Derivative Instruments

9 Months Ended

Sep. 30, 2024

Derivative Instruments

Derivative Instruments

Note 6.Derivative Instruments

Derivative financial instruments are used to manage exposure to commodity price risk resulting from SCE's electricity and natural gas procurement activities. The risks of fluctuating commodity prices are managed in part by entering into forward commodity transactions, including options, swaps and futures. To mitigate credit risk from counterparties in the event of nonperformance, master netting agreements are used whenever possible, and counterparties may be required to pledge collateral depending on the creditworthiness of each counterparty and the risk associated with the transaction.

Certain power and gas contracts contain a provision that requires SCE to maintain an investment grade rating from 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 post additional collateral to cover derivative liabilities and the related outstanding payables. The fair value of these derivative contracts and any related collateral were immaterial as of September 30, 2024 and December 31, 2023.

SCE presents its derivative assets and liabilities, recorded at fair value, on a net basis on its consolidated balance sheets when subject to master netting agreements or similar agreements. Derivative positions are also offset against margin and cash collateral deposits. See Note 4 for a discussion of fair value of derivative instruments.

The following table summarizes the gross and net fair values of SCE's commodity derivative instruments:

	September 30, 2024
	Derivative Assets				Derivative Liabilities
(in millions)	Short-Term1		Long-Term2		Short-Term
Commodity derivative contracts
Gross amounts recognized	$	42	$	5	$	87
Gross amounts offset in the consolidated balance sheets		(10)		—		(10)
Cash collateral posted		—		—		(77)
Net amounts presented in the consolidated balance sheets	$	32	$	5	$	—

	December 31, 2023
	Derivative Assets		Derivative Liabilities
(in millions)	Short-Term1		Short-Term
Commodity derivative contracts
Gross amounts recognized	$	94	$	77
Gross amounts offset in the consolidated balance sheets		(3)		(3)
Cash collateral posted		—		(74)
Net amounts presented in the consolidated balance sheets	$	91	$	—

1 Included in "Other current assets" on SCE's consolidated balance sheets.

2 Included in "Other long-term assets" on SCE's consolidated balance sheets.

At September 30, 2024, SCE posted and accrued $133 million of cash collateral, of which $77 million was offset against derivative liabilities and $56 million was reflected in "Other current assets" on SCE's consolidated balance sheets. At December 31, 2023, SCE posted and accrued $121 million of cash collateral, of which $74 million was offset against derivative liabilities and $47 million was reflected in "Other current assets" on the consolidated balance sheets.

Financial Statement Impact of Derivative Instruments

SCE recognizes realized gains and losses on derivative instruments as purchased power expense and unrealized gains and losses as regulatory assets or liabilities. Both realized and unrealized gains and losses are expected to be recovered from customers and therefore do not affect earnings. Cash flows from derivative activities, including cash collateral, are reported in cash flows from operating activities in SCE's consolidated statements of cash flows.

The following table summarizes the (losses)/gains of SCE's economic hedging activity:

	Three months ended September 30,					Nine months ended September 30,
(in millions)		2024		2023		2024		2023
Realized	$	(187)	$	(57)	$	(313)	$	52
Unrealized		(19)		34		(56)		(344)

Notional Volumes of Derivative Instruments

The following table summarizes the notional volumes of derivatives used for SCE's economic hedging activities:

	Unit of	Economic Hedges
Commodity	Measure	September 30, 2024	December 31, 2023
Electricity options, swaps and forwards	Gigawatt hours	5,363	3,494
Natural gas options, swaps and forwards	Billion cubic feet	10	31
CRRs	Gigawatt hours	15,824	35,011