Derivative Instruments and Hedging Activity

NEP uses derivative instruments (primarily interest rate swaps) to manage the interest rate cash flow risk associated primarily with outstanding and expected future debt issuances and borrowings. NEP records all derivative instruments that are required to be marked to market as either assets or liabilities in its condensed consolidated balance sheets and measures them at fair value each reporting period. NEP does not utilize hedge accounting for its derivative instruments. All changes in the derivatives' fair value are recognized in interest expense in the condensed consolidated statements of income. In general, the commencement and termination dates of the interest rate swap agreements and the related hedging relationship coincide with the corresponding dates of the underlying variable-rate debt instruments. At March 31, 2018 and December 31, 2017, the combined notional amounts of the interest rate contracts were approximately $8,590 million and $3,609 million, respectively.

At March 31, 2018, NEP's AOCI included amounts related to discontinued cash flow hedges, which have expiration dates through 2033. At March 31, 2018, approximately $5 million of net unrealized losses are expected to be reclassified into interest expense within the next 12 months as interest payments are made. Such amount assumes no change in scheduled principal payments. Cash flows from these interest rate swap contracts are reported in cash flows from operating activities in the condensed consolidated statements of cash flows.

NEP enters into certain foreign currency exchange contracts to economically hedge its cash flows from foreign currency rate fluctuations. At March 31, 2018 and December 31, 2017, the notional amount of the foreign currency contracts was approximately $53 million and $62 million, respectively. During the three months ended March 31, 2018 and 2017, NEP recorded approximately $1 million of gains and $1 million of losses, respectively, related to the foreign currency contracts in other - net in the condensed consolidated statements of income. In April 2018, NEP entered into a foreign exchange forward agreement with a notional amount of CAD $741 million to manage foreign currency exchange rate risk associated with the cash consideration NEP expects to receive upon closing of the sale discussed in Note 10 - Assets and Liabilities Associated with Assets Held for Sale.

Fair Value of Derivative Instruments - The tables below present NEP's gross derivative positions, based on the total fair value of each derivative instrument, at March 31, 2018 and December 31, 2017, as required by disclosure rules, as well as the location of the net derivative positions, based on the expected timing of future payments, on the condensed consolidated balance sheets.



	March 31, 2018
	Gross Basis				Net Basis
	Assets		Liabilities		Assets		Liabilities
	(millions)
Interest rate contracts	$	44	$	125	$	26	$	107
Foreign currency contracts	—		1		—		1
Total fair values	$	44	$	126	$	26	$	108

Net fair value by balance sheet line item:
Other current assets					$	10
Assets held for sale					4
Other non-current assets					12
Current derivative liabilities							$	4
Liabilities associated with assets held for sale							6
Other non-current liabilities							98
Total derivatives					$	26	$	108



	December 31, 2017
	Gross Basis				Net Basis
	Assets		Liabilities		Assets		Liabilities
	(millions)
Interest rate contracts	$	15	$	44	$	18	$	47
Foreign currency contracts	—		3		—		3
Total fair values	$	15	$	47	$	18	$	50

Net fair value by balance sheet line item:
Other current assets					$	10
Other non-current assets					8
Current derivative liabilities							$	11
Other non-current liabilities							39
Total derivatives					$	18	$	50

Financial Statement Impact of Derivative Instruments - Gains (losses) related to NEP's interest rate contracts are recorded in the condensed consolidated financial statements as follows:



	Three Months Ended March 31,
	2018			2017
	(millions)
Interest rate contracts:
Losses reclassified from AOCI to interest expense	$	(2	)	$	(3	)
Losses recognized in interest expense	$	(52	)	$	(2	)

Credit-Risk-Related Contingent Features - Certain of NEP's derivative instruments contain credit-related cross-default and material adverse change triggers, none of which contain requirements to maintain certain credit ratings or financial ratios. At March 31, 2018 and December 31, 2017, the aggregate fair value of NEP's derivative instruments with contingent risk features that were in a liability position was approximately $116 million and $17 million, respectively.