Derivative Instruments and Hedging Activities | 6 Months Ended |
Jun. 30, 2014 |
Derivative Instruments and Hedging Activities | ' |
Note L — Derivative Instruments and Hedging Activities |
Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules. |
Energy Price Hedging |
Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. |
The Companies enter into master agreements for their commodity derivatives. These agreements typically provide for setoff in the event of contract termination. In such case, generally the non-defaulting or non-affected party’s payable will be set-off by the other party’s payable. The non-defaulting party will customarily notify the defaulting party within a specific time period and come to an agreement on the early termination amount. |
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The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at June 30, 2014 were: |
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(Millions of Dollars) | | | | | | | |
Commodity Derivatives | | Gross | | | Gross Amounts | | | Net Amounts of | | | Gross Amounts Not | | | Net | | | | | |
Amounts of | Offset in the | Assets/(Liabilities) | Offset in the Statement | Amount | | | | |
Recognized | Statement of | Presented in | of Financial Position | | | | | |
Assets/(Liabilities) | Financial Position | the Statement | | | | | | |
| | of Financial | | | | | | |
| | Position | | | | | | |
| | | | | | | | | | | Financial | | | Cash | | | | | | | | |
instruments | collateral | | | | |
| received | | | | |
Con Edison | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 242 | | | $ | (127 | ) | | $ | 115 | (a) | | $ | — | | | $ | — | | | $ | 115 | (a) | | | | |
Derivative liabilities | | | (110 | ) | | | 100 | | | | (10 | ) | | | — | | | | — | | | | (10 | ) | | | | |
Net derivative assets/(liabilities) | | $ | 132 | | | $ | (27 | ) | | $ | 105 | (a) | | $ | — | | | $ | — | | | $ | 105 | (a) | | | | |
CECONY | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 95 | | | $ | (45 | ) | | $ | 50 | (a) | | $ | — | | | $ | — | | | $ | 50 | (a) | | | | |
Derivative liabilities | | | (49 | ) | | | 43 | | | | -6 | | | | — | | | | — | | | | -6 | | | | | |
Net derivative assets/(liabilities) | | $ | 46 | | | $ | (2 | ) | | $ | 44 | (a) | | $ | — | | | $ | — | | | $ | 44 | (a) | | | | |
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(a) | At June 30, 2014, Con Edison and CECONY had margin deposits of $2 million and $1 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at December 31, 2013 were: |
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(Millions of Dollars) | | | | | | | |
Commodity Derivatives | | Gross | | | Gross Amounts | | | Net Amounts of | | | Gross Amounts Not | | | Net | | | | | |
Amounts of | Offset in the | Assets/(Liabilities) | Offset in the Statement | Amount | | | | |
Recognized | Statement of | Presented in | of Financial Position | | | | | |
Assets/(Liabilities) | Financial Position | the Statement | | | | | | |
| | of Financial | | | | | | |
| | Position | | | | | | |
| | | | | | | | | | | Financial | | | Cash | | | | | | | | |
instruments | collateral | | | | |
| received | | | | |
Con Edison | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 166 | | | $ | (101 | ) | | $ | 65 | (a) | | $ | — | | | $ | — | | | $ | 65 | (a) | | | | |
Derivative liabilities | | | (113 | ) | | | 98 | | | | (15 | ) | | | — | | | | — | | | | (15 | ) | | | | |
Net derivative assets/(liabilities) | | $ | 53 | | | $ | (3 | ) | | $ | 50 | (a) | | $ | — | | | $ | — | | | $ | 50 | (a) | | | | |
CECONY | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 41 | | | $ | (32 | ) | | $ | 9 | (a) | | $ | — | | | $ | — | | | $ | 9 | (a) | | | | |
Derivative liabilities | | | (51 | ) | | | 37 | | | | (14 | ) | | | — | | | | — | | | | (14 | ) | | | | |
Net derivative assets/(liabilities) | | $ | (10 | ) | | $ | 5 | | | $ | (5 | )(a) | | $ | — | | | $ | — | | | $ | (5 | )(a) | | | | |
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(a) | At December 31, 2013, Con Edison and CECONY had margin deposits of $17 million and $16 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Credit Exposure |
The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. Credit risk relates to the loss that may result from a counterparty’s nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right of setoff. |
At June 30, 2014, Con Edison and CECONY had $141 million and $26 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $47 million with independent system operators, $49 million with commodity exchange brokers, $43 million with investment-grade counterparties and $2 million with non-investment grade/non-rated counterparties. CECONY’s net credit exposure consisted of $15 million with commodity exchange brokers and $11 million with investment-grade counterparties. |
Economic Hedges |
The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices. |
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The fair values of the Companies’ commodity derivatives at June 30, 2014 were: |
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(Millions of Dollars) | | Fair Value of Commodity Derivatives(a) | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Balance Sheet Location | | | | | | | | | | | | | | | | | | |
Derivative Assets | | | | | | | | | | | | | | | | | | | |
Current | | Other current assets | | $ | 190 | | | $ | 69 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Other deferred charges and noncurrent assets | | | 52 | | | | 26 | | | | | | | | | | | | | | | | | | | |
Total derivative assets | | | | $ | 242 | | | $ | 95 | | | | | | | | | | | | | | | | | | | |
Impact of netting | | | | | (125 | ) | | | (44 | ) | | | | | | | | | | | | | | | | | | |
Net derivative assets | | $ | 117 | | | $ | 51 | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | | | | | | | | | | | | | | | | | | |
Current | | Fair value of derivative liabilities | | $ | 72 | | | $ | 25 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Fair value of derivative liabilities | | | 38 | | | | 24 | | | | | | | | | | | | | | | | | | | |
Total derivative liabilities | | | | $ | 110 | | | $ | 49 | | | | | | | | | | | | | | | | | | | |
Impact of netting | | | | | (100 | ) | | | (43 | ) | | | | | | | | | | | | | | | | | | |
Net derivative liabilities | | $ | 10 | | | $ | 6 | | | | | | | | | | | | | | | | | | | |
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(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair values of the Companies’ commodity derivatives at December 31, 2013 were: |
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(Millions of Dollars) | | Fair Value of Commodity Derivatives(a) | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Balance Sheet Location | | | | | | | | | | | | | | | | | | |
Derivative Assets | | | | | | | | | | | | | | | | | | | |
Current | | Other current assets | | $ | 134 | | | $ | 27 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Other deferred charges and noncurrent assets | | | 32 | | | | 14 | | | | | | | | | | | | | | | | | | | |
Total derivative assets | | $ | 166 | | | $ | 41 | | | | | | | | | | | | | | | | | | | |
Impact of netting | | | (84 | ) | | | (16 | ) | | | | | | | | | | | | | | | | | | |
Net derivative assets | | $ | 82 | | | $ | 25 | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | | | | | | | | | | | | | | | | | | |
Current | | Fair value of derivative liabilities | | $ | 82 | | | $ | 32 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Fair value of derivative liabilities | | | 31 | | | | 19 | | | | | | | | | | | | | | | | | | | |
Total derivative liabilities | | $ | 113 | | | $ | 51 | | | | | | | | | | | | | | | | | | | |
Impact of netting | | | (98 | ) | | | (37 | ) | | | | | | | | | | | | | | | | | | |
Net derivative liabilities | | $ | 15 | | | $ | 14 | | | | | | | | | | | | | | | | | | | |
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(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur. |
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The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2014: |
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Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) | | | | | | | | | | | | | | | | | | | |
Deferred or Recognized in Income for the Three Months Ended June 30, 2014 | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Balance Sheet Location | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative gains | | $ | 1 | | | $ | 1 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative gains | | | 2 | | | | 2 | | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | 3 | | | $ | 3 | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative losses | | $ | (2 | ) | | $ | (2 | ) | | | | | | | | | | | | | | | | | | |
Current | | Recoverable energy costs | | | (7 | ) | | | (6 | ) | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative losses | | | (3 | ) | | | (3 | ) | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | (12 | ) | | $ | (11 | ) | | | | | | | | | | | | | | | | | | |
Net deferred gains/(losses) | | $ | (9 | ) | | $ | (8 | ) | | | | | | | | | | | | | | | | | | |
| | Income Statement Location | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax gain/(loss) recognized in income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Purchased power expense | | $ | (13 | )(b) | | $ | — | | | | | | | | | | | | | | | | | | | |
| | Gas purchased for resale | | | (32 | ) | | | — | | | | | | | | | | | | | | | | | | | |
| | Non-utility revenue | | | 14 | (b) | | | — | | | | | | | | | | | | | | | | | | | |
Total pre-tax gain/(loss) recognized in income | | $ | (31 | ) | | $ | — | | | | | | | | | | | | | | | | | | | |
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(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | For the three months ended June 30, 2014, Con Edison recorded in purchased power expense an unrealized pre-tax loss of $(5) million. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) | | | | | | | | | | | | | | | | | | | |
Deferred or Recognized in Income for the Six Months Ended June 30, 2014 | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Balance Sheet Location | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative gains | | $ | 31 | | | $ | 25 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative gains | | | 7 | | | | 6 | | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | 38 | | | $ | 31 | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative losses | | $ | 15 | | | $ | 15 | | | | | | | | | | | | | | | | | | | |
Current | | Recoverable energy costs | | | 87 | | | | 70 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative losses | | | — | | | | (1 | ) | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | 102 | | | $ | 84 | | | | | | | | | | | | | | | | | | | |
Net deferred gains/(losses) | | $ | 140 | | | $ | 115 | | | | | | | | | | | | | | | | | | | |
| | Income Statement Location | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax gain/(loss) recognized in income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Purchased power expense | | $ | 161 | (b) | | $ | — | | | | | | | | | | | | | | | | | | | |
| | Gas purchased for resale | | | (46 | ) | | | — | | | | | | | | | | | | | | | | | | | |
| | Non-utility revenue | | | (10 | )(b) | | | — | | | | | | | | | | | | | | | | | | | |
Total pre-tax gain/(loss) recognized in income | | $ | 105 | | | $ | — | | | | | | | | | | | | | | | | | | | |
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(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | For the six months ended June 30, 2014, Con Edison recorded in purchased power expense an unrealized pre-tax gain of $15 million. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2013: |
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Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) | | | | | | | | | | | | | | | | | | | |
Deferred or Recognized in Income for the Three Months Ended June 30, 2013 | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Balance Sheet Location | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative gains | | $ | (7 | ) | | $ | (7 | ) | | | | | | | | | | | | | | | | | | |
Noncurrent | | Regulatory liabilities | | | (2 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | (9 | ) | | $ | (8 | ) | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative losses | | $ | (24 | ) | | $ | (23 | ) | | | | | | | | | | | | | | | | | | |
Current | | Recoverable energy costs | | | (14 | ) | | | (12 | ) | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative losses | | | (10 | ) | | | (6 | ) | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | | | $ | -48 | | | $ | -41 | | | | | | | | | | | | | | | | | | | |
Net deferred gains/(losses) | | | | $ | -57 | | | $ | -49 | | | | | | | | | | | | | | | | | | | |
| | Income Statement Location | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax gain/(loss) recognized in income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Purchased power expense | | $ | (37 | )(b) | | $ | — | | | | | | | | | | | | | | | | | | | |
| | Gas purchased for resale | | | (7 | ) | | | — | | | | | | | | | | | | | | | | | | | |
| | Non-utility revenue | | | 2 | (b) | | | — | | | | | | | | | | | | | | | | | | | |
Total pre-tax gain/(loss) recognized in income | | | | $ | (42 | ) | | $ | — | | | | | | | | | | | | | | | | | | | |
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(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | For the three months ended June 30, 2013, Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax loss of $(1) million and $(29) million, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) | | | | | | | | | | | | | | | | | | | |
Deferred or Recognized in Income for the Six Months Ended June 30, 2013 | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Balance Sheet Location | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative gains | | $ | 2 | | | $ | 1 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Regulatory liabilities | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | 2 | | | $ | 1 | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative losses | | $ | 14 | | | $ | 9 | | | | | | | | | | | | | | | | | | | |
Current | | Recoverable energy costs | | | (3 | ) | | | (2 | ) | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative losses | | | (3 | ) | | | — | | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | | | $ | 8 | | | $ | 7 | | | | | | | | | | | | | | | | | | | |
Net deferred gains/(losses) | | | | $ | 10 | | | $ | 8 | | | | | | | | | | | | | | | | | | | |
| | Income Statement Location | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax gain/(loss) recognized in income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Purchased power expense | | $ | 30 | (b) | | $ | — | | | | | | | | | | | | | | | | | | | |
| | Gas purchased for resale | | | (11 | ) | | | — | | | | | | | | | | | | | | | | | | | |
| | Non-utility revenue | | | 1 | (b) | | | — | | | | | | | | | | | | | | | | | | | |
Total pre-tax gain/(loss) recognized in income | | | | $ | 20 | | | $ | — | | | | | | | | | | | | | | | | | | | |
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(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | For the six months ended June 30, 2013, Con Edison recorded in purchased power expense an unrealized pre-tax gain of $16 million. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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As of June 30, 2014, Con Edison had 1,285 contracts, including 576 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type: |
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| | Electric Derivatives | | | Gas Derivatives | |
| | Number of | | | MWHs (b) | | | Number of | | | MWs (b) | | | Number of | | | Dths (b) | | | Total | |
Energy | Capacity | Contracts (a) | Number Of |
Contracts (a) | Contracts (a) | | Contracts (a) |
Con Edison | | | 557 | | | | 14,772,012 | | | | 65 | | | | 5,430 | | | | 663 | | | | 73,289,826 | | | | 1,285 | |
CECONY | | | 88 | | | | 3,500,475 | | | | 4 | | | | 600 | | | | 484 | | | | 64,760,000 | | | | 576 | |
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(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | Volumes are reported net of long and short positions. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes. |
The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings. |
The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at June 30, 2014, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were: |
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(Millions of Dollars) | | Con Edison (a) | | | CECONY (a) | | | | | | | | | | | | | | | | | | | | | |
Aggregate fair value – net liabilities | | $ | 2 | | | $ | 1 | | | | | | | | | | | | | | | | | | | | | |
Collateral posted | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
Additional collateral(b) (downgrade one level from current ratings) | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
Additional collateral(b) (downgrade to below investment grade from current ratings) | | $ | 9 | (c) | | $ | 2 | (c) | | | | | | | | | | | | | | | | | | | | |
|
(a) | Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at June 30, 2014, would have amounted to an estimated $17 million for Con Edison, including $5 million for CECONY. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(c) | Derivative instruments that are net assets have been excluded from the table. At June 30, 2014, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $45 million, including $1 million for CECONY. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Interest Rate Swap |
O&R has an interest rate swap, which terminates in October 2014, pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at June 30, 2014 was an unrealized loss of $1 million, which has been included in Con Edison’s consolidated balance sheet as a current liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the three and six months ended June 30, 2014 was $1 million. In the event O&R’s credit rating is downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it does so, the parties would then be required to settle the transaction. |
CECONY [Member] | ' |
Derivative Instruments and Hedging Activities | ' |
Note L — Derivative Instruments and Hedging Activities |
Under the accounting rules for derivatives and hedging, derivatives are recognized on the balance sheet at fair value, unless an exception is available under the accounting rules. Certain qualifying derivative contracts have been designated as normal purchases or normal sales contracts. These contracts are not reported at fair value under the accounting rules. |
Energy Price Hedging |
Con Edison’s subsidiaries hedge market price fluctuations associated with physical purchases and sales of electricity, natural gas, and steam by using derivative instruments including futures, forwards, basis swaps, options, transmission congestion contracts and financial transmission rights contracts. |
The Companies enter into master agreements for their commodity derivatives. These agreements typically provide for setoff in the event of contract termination. In such case, generally the non-defaulting or non-affected party’s payable will be set-off by the other party’s payable. The non-defaulting party will customarily notify the defaulting party within a specific time period and come to an agreement on the early termination amount. |
|
The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at June 30, 2014 were: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | | | | | | |
Commodity Derivatives | | Gross | | | Gross Amounts | | | Net Amounts of | | | Gross Amounts Not | | | Net | | | | | |
Amounts of | Offset in the | Assets/(Liabilities) | Offset in the Statement | Amount | | | | |
Recognized | Statement of | Presented in | of Financial Position | | | | | |
Assets/(Liabilities) | Financial Position | the Statement | | | | | | |
| | of Financial | | | | | | |
| | Position | | | | | | |
| | | | | | | | | | | Financial | | | Cash | | | | | | | | |
instruments | collateral | | | | |
| received | | | | |
Con Edison | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 242 | | | $ | (127 | ) | | $ | 115 | (a) | | $ | — | | | $ | — | | | $ | 115 | (a) | | | | |
Derivative liabilities | | | (110 | ) | | | 100 | | | | (10 | ) | | | — | | | | — | | | | (10 | ) | | | | |
Net derivative assets/(liabilities) | | $ | 132 | | | $ | (27 | ) | | $ | 105 | (a) | | $ | — | | | $ | — | | | $ | 105 | (a) | | | | |
CECONY | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 95 | | | $ | (45 | ) | | $ | 50 | (a) | | $ | — | | | $ | — | | | $ | 50 | (a) | | | | |
Derivative liabilities | | | (49 | ) | | | 43 | | | | -6 | | | | — | | | | — | | | | -6 | | | | | |
Net derivative assets/(liabilities) | | $ | 46 | | | $ | (2 | ) | | $ | 44 | (a) | | $ | — | | | $ | — | | | $ | 44 | (a) | | | | |
|
(a) | At June 30, 2014, Con Edison and CECONY had margin deposits of $2 million and $1 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair values of the Companies’ commodity derivatives including the offsetting of assets and liabilities at December 31, 2013 were: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | | | | | | |
Commodity Derivatives | | Gross | | | Gross Amounts | | | Net Amounts of | | | Gross Amounts Not | | | Net | | | | | |
Amounts of | Offset in the | Assets/(Liabilities) | Offset in the Statement | Amount | | | | |
Recognized | Statement of | Presented in | of Financial Position | | | | | |
Assets/(Liabilities) | Financial Position | the Statement | | | | | | |
| | of Financial | | | | | | |
| | Position | | | | | | |
| | | | | | | | | | | Financial | | | Cash | | | | | | | | |
instruments | collateral | | | | |
| received | | | | |
Con Edison | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 166 | | | $ | (101 | ) | | $ | 65 | (a) | | $ | — | | | $ | — | | | $ | 65 | (a) | | | | |
Derivative liabilities | | | (113 | ) | | | 98 | | | | (15 | ) | | | — | | | | — | | | | (15 | ) | | | | |
Net derivative assets/(liabilities) | | $ | 53 | | | $ | (3 | ) | | $ | 50 | (a) | | $ | — | | | $ | — | | | $ | 50 | (a) | | | | |
CECONY | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative assets | | $ | 41 | | | $ | (32 | ) | | $ | 9 | (a) | | $ | — | | | $ | — | | | $ | 9 | (a) | | | | |
Derivative liabilities | | | (51 | ) | | | 37 | | | | (14 | ) | | | — | | | | — | | | | (14 | ) | | | | |
Net derivative assets/(liabilities) | | $ | (10 | ) | | $ | 5 | | | $ | (5 | )(a) | | $ | — | | | $ | — | | | $ | (5 | )(a) | | | | |
|
(a) | At December 31, 2013, Con Edison and CECONY had margin deposits of $17 million and $16 million, respectively, classified as derivative assets in the balance sheet, but not included in the table. As required by an exchange, a margin is collateral, typically cash, that the holder of a derivative instrument has to deposit in order to transact on an exchange and to cover its potential losses with its broker or the exchange. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Credit Exposure |
The Companies are exposed to credit risk related to transactions entered into primarily for the various energy supply and hedging activities by the Utilities and the competitive energy businesses. Credit risk relates to the loss that may result from a counterparty’s nonperformance. The Companies use credit policies to manage this risk, including an established credit approval process, monitoring of counterparty limits, netting provisions within agreements, collateral or prepayment arrangements, credit insurance and credit default swaps. The Companies measure credit risk exposure as the replacement cost for open energy commodity and derivative positions plus amounts owed from counterparties for settled transactions. The replacement cost of open positions represents unrealized gains, net of any unrealized losses where the Companies have a legally enforceable right of setoff. |
At June 30, 2014, Con Edison and CECONY had $141 million and $26 million of credit exposure in connection with energy supply and hedging activities, net of collateral, respectively. Con Edison’s net credit exposure consisted of $47 million with independent system operators, $49 million with commodity exchange brokers, $43 million with investment-grade counterparties and $2 million with non-investment grade/non-rated counterparties. CECONY’s net credit exposure consisted of $15 million with commodity exchange brokers and $11 million with investment-grade counterparties. |
Economic Hedges |
The Companies enter into certain derivative instruments that do not qualify or are not designated as hedges under the accounting rules for derivatives and hedging. However, management believes these instruments represent economic hedges that mitigate exposure to fluctuations in commodity prices. |
|
The fair values of the Companies’ commodity derivatives at June 30, 2014 were: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Fair Value of Commodity Derivatives(a) | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Balance Sheet Location | | | | | | | | | | | | | | | | | | |
Derivative Assets | | | | | | | | | | | | | | | | | | | |
Current | | Other current assets | | $ | 190 | | | $ | 69 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Other deferred charges and noncurrent assets | | | 52 | | | | 26 | | | | | | | | | | | | | | | | | | | |
Total derivative assets | | | | $ | 242 | | | $ | 95 | | | | | | | | | | | | | | | | | | | |
Impact of netting | | | | | (125 | ) | | | (44 | ) | | | | | | | | | | | | | | | | | | |
Net derivative assets | | $ | 117 | | | $ | 51 | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | | | | | | | | | | | | | | | | | | |
Current | | Fair value of derivative liabilities | | $ | 72 | | | $ | 25 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Fair value of derivative liabilities | | | 38 | | | | 24 | | | | | | | | | | | | | | | | | | | |
Total derivative liabilities | | | | $ | 110 | | | $ | 49 | | | | | | | | | | | | | | | | | | | |
Impact of netting | | | | | (100 | ) | | | (43 | ) | | | | | | | | | | | | | | | | | | |
Net derivative liabilities | | $ | 10 | | | $ | 6 | | | | | | | | | | | | | | | | | | | |
|
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The fair values of the Companies’ commodity derivatives at December 31, 2013 were: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Fair Value of Commodity Derivatives(a) | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Balance Sheet Location | | | | | | | | | | | | | | | | | | |
Derivative Assets | | | | | | | | | | | | | | | | | | | |
Current | | Other current assets | | $ | 134 | | | $ | 27 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Other deferred charges and noncurrent assets | | | 32 | | | | 14 | | | | | | | | | | | | | | | | | | | |
Total derivative assets | | $ | 166 | | | $ | 41 | | | | | | | | | | | | | | | | | | | |
Impact of netting | | | (84 | ) | | | (16 | ) | | | | | | | | | | | | | | | | | | |
Net derivative assets | | $ | 82 | | | $ | 25 | | | | | | | | | | | | | | | | | | | |
Derivative Liabilities | | | | | | | | | | | | | | | | | | | |
Current | | Fair value of derivative liabilities | | $ | 82 | | | $ | 32 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Fair value of derivative liabilities | | | 31 | | | | 19 | | | | | | | | | | | | | | | | | | | |
Total derivative liabilities | | $ | 113 | | | $ | 51 | | | | | | | | | | | | | | | | | | | |
Impact of netting | | | (98 | ) | | | (37 | ) | | | | | | | | | | | | | | | | | | |
Net derivative liabilities | | $ | 15 | | | $ | 14 | | | | | | | | | | | | | | | | | | | |
|
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
The Utilities generally recover all of their prudently incurred fuel, purchased power and gas cost, including hedging gains and losses, in accordance with rate provisions approved by the applicable state utility commissions. In accordance with the accounting rules for regulated operations, the Utilities record a regulatory asset or liability to defer recognition of unrealized gains and losses on their electric and gas derivatives. As gains and losses are realized in future periods, they will be recognized as purchased power, gas and fuel costs in the Companies’ consolidated income statements. Con Edison’s competitive energy businesses record realized and unrealized gains and losses on their derivative contracts in earnings in the reporting period in which they occur. |
|
The following table presents the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2014: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) | | | | | | | | | | | | | | | | | | | |
Deferred or Recognized in Income for the Three Months Ended June 30, 2014 | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Balance Sheet Location | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative gains | | $ | 1 | | | $ | 1 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative gains | | | 2 | | | | 2 | | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | 3 | | | $ | 3 | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative losses | | $ | (2 | ) | | $ | (2 | ) | | | | | | | | | | | | | | | | | | |
Current | | Recoverable energy costs | | | (7 | ) | | | (6 | ) | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative losses | | | (3 | ) | | | (3 | ) | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | (12 | ) | | $ | (11 | ) | | | | | | | | | | | | | | | | | | |
Net deferred gains/(losses) | | $ | (9 | ) | | $ | (8 | ) | | | | | | | | | | | | | | | | | | |
| | Income Statement Location | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax gain/(loss) recognized in income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Purchased power expense | | $ | (13 | )(b) | | $ | — | | | | | | | | | | | | | | | | | | | |
| | Gas purchased for resale | | | (32 | ) | | | — | | | | | | | | | | | | | | | | | | | |
| | Non-utility revenue | | | 14 | (b) | | | — | | | | | | | | | | | | | | | | | | | |
Total pre-tax gain/(loss) recognized in income | | $ | (31 | ) | | $ | — | | | | | | | | | | | | | | | | | | | |
|
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | For the three months ended June 30, 2014, Con Edison recorded in purchased power expense an unrealized pre-tax loss of $(5) million. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) | | | | | | | | | | | | | | | | | | | |
Deferred or Recognized in Income for the Six Months Ended June 30, 2014 | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Balance Sheet Location | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative gains | | $ | 31 | | | $ | 25 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative gains | | | 7 | | | | 6 | | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | 38 | | | $ | 31 | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative losses | | $ | 15 | | | $ | 15 | | | | | | | | | | | | | | | | | | | |
Current | | Recoverable energy costs | | | 87 | | | | 70 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative losses | | | — | | | | (1 | ) | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | 102 | | | $ | 84 | | | | | | | | | | | | | | | | | | | |
Net deferred gains/(losses) | | $ | 140 | | | $ | 115 | | | | | | | | | | | | | | | | | | | |
| | Income Statement Location | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax gain/(loss) recognized in income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Purchased power expense | | $ | 161 | (b) | | $ | — | | | | | | | | | | | | | | | | | | | |
| | Gas purchased for resale | | | (46 | ) | | | — | | | | | | | | | | | | | | | | | | | |
| | Non-utility revenue | | | (10 | )(b) | | | — | | | | | | | | | | | | | | | | | | | |
Total pre-tax gain/(loss) recognized in income | | $ | 105 | | | $ | — | | | | | | | | | | | | | | | | | | | |
|
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | For the six months ended June 30, 2014, Con Edison recorded in purchased power expense an unrealized pre-tax gain of $15 million. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
The following tables present the changes in the fair values of commodity derivatives that have been deferred or recognized in earnings for the three and six months ended June 30, 2013: |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) | | | | | | | | | | | | | | | | | | | |
Deferred or Recognized in Income for the Three Months Ended June 30, 2013 | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Balance Sheet Location | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative gains | | $ | (7 | ) | | $ | (7 | ) | | | | | | | | | | | | | | | | | | |
Noncurrent | | Regulatory liabilities | | | (2 | ) | | | (1 | ) | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | (9 | ) | | $ | (8 | ) | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative losses | | $ | (24 | ) | | $ | (23 | ) | | | | | | | | | | | | | | | | | | |
Current | | Recoverable energy costs | | | (14 | ) | | | (12 | ) | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative losses | | | (10 | ) | | | (6 | ) | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | | | $ | -48 | | | $ | -41 | | | | | | | | | | | | | | | | | | | |
Net deferred gains/(losses) | | | | $ | -57 | | | $ | -49 | | | | | | | | | | | | | | | | | | | |
| | Income Statement Location | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax gain/(loss) recognized in income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Purchased power expense | | $ | (37 | )(b) | | $ | — | | | | | | | | | | | | | | | | | | | |
| | Gas purchased for resale | | | (7 | ) | | | — | | | | | | | | | | | | | | | | | | | |
| | Non-utility revenue | | | 2 | (b) | | | — | | | | | | | | | | | | | | | | | | | |
Total pre-tax gain/(loss) recognized in income | | | | $ | (42 | ) | | $ | — | | | | | | | | | | | | | | | | | | | |
|
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | For the three months ended June 30, 2013, Con Edison recorded in non-utility operating revenues and purchased power expense an unrealized pre-tax loss of $(1) million and $(29) million, respectively. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Realized and Unrealized Gains/(Losses) on Commodity Derivatives(a) | | | | | | | | | | | | | | | | | | | |
Deferred or Recognized in Income for the Six Months Ended June 30, 2013 | | | | | | | | | | | | | | | | | | |
(Millions of Dollars) | | Balance Sheet Location | | Con Edison | | | CECONY | | | | | | | | | | | | | | | | | | | |
Pre-tax gains/(losses) deferred in accordance with accounting rules for regulated operations: | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative gains | | $ | 2 | | | $ | 1 | | | | | | | | | | | | | | | | | | | |
Noncurrent | | Regulatory liabilities | | | — | | | | — | | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | $ | 2 | | | $ | 1 | | | | | | | | | | | | | | | | | | | |
Current | | Deferred derivative losses | | $ | 14 | | | $ | 9 | | | | | | | | | | | | | | | | | | | |
Current | | Recoverable energy costs | | | (3 | ) | | | (2 | ) | | | | | | | | | | | | | | | | | | |
Noncurrent | | Deferred derivative losses | | | (3 | ) | | | — | | | | | | | | | | | | | | | | | | | |
Total deferred gains/(losses) | | | | $ | 8 | | | $ | 7 | | | | | | | | | | | | | | | | | | | |
Net deferred gains/(losses) | | | | $ | 10 | | | $ | 8 | | | | | | | | | | | | | | | | | | | |
| | Income Statement Location | | | | | | | | | | | | | | | | | | | | | | | | |
Pre-tax gain/(loss) recognized in income | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Purchased power expense | | $ | 30 | (b) | | $ | — | | | | | | | | | | | | | | | | | | | |
| | Gas purchased for resale | | | (11 | ) | | | — | | | | | | | | | | | | | | | | | | | |
| | Non-utility revenue | | | 1 | (b) | | | — | | | | | | | | | | | | | | | | | | | |
Total pre-tax gain/(loss) recognized in income | | | | $ | 20 | | | $ | — | | | | | | | | | | | | | | | | | | | |
|
(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | For the six months ended June 30, 2013, Con Edison recorded in purchased power expense an unrealized pre-tax gain of $16 million. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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As of June 30, 2014, Con Edison had 1,285 contracts, including 576 CECONY contracts, which were considered to be derivatives under the accounting rules for derivatives and hedging (excluding qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts). The following table presents the number of contracts by commodity type: |
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| | Electric Derivatives | | | Gas Derivatives | |
| | Number of | | | MWHs (b) | | | Number of | | | MWs (b) | | | Number of | | | Dths (b) | | | Total | |
Energy | Capacity | Contracts (a) | Number Of |
Contracts (a) | Contracts (a) | | Contracts (a) |
Con Edison | | | 557 | | | | 14,772,012 | | | | 65 | | | | 5,430 | | | | 663 | | | | 73,289,826 | | | | 1,285 | |
CECONY | | | 88 | | | | 3,500,475 | | | | 4 | | | | 600 | | | | 484 | | | | 64,760,000 | | | | 576 | |
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(a) | Qualifying derivative contracts, which have been designated as normal purchases or normal sales contracts, are not reported at fair value under the accounting rules for derivatives and hedging and, therefore, are excluded from the table. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | Volumes are reported net of long and short positions. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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The Companies also enter into electric congestion and gas basis swap contracts to hedge the congestion and transportation charges which are associated with electric and gas contracts and hedged volumes. |
The collateral requirements associated with, and settlement of, derivative transactions are included in net cash flows from operating activities in the Companies’ consolidated statement of cash flows. Most derivative instrument contracts contain provisions that may require the Companies to provide collateral on derivative instruments in net liability positions. The amount of collateral to be provided will depend on the fair value of the derivative instruments and the Companies’ credit ratings. |
The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position and collateral posted at June 30, 2014, and the additional collateral that would have been required to be posted had the lowest applicable credit rating been reduced one level and to below investment grade were: |
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(Millions of Dollars) | | Con Edison (a) | | | CECONY (a) | | | | | | | | | | | | | | | | | | | | | |
Aggregate fair value – net liabilities | | $ | 2 | | | $ | 1 | | | | | | | | | | | | | | | | | | | | | |
Collateral posted | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
Additional collateral(b) (downgrade one level from current ratings) | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
Additional collateral(b) (downgrade to below investment grade from current ratings) | | $ | 9 | (c) | | $ | 2 | (c) | | | | | | | | | | | | | | | | | | | | |
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(a) | Non-derivative transactions for the purchase and sale of electricity and gas and qualifying derivative instruments, which have been designated as normal purchases or normal sales, are excluded from the table. These transactions primarily include purchases of electricity from independent system operators. In the event the Utilities and Con Edison’s competitive energy businesses were no longer extended unsecured credit for such purchases, the Companies would be required to post collateral, which at June 30, 2014, would have amounted to an estimated $17 million for Con Edison, including $5 million for CECONY. For certain other such non-derivative transactions, the Companies could be required to post collateral under certain circumstances, including in the event counterparties had reasonable grounds for insecurity. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(b) | The Companies measure the collateral requirements by taking into consideration the fair value amounts of derivative instruments that contain credit-risk-related contingent features that are in a net liabilities position plus amounts owed to counterparties for settled transactions and amounts required by counterparties for minimum financial security. The fair value amounts represent unrealized losses, net of any unrealized gains where the Companies have a legally enforceable right of setoff. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(c) | Derivative instruments that are net assets have been excluded from the table. At June 30, 2014, if Con Edison had been downgraded to below investment grade, it would have been required to post additional collateral for such derivative instruments of $45 million, including $1 million for CECONY. | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Interest Rate Swap |
O&R has an interest rate swap, which terminates in October 2014, pursuant to which it pays a fixed-rate of 6.09 percent and receives a LIBOR-based variable rate. The fair value of this interest rate swap at June 30, 2014 was an unrealized loss of $1 million, which has been included in Con Edison’s consolidated balance sheet as a current liability/fair value of derivative liabilities and a regulatory asset. The increase in the fair value of the swap for the three and six months ended June 30, 2014 was $1 million. In the event O&R’s credit rating is downgraded to BBB- or lower by S&P or Baa3 or lower by Moody’s, the swap counterparty could elect to terminate the agreement and, if it does so, the parties would then be required to settle the transaction. |