Leasing Activities

3 Months Ended

Mar. 31, 2012

Leasing Activities [Abstract]

Leasing Activities

(8) LEASING ACTIVITIES

Investment in Finance Leases Held in Trust

PHI has a portfolio of cross-border energy lease investments (the lease portfolio) consisting of hydroelectric generation facilities, coal-fired electric generation facilities and natural gas distribution networks located outside of the United States. Each lease investment is comprised of a number of leases. As of March 31, 2012 and December 31, 2011, the lease portfolio consisted of seven investments with an aggregate book value of $1.4 billion and $1.3 billion, respectively.

The components of the cross-border energy lease investments as of March 31, 2012 and as of December 31, 2011 are summarized below:

	March 31, 2012			December 31, 2011
	(millions of dollars)
Scheduled lease payments to PHI, net of non-recourse debt	$	2,120		$	2,120
Less: Unearned and deferred income		(758	)		(771	)
Investment in finance leases held in trust		1,362			1,349
Less: Deferred income tax liabilities		(797	)		(793	)
Net investment in finance leases held in trust	$	565		$	556

Income recognized from cross-border energy lease investments was comprised of the following for the three months ended March 31, 2012 and 2011:

	Three Months Ended March  31,
	2012		2011
	(millions of dollars)
Pre-tax income from PHI's cross-border energy lease investments (included in Other Revenue)	$	13	$	14
Income tax expense		1		4
Net income from PHI's cross-border energy lease investments	$	12	$	10

To ensure credit quality, PHI regularly monitors the financial performance and condition of the lessees under its cross-border energy lease investments. Changes in credit quality are also assessed to determine if they should be reflected in the carrying value of the leases. PHI reviews each lessee's performance versus annual compliance requirements set by the terms and conditions of the leases. This includes a comparison of published credit ratings to minimum credit rating requirements in the leases for lessees with public credit ratings. In addition, PHI routinely meets with senior executives of the lessees to discuss their company and asset performance. If the annual compliance requirements or minimum credit ratings are not met, remedies are available under the leases. At March 31, 2012, all lessees were in compliance with the terms and conditions of their lease agreements.

The table below shows PHI's net investment in these leases by the published credit ratings of the lessees as of March 31, 2012 and December 31, 2011:

Lessee Rating (a)	March 31, 2012		December 31, 2011
	(millions of dollars)
Rated Entities
AA/Aa and above	$	746	$	737
A		616		612
Total	$	1,362	$	1,349

(a) Excludes the credit ratings associated with collateral posted by the lessees in these transactions.