Derivative Financial Instruments

12 Months Ended

Dec. 31, 2022

Derivative Instruments And Hedging Activities Disclosure [Abstract]

8. DERIVATIVE FINANCIAL INSTRUMENTS

See Note 2 for DESC’s accounting policies, objectives, and strategies for using derivative instruments. See Notes 2 and 9 for further information about fair value measurements and associated valuation methods for derivatives.

Cash collateral is used in the table below to offset derivative assets and liabilities. Certain of DESC’s derivative instruments contain credit-related contingent provisions. These provisions require DESC to provide collateral upon the occurrence of specific events, primarily a credit rating downgrade. If the credit-related contingent features underlying the instruments that are in a liability position and not fully collateralized with cash were fully triggered as of December 31, 2022 and 2021, DESC would have been required to post $1 million and $8 million, respectively, of additional collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any offsetting asset positions and any amounts already posted for derivatives, non-derivative contracts and derivatives elected under the normal purchases and normal sales exception, per contractual terms. DESC had posted $1 million and $11 million, respectively, of collateral at December 31, 2022 and 2021 related to derivatives with credit-related contingent provisions that are in a liability position and not fully collateralized with cash. The aggregate fair value of all derivative instruments with credit-related contingent provisions that are in a liability position and not fully collateralized with cash as of December 31, 2022 and 2021 was $2 million and $19 million, respectively, which does not include the impact of any offsetting asset positions.

The table below presents derivative balances by type of financial instrument, if the gross amounts recognized in the Consolidated Balance Sheets were netted with derivative instruments and cash collateral received or paid. DESC’s commodity derivative assets are not subject to a master netting agreement or similar arrangement.


	December 31, 2022								December 31, 2021
			Gross Amounts Not Offset in the Consolidated Balance Sheet								Gross Amounts Not Offset in the Consolidated Balance Sheet
(millions)	Gross Assets Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amounts		Gross Assets Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Received		Net Amounts
Interest rate contracts:
Over-the-counter	$	1	$	—	$	—	$	1	$	—	$	—	$	—	$	—
Total derivatives	$	1	$	—	$	—	$	1	$	—	$	—	$	—	$	—


	December 31, 2022								December 31, 2021
			Gross Amounts Not Offset in the Consolidated Balance Sheet								Gross Amounts Not Offset in the Consolidated Balance Sheet
(millions)	Gross Liabilities Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Paid		Net Amounts		Gross Liabilities Presented in the Consolidated Balance Sheet		Financial Instruments		Cash Collateral Paid		Net Amounts
Interest rate contracts:
Over-the-counter	$	2	$	—	$	1	$	1	$	19	$	—	$	11	$	8
Total derivatives	$	2	$	—	$	1	$	1	$	19	$	—	$	11	$	8

Volumes

The following table presents the volume of derivative activity at December 31, 2022. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions.


(millions)	Current		Noncurrent
Electricity (MWh):
Fixed price		2		24
Interest rate(1)	$	—	$	71

(1)

Maturity is determined based on final settlement period.

Fair Value and Gains and Losses on Derivative Instruments

The following table presents the fair values of derivatives and where they are presented in the Consolidated Balance Sheets:


(millions)	Fair Value - Derivatives under Hedge Accounting		Fair Value - Derivatives not under Hedge Accounting		Total Fair Value
At December 31, 2022
Current Assets
Commodity	$	—	$	41	$	41
Total current derivative assets (1)		—		41		41
Noncurrent Assets
Commodity		—		210		210
Interest rate		—		1		1
Total noncurrent derivative assets (2)		—		211		211
Total derivative assets	$	—	$	252	$	252
Noncurrent Liabilities
Interest rate	$	2	$	—	$	2
Total noncurrent derivative liabilities(4)		2		—		2
Total derivative liabilities	$	2	$	—	$	2
At December 31, 2021
Current Assets
Commodity	$	—	$	18	$	18
Total current derivative assets (1)		—		18		18
Noncurrent Assets
Commodity		—		130		130
Total noncurrent derivative assets (2)		—		130		130
Total derivative assets	$	—	$	148	$	148
Current Liabilities
Interest rate	$	1	$	1	$	2
Total current derivative liabilities(3)		1		1		2
Noncurrent Liabilities
Interest rate		11		6		17
Total noncurrent derivative liabilities(4)		11		6		17
Total derivative liabilities	$	12	$	7	$	19

(1)

Current derivative assets are presented in other current assets in DESC’s Consolidated Balance Sheets.

(2)

Noncurrent derivative assets are presented in other deferred debits and other assets in DESC’s Consolidated Balance Sheets.

(3)

Current derivative liabilities are presented in other current liabilities in DESC’s Consolidated Balance Sheets.

(4)

Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in DESC’s Consolidated Balance Sheets.

The following tables present the gains and losses on derivatives, as well as where the associated activity is presented in the Consolidated Balance Sheets and Statements of Comprehensive Income:

Derivatives in Cash Flow Hedging Relationships


(millions)	Increase (Decrease) in Derivatives Subject to Regulatory Treatment(1)
Year Ended December 31, 2022
Derivative type and location of gains (losses):
Interest rate	$	11
Total	$	11
Year Ended December 31, 2021
Derivative type and location of gains (losses):
Interest rate	$	9
Total	$	9
Year Ended December 31, 2020
Derivative type and location of gains (losses):
Interest rate	$	1
Total	$	1

(1)

Represents net derivative activity deferred into and amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/ liabilities have no associated effect in the Consolidated Statements of Comprehensive Income.

Derivatives Not designated as Hedging Instruments


(millions)	Amount of Gain (Loss) Recognized in Income on Derivatives(1)
Year Ended December 31,	2022			2021			2020
Derivative type and location of gains (losses):
Commodity contracts:
Purchased power	$	77		$	8		$	—
Interest rate contracts:
Interest charges		(2	)		(2	)		(1	)
Total	$	75		$	6		$	(1	)

(1)

Includes derivative activity amortized out of regulatory assets/liabilities. Amounts deferred into regulatory assets/liabilities have no associated effect in the Consolidated Statements of Comprehensive Income.