Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2013

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

5. 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 to Item 8.—Financial Statements and Supplementary Data in the 2012 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 March 31, 2013 regardless of whether the derivative instruments are in qualifying cash flow hedging relationships:

	March 31, 2013
	Current			Maximum
		Derivative			Derivative		Weighted	% of Debt
		Notional			Notional		Average	Currently
	Derivative	Translated		Derivative	Translated		Remaining	Hedged
Interest Rate and Cross Currency	Notional	to USD		Notional	to USD		Term	by Index(2)
	(in millions)						(in years)
Interest Rate Derivatives:(1)
LIBOR (U.S. Dollar)	3,451	$	3,451	4,226	$	4,226	9	70%
EURIBOR (Euro)	605		776	605		776	9	67%
LIBOR (British Pound)	69		105	69		105	13	83%
Cross Currency Swaps:
Chilean Unidad de Fomento	6		271	6		271	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 March 31, 2013 and 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.

	March 31, 2013
				Weighted
		Notional		Average
		Translated		Remaining
Foreign Currency Derivatives	Notional(1)	to USD		Term(2)
	(in millions)			(in years)
Foreign Currency Options and Forwards:
Chilean Peso	80,558	$	166	<1
Brazilian Real	240		118	<1
Euro	29		41	<1
Colombian Peso	53,208		28	<1
Argentine Peso	83		14	<1
British Pound	3		5	<1
Embedded Foreign Currency Derivatives
Argentine Peso	829		169	11
Kazakhstani Tenge	1,009		7	5
Euro	2		2	10

_____________________________

(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 2026, respectively.

	March 31, 2013
		Weighted Average
Commodity Derivatives	Notional	Remaining Term(1)
	(in millions)	(in years)
Aluminum (MWh)(2)	14	7
Power (MWh)	6	3

_____________________________

(1)Represents the remaining tenor of our commodity 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

Assets and Liabilities

The following tables set forth the Company's derivative instruments as of March 31, 2013 and December 31, 2012, firstby whetheror not they are designated hedging instruments, then by whether they are current or non-current, by the extent to which 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, 2013						December 31, 2012
			Designated		Not Designated		Total		Designated		Not Designated		Total
			(in millions)						(in millions)
Assets
	Interest rate derivatives		$	-	$	2	$	2	$	-	$	2		2
	Cross currency derivatives			8		-		8		6		-		6
	Foreign currency derivatives			1		87		88		-		81		81
	Commodity derivatives			-		7		7		2		9		11
		Total assets	$	9	$	96	$	105	$	8	$	92	$	100
Liabilities
	Interest rate derivatives		$	523	$	18	$	541	$	544	$	21		565
	Cross currency derivatives			3		-		3		6		-		6
	Foreign currency derivatives			7		11		18		7		7		14
	Commodity derivatives			11		82		93		8		64		72
		Total liabilities	$	544	$	111	$	655	$	565	$	92	$	657

		March 31, 2013				December 31, 2012
		Assets		Liabilities		Assets		Liabilities
		(in millions)				(in millions)
Current		$	18	$	175	$	14	$	186
Noncurrent			87		480		86		471
	Total	$	105	$	655	$	100	$	657
Derivatives subject to master netting agreement or similar agreement:
	Gross (which equals net) amounts recognized in the balance sheet	$	19	$	520	$	25	$	522
	Gross amounts of derivative instruments not offset		(8)		(8)		(9)		(9)
	Gross amounts of cash collateral received/pledged not offset		-		(14)		-		(5)
	Net amount	$	11	$	498	$	16	$	508
Other 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	$	181	$	191	$	186	$	191

Effective Portion of Cash Flow Hedges

The following tables set forth the pre-tax 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 thethreemonths ended March 31, 2013 and 2012:

	Gains (Losses)				Classification in		Gains (Losses) Reclassified
	Recognized in AOCL				Condensed Consolidated		from AOCL into Earnings
Type of Derivative	2013		2012		Statements of Operations		2013		2012
	(in millions)						(in millions)
Interest rate derivatives	$	(13)	$	11	Interest expense		$	(32)	$	(32)
					Non-regulated cost of sales			(1)		(2)
					Net equity in earnings of
						affiliates		(2)		(1)
					Gain on sale of investments			-		(92)
Cross currency derivatives		1		14	Interest expense			(3)		(3)
					Foreign currency transaction
						gains (losses)		5		18
Foreign currency derivatives		1		6	Foreign currency transaction
						gains (losses)		2		-
Commodity derivatives		(5)		(6)	Non-regulated revenue			-		(2)
Total	$	(16)	$	25			$	(31)	$	(114)

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 March 31, 2013 is $(146)million for interest rate hedges, $(11) million for cross currency swaps, $(6) million for foreign currency hedges, and $(9) million for commodity and other hedges.

Ineffective Portion of Cash Flow Hedges

The following table sets forth the pre-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 threemonths ended March 31, 2013 and 2012:

	Classification in Condensed	Gains (Losses)
	Consolidated Statements	Recognized in Earnings
Type of Derivative	of Operations	2013		2012
		(in millions)
Interest rate derivatives	Interest expense	$	(1)	$	(1)
Total		$	(1)	$	(1)

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 hedgingand the amortization of balances that had been, but no longer need to be, accounted for as derivatives at fair value, for thethree months ended March 31, 2013 and 2012:

	Classification	Gains (Losses)
	in Condensed Consolidated	Recognized in Earnings
Type of Derivative	Statements of Operations	2013		2012
		(in millions)
Interest rate derivatives	Interest expense	$	1	$	(2)
	Net equity in earnings of affiliates		(6)		-
Foreign currency derivatives	Foreign currency transaction gains (losses)		6		(38)
	Net equity in earnings of affiliates		(3)		-
Commodity and other derivatives	Non-regulated revenue		(21)		14
	Regulated revenue		(3)		(4)
	Non-regulated cost of sales		1		3
	Regulated cost of sales		-		(4)
Total		$	(25)	$	(31)

Credit Risk-Related Contingent Features

DP&L, our utility in Ohio, 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 their 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 $23 million and $13million as of March 31, 2013 and December 31, 2012, respectively, for all derivatives with credit risk-related contingent features. As of March 31, 2013 and December 31, 2012, DP&L had posted $14 million and $5million, respectively, of cash collateral directly with third parties and in a broker margin account and DP&L held $0 million and $0million of cash collateral that it received 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 provide additional collateral of $5 million and $2 million as of March 31, 2013 and December 31, 2012.