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Derivative Instruments | 6 Months Ended
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Jun. 30, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments and Hedging Activities | Derivative Instruments Derivative financial instruments are used to manage exposure to commodity price risk. SCE manages commodity price risk in part by entering into forward commodity transactions, including options, swaps and forwards, tolling arrangements and CRRs. To mitigate credit and default risk SCE enters into master netting agreements or similar agreements whenever possible. These transactions are approved by the CPUC or executed in compliance with CPUC-approved procurement plans. SCE recovers its related hedging costs through the energy resource recovery account ("ERRA"), and as a result, exposure to commodity price and credit and default risks are not expected to impact earnings, but may impact cash flows. Commodity Price Risk Commodity price risk represents the potential impact that can be caused by a change in the market value of a particular commodity. SCE's electricity price exposure arises from energy purchased from and sold to wholesale markets as a result of differences between SCE's load requirements and the amount of energy delivered from its generating facilities and power purchase agreements. SCE's natural gas price exposure arises from natural gas purchased for the Mountainview power plant and peaker plants, QF contracts where pricing is based on a monthly natural gas index and power purchase agreements in which SCE has agreed to provide the natural gas needed for generation, referred to as tolling arrangements. Credit and Default Risk Credit and default risk represents the potential impact that can be caused if a counterparty were to default on its contractual obligations and SCE would be exposed to spot markets for buying replacement power or selling excess power. In addition, SCE would be exposed to the risk of non-payment of accounts receivable, primarily related to the sales of excess power and realized gains on derivative instruments. Certain power contracts contain master netting agreements or similar agreements, which generally allows counterparties subject to the agreement to set-off amounts when certain criteria are met, such as in the event of default. The objective of netting is to reduce credit exposure. Additionally, to reduce SCE's risk exposures counterparties may be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction. Certain power contracts contain a provision that requires SCE to maintain an investment grade credit rating from each of the major credit rating agencies, referred to as a credit-risk-related contingent feature. If SCE's credit rating were to fall below investment grade, SCE may be required to pay the derivative liability or post additional collateral. The net fair value of all derivative liabilities with these credit-risk-related contingent features was $59 million and $6 million as of June 30, 2013 and December 31, 2012, respectively, for which SCE has posted no collateral to its counterparties for the respective periods. If the credit-risk-related contingent features underlying these agreements were triggered on June 30, 2013, SCE would be required to post collateral in the amount of $6 million, excluding the impact of unpaid closed positions as their settlement is not impacted by the credit-risk-related contingent features. Fair Value of Derivative Instruments SCE presents its derivative assets and liabilities on a net basis on its consolidated balance sheets when subject to master netting agreements or similar agreements. Derivative positions are offset against margin and cash collateral deposits. In addition, SCE has provided collateral in the form of letters of credit. Collateral requirements can vary depending upon the level of unsecured credit extended by counterparties, changes in market prices relative to contractual commitments and other factors. The following table summarizes the gross and net fair values of SCE's commodity derivative instruments:
|  | June 30, 2013 |  |
|  | Derivative Assets |  | Derivative Liabilities |  |
(in millions) |  | Short-Term |  | Long-Term |  | Subtotal |  | Short-Term |  | Long-Term |  | Subtotal |  | Net Liability
Commodity derivative contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross amounts recognized |  | $ | 106 |  |  | $ | 74 |  |  | $ | 180 |  |  | $ | 170 |  |  | $ | 1,035 |  |  | $ | 1,205 |  |  | $ | 1,025 |
Gross amounts offset in the consolidated balance sheets |  | (15 | ) |  | (1 | ) |  | (16 | ) |  | (15 | ) |  | (1 | ) |  | (16 | ) |  | — |
Cash collateral posted 1 |  | — |  |  | — |  |  | — |  |  | (15 | ) |  | (7 | ) |  | (22 | ) |  | (22 | )
Net amounts presented in the consolidated balance sheets |  | $ | 91 |  |  | $ | 73 |  |  | $ | 164 |  |  | $ | 140 |  |  | $ | 1,027 |  |  | $ | 1,167 |  |  | $ | 1,003 |
|  | December 31, 2012 |  |
|  | Derivative Assets |  | Derivative Liabilities |  |
(in millions) |  | Short-Term |  | Long-Term |  | Subtotal |  | Short-Term |  | Long-Term |  | Subtotal |  | Net Liability
Commodity derivative contracts |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross amounts recognized |  | $ | 151 |  |  | $ | 91 |  |  | $ | 242 |  |  | $ | 186 |  |  | $ | 954 |  |  | $ | 1,140 |  |  | $ | 898 |
Gross amounts offset in the consolidated balance sheets |  | (22 | ) |  | (6 | ) |  | (28 | ) |  | (22 | ) |  | (6 | ) |  | (28 | ) |  | — |
Cash collateral posted 1 |  | — |  |  | — |  |  | — |  |  | (38 | ) |  | (9 | ) |  | (47 | ) |  | (47 | )
Net amounts presented in the consolidated balance sheets |  | $ | 129 |  |  | $ | 85 |  |  | $ | 214 |  |  | $ | 126 |  |  | $ | 939 |  |  | $ | 1,065 |  |  | $ | 851 |
1 | In addition, SCE has posted $8 million of collateral that is not offset against the derivative liabilities and is reflected in "Other current assets" on both the June 30, 2013 and December 31, 2012 consolidated balance sheets.
Income Statement Impact of Derivative Instruments SCE recognizes realized gains and losses on derivative instruments as purchased power expense and expects that such gains or losses will be part of the purchase power costs recovered from customers. As a result, realized gains and losses do not affect earnings, but may temporarily affect cash flows. Due to expected future recovery from customers, unrealized gains and losses are recorded as regulatory assets and liabilities and therefore also do not affect earnings. The results of derivative activities and related regulatory offsets are recorded in cash flows from operating activities in the consolidated statements of cash flows. The following table summarizes the components of SCE's economic hedging activity:
|  | Three months ended June 30, |  | Six months ended June 30,
(in millions) |  | 2013 |  | 2012 |  | 2013 |  | 2012
Realized losses |  | $ | (7 | ) |  | $ | (67 | ) |  | $ | (23 | ) |  | $ | (122 | )
Unrealized gains (losses) |  | (64 | ) |  | 423 |  |  | (118 | ) |  | 62 |
Notional Volumes of Derivative Instruments The following table summarizes the notional volumes of derivatives used for SCE hedging activities:
|  | Economic Hedges
Commodity | Unit of Measure | June 30, 2013 |  | December 31, 2012
Electricity options, swaps and forwards | GWh | 11,460 |  |  | 15,884
Natural gas options, swaps and forwards | Bcf | 38 |  |  | 100
Congestion revenue rights | GWh | 124,973 |  |  | 149,774
Tolling arrangements | GWh | 99,926 |  |  | 101,485

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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