Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2015

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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 2014 Form 10-K.

Volume of Activity

The following three tables set forth, by type of derivative, the Company’s outstanding notional under its derivatives and the weighted-average remaining term as of March 31, 2015 regardless of whether the derivative instruments are in qualifying cash flow hedging relationships:

	Current			Maximum
Interest Rate and Cross-Currency(1)	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:
LIBOR (U.S. Dollar)	2,422	$	2,422	3,010	$	3,010	11	51	%
EURIBOR (Euro)	526	564		526	564		7	87	%
Cross-Currency Swaps:
Chilean Unidad de Fomento	4	173		4	173		14	82	%

_____________________________

⁽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 March 31, 2015 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.

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	9	$	360	<1
Chilean Peso	122,874	197		<1
Brazilian Real	95	30		<1
Euro	47	50		<1
Colombian Peso	128,436	51		<1
Argentine Peso	2,001	227		10
British Pound	11	16		<1
Embedded Foreign Currency Derivatives:
Kazakhstani Tenge	4,278	23		1
Brazilian Real	93	29		<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 2025 and 2017, respectively.

Commodity Derivatives	Notional	Weighted-Average Remaining Term(1)
	(in millions)	(in years)
Power (MWh)	8	2
Coal (Metric tons)	1	2

_____________________________

⁽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 present the fair values of the Company’s derivative instruments as of March 31, 2015 and December 31, 2014, first by whether 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.

	March 31, 2015						December 31, 2014
	Designated		Not Designated		Total		Designated		Not Designated		Total
	(in millions)
Assets
Foreign currency derivatives	$	9	$	252	$	261	$	6	$	230	$	236
Commodity derivatives	30		16		46		25		19		44
Total assets	$	39	$	268	$	307	$	31	$	249	$	280
Liabilities
Interest rate derivatives	$	469	$	—	$	469	$	416	$	—	$	416
Cross-currency derivatives	33		—		33		29		—		29
Foreign currency derivatives	40		26		66		38		14		52
Commodity derivatives	12		16		28		7		10		17
Total liabilities	$	554	$	42	$	596	$	490	$	24	$	514

	March 31, 2015						December 31, 2014
	Assets			Liabilities			Assets			Liabilities
	(in millions)
Current	$	76		$	152		$	77		$	148
Noncurrent	231			444			203			366
Total	$	307		$	596		$	280		$	514
Derivatives subject to master netting agreement or similar agreement:
Gross amounts recognized in the balance sheet	$	42		$	524		$	53		$	507
Gross amounts of derivative instruments not offset	(11		)	(11		)	(10		)	(10		)
Gross amounts of cash collateral received/pledged not offset	—			(11		)	—			(5		)
Net amount	$	31		$	502		$	43		$	492
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	$	155		$	177		$	161		$	180

Effective Portion of Cash Flow Hedges

The following tables set forth the pretax gains (losses) recognized in 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 March 31,						Classification in Condensed Consolidated Statements of Operations	Three Months Ended March 31,
Type of Derivative	2015			2014				2015			2014
	(in millions)							(in millions)
Interest rate derivatives	$	(98	)	$	(150	)	Interest expense	$	(24	)	$	(31	)
							Non-regulated cost of sales	—			(1		)
							Net equity in earnings of affiliates	—			(1		)
Cross-currency derivatives	—			(3		)	Interest expense	(1		)	(1		)
							Foreign currency transaction losses	—			(10		)
Foreign currency derivatives	2			(15		)	Foreign currency transaction gains	6			7
Commodity derivatives	7			24			Non-regulated revenue	5			13
							Non-regulated cost of sales	—			2
Total	$	(89	)	$	(144	)		$	(14	)	$	(22	)

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 12 months as of March 31, 2015 is $(117) million for interest rate hedges, $(4) million for cross-currency swaps, $10 million for foreign currency hedges, and $10 million for commodity and other hedges.

Ineffective Portion of Cash Flow Hedges

The following table presents 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:

	Classification in Condensed Consolidated Statements of Operations	Three Months Ended March 31,
Type of Derivative		2015			2014
		(in millions)
Foreign currency derivatives	Foreign currency transaction losses	(2		)	—
Total		$	(2	)	$	—

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:

	Classification in Condensed Consolidated Statements of Operations	Three Months Ended March 31,
Type of Derivative		2015			2014
		(in millions)
Foreign currency derivatives	Foreign currency transaction gains	$	32		$	23
	Net equity in earnings of affiliates	—			(4		)
Commodity and other derivatives	Non-regulated revenue	(5		)	3
	Non-regulated cost of sales	1			—
	Regulated cost of sales	(4		)	(8		)
	Income (loss) from operations of discontinued businesses	—			(5		)
Total		$	24		$	9

Credit Risk-Related Contingent Features

DP&L 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 $21 million and $12 million as of March 31, 2015 and December 31, 2014, respectively, for all derivatives with credit risk-related contingent features. As of March 31, 2015 and December 31, 2014, DP&L had posted $11 million and $5 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.