Derivative Instruments and Hedging Activities (Tables)

6 Months Ended

Jun. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Notional Volumes of Derivative Instruments

December 31, 2011
				Hedging Activities				Trading Activities
Commodity	Instrument	Classification	Unit of Measure	Cash Flow Hedges		Economic Hedges
Electricity	Forwards/Futures	Sales, net	GWh	8,320	1	425	3	—
Electricity	Forwards/Futures	Purchases, net	GWh	—		—		2,926
Electricity	Capacity	Sales, net	GW-Day	89	2	—		—
Electricity	Capacity	Purchases, net	GW-Day	—		—		184	2
Electricity	Congestion	Purchases, net	GWh	—		2,528	4	230,798	4
Natural gas	Forwards/Futures	Sales, net	bcf	—		—		0.2
Fuel oil	Forwards/Futures	Purchases, net	barrels	—		240,000		—

¹  EME's hedge products include forward and futures contracts that qualify for hedge accounting.

²  EME's hedge transactions for capacity result from bilateral trades. Capacity sold in the PJM Interconnection, LLC Reliability Pricing Model (PJM RPM) auction is not accounted for as a derivative.

³  These positions adjust financial and physical positions, or day-ahead and real-time positions, to reduce costs or increase gross margin. The net sales positions of these categories are primarily related to hedge transactions that are not designated as cash flow hedges.

⁴  Congestion contracts include financial transmission rights, transmission congestion contracts or congestion revenue rights. These positions are similar to a swap, where the buyer is entitled to receive a stream of revenues (or charges) based on the hourly day-ahead price differences between two locations.

The following table summarizes the notional volumes of derivatives used for hedging and trading activities:

June 30, 2012
				Hedging Activities				Trading Activities
Commodity	Instrument	Classification	Unit of Measure	Cash Flow Hedges		Economic Hedges
Electricity	Forwards/Futures	Sales, net	GWh	4,630	1	116	3	—
Electricity	Forwards/Futures	Purchases, net	GWh	—		—		2,201
Electricity	Capacity	Sales, net	GW-Day	37	2	—		—
Electricity	Capacity	Purchases, net	GW-Day	—		—		134	2
Electricity	Congestion	Purchases, net	GWh	—		287	4	331,418	4
Natural gas	Forwards/Futures	Purchases, net	bcf	—		—		1.7
Fuel oil	Forwards/Futures	Purchases, net	barrels	—		240,000		20,000

Fair Value of Derivative Instruments

The following table summarizes the fair value of derivative instruments reflected on EME's consolidated balance sheets:

June 30, 2012
	Derivative Assets									Derivative Liabilities									Net Assets (Liabilities)
(in millions)	Short-term			Long-term			Subtotal			Short-term			Long-term			Subtotal
Non-trading activities
Cash flow hedges
Commodity contracts	$	24		$	2		$	26		$	1		$	3		$	4		$	22
Interest rate contracts	—			—			—			—			114			114			(114		)
Economic hedges	28			2			30			24			2			26			4
Trading activities	329			153			482			272			92			364			118
	381			157			538			297			211			508			30
Netting and collateral received1	(335		)	(105		)	(440		)	(297		)	(97		)	(394		)	(46		)
Total	$	46		$	52		$	98		$	—		$	114		$	114		$	(16	)

December 31, 2011
	Derivative Assets									Derivative Liabilities									Net Assets (Liabilities)
(in millions)	Short-term			Long-term			Subtotal			Short-term			Long-term			Subtotal
Non-trading activities
Cash flow hedges
Commodity contracts	$	41		$	1		$	42		$	2		$	3		$	5		$	37
Interest rate contracts	—			—			—			—			90			90			(90		)
Economic hedges	31			1			32			26			1			27			5
Trading activities	276			142			418			232			79			311			107
	348			144			492			260			173			433			59
Netting and collateral received1	(308		)	(85		)	(393		)	(259		)	(83		)	(342		)	(51		)
Total	$	40		$	59		$	99		$	1		$	90		$	91		$	8

¹  Netting of derivative receivables and derivative payables and the related cash collateral received and paid is permitted when a legally enforceable master netting agreement exists with a derivative counterparty.

Schedule of Changes in Accumulated Other Comprehensive Income

The following table provides the cash flow hedge activity as part of accumulated other comprehensive loss:

	Cash Flow Hedge Activity1
	Six Months Ended June 30,
	2012						2011
(in millions)	Commodity Contracts			Interest Rate Contracts			Commodity Contracts			Interest Rate Contracts			Income Statement Location
Beginning of period derivative gains (losses)	$	35		$	(90	)	$	43		$	(16	)
Effective portion of changes in fair value	19			(24		)	(6		)	(7		)
Reclassification to earnings	(33		)	—			(29		)	—			Operating revenues
End of period derivative gains (losses)	$	21		$	(114	)	$	8		$	(23	)

¹  Unrealized derivative gains (losses) are before income taxes. The after-tax amounts recorded in accumulated other comprehensive loss at June 30, 2012 and 2011 for commodity and interest rate contracts were $12 million and $(69) million, and $5 million and $(14) million, respectively.

Schedule of Realized and Unrealized Gains (Losses) from Derivative Instruments

The effect of realized and unrealized gains (losses) from derivative instruments used for economic hedging and trading purposes on the consolidated statements of operations is presented below:

		Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	Income Statement Location	2012			2011			2012			2011
Economic hedges	Operating revenues	$	6		$	20		$	17		$	26
	Fuel	(6		)	(2		)	(1		)	4
Trading activities	Operating revenues	30			41			50			57

Summary of Margin and Collateral Deposits Provided to and Received from Counterparties

The following table summarizes margin and collateral deposits provided to and received from counterparties:

(in millions)	June 30, 2012			December 31, 2011
Collateral provided to counterparties
Offset against derivative liabilities		$	3		$	2
Reflected in margin and collateral deposits		59			41
Collateral received from counterparties
Offset against derivative assets		49			53