FAIR VALUE

6 Months Ended

Jun. 30, 2013

Fair Value Disclosures [Abstract]

FAIR VALUE

FAIR VALUE

Fair Value Measurements

The following tables show assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:

	June 30, 2013
(Millions)	Level 1		Level 2		Level 3		Total
Risk management assets
Natural gas contracts	$	0.2	$	—	$	—	$	0.2
Financial transmission rights (FTRs)	—		—		2.7		2.7
Total	$	0.2	$	—	$	2.7	$	2.9
Risk management liabilities
Natural gas contracts	$	0.3	$	—	$	—	$	0.3
FTRs	—		—		0.6		0.6
Petroleum product contracts	0.1		—		—		0.1
Coal contracts	—		—		2.3		2.3
Total	$	0.4	$	—	$	2.9	$	3.3

	December 31, 2012
(Millions)	Level 1		Level 2		Level 3		Total
Risk management assets
Natural gas contracts	$	0.1	$	—	$	—	$	0.1
FTRs	—		—		1.2		1.2
Petroleum product contracts	0.1		—		—		0.1
Coal contracts	—		—		2.5		2.5
Total	$	0.2	$	—	$	3.7	$	3.9
Risk management liabilities
Natural gas contracts	$	0.6	$	—	$	—	$	0.6
FTRs	—		—		0.1		0.1
Coal contracts	—		—		9.0		9.0
Total	$	0.6	$	—	$	9.1	$	9.7

The risk management assets and liabilities listed in the tables above include NYMEX futures and options, as well as financial contracts used to manage transmission congestion costs in the MISO market. NYMEX contracts are valued using the NYMEX end-of-day settlement price, which is a Level 1 input. The valuation for FTRs is derived from historical data from MISO, which is considered a Level 3 input. The valuation for physical coal contracts categorized in Level 3 is based on significant assumptions made to extrapolate prices from the last quoted period through the end of the transaction term. For more information on our derivative instruments, see Note 3, "Risk Management Activities." There were no transfers between the levels of the fair value hierarchy during the three or six months ended June 30, 2013, and 2012.

The significant unobservable inputs used in the valuation that resulted in categorization within Level 3 were as follows at June 30, 2013. The amounts and percentages listed in the table below represent the range of unobservable inputs that individually had a significant impact on the fair value determination and caused a derivative to be classified as Level 3.

	Fair Value (Millions)
	Assets		Liabilities		Valuation Technique	Unobservable Input	Average or Range
FTRs	$	2.7	$	0.6	Market-based	Forward market prices ($/megawatt-month) (1)	93.13
Coal contract	—		2.3		Market-based	Forward market prices ($/ton) (2)	11.90 - 14.50

⁽¹⁾  Represents forward market prices developed using historical cleared pricing data from MISO.

⁽²⁾  Represents third-party forward market pricing.

Significant changes in historical settlement prices and forward coal prices would result in a directionally similar significant change in fair value.

The following tables set forth a reconciliation of changes in the fair value of items categorized as Level 3 measurements:

	Three Months Ended June 30, 2013									Six Months Ended June 30, 2013
(Millions)	FTRs			Coal Contract			Total			FTRs			Coal Contract			Total
Balance at the beginning of period	$	0.6		$	(4.6	)	$	(4.0	)	$	1.1		$	(6.5	)	$	(5.4	)
Net realized gains included in earnings	0.4			—			0.4			1.0			—			1.0
Net unrealized (losses) gains recorded as regulatory assets or liabilities	(0.9		)	3.6			2.7			(1.1		)	6.7			5.6
Purchases	3.2			—			3.2			3.2			—			3.2
Sales	(0.1		)	—			(0.1		)	(0.1		)	—			(0.1		)
Settlements	(1.1		)	(1.3		)	(2.4		)	(2.0		)	(2.5		)	(4.5		)
Balance at the end of period	$	2.1		$	(2.3	)	$	(0.2	)	$	2.1		$	(2.3	)	$	(0.2	)

	Three Months Ended June 30, 2012									Six Months Ended June 30, 2012
(Millions)	FTRs			Coal Contract			Total			FTRs			Coal Contract			Total
Balance at the beginning of period	$	0.4		$	(13.4	)	$	(13.0	)	$	1.2		$	(6.9	)	$	(5.7	)
Net realized gains included in earnings	1.9			—			1.9			2.0			—			2.0
Net unrealized (losses) gains recorded as regulatory assets or liabilities	(0.1		)	5.2			5.1			(0.3		)	(0.6		)	(0.9		)
Purchases	2.8			—			2.8			2.8			—			2.8
Sales	—			—			—			(0.1		)	—			(0.1		)
Settlements	(2.5		)	(1.6		)	(4.1		)	(3.1		)	(2.3		)	(5.4		)
Balance at the end of period	$	2.5		$	(9.8	)	$	(7.3	)	$	2.5		$	(9.8	)	$	(7.3	)

Unrealized gains and losses on FTRs and the coal contract are deferred as regulatory assets or liabilities. Therefore, these fair value measurements have no impact on earnings. Realized gains and losses on FTRs, as well as the related transmission congestion costs, are recorded in cost of fuel, natural gas, and purchased power on the statements of income.

Fair Value of Financial Instruments

The following table shows the financial instruments included on our balance sheets that are not recorded at fair value.

	June 30, 2013				December 31, 2012
(Millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Long-term debt	$	849.5	$	879.7	$	871.4	$	966.2
Long-term debt to parent	6.8		7.4		7.2		8.2
Preferred stock	51.2		57.9		51.2		52.8

The fair values of long-term debt are estimated based on the quoted market price for the same or similar issues, or on the current rates offered to us for debt of the same remaining maturity. The fair values of preferred stock are estimated based on quoted market prices, when available, or by using a perpetual dividend discount model. The fair values of long-term debt instruments and preferred stock are categorized within Level 2 of the fair value hierarchy.

Due to the short-term nature of cash and cash equivalents, accounts receivable, accounts payable, notes payable, and outstanding commercial paper, the carrying amount for each such item approximates fair value.