of $(14) million and $82 million, respectively.

 

As of December 31, 2013, Con Edison had 1,116 contracts, including 547 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type:

 

      Electric Derivatives              Gas Derivatives  
      Number of
Energy
Contracts(a)		      MWHs(b)      Number of
Capacity
Contracts(a)		      MWs(b)     

Number

of
Contracts(a)

     Dths(b)     Total Number
Of
Contracts(a)		  

Con Edison

      501         16,143,806         61         6,376         554        74,672,185        1,116   

CECONY

      75         3,075,850         4         1,200         468        70,490,000        547   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) Volumes are reported net of long and short positions.

 

The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes.

The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at December 31, 2013, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were:

 

(Millions of Dollars)   Con Edison(a)     CECONY(a)  

Aggregate fair value – net liabilities

   $ 17      $ 14   

Collateral posted

   $ -      $ -   

Additional collateral(b) (downgrade one level from current ratings)

   $ -      $ -   

Additional collateral(b) (downgrade to below investment grade from current ratings)

   $ 11 (c)    $ 9 (c) 

 

(a) Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at December 31, 2013, would have amounted to an estimated $28 million for Con Edison, including $15 million for CECONY. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.
(b) The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff.
(c) Derivative instruments that are net assets have been excluded from the table. At December 31, 2013, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $41 million, including $1 million for CECONY.

Interest Rate Swap

O&R has an interest rate swap, which terminates in October 2014, pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at December 31, 2013 was an unrealized loss of $2 million, which has been included in Con Edison’s consolidated balance sheet as a current liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the year ended December 31, 2013 was $4 million. In the event O&R’s credit rating was downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it did so, the parties would then be required to settle the transaction.
CECONY [Member]
  
Derivative Instruments and Hedging Activities

Note O — Derivative Instruments and Hedging Activities

Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules.

Energy Price Hedging

Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts.

Effective January 1, 2013, the Companies adopted Accounting Standards Updates (ASUs) No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities” and No. 2013-01, “Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”. The amendments require the Companies to disclose certain quantitative information concerning financial and derivative instruments that are offset in the balance sheet and a description of the rights of setoff, including the nature of such rights, associated with recognized assets and liabilities that are subject to an enforceable master netting arrangement or similar agreement.

The Companies enter into master agreements for their commodity derivatives. These agreements typically provide setoff in the event of contract termination. In such case, generally the non-defaulting or non-affected party’s payable will be set-off by the other party’s payable. The non-defaulting party will customarily notify the defaulting party within a specific time period and come to an agreement on the early termination amount.

 

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at December 31, 2013 were:

 

(Millions of Dollars)        
Commodity Derivatives    Gross Amounts of
Recognized
Assets/(Liabilities)		     Gross
Amounts Offset
in the
Statement of
Financial
Position		     Net Amounts of
Assets/(Liabilities)
Presented in the
Statement of
Financial Position		     Gross Amounts Not
Offset in the Statement
of Financial Position		      Net
Amount		  
                           Financial
instruments		      Cash
collateral
received		          

Con Edison

               

Derivative assets

    $ 166      $ (101 )    $ 65 (a)    $ -       $ -       $ 65 (a) 

Derivative liabilities

      (113 )      98        (15 )      -         -         (15 ) 

Net derivative assets/(liabilities)

    $ 53      $ (3 )    $ 50 (a)    $ -       $ -       $ 50 (a) 

CECONY

               

Derivative assets

    $ 41      $ (32 )    $ 9 (a)    $ -       $ -       $ 9 (a) 

Derivative liabilities

      (51 )      37        (14 )      -         -         (14 ) 

Net derivative assets/(liabilities)

    $ (10 )    $ 5      $ (5 )(a)    $ -       $ -       $ (5 )(a) 

 

(a) At December 31, 2013, Con Edison and CECONY had margin deposits of $17 million and $16 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.

 

The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at December 31, 2012 were:

 

(Millions of Dollars)        
Commodity Derivatives    Gross Amounts of
Recognized
Assets/(Liabilities)		     Gross
Amounts
Offset in the
Statement  of
Financial
Position		     Net Amounts of
Assets/(Liabilities)
Presented in the
Statement of
Financial Position		     Gross Amounts Not
Offset in the Statement
of Financial Position		      Net
Amount		  
                           Financial
instruments		      Cash
collateral
received		          

Con Edison

               

Derivative assets

    $ 86      $ (57 )    $ 29 (a)    $ -       $ -       $ 29 (a) 

Derivative liabilities

      (176 )      104        (72 )      -         -         (72 ) 

Net derivative assets/(liabilities)

    $ (90 )    $ 47      $ (43 )(a)    $ -       $ -       $ (43 )(a) 

CECONY

               

Derivative assets

    $ 27      $ (15 )    $ 12 (a)    $ -       $ -       $ 12 (a) 

Derivative liabilities

      (83 )      44        (39 )      -         -         (39 ) 

Net derivative assets/(liabilities)

    $ (56 )    $ 29      $ (27 )(a)    $ -       $ -       $ (27 )(a) 

 

(a) At December 31, 2012, Con Edison and CECONY had margin deposits of $37 million and $18 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange.

 

Credit Exposure

The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. Credit risk relates to the loss that may result from a counterparty’s nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right of setoff.

At December 31, 2013, Con Edison and CECONY had $164 million and $20 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $84 million with independent system operators, $46 million with commodity exchange brokers, $33 million with investment-grade counterparties and $1 million with non-investment grade/non-rated counterparties. CECONY’s net credit exposure consisted of $17 million with commodity exchange brokers and $3 million with investment-grade counterparties.

Economic Hedges

The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices.

 

The fair values of the Companies’ commodity derivatives at December 31, 2013 were:

 

     Fair Value of Commodity Derivatives(a)              
(Millions of Dollars)   Balance Sheet Location   Con Edison     CECONY  
     Derivative Assets              

Current

   Other current assets   $ 134      $ 27   

Long-term

   Other deferred charges and noncurrent assets     32        14   

Total derivative assets

     $ 166      $ 41   

Impact of netting

         (84 )      (16 ) 

Net derivative assets

       $ 82      $ 25   
     Derivative Liabilities              

Current

   Fair value of derivative liabilities   $ 82      $ 32   

Long-term

   Fair value of derivative liabilities     31        19   

Total derivative liabilities

     $ 113      $ 51   

Impact of netting

         (98 )      (37 ) 

Net derivative liabilities

       $ 15      $ 14   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

The fair values of the Companies’ commodity derivatives at December 31, 2012 were:

 

     Fair Value of Commodity Derivatives(a)              
(Millions of Dollars)   Balance Sheet Location   Con Edison     CECONY  
     Derivative Assets              

Current

   Other current assets   $ 64      $ 18   

Long-term

   Other deferred charges and noncurrent assets     22        9   

Total derivative assets

     $ 86      $ 27   

Impact of netting

         (20 )      3   

Net derivative assets

       $ 66      $ 30   
     Derivative Liabilities              

Current

   Fair value of derivative liabilities   $ 122      $ 58   

Long-term

   Fair value of derivative liabilities     54        25   

Total derivative liabilities

     $ 176      $ 83   

Impact of netting

         (104 )      (44 ) 

Net derivative liabilities

       $ 72      $ 39   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.

 

The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. See “Recoverable Energy Costs” in Note A. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur.

 

The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the year ended December 31, 2013:

 

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the Year Ended December 31, 2013

  
(Millions of Dollars)   Balance Sheet Location   Con Edison     CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

   Deferred derivative gains   $ 14      $ 11   

Long-term

   Deferred derivative gains     -        -   

Total deferred gains/(losses)

       $ 14      $ 11   

Current

   Deferred derivative losses   $ 47      $ 38   

Current

   Recoverable energy costs     (39 )      (37 ) 

Long-term

   Deferred derivative losses     27        13   

Total deferred gains/(losses)

     $ 35      $ 14   

Net deferred gains/(losses)

       $ 49      $ 25   
     Income Statement Location              

Pre-tax gain/(loss) recognized in income

  
  Purchased power expense   $ 90 (b)    $ -   
  Gas purchased for resale     (27 )      -   
    Non-utility revenue     9 (b)      -   

Total pre-tax gain/(loss) recognized in income

       $ 72      $ -   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the year ended December 31, 2013, Con Edison recorded in non-utility purchased power expense an unrealized pre-tax gain of $74 million.

The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the year ended December 31, 2012:

 

Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a)

Deferred or Recognized in Income for the Year Ended December 31, 2012

  
(Millions of Dollars)   Balance Sheet Location   Con Edison     CECONY  

Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations:

  

Current

   Deferred derivative gains   $ (1 )    $ (1 ) 

Long-term

   Regulatory liabilities     -        -   

Total deferred gains/(losses)

       $ (1 )    $ (1 ) 

Current

   Deferred derivative losses   $ 95      $ 80   

Current

   Recoverable energy costs     (220 )      (192 ) 

Long-term

   Deferred derivative losses     17        24   

Total deferred gains/(losses)

     $ (108 )    $ (88 ) 

Net deferred gains/(losses)

       $ (109 )    $ (89 ) 
     Income Statement Location              

Pre-tax gain/(loss) recognized in income

      

Purchased power expense

     $ (54 )(b)    $ -   

Gas purchased for resale

       (5 )      -   

Non-utility revenue

         (11 )(b)      -   

Total pre-tax gain/(loss) recognized in income

       $ (70 )    $ -   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) For the year ended December 31, 2012, Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax gain/(loss) of $(14) million and $82 million, respectively.

 

As of December 31, 2013, Con Edison had 1,116 contracts, including 547 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type:

 

      Electric Derivatives              Gas Derivatives  
      Number of
Energy
Contracts(a)		      MWHs(b)      Number of
Capacity
Contracts(a)		      MWs(b)     

Number

of
Contracts(a)

     Dths(b)     Total Number
Of
Contracts(a)		  

Con Edison

      501         16,143,806         61         6,376         554        74,672,185        1,116   

CECONY

      75         3,075,850         4         1,200         468        70,490,000        547   

 

(a) Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table.
(b) Volumes are reported net of long and short positions.

 

The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes.

The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at December 31, 2013, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were:

 

(Millions of Dollars)   Con Edison(a)     CECONY(a)  

Aggregate fair value – net liabilities

   $ 17      $ 14   

Collateral posted

   $ -      $ -   

Additional collateral(b) (downgrade one level from current ratings)

   $ -      $ -   

Additional collateral(b) (downgrade to below investment grade from current ratings)

   $ 11 (c)    $ 9 (c) 

 

(a) Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at December 31, 2013, would have amounted to an estimated $28 million for Con Edison, including $15 million for CECONY. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity.
(b) The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff.
(c) Derivative instruments that are net assets have been excluded from the table. At December 31, 2013, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $41 million, including $1 million for CECONY.

Interest Rate Swap

O&R has an interest rate swap, which terminates in October 2014, pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at December 31, 2013 was an unrealized loss of $2 million, which has been included in Con Edison’s consolidated balance sheet as a current liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the year ended December 31, 2013 was $4 million. In the event O&R’s credit rating was downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it did so, the parties would then be required to settle the transaction.