In 1996, TETCO received $98.6 million from the financing of the right to collect certain Order 636 natural gas transition costs, with limited recourse. At December 31, 1997 and 1996, $52.8 million and $87.3 million, respectively, remained outstanding related to the transition cost recovery rights and were included in Other Current Liabilities in the Consolidated Balance Sheets. In the opinion of management, the probability that the Corporation will be required to perform under the recourse provisions is remote.

During 1997, the Corporation terminated its agreement to sell accounts receivable which was entered into in 1996. Also in 1997, the LNG settlement receivables sale agreement, which was entered into in 1993, expired, as all the receivables were collected. Amounts outstanding at December 31, 1996 under these agreements were $100 million and $29.9 million, respectively.

The fair value of cash and cash equivalents, notes receivable, notes payable and commercial paper and nuclear decommissioning trust funds are not materially different from their carrying amounts because of the short-term nature of these instruments or the stated rates approximating market rates.

The following financial instruments have no book value associated with them and there are no fair values readily determinable since quoted market prices are not available: guarantees made to affiliates or recourse provisions from affiliates and sales agreements for trade accounts receivables, LNG project settlement and Order 636 natural gas transition cost recovery.

Commodity Derivative Instruments. At December 31, 1997 and 1996, the Corporation held or issued several instruments that reduce exposure to market fluctuations relative to price and transportation costs of natural gas, electricity and petroleum products. The Corporation’s market exposure, primarily within DETM and D/LD, arises from natural gas storage inventory balances and fixed-price purchase and sale commitments that extend for periods of up to 9 years. The Corporation uses futures, swaps and options to manage and hedge price and location risk related to these market exposures.

DETM and D/LD also provide risk management services to its customers through a variety of energy commodity instruments including forward contracts involving physical delivery of an energy commodity, energy commodity futures, over-the-counter swap agreements and options. In addition to hedging activities, the Corporation also engages in the trading of such instruments, and therefore experiences net open positions. The Corporation manages open positions with strict policies which limit its exposure to market risk and require daily reporting to management of potential financial exposure. These policies include statistical risk tolerance limits using historical price movements to calculate a daily earnings at risk as well as a total Value-at-Risk (VAR) measurement. The weighted-average life of the Corporation’s commodity risk portfolio was approximately 7 months at December 31, 1997.

Energy commodity futures involve the buying or selling of natural gas, electricity or other energy-related commodities at a fixed price. Over-the-counter swap agreements require the Corporation to receive or make payments based on the difference between a specified price and the actual price of the underlying commodity. The Corporation uses futures and swaps to manage margins on underlying fixed-price purchase or sale commitments for physical quantities of natural gas, electricity and other energy-related commodities. Energy commodity options held to mitigate price risk provide the right, but not the requirement, to buy or sell energy-related commodities at a fixed price. The Corporation utilizes options to manage margins and to limit overall price risk exposure. DETM and D/LD account for these activities using the mark to market method of accounting.

At December 31, 1997 and 1996, the Corporation had outstanding futures, swaps and options for an absolute notional contract quantity of 4,810 billion cubic feet (Bcf) and 3,425 Bcf of natural gas, respectively, some of which were in place to offset the risk of price fluctuations under fixed-price commitments for purchasing and delivering natural gas. At December 31, 1997 and 1996, outstanding futures, swaps and options related to electric contracts and other energy-related commodities were not material. The gains, losses and costs related to those commodity instruments that qualify as a hedge are not recognized until the underlying physical transaction occurs. At December 31, 1997 and 1996, the Corporation had current unrecognized net gains of $13.5 million and $8.7 million, respectively, related to commodity instruments. The fair value of energy commodity swaps held at December 31, 1997 was a liability of $158.6 million.