Derivative Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2012

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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 December 31, 2012, regardless of whether the derivative instruments are in designated and qualifying cash flow hedging relationships:

	December 31, 2012
	Current			Maximum(1)
		Derivative			Derivative		Weighted	% of Debt
		Notional			Notional		Average	Currently
	Derivative	Translated		Derivative	Translated		Remaining	Hedged
Interest Rate and Cross Currency(1)	Notional	to USD		Notional	to USD		Term	by Index(2)
	(in millions)						(in years)
Interest Rate Derivatives:
LIBOR (U.S. Dollar)	3,413	$	3,413	4,272	$	4,272	10	70%
EURIBOR (Euro)	611		807	611		807	9	64%
LIBOR (British Pound Sterling)	67		109	69		112	12	86%
Cross Currency Swaps:
Chilean Unidad de Fomento	6		267	6		267	9	85%

(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 December 31, 2012and the maturity of the derivative instrument, which includes forward starting derivative instruments. The interest rate and cross currency derivatives range in maturity through 2030 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.

	December 31, 2012
				Weighted
		Notional		Average
		Translated		Remaining
Foreign Currency Derivatives	Notional(1)	to USD		Term(2)
	(in millions)			(in years)
Foreign Currency Options and Forwards:
Euro	98	$	126	<1
Chilean Peso	52,575		108	<1
Brazilian Real	175		83	<1
Colombian Peso	89,928		49	<1
British Pound	17		27	<1
Argentine Peso	118		20	1
Embedded Foreign Currency Derivatives:
Argentine Peso	849		173	11
Kazakhstani Tenge	1,195		8	4
Euro	2		2	11

(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 2014 and 2025, respectively.

	December 31, 2012
		Weighted Average
Commodity Derivatives	Notional	Remaining Term(1)
	(in millions)	(in years)
Aluminum (MWh)(2)	14	7
Power (MWh)	4	3

(1)Represents the remaining tenor of our commodity and embedded derivatives weighted by the corresponding volume.These derivatives range in maturity through 2019.

(2)Our exposure is to fluctuations in the price of aluminum while the notional is based on the amount of power we sell under the PPA.

Accounting and Reporting

Fair Value Hierarchy & Hedging Designation

The following tables set forth the fair value of the Company's types of derivative instruments as of December 31, 2012 and 2011by level within the fair value hierarchy then by whether or not they are designated hedging instruments.

			December 31, 2012								December 31, 2011
			Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
			(in millions)								(in millions)
Assets
	Interest rate derivatives		$	-	$	2	$	-	$	2	$	-	$	-	$	-	$	-
	Cross currency derivatives			-		6		-		6		-		-		1		1
	Foreign currency derivatives			-		2		79		81		-		27		62		89
	Commodity and other derivatives			-		8		3		11		2		25		3		30
		Total assets	$	-		18	$	82	$	100	$	2	$	52	$	66	$	120
Liabilities
	Interest rate derivatives		$	-	$	153	$	412	$	565	$	-	$	431	$	128	$	559
	Cross currency derivatives			-		6		-		6		-		-		19		19
	Foreign currency derivatives			-		7		7		14		-		15		11		26
	Commodity and other derivatives			-		13		59		72		-		30		56		86
		Total liabilities	$	-	$	179	$	478	$	657	$	-	$	476	$	214	$	690

		December 31, 2012						December 31, 2011
				Not						Not
		Designated		Designated				Designated		Designated
		as Hedging		as Hedging				as Hedging		as Hedging
		Instruments		Instruments		Total		Instruments		Instruments		Total
		(in millions)						(in millions)
Assets
	Interest rate derivatives	$	-	$	2	$	2	$	-	$	-	$	-
	Cross currency derivatives		6		-		6		1		-		1
	Foreign currency derivatives		-		81		81		13		76		89
	Commodity and other derivatives		2		9		11		2		28		30
Total assets		$	8	$	92	$	100	$	16	$	104	$	120
Liabilities
	Interest rate derivatives	$	544	$	21	$	565	$	535	$	24	$	559
	Cross currency derivatives		6		-		6		19		-		19
	Foreign currency derivatives		7		7		14		1		25		26
	Commodity and other derivatives		8		64		72		3		83		86
Total liabilities		$	565	$	92	$	657	$	558	$	132	$	690

As of December 31, 2012 and 2011, these tables include current assets of $14 million and $49 million, respectively, noncurrent assets of $86 million and $71million, respectively, current liabilities of $186 million and $153 million, respectively, and noncurrent liabilities of $471 million and $537 million, respectively. These tables do not include the following balances that had been, but no longer need to be,accounted for as derivatives at fair value that are to be amortized to earnings over the remaining term of the associated PPA: $186 million and $163 million of assets as of December 31, 2012 and 2011, respectively and $191 million of liabilities as of December 31, 2012. The amortization is included in the table below under “Not Designated for Hedge Accounting”.

Effective Portion of Cash Flow Hedges

The following table sets forth the pre-tax 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 to 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 years ended December 31, 2012, 2011 and 2010:

		Gains (Losses)								Gains (Losses) Reclassified
		Recognized in AOCL						Consolidated		from AOCL into Earnings
		2012		2011		2010		Statement of Operations		2012		2011		2010
		(in millions)								(in millions)
Interest rate derivatives		$	(175)	$	(475)	$	(288)	Interest expense		$	(135)	$	(125)	$	(110)
								Non-regulated cost of sales			(6)		(3)		(3)
								Net equity in earnings of
									affiliates		(7)		(4)		(1)
								Income (loss) from
								discontinued operations			-		-		(113)
								Asset impairment expense			(6)		-		-
								Gain on sale of investments			(96)		-		-
Cross currency derivatives			4		(36)		15	Interest expense			(12)		(10)		(4)
								Foreign currency transaction
									gains (losses)		26		(16)		25
Foreign currency derivatives			10		24		(16)	Foreign currency transaction
									gains (losses)		5		1		(8)
Commodity and other
	derivatives		(8)		-		(9)	Non-regulated revenue			(2)		-		1
								Non-regulated cost of sales			-		(2)		-
								Income (loss) from
								discontinued operations			-		-		10
Total		$	(169)	$	(487)	$	(298)			$	(233)	$	(159)	$	(203)

For the years ended December 31, 2012, 2011 and 2010, the above table includes pre-tax gains (losses) of $(10) million, $0 million, and $(1) million, respectively, that were reclassified into earnings as a result of the discontinuance of a cash flow hedge because it was probable that 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.The pre-tax 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 December 31, 2012 is $(110) million for interest rate hedges, $9 million for cross currency swaps, $(3) million for foreign currency hedges, and $(7) million for commodity and other hedges.

Ineffective Portion of Cash Flow Hedges

The following table sets forth thepre-tax 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 years ended December 31, 2012, 2011and 2010:

		Gains (Losses)
	Classification in	Recognized in Earnings
	Consolidated Statement of Operations	2012		2011		2010
		(in millions)
Interest rate derivatives	Interest expense	$	(2)	$	(6)	$	(15)
	Net equity in earnings of affiliates		(1)		(2)		-
Cross currency derivatives	Interest expense		(1)		(4)		5
Total		$	(4)	$	(12)	$	(10)

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, for the years ended December 31, 2012, 2011 and 2010:

	Classification		Gains (Losses)
	in Consolidated		Recognized in Earnings
	Statement of Operations		2012		2011		2010
			(in millions)
Interest rate derivatives	Interest expense		$	(5)	$	(4)	$	(9)
Foreign currency derivatives	Foreign currency transaction
		gains (losses)		(141)		60		(35)
	Net equity in earnings of affiliates			-		-		(2)
Commodity and other derivatives	Non-regulated revenue			20		(63)		29
	Regulated revenue			(10)		1		-
	Non-regulated cost of sales			2		(9)		5
	Regulated cost of sales			(15)		(5)		-
Total			$	(149)	$	(20)	$	(12)

Credit Risk-Related Contingent Features

Our generation business in Chile has cross currency swap agreements that contain credit contingent provisions which would permit the counterparties with which Gener is in a net liability position to require collateral credit support when the mark-to-market value of the derivatives exceeds the unsecured thresholds established in the agreements. If Gener's credit rating were to fall below the minimum threshold, the counterparties can demand immediate collateralization of the entire mark-to-market loss of the swaps (fair value excluding credit valuation adjustments), which was $2million and $18 million at December 31, 2012 and 2011, respectively.

Credit Risk-Related Contingent Features

Our generation business in Chile has cross currency swap agreements that contain credit contingent provisions which would permit the counterparties with which Gener is in a net liability position to require collateral credit support when the mark-to-market value of the derivatives exceeds the unsecured thresholds established in the agreements. If Gener's credit rating were to fall below the minimum threshold, the counterparties can demand immediate collateralization of the entire mark-to-market loss of the swaps (fair value excluding credit valuation adjustments), which was $2million and $18 million at December 31, 2012 and 2011, respectively.

DPL, our utility in Ohio, has certain over-the-counter commodity derivative contracts under master netting agreements that contain provisions that require its debt to maintain an investment-grade credit rating from credit rating agencies. If its debt were to fall below investment grade, the business would be in violation of these provisions and the counterparties to the derivative contracts could request immediate payment or demand immediate and ongoing full overnight collateralization of the mark-to-market loss (fair value excluding credit valuation adjustments), which was $13 millionand $28 million as ofDecember 31, 2012 and 2011, respectively.As of December 31, 2012 and 2011,DPL had posted $5 million and $16 million, respectively, of cash collateral directly with third parties or in a broker margin account and DPL held $0 million and $3 million, respectively, of cash collateral that it received from counterparties to its derivative instruments that were in an asset position.