Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

There have been no changes to the information disclosed under “Derivatives and Hedging Activities” in Note 1 — General and Summary of Significant Accounting Policies included in Item 8. — Financial Statements and Supplementary Data in the 2012 Form 10-K.

Volume of Activity

The following tables set forth, by type of derivative, the Company’s outstanding notional under its derivatives and the weighted-average remaining term as of June 30, 2013 regardless of whether the derivative instruments are in qualifying cash flow hedging relationships:

	Current			Maximum
Interest Rate and Cross Currency	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)
	(in millions)						(in years)
Interest Rate Derivatives:(1)
LIBOR (U.S. Dollar)	3,539	$	3,539	5,043	$	5,043	9	73	%
EURIBOR (Euro)	591	769		592	770		13	65	%
LIBOR (British Pound)	68	104		68	104		7	83	%
Cross Currency Swaps:
Chilean Unidad de Fomento	6	252		6	252		8	85	%

_____________________________

⁽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 June 30, 2013 and the maturity of the derivative instrument, which includes forward-starting derivative instruments. The interest rate and cross currency derivatives range in maturity through 2030 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.

	June 30, 2013
Foreign Currency Derivatives	Notional(1)	Notional Translated to USD		Weighted- Average Remaining Term(2)
	(in millions)			(in years)
Foreign Currency Options and Forwards:
Chilean Unidad de Fomento	6	$	255	1
Chilean Peso	46,233	91		<1
Brazilian Real	104	47		<1
Euro	35	45		<1
Colombian Peso	179,416	97		<1
Argentine Peso	83	15		<1
British Pound	28	43		<1
Embedded Foreign Currency Derivatives:
Argentine Peso	821	152		11
Kazakhstani Tenge	811	5		4
Euro	1	2		10

_____________________________

⁽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 options and forwards and these embedded derivatives range in maturity through 2016 and 2026, respectively.

	June 30, 2013
Commodity Derivatives	Notional	Weighted-Average Remaining Term(1)
	(in millions)	(in years)
Aluminum (MWh)(2)	13	7
Power (MWh)	9	2

_____________________________

⁽¹⁾  Represents the remaining tenor of our commodity derivatives weighted by the corresponding volume. These derivatives range in maturity through 2019.

⁽²⁾  Our exposure is to fluctuations in the price of aluminum while the notional is based on the amount of power we sell under the power purchase agreement ("PPA").

Accounting and Reporting

Assets and Liabilities

The following tables set forth the Company’s derivative instruments as of June 30, 2013 and December 31, 2012, first by whether or not 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.

	June 30, 2013						December 31, 2012
	Designated		Not Designated		Total		Designated		Not Designated		Total
	(in millions)
Assets
Interest rate derivatives	$	38	$	2	$	40	$	—	$	2	$	2
Cross currency derivatives	5		—		5		6		—		6
Foreign currency derivatives	10		94		104		—		81		81
Commodity derivatives	7		32		39		2		9		11
Total assets	$	60	$	128	$	188	$	8	$	92	$	100
Liabilities
Interest rate derivatives	$	374	$	15	$	389	$	544	$	21	$	565
Cross currency derivatives	8		—		8		6		—		6
Foreign currency derivatives	15		9		24		7		7		14
Commodity derivatives	10		75		85		8		64		72
Total liabilities	$	407	$	99	$	506	$	565	$	92	$	657

	June 30, 2013						December 31, 2012
	Assets			Liabilities			Assets			Liabilities
	(in millions)
Current	$	50		$	182		$	14		$	186
Noncurrent	138			324			86			471
Total	$	188		$	506		$	100		$	657
Derivatives subject to master netting agreement or similar agreement:
Gross (which equals net) amounts recognized in the balance sheet	$	82		$	392		$	25		$	522
Gross amounts of derivative instruments not offset	(16		)	(16		)	(9		)	(9		)
Gross amounts of cash collateral received/pledged not offset	—			(5		)	—			(5		)
Net amount	$	66		$	371		$	16		$	508
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	$	177		$	190		$	186		$	191

Effective Portion of Cash Flow Hedges

The following tables set forth the pretax gains (losses) recognized in accumulated other comprehensive loss (“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 three and six months ended June 30, 2013 and 2012:

	Gains (Losses) Recognized in AOCL							Gains (Losses)  Reclassified from AOCL into Earnings
	Three Months Ended   June 30,						Classification in Condensed Consolidated Statements of Operations	Three Months Ended   June 30,
Type of Derivative	2013			2012				2013			2012
	(in millions)							(in millions)
Interest rate derivatives	$	134		$	(153	)	Interest expense	$	(31	)	$	(30	)
							Non-regulated cost of sales	(1		)	(1		)
							Net equity in earnings of affiliates	(2		)	(1		)
							Gain on sale of investments	(21		)	(4		)
Cross currency derivatives	(12		)	(9		)	Interest expense	(3		)	(3		)
							Foreign currency transaction gains (losses)	(19		)	(6		)
Foreign currency derivatives	1			6			Foreign currency transaction gains (losses)	2			—
Commodity derivatives	7			(1		)	Non-regulated revenue	(1		)	—
Total	$	130		$	(157	)		$	(76	)	$	(45	)

	Gains (Losses) Recognized in AOCL							Gains (Losses)  Reclassified from AOCL into Earnings
	Six Months Ended   June 30,						Classification in Condensed Consolidated Statements of Operations	Six Months Ended   June 30,
Type of Derivative	2013			2012				2013			2012
	(in millions)							(in millions)
Interest rate derivatives	$	121		$	(142	)	Interest expense	$	(63	)	$	(62	)
							Non-regulated cost of sales	(2		)	(3		)
							Net equity in earnings of affiliates	(4		)	(2		)
							Gain on sale of investments	(21		)	(96		)
Cross currency derivatives	(11		)	5			Interest expense	(6		)	(6		)
							Foreign currency transaction gains (losses)	(14		)	12
Foreign currency derivatives	2			12			Foreign currency transaction gains (losses)	4			—
Commodity derivatives	2			(7		)	Non-regulated revenue	(1		)	(2		)
Total	$	114		$	(132	)		$	(107	)	$	(159	)

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 twelve months as of June 30, 2013 is $(130) million for interest rate hedges, $6 million for cross currency swaps, $10 million for foreign currency hedges, and $(4) million for commodity and other hedges.

Ineffective Portion of Cash Flow Hedges

The following table sets forth 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 three and six months ended June 30, 2013 and 2012:

		Gains (Losses) Recognized in Earnings
	Classification in Condensed Consolidated Statements of Operations	Three Months Ended   June 30,					Six Months Ended   June 30,
Type of Derivative		2013		2012			2013		2012
		(in millions)
Interest rate derivatives	Interest expense	$	31	$	2		$	30	$	1
	Net equity in earnings of affiliates	—		(1		)	—		(1		)
Total		$	31	$	1		$	30	$	—

Not Designated for Hedge Accounting

The following table sets forth the gains (losses) recognized in earnings related to derivative instruments 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 three and six months endedJune 30, 2013 and 2012:

		Gains (Losses) Recognized in Earnings
	Classification in Condensed Consolidated Statements of Operations	Three Months Ended   June 30,						Six Months Ended   June 30,
Type of Derivative		2013			2012			2013			2012
		(in millions)
Interest rate derivatives	Interest expense	$	1		$	(1	)	$	2		$	(3	)
	Net equity in earnings of affiliates	—			—			(6		)	—
Foreign currency derivatives	Foreign currency transaction gains (losses)	17			(38		)	23			(76		)
	Net equity in earnings of affiliates	(12		)	—			(15		)	—
Commodity and other derivatives	Non-regulated revenue	13			(13		)	(8		)	1
	Regulated revenue	3			(3		)	—			1
	Non-regulated cost of sales	—			—			1			3
	Regulated cost of sales	11			(5		)	11			(17		)
Total		$	33		$	(60	)	$	8		$	(91	)

Credit Risk-Related Contingent Features

DP&L, our utility in Ohio, 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 their rating has fallen 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 $14 million and $13 million as of June 30, 2013 and December 31, 2012, respectively, for all derivatives with credit risk-related contingent features. As of June 30, 2013 and December 31, 2012, DP&L had posted $5 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. After consideration of the netting of counterparty assets, DP&L could have been required to, but did not, provide additional collateral of $3 million and $2 million as of June 30, 2013 and December 31, 2012.