Gross notional amounts of commodity forwards, options and FTRs:
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(Amounts in Millions) (a)(b) | | March 31, 2023 | | Dec. 31, 2022 |
Megawatt hours of electricity | | 41 | | | 61 | |
Million British thermal units of natural gas | | 117 | | | 131 | |
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(a)Not reflective of net positions in the underlying commodities.
(b)Notional amounts for options included on a gross basis but weighted for the probability of exercise.
Consideration of Credit Risk and Concentrations — Xcel Energy continuously monitors the creditworthiness of counterparties to its interest rate derivatives and commodity derivative contracts prior to settlement and assesses each counterparty’s ability to perform on the transactions set forth in the contracts. Impact of credit risk was immaterial to the fair value of unsettled commodity derivatives presented on the consolidated balance sheets.
Xcel Energy’s utility subsidiaries’ most significant concentrations of credit risk with particular entities or industries are contracts with counterparties to their wholesale, trading and non-trading commodity activities.
As of March 31, 2023, four of Xcel Energy’s ten most significant counterparties for these activities, comprising $60 million, or 32%, of this credit exposure, had investment grade credit ratings from S&P Global Ratings, Moody’s Investor Services or Fitch Ratings.
Three of the ten most significant counterparties, comprising $54 million, or 28%, of this credit exposure, were not rated by these external ratings agencies, but based on Xcel Energy’s internal analysis, had credit quality consistent with investment grade.
Three of these significant counterparties, comprising $77 million, or 40%, of this credit exposure, had credit quality less than investment grade, based on internal analysis. Six of these significant counterparties are municipal or cooperative electric entities, RTOs or other utilities.
Credit Related Contingent Features — Contract provisions for derivative instruments that the utility subsidiaries enter, including those accounted for as normal purchase and normal sale contracts and therefore not reflected on the consolidated balance sheets, may require the posting of collateral or settlement of the contracts for various reasons, including if the applicable utility subsidiary’s credit ratings are downgraded below its investment grade credit rating by any of the major credit rating agencies.
As of March 31, 2023 and Dec. 31, 2022, there were $8 million and $4 million, respectively, of derivative liabilities with such underlying contract provisions, respectively.
Certain contracts also contain cross default provisions that may require the posting of collateral or settlement of the contracts if there was a failure under other financing arrangements related to payment terms or other covenants.
As of March 31, 2023 and Dec. 31, 2022, there were approximately $84 million and $76 million of derivative liabilities with such underlying contract provisions, respectively.
Certain derivative instruments are also subject to contract provisions that contain adequate assurance clauses. These provisions allow counterparties to seek performance assurance, including cash collateral, in the event that a given utility subsidiary’s ability to fulfill its contractual obligations is reasonably expected to be impaired.
Xcel Energy had no collateral posted related to adequate assurance clauses in derivative contracts as of March 31, 2023 and Dec. 31, 2022.
Recurring Derivative Fair Value Measurements
Impact of derivative activity:
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| | Pre-Tax Fair Value Gains (Losses) Recognized During the Period in: |
(Millions of Dollars) | | Accumulated Other Comprehensive Loss | | Regulatory Assets and Liabilities |
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Three Months Ended March 31, 2023 | | | | |
Derivatives designated as cash flow hedges: | | |
Interest rate | | $ | (7) | | | $ | — | |
Total | | $ | (7) | | | $ | — | |
Other derivative instruments: | | | | |
Electric commodity | | $ | — | | | $ | (92) | |
Natural gas commodity | | — | | | 3 | |
Total | | $ | — | | | $ | (89) | |
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Three Months Ended March 31, 2022 | | | | |
Derivatives designated as cash flow hedges: | | |
Interest rate | | $ | 6 | | | $ | — | |
Total | | $ | 6 | | | $ | — | |
Other derivative instruments: | | | | |
Electric commodity | | $ | — | | | $ | 1 | |
Natural gas commodity | | — | | | 4 | |
Total | | $ | — | | | $ | 5 | |
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| | Pre-Tax (Gains) Losses Reclassified into Income During the Period from: | | Pre-Tax Gains (Losses) Recognized During the Period in Income |
(Millions of Dollars) | | Accumulated Other Comprehensive Loss | | Regulatory Assets and Liabilities | |
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Three Months Ended March 31, 2023 | | | | | |
Derivatives designated as cash flow hedges: |
Interest rate | | $ | 1 | | (a) | $ | — | | | $ | — | | |
Total | | $ | 1 | | | $ | — | | | $ | — | | |
Other derivative instruments: | | | | | |
Commodity trading | | $ | — | | | $ | — | | | $ | (1) | | (b) |
Electric commodity | | — | | | 82 | | (c) | — | | |
Natural gas commodity | | — | | | 9 | | (d) | (19) | | (d)(e) |
Total | | $ | — | | | $ | 91 | | | $ | (20) | | |
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Three Months Ended March 31, 2022 | | | | | |
Derivatives designated as cash flow hedges: |
Interest rate | | $ | 2 | | (a) | $ | — | | | $ | — | | |
Total | | $ | 2 | | | $ | — | | | $ | — | | |
Other derivative instruments: |
Commodity trading | | $ | — | | | $ | — | | | $ | 2 | | (b) |
Electric commodity | | — | | | (13) | | (c) | — | | |
Natural gas commodity | | — | | | 3 | | (d) | (17) | | (d)(e) |
Total | | $ | — | | | $ | (10) | | | $ | (15) | | |
(a)Recorded to interest charges.
(b)Recorded to electric revenues. Presented amounts do not reflect non-derivative transactions or margin sharing with customers.
(c)Recorded to electric fuel and purchased power. These derivative settlement gains and losses are shared with electric customers through fuel and purchased energy cost-recovery mechanisms, and reclassified out of income as regulatory assets or liabilities, as appropriate. FTR settlements are shared with customers and do not have a material impact on net income. Presented amounts reflect changes in fair value between auction and settlement dates, but exclude the original auction fair value.
(d)Recorded to cost of natural gas sold and transported. These losses are subject to cost-recovery mechanisms and reclassified out of income to a regulatory asset, as appropriate.
(e)Relates primarily to option premium amortization.