Derivative Financial Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

7. DERIVATIVE FINANCIAL INSTRUMENTS

DESC’s accounting policies, objectives, and strategies for using derivative instruments are discussed in Note 2 in the Consolidated Financial Statements in DESC’s Annual Report on Form 10-K for the year ended December 31, 2019. See Note 8 for further information about fair value measurements and associated valuation methods for derivatives.

Derivative assets and liabilities are presented gross on the Consolidated Balance Sheets. DESC’s derivative contracts include over-the-counter transactions. Over-the-counter contracts are bilateral contracts that are transacted directly with a third party. Certain over-the-counter contracts contain contractual rights of setoff through master netting arrangements and contract default provisions. In addition, the contracts are subject to conditional rights of setoff through counterparty nonperformance, insolvency, or other conditions.

In general, most over-the-counter transactions are subject to collateral requirements. Types of collateral for over-the-counter contracts include cash, letters of credit, and, in some cases, other forms of security, none of which are subject to restrictions. Cash collateral is used in the table below to offset derivative assets and liabilities.

All 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 September 30, 2020, DESC would have been required to post $9 million of additional collateral to its counterparties. The collateral that would be required to be posted includes the impacts of any amounts already posted for derivatives per contractual terms. DESC had posted $3 million of collateral at September 30, 2020 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 was $12 million at September 30, 2020. DESC’s derivatives with credit related contingent provisions that were in a liability position were fully collateralized with cash at December 31,2019.

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:

	September 30, 2020								December 31, 2019
	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	$	30	$	—	$	21	$	9	$	19	$	—	$	19	$	—
Total derivatives	$	30	$	—	$	21	$	9	$	19	$	—	$	19	$	—

Volumes

The following table presents the volume of derivative activity at September 30, 2020. These volumes are based on open derivative positions and represent the combined absolute value of their long and short positions.

	Current		Noncurrent
Interest rate(1)	$	—	$	71,400,000

(1) ^{Maturity is determined based on final settlement period.}

Fair Value and Gains and Losses on Derivative Instruments

The following tables present 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 September 30, 2020
LIABILITIES
Current Liabilities
Interest rate	$	1	$	1	$	2
Total current derivative liabilities(1)		1		1		2
Noncurrent Liabilities
Interest rate		17		11		28
Total noncurrent derivative liabilities(2)		17		11		28
Total derivative liabilities	$	18	$	12	$	30
At December 31, 2019
LIABILITIES
Current Liabilities
Interest rate	$	1	$	1	$	2
Total current derivative liabilities(1)		1		1		2
Noncurrent Liabilities
Interest rate		11		6		17
Total noncurrent derivative liabilities(2)		11		6		17
Total derivative liabilities	$	12	$	7	$	19

(1) Current derivative liabilities are presented in other current liabilities in the Consolidated Balance Sheets.

(2) ^{Noncurrent derivative liabilities are presented in other deferred credits and other liabilities in the 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 (Loss):

Derivatives in Cash Flow Hedging Relationships

(millions)	Increase (Decrease) in Derivatives Subject to Regulatory Treatment(1)
Three Months Ended September 30, 2020
Derivative type and location of gains (losses):
Interest rate(2)	$	2
Total	$	2
Three Months Ended September 30, 2019
Derivative type and location of gains (losses):
Interest rate(2)	$	(1	)
Total	$	(1	)
Nine Months Ended September 30, 2020
Derivative type and location of gains (losses):
Interest rate(2)	$	(2	)
Total	$	(2	)
Nine Months Ended September 30, 2019
Derivative type and location of gains (losses):
Interest rate(2)	$	(3	)
Total	$	(3	)

(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 (Loss).

(2) Amounts recorded in DESC’s Consolidated Statements of Comprehensive Income (Loss) are classified in interest charges.

Derivatives Not Designated as Hedging Instrument

(millions)		Amount of Gain (Loss) Recognized in Income on Derivatives(1)
Three Months Ended September 30,	Location	2020			2019
Derivative type and location of gains (losses):
Interest rate contracts:	Interest charges	$	—		$	(1	)
Total interest rate contracts		$	—		$	(1	)
Nine Months Ended September 30,
Derivative type and location of gains (losses):
Interest rate contracts:	Interest charges	$	(1	)	$	(1	)
Total interest rate contracts		$	(1	)	$	(1	)