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Financial Risk Management Activities | 9 Months Ended
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Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosures [Line Items] |
Financial Risk Management Activities | Financial Risk Management Activities Derivative accounting guidance requires that a derivative instrument be recognized as either an asset or a liability at fair value, with changes in fair value of the derivative recognized in earnings each period. Other accounting treatments are available through special election and designation provided that the derivative instrument meets specific, restrictive criteria, both at the time of designation and on an ongoing basis. These alternative permissible treatments include normal purchases and normal sales (NPNS), cash flow hedge and fair value hedge accounting. PSEG, Power and PSE&G have applied the NPNS scope exception to certain derivative contracts for the forward sale of generation, power procurement agreements and fuel agreements. PSEG uses interest rate swaps and other derivatives, which are designated and effective as cash flow or fair value hedges. Power enters into additional contracts that are derivatives, but are not designated as either cash flow hedges or fair value hedges. These transactions are economic hedges and are recorded at fair market value. Commodity Prices Within PSEG and its affiliate companies, Power has the most exposure to commodity price risk. Power is exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels and other commodities. Fluctuations in market prices result from changes in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of Power’s expected generation. Power also uses derivatives to hedge a portion of its anticipated BGSS obligations with PSE&G. For additional information see Note 10. Commitments and Contingent Liabilities. Changes in the fair market value of these derivative contracts are recorded in earnings. Interest Rates PSEG, Power and PSE&G are subject to the risk of fluctuating interest rates in the normal course of business. Exposure to this risk is managed by targeting a balanced debt maturity profile which limits refinancing in any given period or interest rate environment. In addition, they have used a mix of fixed and floating rate debt and interest rate swaps. Fair Value Hedges PSEG enters into fair value hedges to convert fixed-rate debt into variable-rate debt. The changes in fair value of the interest rate swaps are fully offset by changes in the fair value of the underlying forecasted interest payments of the debt. There were no outstanding interest rate swaps as of September 30, 2018 or December 31, 2017. Cash Flow Hedges PSEG uses interest rate swaps and other derivatives, which are designated and effective as cash flow hedges, to manage its exposure to the variability of cash flows, primarily related to variable-rate debt instruments. PSEG interest rate hedges totaling $500 million were executed and terminated during the second quarter of 2018 and a loss of $(1) million was recorded in Accumulated Other Comprehensive Income (Loss) (after tax) and will amortize to interest expense over the remaining life of Power’s $700 million of 3.85% Senior Notes due June 2023. For additional information see Note 11. Debt and Credit Facilities. There were no outstanding interest rate hedges as of September 30, 2018 and December 31, 2017. The Accumulated Other Comprehensive Income (Loss) (after tax) related to terminated interest rate derivatives designated as cash flow hedges was $(1) million as of September 30, 2018 and was immaterial as of December 31, 2017. The after-tax unrealized losses on these hedges expected to be reclassified to earnings during the next 12 months are immaterial. Fair Values of Derivative Instruments The following are the fair values of derivative instruments on the Condensed Consolidated Balance Sheets. The following tables also include disclosures for offsetting derivative assets and liabilities which are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, and in accordance with PSEG’s accounting policy, these positions are offset on the Condensed Consolidated Balance Sheets of Power and PSEG. For additional information see Note 13. Fair Value Measurements. The following tabular disclosure does not include the offsetting of trade receivables and payables.
|  |  | As of September 30, 2018 |
|  |  | Power (A) |  | Consolidated |
|  |  | Not Designated |  |  |  |  |  |  |
| Balance Sheet Location |  | Energy- Related Contracts |  | Netting (B) |  | Total Power |  | Total Derivatives |
|  |  | Millions |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Assets |  | $ | 301 |  |  | $ | (290 | ) |  | $ | 11 |  |  | $ | 11 |  |
| Noncurrent Assets |  | 123 |  |  | (121 | ) |  | 2 |  |  | 2 |  |
| Total Mark-to-Market Derivative Assets |  | $ | 424 |  |  | $ | (411 | ) |  | $ | 13 |  |  | $ | 13 |  |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Liabilities |  | $ | (389 | ) |  | $ | 376 |  |  | $ | (13 | ) |  | $ | (13 | ) |
| Noncurrent Liabilities |  | (149 | ) |  | 147 |  |  | (2 | ) |  | (2 | ) |
| Total Mark-to-Market Derivative (Liabilities) |  | $ | (538 | ) |  | $ | 523 |  |  | $ | (15 | ) |  | $ | (15 | ) |
| Total Net Mark-to-Market Derivative Assets (Liabilities) |  | $ | (114 | ) |  | $ | 112 |  |  | $ | (2 | ) |  | $ | (2 | ) |
|  |  | As of December 31, 2017 |
|  |  | Power (A) |  | Consolidated |
|  |  | Not Designated |  |  |  |  |  |  |
| Balance Sheet Location |  | Energy- Related Contracts |  | Netting (B) |  | Total Power |  | Total Derivatives |
|  |  | Millions |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Assets |  | $ | 391 |  |  | $ | (362 | ) |  | $ | 29 |  |  | $ | 29 |  |
| Noncurrent Assets |  | 78 |  |  | (71 | ) |  | 7 |  |  | 7 |  |
| Total Mark-to-Market Derivative Assets |  | $ | 469 |  |  | $ | (433 | ) |  | $ | 36 |  |  | $ | 36 |  |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Liabilities |  | $ | (403 | ) |  | $ | 387 |  |  | $ | (16 | ) |  | $ | (16 | ) |
| Noncurrent Liabilities |  | (95 | ) |  | 90 |  |  | (5 | ) |  | (5 | ) |
| Total Mark-to-Market Derivative (Liabilities) |  | $ | (498 | ) |  | $ | 477 |  |  | $ | (21 | ) |  | $ | (21 | ) |
| Total Net Mark-to-Market Derivative Assets (Liabilities) |  | $ | (29 | ) |  | $ | 44 |  |  | $ | 15 |  |  | $ | 15 |  |
(A) | Substantially all of Power’s derivative instruments are contracts subject to master netting agreements. Contracts not subject to master netting or similar agreements are immaterial and did not have any collateral posted or received as of September 30, 2018 and December 31, 2017.
(B) | Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. All cash collateral received or posted that has been allocated to derivative positions, where the right of offset exists, has been offset on the Condensed Consolidated Balance Sheets. As of September 30, 2018 and December 31, 2017, Power had net cash collateral/margin payments to counterparties of $223 million and $146 million, respectively. Of these net cash/collateral margin payments $112 million as of September 30, 2018 and $44 million as December 31, 2017 were netted against the corresponding net derivative contract positions. Of the $112 million as of September 30, 2018, $(2) million was netted against current assets, and $(1) million was netted against noncurrent assets, $88 million was netted against current liabilities, and $27 million was netted against noncurrent liabilities. Of the $44 million as of December 31, 2017, $(3) million was netted against current assets, $28 million was netted against current liabilities, and $19 million was netted against noncurrent liabilities.
Certain of Power’s derivative instruments contain provisions that require Power to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon Power’s credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit risk-related contingent features stipulate that if Power were to be downgraded to a below investment grade rating by S&P or Moody’s, it would be required to provide additional collateral. A below investment grade credit rating for Power would represent a three level downgrade from its current S&P or Moody’s ratings. This incremental collateral requirement can offset collateral requirements related to other derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master agreements. Power also enters into commodity transactions on the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE). The NYMEX and ICE clearing houses act as counterparties to each trade. Transactions on the NYMEX and ICE must adhere to comprehensive collateral and margin requirements. The aggregate fair value of all derivative instruments with credit risk-related contingent features in a liability position that are not fully collateralized (excluding transactions on the NYMEX and ICE that are fully collateralized) was $23 million and $30 million as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018 and December 31, 2017, Power had the contractual right of offset of $7 million and $13 million, respectively, related to derivative instruments that are assets with the same counterparty under master agreements and net of margin posted. If Power had been downgraded to a below investment grade rating, it would have had additional collateral obligations of $16 million and $17 million as of September 30, 2018 and December 31, 2017, respectively, related to its derivatives, net of the contractual right of offset under master agreements and the application of collateral. The following reconciles the Accumulated Other Comprehensive Income (Loss) for derivative activity included in the Accumulated Other Comprehensive Loss of PSEG on a pre-tax and after-tax basis.
| Accumulated Other Comprehensive Income (Loss) |  | Pre-Tax |  | After-Tax |
|  |  | Millions |
| Balance as of December 31, 2016 |  | $ | 3 |  |  | $ | 2 |  |
| Gain Recognized in AOCI |  | — |  |  | — |  |
| Less: Gain Reclassified into Income |  | (3 | ) |  | (2 | ) |
| Balance as of December 31, 2017 |  | $ | — |  |  | $ | — |  |
| Loss Recognized in AOCI |  | (2 | ) |  | (1 | ) |
| Less: Loss Reclassified into Income |  | — |  |  | — |  |
| Balance as of September 30, 2018 |  | $ | (2 | ) |  | $ | (1 | ) |
The following shows the effect on the Condensed Consolidated Statements of Operations of derivative instruments not designated as hedging instruments or as NPNS for the three months and nine months ended September 30, 2018 and 2017. Power’s derivative contracts reflected in this table include contracts to hedge the purchase and sale of electricity and natural gas, and the purchase of fuel. The table does not include contracts that Power has designated as NPNS, such as its BGS contracts and certain other energy supply contracts that it has with other utilities and companies with retail load.
| Derivatives Not Designated as Hedges |  | Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives |  | Pre-Tax Gain (Loss) Recognized in Income on Derivatives |  | Pre-Tax Gain (Loss) Recognized in Income on Derivatives |
|  |  |  |  | Three Months Ended |  | Nine Months Ended |
|  |  |  |  | September 30, |  | September 30, |
|  |  |  |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  |  |  |  | Millions |
| PSEG and Power |  |  |  |  |  |  |  |  |  |  |
| Energy-Related Contracts |  | Operating Revenues |  | $ | (130 | ) |  | $ | 26 |  |  | $ | (154 | ) |  | $ | 216 |  |
| Energy-Related Contracts |  | Energy Costs |  | 5 |  |  | (4 | ) |  | 12 |  |  | (14 | ) |
| Total PSEG and Power |  |  |  | $ | (125 | ) |  | $ | 22 |  |  | $ | (142 | ) |  | $ | 202 |  |
The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of September 30, 2018 and December 31, 2017.
| Type |  | Notional |  | Total |  | PSEG |  | Power |  | PSE&G |
|  |  |  |  | Millions |
| As of September 30, 2018 |  |  |  |  |  |  |  |  |  |  |
| Natural Gas |  | Dekatherm (Dth) |  | 281 |  |  | — |  |  | 281 |  |  | — |  |
| Electricity |  | MWh |  | (66 | ) |  | — |  |  | (66 | ) |  | — |  |
| Financial Transmission Rights (FTRs) |  | MWh |  | 24 |  |  | — |  |  | 24 |  |  | — |  |
| As of December 31, 2017 |  |  |  |  |  |  |  |  |  |  |
| Natural Gas |  | Dth |  | 154 |  |  | — |  |  | 154 |  |  | — |  |
| Electricity |  | MWh |  | (63 | ) |  | — |  |  | (63 | ) |  | — |  |
| FTRs |  | MWh |  | 6 |  |  | — |  |  | 6 |  |  | — |  |
Credit Risk Credit risk relates to the risk of loss that Power would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. PSEG has established credit policies that it believes significantly minimize credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit rating), collateral requirements under certain circumstances and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on Power’s and PSEG’s financial condition, results of operations or net cash flows. The following table provides information on Power’s credit risk from wholesale counterparties, net of collateral, as of September 30, 2018. It further delineates that exposure by the credit rating of the counterparties, which is determined by the lowest rating from S&P, Moody’s or an internal scoring model. In addition, it provides guidance on the concentration of credit risk to individual counterparties and an indication of the quality of Power’s credit risk by credit rating of the counterparties. As of September 30, 2018, 97% of the net credit exposure for Power’s wholesale operations was with investment grade counterparties. Credit exposure is defined as any positive results of netting accounts receivable/accounts payable and the forward value of open positions (which includes all financial instruments including derivatives, NPNS and non-derivatives).
| Rating |  | Current Exposure |  | Securities held as Collateral |  | Net Exposure |  | Number of Counterparties >10% |  | Net Exposure of Counterparties >10% |  |
|  |  | Millions |  |  |  | Millions |  |
| Investment Grade |  | $ | 112 |  |  | $ | 12 |  |  | $ | 100 |  |  | 2 |  |  | $ | 50 |  | (A) |
| Non-Investment Grade |  | 6 |  |  | 2 |  |  | 4 |  |  | — |  |  | — |  |  |
| Total |  | $ | 118 |  |  | $ | 14 |  |  | $ | 104 |  |  | 2 |  |  | $ | 50 |  |  |
(A) | Represents net exposure of $39 million with PSE&G and $11 million with a non-affiliated counterparty.
As of September 30, 2018, collateral held from counterparties where Power had credit exposure included $2 million in cash collateral and $12 million in letters of credit. As of September 30, 2018, Power had 137 active counterparties. PSE&G’s supplier master agreements are approved by the BPU and govern the terms of its electric supply procurement contracts. These agreements define a supplier’s performance assurance requirements and allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s credit ratings from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day the procurement transaction is executed, compared to the forward price curve for energy on the valuation day. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post a parental guaranty or other security instrument such as a letter of credit or cash, as collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. As of September 30, 2018, primarily all of the posted collateral was in the form of parental guarantees. The unsecured credit used by the suppliers represents PSE&G’s net credit exposure. PSE&G’s BGS suppliers’ credit exposure is calculated each business day. As of September 30, 2018, PSE&G had no net credit exposure with suppliers, including Power. PSE&G is permitted to recover its costs of procuring energy through the BPU-approved BGS tariffs. PSE&G’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates.
PSE And G [Member] |
Derivative Instruments and Hedging Activities Disclosures [Line Items] |
Financial Risk Management Activities | Financial Risk Management Activities Derivative accounting guidance requires that a derivative instrument be recognized as either an asset or a liability at fair value, with changes in fair value of the derivative recognized in earnings each period. Other accounting treatments are available through special election and designation provided that the derivative instrument meets specific, restrictive criteria, both at the time of designation and on an ongoing basis. These alternative permissible treatments include normal purchases and normal sales (NPNS), cash flow hedge and fair value hedge accounting. PSEG, Power and PSE&G have applied the NPNS scope exception to certain derivative contracts for the forward sale of generation, power procurement agreements and fuel agreements. PSEG uses interest rate swaps and other derivatives, which are designated and effective as cash flow or fair value hedges. Power enters into additional contracts that are derivatives, but are not designated as either cash flow hedges or fair value hedges. These transactions are economic hedges and are recorded at fair market value. Commodity Prices Within PSEG and its affiliate companies, Power has the most exposure to commodity price risk. Power is exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels and other commodities. Fluctuations in market prices result from changes in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of Power’s expected generation. Power also uses derivatives to hedge a portion of its anticipated BGSS obligations with PSE&G. For additional information see Note 10. Commitments and Contingent Liabilities. Changes in the fair market value of these derivative contracts are recorded in earnings. Interest Rates PSEG, Power and PSE&G are subject to the risk of fluctuating interest rates in the normal course of business. Exposure to this risk is managed by targeting a balanced debt maturity profile which limits refinancing in any given period or interest rate environment. In addition, they have used a mix of fixed and floating rate debt and interest rate swaps. Fair Value Hedges PSEG enters into fair value hedges to convert fixed-rate debt into variable-rate debt. The changes in fair value of the interest rate swaps are fully offset by changes in the fair value of the underlying forecasted interest payments of the debt. There were no outstanding interest rate swaps as of September 30, 2018 or December 31, 2017. Cash Flow Hedges PSEG uses interest rate swaps and other derivatives, which are designated and effective as cash flow hedges, to manage its exposure to the variability of cash flows, primarily related to variable-rate debt instruments. PSEG interest rate hedges totaling $500 million were executed and terminated during the second quarter of 2018 and a loss of $(1) million was recorded in Accumulated Other Comprehensive Income (Loss) (after tax) and will amortize to interest expense over the remaining life of Power’s $700 million of 3.85% Senior Notes due June 2023. For additional information see Note 11. Debt and Credit Facilities. There were no outstanding interest rate hedges as of September 30, 2018 and December 31, 2017. The Accumulated Other Comprehensive Income (Loss) (after tax) related to terminated interest rate derivatives designated as cash flow hedges was $(1) million as of September 30, 2018 and was immaterial as of December 31, 2017. The after-tax unrealized losses on these hedges expected to be reclassified to earnings during the next 12 months are immaterial. Fair Values of Derivative Instruments The following are the fair values of derivative instruments on the Condensed Consolidated Balance Sheets. The following tables also include disclosures for offsetting derivative assets and liabilities which are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, and in accordance with PSEG’s accounting policy, these positions are offset on the Condensed Consolidated Balance Sheets of Power and PSEG. For additional information see Note 13. Fair Value Measurements. The following tabular disclosure does not include the offsetting of trade receivables and payables.
|  |  | As of September 30, 2018 |
|  |  | Power (A) |  | Consolidated |
|  |  | Not Designated |  |  |  |  |  |  |
| Balance Sheet Location |  | Energy- Related Contracts |  | Netting (B) |  | Total Power |  | Total Derivatives |
|  |  | Millions |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Assets |  | $ | 301 |  |  | $ | (290 | ) |  | $ | 11 |  |  | $ | 11 |  |
| Noncurrent Assets |  | 123 |  |  | (121 | ) |  | 2 |  |  | 2 |  |
| Total Mark-to-Market Derivative Assets |  | $ | 424 |  |  | $ | (411 | ) |  | $ | 13 |  |  | $ | 13 |  |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Liabilities |  | $ | (389 | ) |  | $ | 376 |  |  | $ | (13 | ) |  | $ | (13 | ) |
| Noncurrent Liabilities |  | (149 | ) |  | 147 |  |  | (2 | ) |  | (2 | ) |
| Total Mark-to-Market Derivative (Liabilities) |  | $ | (538 | ) |  | $ | 523 |  |  | $ | (15 | ) |  | $ | (15 | ) |
| Total Net Mark-to-Market Derivative Assets (Liabilities) |  | $ | (114 | ) |  | $ | 112 |  |  | $ | (2 | ) |  | $ | (2 | ) |
|  |  | As of December 31, 2017 |
|  |  | Power (A) |  | Consolidated |
|  |  | Not Designated |  |  |  |  |  |  |
| Balance Sheet Location |  | Energy- Related Contracts |  | Netting (B) |  | Total Power |  | Total Derivatives |
|  |  | Millions |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Assets |  | $ | 391 |  |  | $ | (362 | ) |  | $ | 29 |  |  | $ | 29 |  |
| Noncurrent Assets |  | 78 |  |  | (71 | ) |  | 7 |  |  | 7 |  |
| Total Mark-to-Market Derivative Assets |  | $ | 469 |  |  | $ | (433 | ) |  | $ | 36 |  |  | $ | 36 |  |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Liabilities |  | $ | (403 | ) |  | $ | 387 |  |  | $ | (16 | ) |  | $ | (16 | ) |
| Noncurrent Liabilities |  | (95 | ) |  | 90 |  |  | (5 | ) |  | (5 | ) |
| Total Mark-to-Market Derivative (Liabilities) |  | $ | (498 | ) |  | $ | 477 |  |  | $ | (21 | ) |  | $ | (21 | ) |
| Total Net Mark-to-Market Derivative Assets (Liabilities) |  | $ | (29 | ) |  | $ | 44 |  |  | $ | 15 |  |  | $ | 15 |  |
(A) | Substantially all of Power’s derivative instruments are contracts subject to master netting agreements. Contracts not subject to master netting or similar agreements are immaterial and did not have any collateral posted or received as of September 30, 2018 and December 31, 2017.
(B) | Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. All cash collateral received or posted that has been allocated to derivative positions, where the right of offset exists, has been offset on the Condensed Consolidated Balance Sheets. As of September 30, 2018 and December 31, 2017, Power had net cash collateral/margin payments to counterparties of $223 million and $146 million, respectively. Of these net cash/collateral margin payments $112 million as of September 30, 2018 and $44 million as December 31, 2017 were netted against the corresponding net derivative contract positions. Of the $112 million as of September 30, 2018, $(2) million was netted against current assets, and $(1) million was netted against noncurrent assets, $88 million was netted against current liabilities, and $27 million was netted against noncurrent liabilities. Of the $44 million as of December 31, 2017, $(3) million was netted against current assets, $28 million was netted against current liabilities, and $19 million was netted against noncurrent liabilities.
Certain of Power’s derivative instruments contain provisions that require Power to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon Power’s credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit risk-related contingent features stipulate that if Power were to be downgraded to a below investment grade rating by S&P or Moody’s, it would be required to provide additional collateral. A below investment grade credit rating for Power would represent a three level downgrade from its current S&P or Moody’s ratings. This incremental collateral requirement can offset collateral requirements related to other derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master agreements. Power also enters into commodity transactions on the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE). The NYMEX and ICE clearing houses act as counterparties to each trade. Transactions on the NYMEX and ICE must adhere to comprehensive collateral and margin requirements. The aggregate fair value of all derivative instruments with credit risk-related contingent features in a liability position that are not fully collateralized (excluding transactions on the NYMEX and ICE that are fully collateralized) was $23 million and $30 million as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018 and December 31, 2017, Power had the contractual right of offset of $7 million and $13 million, respectively, related to derivative instruments that are assets with the same counterparty under master agreements and net of margin posted. If Power had been downgraded to a below investment grade rating, it would have had additional collateral obligations of $16 million and $17 million as of September 30, 2018 and December 31, 2017, respectively, related to its derivatives, net of the contractual right of offset under master agreements and the application of collateral. The following reconciles the Accumulated Other Comprehensive Income (Loss) for derivative activity included in the Accumulated Other Comprehensive Loss of PSEG on a pre-tax and after-tax basis.
| Accumulated Other Comprehensive Income (Loss) |  | Pre-Tax |  | After-Tax |
|  |  | Millions |
| Balance as of December 31, 2016 |  | $ | 3 |  |  | $ | 2 |  |
| Gain Recognized in AOCI |  | — |  |  | — |  |
| Less: Gain Reclassified into Income |  | (3 | ) |  | (2 | ) |
| Balance as of December 31, 2017 |  | $ | — |  |  | $ | — |  |
| Loss Recognized in AOCI |  | (2 | ) |  | (1 | ) |
| Less: Loss Reclassified into Income |  | — |  |  | — |  |
| Balance as of September 30, 2018 |  | $ | (2 | ) |  | $ | (1 | ) |
The following shows the effect on the Condensed Consolidated Statements of Operations of derivative instruments not designated as hedging instruments or as NPNS for the three months and nine months ended September 30, 2018 and 2017. Power’s derivative contracts reflected in this table include contracts to hedge the purchase and sale of electricity and natural gas, and the purchase of fuel. The table does not include contracts that Power has designated as NPNS, such as its BGS contracts and certain other energy supply contracts that it has with other utilities and companies with retail load.
| Derivatives Not Designated as Hedges |  | Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives |  | Pre-Tax Gain (Loss) Recognized in Income on Derivatives |  | Pre-Tax Gain (Loss) Recognized in Income on Derivatives |
|  |  |  |  | Three Months Ended |  | Nine Months Ended |
|  |  |  |  | September 30, |  | September 30, |
|  |  |  |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  |  |  |  | Millions |
| PSEG and Power |  |  |  |  |  |  |  |  |  |  |
| Energy-Related Contracts |  | Operating Revenues |  | $ | (130 | ) |  | $ | 26 |  |  | $ | (154 | ) |  | $ | 216 |  |
| Energy-Related Contracts |  | Energy Costs |  | 5 |  |  | (4 | ) |  | 12 |  |  | (14 | ) |
| Total PSEG and Power |  |  |  | $ | (125 | ) |  | $ | 22 |  |  | $ | (142 | ) |  | $ | 202 |  |
The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of September 30, 2018 and December 31, 2017.
| Type |  | Notional |  | Total |  | PSEG |  | Power |  | PSE&G |
|  |  |  |  | Millions |
| As of September 30, 2018 |  |  |  |  |  |  |  |  |  |  |
| Natural Gas |  | Dekatherm (Dth) |  | 281 |  |  | — |  |  | 281 |  |  | — |  |
| Electricity |  | MWh |  | (66 | ) |  | — |  |  | (66 | ) |  | — |  |
| Financial Transmission Rights (FTRs) |  | MWh |  | 24 |  |  | — |  |  | 24 |  |  | — |  |
| As of December 31, 2017 |  |  |  |  |  |  |  |  |  |  |
| Natural Gas |  | Dth |  | 154 |  |  | — |  |  | 154 |  |  | — |  |
| Electricity |  | MWh |  | (63 | ) |  | — |  |  | (63 | ) |  | — |  |
| FTRs |  | MWh |  | 6 |  |  | — |  |  | 6 |  |  | — |  |
Credit Risk Credit risk relates to the risk of loss that Power would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. PSEG has established credit policies that it believes significantly minimize credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit rating), collateral requirements under certain circumstances and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on Power’s and PSEG’s financial condition, results of operations or net cash flows. The following table provides information on Power’s credit risk from wholesale counterparties, net of collateral, as of September 30, 2018. It further delineates that exposure by the credit rating of the counterparties, which is determined by the lowest rating from S&P, Moody’s or an internal scoring model. In addition, it provides guidance on the concentration of credit risk to individual counterparties and an indication of the quality of Power’s credit risk by credit rating of the counterparties. As of September 30, 2018, 97% of the net credit exposure for Power’s wholesale operations was with investment grade counterparties. Credit exposure is defined as any positive results of netting accounts receivable/accounts payable and the forward value of open positions (which includes all financial instruments including derivatives, NPNS and non-derivatives).
| Rating |  | Current Exposure |  | Securities held as Collateral |  | Net Exposure |  | Number of Counterparties >10% |  | Net Exposure of Counterparties >10% |  |
|  |  | Millions |  |  |  | Millions |  |
| Investment Grade |  | $ | 112 |  |  | $ | 12 |  |  | $ | 100 |  |  | 2 |  |  | $ | 50 |  | (A) |
| Non-Investment Grade |  | 6 |  |  | 2 |  |  | 4 |  |  | — |  |  | — |  |  |
| Total |  | $ | 118 |  |  | $ | 14 |  |  | $ | 104 |  |  | 2 |  |  | $ | 50 |  |  |
(A) | Represents net exposure of $39 million with PSE&G and $11 million with a non-affiliated counterparty.
As of September 30, 2018, collateral held from counterparties where Power had credit exposure included $2 million in cash collateral and $12 million in letters of credit. As of September 30, 2018, Power had 137 active counterparties. PSE&G’s supplier master agreements are approved by the BPU and govern the terms of its electric supply procurement contracts. These agreements define a supplier’s performance assurance requirements and allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s credit ratings from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day the procurement transaction is executed, compared to the forward price curve for energy on the valuation day. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post a parental guaranty or other security instrument such as a letter of credit or cash, as collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. As of September 30, 2018, primarily all of the posted collateral was in the form of parental guarantees. The unsecured credit used by the suppliers represents PSE&G’s net credit exposure. PSE&G’s BGS suppliers’ credit exposure is calculated each business day. As of September 30, 2018, PSE&G had no net credit exposure with suppliers, including Power. PSE&G is permitted to recover its costs of procuring energy through the BPU-approved BGS tariffs. PSE&G’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates.
Power [Member] |
Derivative Instruments and Hedging Activities Disclosures [Line Items] |
Financial Risk Management Activities | Financial Risk Management Activities Derivative accounting guidance requires that a derivative instrument be recognized as either an asset or a liability at fair value, with changes in fair value of the derivative recognized in earnings each period. Other accounting treatments are available through special election and designation provided that the derivative instrument meets specific, restrictive criteria, both at the time of designation and on an ongoing basis. These alternative permissible treatments include normal purchases and normal sales (NPNS), cash flow hedge and fair value hedge accounting. PSEG, Power and PSE&G have applied the NPNS scope exception to certain derivative contracts for the forward sale of generation, power procurement agreements and fuel agreements. PSEG uses interest rate swaps and other derivatives, which are designated and effective as cash flow or fair value hedges. Power enters into additional contracts that are derivatives, but are not designated as either cash flow hedges or fair value hedges. These transactions are economic hedges and are recorded at fair market value. Commodity Prices Within PSEG and its affiliate companies, Power has the most exposure to commodity price risk. Power is exposed to commodity price risk primarily relating to changes in the market price of electricity, fossil fuels and other commodities. Fluctuations in market prices result from changes in supply and demand, fuel costs, market conditions, weather, state and federal regulatory policies, environmental policies, transmission availability and other factors. Power uses a variety of derivative and non-derivative instruments, such as financial options, futures, swaps, fuel purchases and forward purchases and sales of electricity, to manage the exposure to fluctuations in commodity prices and optimize the value of Power’s expected generation. Power also uses derivatives to hedge a portion of its anticipated BGSS obligations with PSE&G. For additional information see Note 10. Commitments and Contingent Liabilities. Changes in the fair market value of these derivative contracts are recorded in earnings. Interest Rates PSEG, Power and PSE&G are subject to the risk of fluctuating interest rates in the normal course of business. Exposure to this risk is managed by targeting a balanced debt maturity profile which limits refinancing in any given period or interest rate environment. In addition, they have used a mix of fixed and floating rate debt and interest rate swaps. Fair Value Hedges PSEG enters into fair value hedges to convert fixed-rate debt into variable-rate debt. The changes in fair value of the interest rate swaps are fully offset by changes in the fair value of the underlying forecasted interest payments of the debt. There were no outstanding interest rate swaps as of September 30, 2018 or December 31, 2017. Cash Flow Hedges PSEG uses interest rate swaps and other derivatives, which are designated and effective as cash flow hedges, to manage its exposure to the variability of cash flows, primarily related to variable-rate debt instruments. PSEG interest rate hedges totaling $500 million were executed and terminated during the second quarter of 2018 and a loss of $(1) million was recorded in Accumulated Other Comprehensive Income (Loss) (after tax) and will amortize to interest expense over the remaining life of Power’s $700 million of 3.85% Senior Notes due June 2023. For additional information see Note 11. Debt and Credit Facilities. There were no outstanding interest rate hedges as of September 30, 2018 and December 31, 2017. The Accumulated Other Comprehensive Income (Loss) (after tax) related to terminated interest rate derivatives designated as cash flow hedges was $(1) million as of September 30, 2018 and was immaterial as of December 31, 2017. The after-tax unrealized losses on these hedges expected to be reclassified to earnings during the next 12 months are immaterial. Fair Values of Derivative Instruments The following are the fair values of derivative instruments on the Condensed Consolidated Balance Sheets. The following tables also include disclosures for offsetting derivative assets and liabilities which are subject to a master netting or similar agreement. In general, the terms of the agreements provide that in the event of an early termination the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. Accordingly, and in accordance with PSEG’s accounting policy, these positions are offset on the Condensed Consolidated Balance Sheets of Power and PSEG. For additional information see Note 13. Fair Value Measurements. The following tabular disclosure does not include the offsetting of trade receivables and payables.
|  |  | As of September 30, 2018 |
|  |  | Power (A) |  | Consolidated |
|  |  | Not Designated |  |  |  |  |  |  |
| Balance Sheet Location |  | Energy- Related Contracts |  | Netting (B) |  | Total Power |  | Total Derivatives |
|  |  | Millions |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Assets |  | $ | 301 |  |  | $ | (290 | ) |  | $ | 11 |  |  | $ | 11 |  |
| Noncurrent Assets |  | 123 |  |  | (121 | ) |  | 2 |  |  | 2 |  |
| Total Mark-to-Market Derivative Assets |  | $ | 424 |  |  | $ | (411 | ) |  | $ | 13 |  |  | $ | 13 |  |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Liabilities |  | $ | (389 | ) |  | $ | 376 |  |  | $ | (13 | ) |  | $ | (13 | ) |
| Noncurrent Liabilities |  | (149 | ) |  | 147 |  |  | (2 | ) |  | (2 | ) |
| Total Mark-to-Market Derivative (Liabilities) |  | $ | (538 | ) |  | $ | 523 |  |  | $ | (15 | ) |  | $ | (15 | ) |
| Total Net Mark-to-Market Derivative Assets (Liabilities) |  | $ | (114 | ) |  | $ | 112 |  |  | $ | (2 | ) |  | $ | (2 | ) |
|  |  | As of December 31, 2017 |
|  |  | Power (A) |  | Consolidated |
|  |  | Not Designated |  |  |  |  |  |  |
| Balance Sheet Location |  | Energy- Related Contracts |  | Netting (B) |  | Total Power |  | Total Derivatives |
|  |  | Millions |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Assets |  | $ | 391 |  |  | $ | (362 | ) |  | $ | 29 |  |  | $ | 29 |  |
| Noncurrent Assets |  | 78 |  |  | (71 | ) |  | 7 |  |  | 7 |  |
| Total Mark-to-Market Derivative Assets |  | $ | 469 |  |  | $ | (433 | ) |  | $ | 36 |  |  | $ | 36 |  |
| Derivative Contracts |  |  |  |  |  |  |  |  |
| Current Liabilities |  | $ | (403 | ) |  | $ | 387 |  |  | $ | (16 | ) |  | $ | (16 | ) |
| Noncurrent Liabilities |  | (95 | ) |  | 90 |  |  | (5 | ) |  | (5 | ) |
| Total Mark-to-Market Derivative (Liabilities) |  | $ | (498 | ) |  | $ | 477 |  |  | $ | (21 | ) |  | $ | (21 | ) |
| Total Net Mark-to-Market Derivative Assets (Liabilities) |  | $ | (29 | ) |  | $ | 44 |  |  | $ | 15 |  |  | $ | 15 |  |
(A) | Substantially all of Power’s derivative instruments are contracts subject to master netting agreements. Contracts not subject to master netting or similar agreements are immaterial and did not have any collateral posted or received as of September 30, 2018 and December 31, 2017.
(B) | Represents the netting of fair value balances with the same counterparty (where the right of offset exists) and the application of collateral. All cash collateral received or posted that has been allocated to derivative positions, where the right of offset exists, has been offset on the Condensed Consolidated Balance Sheets. As of September 30, 2018 and December 31, 2017, Power had net cash collateral/margin payments to counterparties of $223 million and $146 million, respectively. Of these net cash/collateral margin payments $112 million as of September 30, 2018 and $44 million as December 31, 2017 were netted against the corresponding net derivative contract positions. Of the $112 million as of September 30, 2018, $(2) million was netted against current assets, and $(1) million was netted against noncurrent assets, $88 million was netted against current liabilities, and $27 million was netted against noncurrent liabilities. Of the $44 million as of December 31, 2017, $(3) million was netted against current assets, $28 million was netted against current liabilities, and $19 million was netted against noncurrent liabilities.
Certain of Power’s derivative instruments contain provisions that require Power to post collateral. This collateral may be posted in the form of cash or credit support with thresholds contingent upon Power’s credit rating from each of the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty. These credit risk-related contingent features stipulate that if Power were to be downgraded to a below investment grade rating by S&P or Moody’s, it would be required to provide additional collateral. A below investment grade credit rating for Power would represent a three level downgrade from its current S&P or Moody’s ratings. This incremental collateral requirement can offset collateral requirements related to other derivative instruments that are assets with the same counterparty, where the contractual right of offset exists under applicable master agreements. Power also enters into commodity transactions on the New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE). The NYMEX and ICE clearing houses act as counterparties to each trade. Transactions on the NYMEX and ICE must adhere to comprehensive collateral and margin requirements. The aggregate fair value of all derivative instruments with credit risk-related contingent features in a liability position that are not fully collateralized (excluding transactions on the NYMEX and ICE that are fully collateralized) was $23 million and $30 million as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018 and December 31, 2017, Power had the contractual right of offset of $7 million and $13 million, respectively, related to derivative instruments that are assets with the same counterparty under master agreements and net of margin posted. If Power had been downgraded to a below investment grade rating, it would have had additional collateral obligations of $16 million and $17 million as of September 30, 2018 and December 31, 2017, respectively, related to its derivatives, net of the contractual right of offset under master agreements and the application of collateral. The following reconciles the Accumulated Other Comprehensive Income (Loss) for derivative activity included in the Accumulated Other Comprehensive Loss of PSEG on a pre-tax and after-tax basis.
| Accumulated Other Comprehensive Income (Loss) |  | Pre-Tax |  | After-Tax |
|  |  | Millions |
| Balance as of December 31, 2016 |  | $ | 3 |  |  | $ | 2 |  |
| Gain Recognized in AOCI |  | — |  |  | — |  |
| Less: Gain Reclassified into Income |  | (3 | ) |  | (2 | ) |
| Balance as of December 31, 2017 |  | $ | — |  |  | $ | — |  |
| Loss Recognized in AOCI |  | (2 | ) |  | (1 | ) |
| Less: Loss Reclassified into Income |  | — |  |  | — |  |
| Balance as of September 30, 2018 |  | $ | (2 | ) |  | $ | (1 | ) |
The following shows the effect on the Condensed Consolidated Statements of Operations of derivative instruments not designated as hedging instruments or as NPNS for the three months and nine months ended September 30, 2018 and 2017. Power’s derivative contracts reflected in this table include contracts to hedge the purchase and sale of electricity and natural gas, and the purchase of fuel. The table does not include contracts that Power has designated as NPNS, such as its BGS contracts and certain other energy supply contracts that it has with other utilities and companies with retail load.
| Derivatives Not Designated as Hedges |  | Location of Pre-Tax Gain (Loss) Recognized in Income on Derivatives |  | Pre-Tax Gain (Loss) Recognized in Income on Derivatives |  | Pre-Tax Gain (Loss) Recognized in Income on Derivatives |
|  |  |  |  | Three Months Ended |  | Nine Months Ended |
|  |  |  |  | September 30, |  | September 30, |
|  |  |  |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  |  |  |  | Millions |
| PSEG and Power |  |  |  |  |  |  |  |  |  |  |
| Energy-Related Contracts |  | Operating Revenues |  | $ | (130 | ) |  | $ | 26 |  |  | $ | (154 | ) |  | $ | 216 |  |
| Energy-Related Contracts |  | Energy Costs |  | 5 |  |  | (4 | ) |  | 12 |  |  | (14 | ) |
| Total PSEG and Power |  |  |  | $ | (125 | ) |  | $ | 22 |  |  | $ | (142 | ) |  | $ | 202 |  |
The following table summarizes the net notional volume purchases/(sales) of open derivative transactions by commodity as of September 30, 2018 and December 31, 2017.
| Type |  | Notional |  | Total |  | PSEG |  | Power |  | PSE&G |
|  |  |  |  | Millions |
| As of September 30, 2018 |  |  |  |  |  |  |  |  |  |  |
| Natural Gas |  | Dekatherm (Dth) |  | 281 |  |  | — |  |  | 281 |  |  | — |  |
| Electricity |  | MWh |  | (66 | ) |  | — |  |  | (66 | ) |  | — |  |
| Financial Transmission Rights (FTRs) |  | MWh |  | 24 |  |  | — |  |  | 24 |  |  | — |  |
| As of December 31, 2017 |  |  |  |  |  |  |  |  |  |  |
| Natural Gas |  | Dth |  | 154 |  |  | — |  |  | 154 |  |  | — |  |
| Electricity |  | MWh |  | (63 | ) |  | — |  |  | (63 | ) |  | — |  |
| FTRs |  | MWh |  | 6 |  |  | — |  |  | 6 |  |  | — |  |
Credit Risk Credit risk relates to the risk of loss that Power would incur as a result of non-performance by counterparties pursuant to the terms of their contractual obligations. PSEG has established credit policies that it believes significantly minimize credit risk. These policies include an evaluation of potential counterparties’ financial condition (including credit rating), collateral requirements under certain circumstances and the use of standardized agreements, which allow for the netting of positive and negative exposures associated with a single counterparty. In the event of non-performance or non-payment by a major counterparty, there may be a material adverse impact on Power’s and PSEG’s financial condition, results of operations or net cash flows. The following table provides information on Power’s credit risk from wholesale counterparties, net of collateral, as of September 30, 2018. It further delineates that exposure by the credit rating of the counterparties, which is determined by the lowest rating from S&P, Moody’s or an internal scoring model. In addition, it provides guidance on the concentration of credit risk to individual counterparties and an indication of the quality of Power’s credit risk by credit rating of the counterparties. As of September 30, 2018, 97% of the net credit exposure for Power’s wholesale operations was with investment grade counterparties. Credit exposure is defined as any positive results of netting accounts receivable/accounts payable and the forward value of open positions (which includes all financial instruments including derivatives, NPNS and non-derivatives).
| Rating |  | Current Exposure |  | Securities held as Collateral |  | Net Exposure |  | Number of Counterparties >10% |  | Net Exposure of Counterparties >10% |  |
|  |  | Millions |  |  |  | Millions |  |
| Investment Grade |  | $ | 112 |  |  | $ | 12 |  |  | $ | 100 |  |  | 2 |  |  | $ | 50 |  | (A) |
| Non-Investment Grade |  | 6 |  |  | 2 |  |  | 4 |  |  | — |  |  | — |  |  |
| Total |  | $ | 118 |  |  | $ | 14 |  |  | $ | 104 |  |  | 2 |  |  | $ | 50 |  |  |
(A) | Represents net exposure of $39 million with PSE&G and $11 million with a non-affiliated counterparty.
As of September 30, 2018, collateral held from counterparties where Power had credit exposure included $2 million in cash collateral and $12 million in letters of credit. As of September 30, 2018, Power had 137 active counterparties. PSE&G’s supplier master agreements are approved by the BPU and govern the terms of its electric supply procurement contracts. These agreements define a supplier’s performance assurance requirements and allow a supplier to meet its credit requirements with a certain amount of unsecured credit. The amount of unsecured credit is determined based on the supplier’s credit ratings from the major credit rating agencies and the supplier’s tangible net worth. The credit position is based on the initial market price, which is the forward price of energy on the day the procurement transaction is executed, compared to the forward price curve for energy on the valuation day. To the extent that the forward price curve for energy exceeds the initial market price, the supplier is required to post a parental guaranty or other security instrument such as a letter of credit or cash, as collateral to the extent the credit exposure is greater than the supplier’s unsecured credit limit. As of September 30, 2018, primarily all of the posted collateral was in the form of parental guarantees. The unsecured credit used by the suppliers represents PSE&G’s net credit exposure. PSE&G’s BGS suppliers’ credit exposure is calculated each business day. As of September 30, 2018, PSE&G had no net credit exposure with suppliers, including Power. PSE&G is permitted to recover its costs of procuring energy through the BPU-approved BGS tariffs. PSE&G’s counterparty credit risk is mitigated by its ability to recover realized energy costs through customer rates.

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