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Derivative Instruments and Hedging Activities
 9 Months Ended
Sep. 30, 2015
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
There are no changes to the information disclosed in Note 1—General and Summary of Significant Accounting Policies—Derivatives and Hedging Activities of Item 8.—Financial Statements and Supplementary Data in the 2014 Form 10-K.
Volume of Activity — The following three tables present, by type of derivative, the Company’s outstanding notional (in millions) under its derivatives and the weighted average remaining term (in years) as of September 30, 2015 regardless of whether the derivative instruments are in qualifying cash flow hedging relationships:
 
 
Current
 
Maximum
 
 
 
 
Interest Rate and Cross-Currency(1)
 
Derivative Notional
 
Derivative Notional Translated to USD
 
Derivative Notional
 
Derivative Notional Translated to USD
 
Weighted Average Remaining Term
 
% of Debt Currently Hedged by Index (2)
Interest Rate Derivatives:
 
 
 
 
 
 
LIBOR (U.S. Dollar)
 
2,512

 
$
2,512

 
2,872

 
$
2,872

 
11
 
51
%
EURIBOR (Euro)
 
504

 
564

 
504

 
564

 
6
 
87
%
Cross-Currency Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
Chilean Unidad de Fomento
 
4

 
160

 
4

 
160

 
13
 
76
%
_____________________________
(1) 
The Company’s interest rate derivative instruments primarily include accreting and amortizing notionals. The maximum derivative notional represents the largest notional at any point between September 30, 2015 and the maturity of the derivative instrument, which includes forward-starting derivative instruments. The interest rate and cross-currency derivatives mature through 2033 and 2028, respectively.
(2) 
The percentage of variable-rate debt currently hedged is based on the related index and excludes forecasted issuances of debt and variable-rate debt tied to other indices where the Company has no interest rate derivatives.
Foreign Currency Derivatives
 
Notional (1)
 
Notional Translated to USD
 
Weighted Average Remaining Term (2)
Argentine Peso
 
2,072

 
$
220

 
10
Brazilian Real
 
52

 
13

 
<1
British Pound
 
17

 
26

 
<1
Chilean Peso
 
127,365

 
183

 
<1
Chilean Unidad de Fomento
 
9

 
346

 
1
Colombian Peso
 
205,082

 
66

 
<1
Euro
 
112

 
125

 
<1
Kazakhstani Tenge
 
2,715

 
10

 
1
Philippine Peso
 
234

 
5

 
<1
_____________________________
(1) 
Represents contractual notionals. The notionals for options have not been probability adjusted, which generally would decrease them.
(2) 
Represents the remaining tenor of our foreign currency derivatives weighted by the corresponding notional. These derivatives mature through 2025.
Commodity Derivatives
 
Notional
 
Weighted-Average Remaining Term (1)
Power (MWh)
 
11

 
3
_____________________________
(1) 
Represents the remaining tenor of our commodity derivatives weighted by the corresponding volume. These derivatives range in maturity through 2018.
Accounting and Reporting — Assets and Liabilities — The following tables present the fair values of the Company’s derivative instruments as of September 30, 2015 and December 31, 2014, first by whether they are designated hedging instruments, then by whether they are current or noncurrent, to the extent they are subject to master netting agreements or similar agreements (where the rights to set-off relate to settlement of amounts receivable and payable under those derivatives) and by balances no longer accounted for as derivatives (in millions):
 
September 30, 2015
 
December 31, 2014
Assets
Designated
 
Not Designated
 
Total
 
Designated
 
Not Designated
 
Total
Foreign currency derivatives
$
13

 
$
256

 
$
269

 
$
6

 
$
230

 
$
236

Commodity derivatives
34

 
23

 
57

 
25

 
19

 
44

Total assets
$
47

 
$
279

 
$
326

 
$
31

 
$
249

 
$
280

Liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
414

 
$
—

 
$
414

 
$
416

 
$
—

 
$
416

Cross-currency derivatives
40

 
—

 
40

 
29

 
—

 
29

Foreign currency derivatives
39

 
22

 
61

 
38

 
14

 
52

Commodity derivatives
14

 
16

 
30

 
7

 
10

 
17

Total liabilities
$
507

 
$
38

 
$
545

 
$
490

 
$
24

 
$
514

 
September 30, 2015
 
December 31, 2014
 
Assets
 
Liabilities
 
Assets
 
Liabilities
Current
$
92

 
$
140

 
$
77

 
$
148

Noncurrent
234

 
405

 
203

 
366

Total
$
326

 
$
545

 
$
280

 
$
514

Derivatives subject to master netting agreement or similar agreement:
 
 
 
 
 
 
 
Gross amounts recognized in the balance sheet
$
38

 
$
475

 
$
53

 
$
507

Gross amounts of derivative instruments not offset
(21
)
 
(21
)
 
(10
)
 
(10
)
Gross amounts of collateral received/pledged not offset
—

 
(32
)
 
—

 
(26
)
Net amount
$
17

 
$
422

 
$
43

 
$
471

Other balances that had been, but are no longer, accounted for as derivatives that are to be amortized to earnings over the remaining term of the associated PPA
$
150

 
$
170

 
$
161

 
$
180


Effective Portion of Cash Flow Hedges — The next table presents (in millions) the pretax gains (losses) recognized in AOCL and earnings related to the effective portion of derivative instruments in qualifying cash flow hedging relationships (including amounts that were reclassified from AOCL as interest expense related to interest rate derivative instruments that previously, but no longer, qualify for cash flow hedge accounting), as defined in the accounting standards for derivatives and hedging, for the periods indicated:
Type of Derivative
 
Gains (Losses) Recognized in AOCL
 
Classification in Condensed Consolidated Statements of Operations
 
Gains (Losses) Reclassified from AOCL into Earnings
Three Months Ended September 30,
 
2015
 
2014
 
 
 
2015
 
2014
Interest rate derivatives
 
$
(110
)
 
$
(16
)
 
Interest expense
 
$
(27
)
 
$
(38
)
 
 
 
 
 
 
Non-regulated cost of sales
 
(1
)
 
(1
)
 
 
 
 
 
 
Net equity in earnings of affiliates
 
(1
)
 
—

 
 
 
 
 
 
Gain on disposals and sale of investments
 
(4
)
 
—

Cross-currency derivatives
 
3

 
(17
)
 
Interest expense
 
(1
)
 
(1
)
 
 
 
 
 
 
Foreign currency transaction gains (losses)
 
—

 
(18
)
Foreign currency derivatives
 
5

 
(12
)
 
Foreign currency transaction gains (losses)
 
12

 
1

Commodity derivatives
 
10

 
3

 
Non-regulated revenue
 
12

 
4

 
 


 


 
Non-regulated cost of sales
 
(4
)
 
(1
)
Total
 
$
(92
)
 
$
(42
)
 
 
 
$
(14
)
 
$
(54
)
Nine Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
(130
)
 
$
(290
)
 
Interest expense
 
$
(81
)
 
$
(102
)
 
 
 
 
 
 
Non-regulated cost of sales
 
(2
)
 
(2
)
 
 
 
 
 
 
Net equity in earnings of affiliates
 
(1
)
 
(3
)
 
 
 
 
 
 
Gain on disposals and sale of investments
 
(4
)
 
—

Cross-currency derivatives
 
4

 
(20
)
 
Interest expense
 
(3
)
 
—

 
 
 
 
 
 
Foreign currency transaction gains (losses)
 
—

 
(24
)
Foreign currency derivatives
 
6

 
(24
)
 
Foreign currency transaction gains (losses)
 
20

 
11

Commodity derivatives
 
25

 
21

 
Non-regulated revenue
 
27

 
23

 
 
 
 
 
 
Non-regulated cost of sales
 
(8
)
 
(2
)
Total
 
$
(95
)
 
$
(313
)
 
 
 
$
(52
)
 
$
(99
)

The pretax accumulated other comprehensive income (loss) expected to be recognized as an increase (decrease) to income from continuing operations before income taxes over the next 12 months as of September 30, 2015 is $(106) million for interest rate hedges, $(5) million for cross-currency swaps, $13 million for foreign currency hedges, and $14 million for commodity and other hedges.
For the nine months ended September 30, 2014, pretax gains of $6 million, net of noncontrolling interests, were reclassified into earnings as a result of the discontinuance of a cash flow hedge because it was probable that the forecasted transaction would not occur by the end of the originally specified time period (as documented at the inception of the hedging relationship) or within an additional two-month time period thereafter. There were no such reclassifications for the three months ended September 30, 2014 and the three and nine months ended September 30, 2015.
Ineffective Portion of Cash Flow Hedges — The table below presents the pretax gains (losses) recognized in earnings related to the ineffective portion of derivative instruments in qualifying cash flow hedging relationships, as defined in the accounting standards for derivatives and hedging, for the periods indicated (in millions):
Type of Derivative
 
Classification in Condensed Consolidated Statements of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Interest rate
 
Interest expense
 
$
(2
)
 
$
(1
)
 
$
(3
)
 
$
—

Foreign currency
 
Foreign currency transaction gains (losses)
 
—

 
(2
)
 
(3
)
 
(2
)
Cross-currency
 
Interest expense
 
—

 
—

 
—

 
(1
)
Commodity and other
 
Non-regulated revenue
 
—

 
1

 
—

 
1

Total
 
 
 
$
(2
)
 
$
(2
)
 
$
(6
)
 
$
(2
)

Not Designated for Hedge Accounting — The table below presents the gains (losses) recognized in earnings (in millions) related to derivatives not designated as hedging instruments under the accounting standards for derivatives and hedging and the amortization of balances that had been, but are no longer, accounted for as derivatives, for the periods indicated:
Type of Derivative
 
Classification in Condensed Consolidated Statements of Operations
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
Interest rate
 
Interest expense
 
$
—

 
$
(1
)
 
$
—

 
$
(1
)
Foreign currency
 
Foreign currency transaction gains (losses)
 
23

 
2

 
62

 
31

 
 
Net equity in earnings of affiliates
 
—

 
(9
)
 
—

 
(4
)
Commodity and other
 
Non-regulated revenue
 
(2
)
 
(2
)
 
(6
)
 
2

 
 
Non-regulated cost of sales
 
(8
)
 
(3
)
 
(7
)
 
(1
)
 
 
Regulated cost of sales
 
—

 
(4
)
 
(5
)
 
(10
)
 
 
Income (loss) from operations of discontinued businesses
 
—

 
—

 
—

 
(7
)
 
 
Net loss from disposal and impairments of discontinued businesses
 
—

 
—

 
—

 
72

Total
 
 
 
$
13

 
$
(17
)
 
$
44

 
$
82


Credit Risk-Related Contingent Features — DP&L has certain over-the-counter commodity derivative contracts under master netting agreements that contain provisions that require DP&L to maintain an investment-grade issuer credit rating from credit rating agencies. Since DP&L’s rating is below investment grade, certain of the counterparties to the derivative contracts have requested immediate and ongoing full overnight collateralization of the mark-to-market loss (fair value excluding credit valuation adjustments), which was $25 million and $12 million as of September 30, 2015 and December 31, 2014, respectively, for all derivatives with credit risk-related contingent features. As of September 30, 2015 and December 31, 2014, DP&L had posted $6 million and $5 million, respectively, of cash collateral directly with third parties and in a broker margin account and DP&L held no cash collateral from counterparties to its derivative instruments that were in an asset position.