DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

There have been no changes to the information disclosed under Derivatives and Hedging Activities in Note 1 — General and Summary of Significant Accounting Policies included in Item 8. — Financial Statements and Supplementary Data in the 2013 Form 10-K.

Volume of Activity

The following tables set forth, by type of derivative, the Company’s outstanding notional under its derivatives and the weighted-average remaining term as of September 30, 2014 regardless of whether the derivative instruments are in qualifying cash flow hedging relationships:



	Current			Maximum
Interest Rate and Cross-Currency	Derivative Notional	Derivative Notional Translated to USD		Derivative Notional	Derivative Notional Translated to USD		Weighted-Average Remaining Term	% of Debt Currently Hedged by Index⁽²⁾
	(in millions)						(in years)
Interest Rate Derivatives:⁽¹⁾
LIBOR (U.S. Dollar)	2,943	$	2,943	3,604	$	3,604	11	57	%
EURIBOR (Euro)	551	696		551	696		7	86	%
Cross-Currency Swaps:
Chilean Unidad de Fomento	4	178		4	178		14	67	%

_____________________________

⁽¹⁾

The Company’s interest rate derivative instruments primarily include accreting and amortizing notionals. The maximum derivative notional represents the largest notional at any point between September 30, 2014 and the maturity of the derivative instrument, which includes forward-starting derivative instruments. The interest rate and cross-currency derivatives range in maturity through 2033 and 2028, respectively.


⁽²⁾	The percentage of variable-rate debt currently hedged is based on the related index and excludes forecasted issuances of debt and variable-rate debt tied to other indices where the Company has no interest rate derivatives.



	September 30, 2014
Foreign Currency Derivatives	Notional⁽¹⁾	Notional Translated to USD		Weighted-Average Remaining Term ⁽²⁾
	(in millions)			(in years)
Foreign Currency Options and Forwards:
Chilean Unidad de Fomento	10	$	398	1
Chilean Peso	117,734	196		<1
Brazilian Real	119	48		<1
Euro	103	130		<1
Colombian Peso	78,230	39		<1
British Pound	49	79		<1
Philippine Peso	672	15		<1
Embedded Foreign Currency Derivatives:
Argentine Peso	904	107		10
Kazakhstani Tenge	4,802	26		1

_____________________________


⁽¹⁾	Represents contractual notionals. The notionals for options have not been probability adjusted, which generally would decrease them.


⁽²⁾	Represents the remaining tenor of our foreign currency derivatives weighted by the corresponding notional. These options and forwards and these embedded derivatives range in maturity through 2017 and 2025, respectively.



	September 30, 2014
Commodity Derivatives	Notional	Weighted-Average Remaining Term⁽¹⁾
	(in millions)	(in years)
Power (MWh)	6	2
Coal (Metric tons)	1	1

_____________________________

⁽¹⁾Represents the remaining tenor of our commodity derivatives weighted by the corresponding volume. These derivatives range in maturity through 2016.

Accounting and Reporting

Assets and Liabilities

The following tables set forth the fair values of the Company’s derivative instruments as of September 30, 2014 and December 31, 2013, first by whether or not they are designated hedging instruments, then by whether they are current or noncurrent to the extent they are subject to master netting agreements or similar agreements (where the rights to set-off relate to settlement of amounts receivable and payable under those derivatives) and by balances no longer accounted for as derivatives.



	September 30, 2014						December 31, 2013
	Designated		Not Designated		Total		Designated		Not Designated		Total
	(in millions)
Assets
Interest rate derivatives	$	20	$	—	$	20	$	96	$	2	$	98
Cross-currency derivatives	—		—		—		5		—		5
Foreign currency derivatives	10		121		131		4		109		113
Commodity derivatives	18		23		41		8		16		24
Total assets	$	48	$	144	$	192	$	113	$	127	$	240
Liabilities
Interest rate derivatives	$	377	$	2	$	379	$	318	$	4	$	322
Cross-currency derivatives	25		—		25		11		—		11
Foreign currency derivatives	42		11		53		15		6		21
Commodity derivatives	18		16		34		7		10		17
Total liabilities	$	462	$	29	$	491	$	351	$	20	$	371



	September 30, 2014						December 31, 2013
	Assets			Liabilities			Assets			Liabilities
	(in millions)
Current	$	65		$	165		$	32		$	157
Noncurrent	127			326			208			214
Total	$	192		$	491		$	240		$	371
Derivatives subject to master netting agreement or similar agreement:
Gross amounts recognized in the balance sheet	$	57		$	469		$	91		$	314
Gross amounts of derivative instruments not offset	(12		)	(12		)	(9		)	(9		)
Gross amounts of cash collateral received/pledged not offset	—			(14		)	(3		)	(6		)
Net amount	$	45		$	443		$	79		$	299
Other balances that had been, but are no longer, accounted for as derivatives that are to be amortized to earnings over the remaining term of the associated PPA	$	161		$	183		$	169		$	190

Effective Portion of Cash Flow Hedges

The following tables set forth the pretax gains (losses) recognized in accumulated other comprehensive loss (“AOCL”) and earnings related to the effective portion of derivative instruments in qualifying cash flow hedging relationships (including amounts that were reclassified from AOCL as interest expense related to interest rate derivative instruments that previously, but no longer, qualify for cash flow hedge accounting), as defined in the accounting standards for derivatives and hedging, for the periods indicated:



	Gains (Losses) Recognized in AOCL							Gains (Losses) Reclassified from AOCL into Earnings
	Three Months Ended September 30,						Classification in Condensed Consolidated Statements of Operations	Three Months Ended September 30,
Type of Derivative	2014			2013				2014			2013
	(in millions)							(in millions)
Interest rate derivatives	$	(16	)	$	10		Interest expense	$	(38	)	$	(32	)
							Non-regulated cost of sales	(1		)	(1		)
							Net equity in earnings of affiliates	—			(1		)
Cross-currency derivatives	(17		)	2			Interest expense	(1		)	(4		)
							Foreign currency transaction gains (losses)	(18		)	4
Foreign currency derivatives	(12		)	(1		)	Foreign currency transaction gains (losses)	1			3
Commodity derivatives	3			(4		)	Non-regulated revenue	4			(3		)
							Non-regulated cost of sales	(1		)	(1		)
Total	$	(42	)	$	7			$	(54	)	$	(35	)



	Gains (Losses) Recognized in AOCL							Gains (Losses) Reclassified from AOCL into Earnings
	Nine Months Ended September 30,						Classification in Condensed Consolidated Statements of Operations	Nine Months Ended September 30,
Type of Derivative	2014			2013				2014			2013
	(in millions)							(in millions)
Interest rate derivatives	$	(290	)	$	131		Interest expense	$	(102	)	$	(95	)
							Non-regulated cost of sales	(2		)	(3		)
							Net equity in earnings of affiliates	(3		)	(5		)
							Gain on sale of investments	—			(21		)
Cross-currency derivatives	(20		)	(9		)	Interest expense	—			(10		)
							Foreign currency transaction gains (losses)	(24		)	(10		)
Foreign currency derivatives	(24		)	1			Foreign currency transaction gains (losses)	11			7
Commodity derivatives	21			(2		)	Non-regulated revenue	23			(4		)
							Non-regulated cost of sales	(2		)	(1		)
Total	$	(313	)	$	121			$	(99	)	$	(142	)

The pretax accumulated other comprehensive income (loss) expected to be recognized as an increase (decrease) to income from continuing operations before income taxes over the next twelve months as of September 30, 2014 is $(111) million for interest rate hedges, $(4) million for cross-currency swaps, $9 million for foreign currency hedges, and $(1) million for commodity and other hedges.

For the three and nine months ended September 30, 2014, pretax gains of $0 million and $6 million, respectively, were reclassified into earnings as a result of the discontinuance of a cash flow hedge. Hedge accounting was discontinued as the forecasted transaction would not occur by the end of the originally specified time period (as documented at the inception of the hedging relationship) or within an additional two-month time period thereafter. There were no such items for the three and nine months ended September 30, 2013.

Ineffective Portion of Cash Flow Hedges

The following table sets forth the pretax gains (losses) recognized in earnings related to the ineffective portion of derivative instruments in qualifying cash flow hedging relationships, as defined in the accounting standards for derivatives and hedging, for the periods indicated:



		Gains (Losses) Recognized in Earnings
	Classification in Condensed Consolidated Statements of Operations	Three Months Ended September 30,						Nine Months Ended September 30,
Type of Derivative		2014			2013			2014			2013
		(in millions)
Interest rate derivatives	Interest expense	$	(1	)	$	(1	)	$	—		$	29
Foreign currency derivatives	Foreign currency transaction gains (losses)	(2		)	—			$	(2	)	$	—
Cross-currency derivatives	Interest expense	—			—			(1		)	—
Commodity and other derivatives	Non-regulated revenue	1			—			1			—
Total		$	(2	)	$	(1	)	$	(2	)	$	29

Not Designated for Hedge Accounting

The following table sets forth the gains (losses) recognized in earnings related to derivative instruments not designated as hedging instruments under the accounting standards for derivatives and hedging and the amortization of balances that had been, but are no longer, accounted for as derivatives, for the periods indicated:



		Gains (Losses) Recognized in Earnings
	Classification in Condensed Consolidated Statements of Operations	Three Months Ended September 30,						Nine Months Ended September 30,
Type of Derivative		2014			2013			2014			2013
		(in millions)
Interest rate derivatives	Interest expense	$	(1	)	$	(1	)	$	(1	)	$	1
	Net equity in earnings of affiliates	—			—			—			(6		)
Foreign currency derivatives	Foreign currency transaction gains (losses)	2			24			31			47
	Net equity in earnings of affiliates	(9		)	(7		)	(4		)	(22		)
Commodity and other derivatives	Non-regulated revenue	(2		)	4			2			8
	Non-regulated cost of sales	(3		)	(2		)	(1		)	(1		)
	Regulated cost of sales	(4		)	1			(10		)	12
	Income (loss) from operations of discontinued businesses	—			2			(7		)	(10		)
	Net loss from disposal and impairments of discontinued businesses	—			—			72			—
Total		$	(17	)	$	21		$	82		$	29

Credit Risk-Related Contingent Features

DP&L, a utility within our United States strategic business unit, has certain over-the-counter commodity derivative contracts under master netting agreements that contain provisions that require DP&L to maintain an investment-grade issuer credit rating from credit rating agencies. Since DP&L's rating has fallen below investment grade, certain of the counterparties to the derivative contracts have requested immediate and ongoing full overnight collateralization of the mark-to-market loss (fair value excluding credit valuation adjustments), which was $28 million and $11 million as of September 30, 2014 and December 31, 2013, respectively, for all derivatives with credit risk-related contingent features. As of September 30, 2014 and December 31, 2013, DP&L had posted $14 million and $6 million, respectively, of cash collateral directly with third parties and in a broker margin account and DP&L held no cash collateral from counterparties to its derivative instruments that were in an asset position. After consideration of the netting of counterparty assets, DP&L could have been required to, but did not, provide additional collateral of $4 million and $0 million as of September 30, 2014 and December 31, 2013, respectively.