Derivative Instruments

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

BVESI purchases power under long-term contracts at a fixed cost over three and five-year terms depending on the amount of power and period during which the power is purchased under the contracts.

These long-term contracts are subject to the accounting guidance for derivatives and require mark-to-market derivative accounting. Among other things, the CPUC authorized BVESI to establish a regulatory asset and liability memorandum account to offset the mark-to-market entries required by the accounting guidance. Accordingly, all unrealized gains and losses generated from these purchased power contracts are deferred on a monthly basis into a non-interest bearing regulatory memorandum account that tracks the changes in fair value of the derivative throughout the term of the contract. As a result, these unrealized gains and losses do not impact Registrant’s earnings. As of December 31, 2021, there was a $4.4 million unrealized gain asset with a corresponding regulatory liability in the memorandum account for the three and five-year purchased power contract as a result of the fixed prices being lower than the futures energy prices. The notional volume of derivatives remaining under these long-term contracts as of December 31, 2021 was approximately 350,000 megawatt hours.

As previously discussed in Note 1, the accounting guidance for fair value measurements establishes a framework for measuring fair value and requires fair value measurements to be classified and disclosed in one of three levels. Registrant’s valuation model utilizes various inputs that include quoted market prices for energy over the duration of the contracts. The market prices used to determine the fair value for these derivative instruments were estimated based on independent sources such as broker quotes and publications that are not observable in or corroborated by the market. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized as Level 3. Accordingly, the valuation of the derivatives on Registrant’s purchased power contracts have been classified as Level 3 for all periods presented.

The unrealized gain as of December 31, 2021 as compared to an unrealized loss in as of December 31, 2020 was due to an increase in energy prices since the execution of the contracts. The following table presents changes in the fair value of BVESI’s derivatives for the years 2021 and 2020:


(dollars in thousands)	2021		2020
Balance, at beginning of the period	$	(1,537)	$	(3,171)
Unrealized gain on purchased power contracts	5,978		1,634
Balance, at end of the period	$	4,441	$	(1,537)