Derivative Instruments and Hedging Activities (Tables)

6 Months Ended

Jun. 30, 2011

Derivative Instruments and Hedging Activities

Notional Volumes of Derivative Instruments for Electric Utility Segment

		Economic Hedges
Commodity	Unit of Measure	June 30, 2011		December 31, 2010
Electricity options, swaps and forwards	GWh		34,471		32,138
Natural gas options, swaps and forwards	Bcf		255		250
CRRs	GWh		147,992		181,291
Tolling arrangements	GWh		105,631		114,599

Fair Value of Derivative Instruments of Electric Utility Segment

The following table summarizes the gross and net fair values of commodity derivative instruments at June 30, 2011:

	Derivative Assets									Derivative Liabilities
(in millions)	Short- Term			Long- Term			Subtotal			Short- Term			Long- Term			Subtotal			Net Liability
Non-trading activities
Economic hedges	$	89		$	200		$	289		$	243		$	579		$	822		$	533
Netting and collateral		(11	)		(21	)		(32	)		(12	)		(21	)		(33	)		(1	)
Total	$	78		$	179		$	257		$	231		$	558		$	789		$	532

The following table summarizes the gross and net fair values of commodity derivative instruments at December 31, 2010:

	Derivative Assets						Derivative Liabilities
(in millions)	Short- Term		Long- Term		Subtotal		Short- Term			Long- Term		Subtotal			Net Liability
Non-trading activities
Economic hedges	$	87	$	367	$	454	$	216		$	449	$	665		$	211
Netting and collateral		—		—		—		(4	)		—		(4	)		(4	)
Total	$	87	$	367	$	454	$	212		$	449	$	661		$	207

Summarization of economic hedging activities of Electric Utility

	Three months ended June 30,						Six months ended June 30,
(in millions)	2011			2010			2011			2010
Realized losses	$	(35	)	$	(38	)	$	(74	)	$	(62	)
Unrealized losses		(227	)		(276	)		(323	)		(857	)

Notional Volumes of Derivative Instruments for Competitive Power Generation Segment

June 30, 2011
				Hedging Activities
Commodity	Instrument	Classification	Unit of Measure	Cash Flow Hedges			Economic Hedges			Trading Activities
Electricity	Forwards/Futures	Sales	GWh		18,901	1		17,660	3		39,629
Electricity	Forwards/Futures	Purchases	GWh		203	1		17,750	3		42,863
Electricity	Capacity	Sales	MW-Day (in thousands)		171	2		—			17	2
Electricity	Capacity	Purchases	MW-Day (in thousands)		17	2		—			247	2
Electricity	Congestion	Sales	GWh		—			124	4		14,314	4
Electricity	Congestion	Purchases	GWh		—			5,459	4		287,221	4
Natural gas	Forwards/Futures	Sales	bcf		—			1.5			354.1
Natural gas	Forwards/Futures	Purchases	bcf		—			1.5			351.8
Fuel oil	Forwards/Futures	Sales	barrels		—			—			45,000
Fuel oil	Forwards/Futures	Purchases	barrels		—			240,000			70,000
Coal	Forwards/Futures	Sales	tons		—			—			2,564,250
Coal	Forwards/Futures	Purchases	tons		—			—			2,564,250

(in millions)
Instrument	Purpose	Type of Hedge	Notional Amount		Expiration Date
Amortizing interest rate swap	Convert floating rate (6-month LIBOR) debt to fixed rate (3.175%) debt	Cash flow	$	84	June 2016
Amortizing interest rate swap	Convert floating rate (6-month LIBOR) debt to fixed rate (3.415%) debt	Cash flow		110	December 2020
Amortizing interest rate swap	Convert floating rate (3-month LIBOR) debt to fixed rate (4.29%) debt	Cash flow		120	December 2025
Amortizing interest rate swap	Convert floating rate (3-month LIBOR) debt to fixed rate (3.46%) debt	Cash flow		67	March 2026

December 31, 2010
				Hedging Activities
Commodity	Instrument	Classification	Unit of Measure	Cash Flow Hedges			Economic Hedges			Trading Activities
Electricity	Forwards/Futures	Sales	GWh		16,799	1		22,456	3		34,630
Electricity	Forwards/Futures	Purchases	GWh		408	1		22,931	3		37,669
Electricity	Capacity	Sales	MW-Day (in thousands)		190	2		—			136	2
Electricity	Capacity	Purchases	MW-Day (in thousands)		8	2		—			419	2
Electricity	Congestion	Sales	GWh		—			136	4		12,020	4
Electricity	Congestion	Purchases	GWh		—			1,143	4		187,689	4
Natural gas	Forwards/Futures	Sales	bcf		—			—			30.6
Natural gas	Forwards/Futures	Purchases	bcf		—			—			34.3
Fuel oil	Forwards/Futures	Sales	barrels		—			250,000			10,000
Fuel oil	Forwards/Futures	Purchases	barrels		—			490,000			10,000
Coal	Forwards/Futures	Sales	tons		—			—			2,630,500
Coal	Forwards/Futures	Purchases	tons		—			—			2,645,500

(in millions)
Instrument	Purpose	Type of Hedge	Notional Amount		Expiration Date
Amortizing interest rate swap	Convert floating rate (6-month LIBOR) debt to fixed rate (3.175%) debt	Cash flow	$	138	June 2016
Amortizing forward starting interest rate swap	Convert floating rate (3-month LIBOR) debt to fixed rate (4.29%) debt	Cash flow		122	December 2025
Amortizing forward starting interest rate swap	Convert floating rate (3-month LIBOR) debt to fixed rate (3.46%) debt	Cash flow		68	March 2026

¹

EMG's hedge products include forward and futures contracts that qualify for hedge accounting. This category excludes power contracts for the coal plants which meet the normal purchases and sales exception and are accounted for on the accrual method.

²

EMG's hedge transactions for capacity result from bilateral trades. Capacity sold in the PJM Reliability Pricing Model (RPM) auction is not accounted for as a derivative.

³

EMG also entered into transactions that adjust financial and physical positions, or day-ahead and real-time positions to reduce costs or increase gross margin. These positions largely offset each other. The net sales positions of these categories are primarily related to hedge transactions that are not designated as cash flow hedges.

⁴

Congestion contracts include financial transmission rights, transmission congestion contracts or congestion revenue rights. These positions are similar to a swap, where the buyer is entitled to receive a stream of revenues (or charges) based on the hourly day-ahead price differences between two locations.

Fair Value of Derivative Instruments of Competitive Power Generation Segment

June 30, 2011
		Derivative Assets									Derivative Liabilities
																				Net Assets (Liabilities)
(in millions)		Short-term			Long-term			Subtotal			Short-term			Long-term			Subtotal
Non-trading activities
	Cash flow hedges	$	27		$	2		$	29		$	14		$	34		$	48		$	(19	)
	Economic hedges		60			4			64			51			1			52			12
Trading activities			141			88			229			98			20			118			111
			228			94			322			163			55			218			104
Netting and collateral received1			(189	)		(31	)		(220	)		(157	)		(32	)		(189	)		(31	)
Total		$	39		$	63		$	102		$	6		$	23		$	29		$	73

December 31, 2010
Non-trading activities
	Cash flow hedges	$	54		$	2		$	56		$	10		$	25		$	35		$	21
	Economic hedges		77			2			79			71			—			71			8
Trading activities			184			103			287			148			29			177			110
			315			107			422			229			54			283			139
Netting and collateral received1			(269	)		(37	)		(306	)		(223	)		(35	)		(258	)		(48	)
Total		$	46		$	70		$	116		$	6		$	19		$	25		$	91

¹

Netting of derivative receivables and derivative payables and the related cash collateral received and paid is permitted when a legally enforceable master netting agreement exists with a derivative counterparty.

Activity of accumulated other comprehensive income for Competitive Power Generation Segment

	Cash Flow Hedge Activity1 Six Months Ended June 30,
							Income Statement Location
(in millions)	2011			2010
Beginning of period derivative gains	$	27		$	175
Effective portion of changes in fair value		(13	)		30
Reclassification to net income		(29	)		(122	)	Competitive power generation revenue
End of period derivative gains (losses)	$	(15	)	$	83

¹

Unrealized derivative gains (losses) are before income taxes. The after-tax amounts recorded in accumulated other comprehensive income (loss) at June 30, 2011 and 2010 were $(9) million and $50 million, respectively.

Effect of realized and unrealized gains (losses) from derivative instruments on Competitive Power Generation Segment

		Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	Income Statement Location	2011			2010			2011		2010
Economic hedges	Competitive power generation revenue	$	20		$	(3	)	$	26	$	(7	)
	Fuel		(2	)		(2	)		4		(1	)
Trading activities	Competitive power generation revenue		41			33			57		80

Summary of margin and collateral deposits provided to and received from counterparties

(in millions)		June 30, 2011		December 31, 2010
Collateral provided to counterparties:
	Offset against derivative liabilities	$	4	$	8
	Reflected in margin and collateral deposits		64		65
Collateral received from counterparties:
	Offset against derivative assets		33		52