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Fair Value

3 Months Ended

Mar. 31, 2021

The fair value of current financial assets and liabilities, debt service reserves, and other deposits approximate their reported carrying amounts. The estimated fair values of the Company’s assets and liabilities have been determined using available market information. Because these amounts are estimates and based on hypothetical transactions to sell assets or transfer liabilities, the use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. For further information on our valuation techniques and policies, see Note 5—Fair Value in Item 8.—Financial Statements and Supplementary Data of our 2020 Form 10-K.

Recurring Measurements

The following table presents, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were measured at fair value on a recurring basis as of the dates indicated (in millions). For the Company’s investments in marketable debt securities, the security classes presented were determined based on the nature and risk of the security and are consistent with how the Company manages, monitors, and measures its marketable securities:


	March 31, 2021								December 31, 2020
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
DEBT SECURITIES:
Available-for-sale:
Unsecured debentures	$	—	$	—	$	—	$	—	$	—	$	21	$	—	$	21
Certificates of deposit	—		151		—		151		—		238		—		238

Total debt securities	—		151		—		151		—		259		—		259
EQUITY SECURITIES:
Mutual funds	29		15		—		44		28		51		—		79

Total equity securities	29		15		—		44		28		51		—		79
DERIVATIVES:
Interest rate derivatives	—		87		1		88		—		13		—		13
Cross-currency derivatives	—		7		5		12		—		5		—		5
Foreign currency derivatives	—		21		98		119		—		15		146		161
Commodity derivatives	—		28		1		29		—		8		2		10
Total derivatives — assets	—		143		105		248		—		41		148		189
TOTAL ASSETS	$	29	$	309	$	105	$	443	$	28	$	351	$	148	$	527
Liabilities
DERIVATIVES:
Interest rate derivatives	$	—	$	173	$	167	$	340	$	—	$	374	$	236	$	610
Cross-currency derivatives	—		2		8		10		—		2		2		4
Foreign currency derivatives	—		23		—		23		—		43		—		43
Commodity derivatives	—		82		—		82		—		22		—		22
Total derivatives — liabilities	—		280		175		455		—		441		238		679
TOTAL LIABILITIES	$	—	$	280	$	175	$	455	$	—	$	441	$	238	$	679

As of March 31, 2021, all available-for-sale debt securities had stated maturities within one year. There were no other-than-temporary impairments of marketable securities during the three months ended March 31, 2021. Credit-related impairments are recognized in earnings under ASC 326. Gains and losses on the sale of investments are determined using the specific-identification method. The following table presents gross proceeds from the sale of available-for-sale securities during the periods indicated (in millions):


	Three Months Ended March 31,
		2021		2020
Gross proceeds from sale of available-for-sale securities		$	245	$	258

The following tables present a reconciliation of net derivative assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2021 and 2020 (presented net by type of derivative in millions). Transfers between Level 3 and Level 2 principally result from changes in the significance of unobservable inputs used to calculate the credit valuation adjustment.


Three Months Ended March 31, 2021	Interest Rate		Cross Currency		Foreign Currency		Commodity		Total
Balance at January 1	$	(236)	$	(2)	$	146	$	2	$	(90)
Total realized and unrealized gains (losses):
Included in earnings	2		(1)		(29)		—		(28)
Included in other comprehensive income — derivative activity	37		—		(10)		—		27


Settlements	12		—		(9)		(1)		2

Transfers of (assets)/liabilities, net out of Level 3	19		—		—		—		19
Balance at March 31	$	(166)	$	(3)	$	98	$	1	$	(70)
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	2	$	—	$	(39)	$	—	$	(37)


Three Months Ended March 31, 2020	Interest Rate		Cross Currency		Foreign Currency		Commodity		Total
Balance at January 1	$	(184)	$	(11)	$	94	$	(1)	$	(102)
Total realized and unrealized gains (losses):
Included in earnings	2		—		12		1		15
Included in other comprehensive income — derivative activity	(53)		(18)		7		—		(64)


Settlements	1		—		(14)		—		(13)
Transfers of assets (liabilities), net into Level 3	(35)		—		—		—		(35)

Balance at March 31	$	(269)	$	(29)	$	99	$	—	$	(199)
Total gains for the period included in earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities held at the end of the period	$	—	$	—	$	4	$	1	$	5

The following table summarizes the significant unobservable inputs used for Level 3 derivative assets (liabilities) as of March 31, 2021 (in millions, except range amounts):


Type of Derivative	Fair Value		Unobservable Input	Amount or Range (Weighted Average)
Interest rate	$	(166)	Subsidiaries’ credit spreads	0.6% - 3.3% (3.3%)
Cross-currency	(3)		Subsidiaries’ credit spreads	3.6	%
Foreign currency:
Argentine peso	98		Argentine peso to U.S. dollar currency exchange rate after one year	93 - 640 (286)

Commodity:
Other	1
Total	$	(70)

For interest rate derivatives and foreign currency derivatives, increases (decreases) in the estimates of the Company’s own credit spreads would decrease (increase) the value of the derivatives in a liability position. For foreign currency derivatives, increases (decreases) in the estimate of the above exchange rate would increase (decrease) the value of the derivative.

Nonrecurring Measurements

The Company measures fair value using the applicable fair value measurement guidance. Impairment expense, shown as pre-tax loss below, is measured by comparing the fair value at the evaluation date to the then-latest available carrying amount and is included in Asset impairment expense or Other non-operating expense, as applicable, on the Condensed Consolidated Statements of Operations. The following table summarizes our major categories of assets measured at fair value on a nonrecurring basis and their level within the fair value hierarchy (in millions):


	Measurement Date	Carrying Amount		Fair Value						Pre-tax Loss
Three Months Ended March 31, 2021				Level 1		Level 2		Level 3





Long-lived assets held and used
Puerto Rico	03/31/2021	$	548	$	—	$	—	$	73	$	475


	Measurement Date	Carrying Amount (1)		Fair Value						Pre-tax Loss
Three Months Ended March 31, 2020				Level 1		Level 2		Level 3




Equity method investments:
OPGC	3/31/2020	$	195	$	—	$	—	$	152	$	43

_____________________________

(1)Represents the carrying values at the dates of measurement, before fair value adjustment and excluding $115 million of cumulative translation adjustment balance.

The following table summarizes the significant unobservable inputs used in the Level 3 measurement of long-lived assets held and used measured on a nonrecurring basis during the three months ended March 31, 2021 (in millions, except range amounts):

Fair Value

Valuation Technique

Unobservable Input

Range (Weighted Average)

Long-lived assets held and used:

Puerto Rico

Discounted cash flow

Annual revenue growth

(80)% to 8%

Annual variable margin

37% to 97%

Weighted-average cost of capital

18.2%

Total

Financial Instruments not Measured at Fair Value in the Condensed Consolidated Balance Sheets

The following table presents (in millions) the carrying amount, fair value, and fair value hierarchy of the Company’s financial assets and liabilities that are not measured at fair value in the Condensed Consolidated Balance Sheets as of the periods indicated, but for which fair value is disclosed:


		March 31, 2021
		Carrying Amount		Fair Value
				Total		Level 1		Level 2		Level 3
Assets:	Accounts receivable — noncurrent (1)	$	100	$	187	$	—	$	—	$	187
Liabilities:	Non-recourse debt	16,429		17,783		4		14,790		2,989
	Recourse debt	3,365		3,438		—		3,438		—


		December 31, 2020
		Carrying Amount		Fair Value
				Total		Level 1		Level 2		Level 3
Assets:	Accounts receivable — noncurrent (1)	$	97	$	197	$	—	$	—	$	197
Liabilities:	Non-recourse debt	16,354		18,403		5		15,301		3,097
	Recourse debt	3,446		3,677		—		3,677		—

_____________________________

(1)These amounts primarily relate to amounts due from CAMMESA, the administrator of the wholesale electricity market in Argentina, and amounts impacted by the Stabilization Fund enacted by the Chilean government, and are included in Other noncurrent assets in the accompanying Condensed Consolidated Balance Sheets. The fair value and carrying amount of these receivables exclude VAT of $3 million and $4 million as of March 31, 2021 and December 31, 2020, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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