Derivative Instruments and Hedging Activities (Tables)

9 Months Ended

Sep. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Notional Volumes of Derivative Instruments

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

				September 30, 2013
				Cash Flow Hedges			Economic Hedges				Trading Activities
Commodity	Instrument	Classification	Unit of Measure	Midwest Generation	Other EME Sub- sidiaries	EME	Midwest Generation	Other EME Sub- sidiaries	EME		Other EME Sub- sidiaries
Electricity	Forwards/ Futures	Sales, net	GWh1	908	—	908	—	13	13	2	—
Electricity	Forwards/ Futures	Purchases, net	GWh	—	—	—	—	—	—		734
Electricity	Congestion	Purchases, net	GWh	—	—	—	—	112	112	4	266,795	4
Natural gas	Forwards/ Futures	Sales, net	bcf1	—	—	—	—	—	—		13.4
Fuel oil	Forwards/Futures	Sales, net	barrels	—	—	—	—	—	—		40,000
Weather	Forwards/ Futures	Purchases, net	CDD1	—	—	—	—	—	—		15,000

				December 31, 2012
				Cash Flow Hedges			Economic Hedges				Trading Activities
Commodity	Instrument	Classification	Unit of Measure	Midwest Generation	Other EME Sub- sidiaries	EME	Midwest Generation	Other EME Sub- sidiaries	EME		Other EME Sub- sidiaries
Electricity	Forwards/Futures	Sales, net	GWh	3,615	—	3,615	1	47	48	2	—
Electricity	Forwards/Futures	Purchases, net	GWh	—	—	—	—	—	—		492
Electricity	Capacity	Purchases, net	GW-Day1	—	—	—	—	—	—		60	3
Electricity	Congestion	Purchases, net	GWh	—	—	—	—	263	263	4	268,529	4
Natural gas	Forwards/Futures	Sales, net	bcf1	—	—	—	—	—	—		9.9

¹  gigawatt-hours (GWh); gigawatts-day (GW-Day); billion cubic feet (bcf); cooling degree day (CDD).

²  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.

³  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.

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.

Schedule of interest rate swaps

The following table summarizes EME's interest rate swaps:

				Notional Value (in millions)
	Effective Date	Expiration Date	Fixed Swap Rate Paid	September 30, 2013		December 31, 2012
Project Financing
Viento Funding II	June 2009	June 2016	3.18%	$	55	$	65
Viento Funding II	March 2011	December 2020	3.42%	30		108
Viento Funding II	July 2013	July 2023	3.03%	96		—
Cedro Hill	December 2010	December 2025	4.29%	107		112
Laredo Ridge	March 2011	March 2026	3.46%	63		64
Tapestry	December 2011	December 2021	2.21%	184		189
Broken Bow	December 2012	December 2013	0.83%	46		47
Crofton Bluffs	December 2012	December 2013	0.78%	24		24
Walnut Creek Energy1	November 2011	May 2013	0.81%	—		181
Walnut Creek Energy1	June 2013	May 2023	3.54%	383		—
WCEP Holdings1	July 2011	May 2013	0.79%	—		26
WCEP Holdings1	June 2013	May 2023	4.00%	48		—
Forward Starting Swaps
Broken Bow	December 2013	December 2027	2.96%	45		45
Crofton Bluffs	December 2013	December 2027	2.75%	23		23
Tapestry	December 2021	December 2029	3.57%	60		60
Viento Funding II	July 2023	June 2028	4.99%	65		—

Fair Value of Derivative Instruments

The following table summarizes Midwest Generation's commodity short-term derivative instruments for non-trading purposes, including amounts offset by collateral and under master netting agreements:

	September 30, 2013							December 31, 2012
(in millions)	Gross		Netting and Collateral			Net		Gross		Netting and Collateral			Net
Assets
Electricity contracts	$	5	$	(4	)	$	1	$	12	$	(10	)	$	2
Liabilities
Electricity contracts	$	6	$	(4	)	$	2	$	13	$	(10	)	$	3

The following table summarizes EME's derivative instruments, including amounts offset by collateral and under master netting agreements:

	September 30, 2013
	Short Term							Long Term
(in millions)	Gross		Netting and Collateral			Subtotal		Gross		Netting and Collateral			Subtotal		Net
Assets
Electricity contracts	$	96	$	(61	)	$	35	$	36	$	(17	)	$	19	$	54
Natural gas contracts	30		(30		)	—		4		(4		)	—		—
Coal contracts	1		(1		)	—		—		—			—		—
Total derivatives subject to a master netting agreement	127		(92		)	35		40		(21		)	19		54
Total derivatives not subject to a master netting agreement1	—		—			—		2		—			2		2
Total assets	$	127	$	(92	)	$	35	$	42	$	(21	)	$	21	$	56
Liabilities
Electricity contracts	$	60	$	(60	)	$	—	$	17	$	(17	)	$	—	$	—
Natural gas contracts	26		(26		)	—		5		(5		)	—		—
Coal contracts	1		(1		)	—		—		—			—		—
Total derivatives subject to a master netting agreement	$	87	$	(87	)	$	—	$	22	$	(22	)	$	—	$	—
Total derivatives not subject to a master netting agreement1	—		—			—		69		—			69		69
Total liabilities	$	87	$	(87	)	$	—	$	91	$	(22	)	$	69	$	69

¹    EME's interest rate swaps are not subject to master netting agreements and do not require EME to post collateral.

	December 31, 2012
	Short Term							Long Term
(in millions)	Gross		Netting and Collateral			Subtotal		Gross		Netting and Collateral			Subtotal		Net
Assets
Electricity contracts	$	120	$	(67	)	$	53	$	52	$	(15	)	$	37	$	90
Natural gas contracts	33		(33		)	—		1		(1		)	—		—
Coal contracts	2		(2		)	—		—		—			—		—
Total assets	$	155	$	(102	)	$	53	$	53	$	(16	)	$	37	$	90
Liabilities
Electricity contracts	$	71	$	(71	)	$	—	$	15	$	(15	)	$	—	$	—
Natural gas contracts	36		(36		)	—		1		(1		)	—		—
Coal contracts	2		(2		)	—		—		—			—		—
Total derivatives subject to a master netting agreement	$	109	$	(109	)	$	—	$	16	$	(16	)	$	—	$	—
Total derivatives not subject to a master netting agreement1	—		—			—		118		—			118		118
Total liabilities	$	109	$	(109	)	$	—	$	134	$	(16	)	$	118	$	118

¹  EME's interest rate swaps are not subject to master netting agreements and do not require EME to post collateral.

Schedule of Changes in Accumulated Other Comprehensive Income

The following table provides the cash flow hedge activity as part of EME's AOCI:

	Nine Months Ended September 30,
	2013						2012
(in millions)	Commodity Contracts			Interest Rate Contracts			Commodity Contracts			Interest Rate Contracts
Beginning of period derivative gains (losses)	$	(1	)	$	(118	)	$	35		$	(90	)
Effective portion of changes in fair value	(2		)	38			3			(35		)
Reclassification to operating revenues	3			—			(31		)	—
Reclassification to interest expense	—			4			—			—
End of period derivative gains (losses)1	$	—		$	(76	)	$	7		$	(125	)

¹  Unrealized derivative gains (losses) are before income taxes. Amounts recorded in AOCI include commodity and interest rate contracts. For additional information, see Note 11—Accumulated Other Comprehensive Loss.

The following table provides the cash flow hedge activity as part of Midwest Generation's AOCI:

	Nine Months Ended September 30,
(in millions)	2013			2012
Beginning of period derivative gains (losses)	$	(2	)	$	34
Effective portion of changes in fair value	(2		)	5
Reclassification to operating revenues	4			(32		)
End of period derivative gains (losses)1	$	—		$	7

¹  Unrealized derivative gains (losses) are before income taxes. Amounts recorded in AOCI include commodity contracts. For additional information, see Note 11—Accumulated Other Comprehensive Loss.

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

The effect of realized and unrealized gains from derivative instruments used for non-trading purposes on the consolidated statements of operations is presented below:

(in millions)	Income Statement Location	Three Months Ended September 30,					Nine Months Ended September 30,
		2013			2012		2013			2012
Economic hedges	Operating revenues	$	(4	)	$	8	$	(6	)	$	24
	Fuel	—			3		—			2

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

		Three Months Ended September 30,					Nine Months Ended September 30,
(in millions)	Income Statement Location	2013			2012		2013			2012
Economic hedges	Operating revenues	$	(4	)	$	8	$	(6	)	$	25
	Fuel	—			3		—			2
Trading activities	Operating revenues	24			22		66			72