|
NOTE 12—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, 2011 |
|
|
(Millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
Risk management assets |
|
|
|
|
|
|
|
|
|
|
FTRs |
|
$ |
— |
|
$ |
— |
|
$ |
3.5 |
|
$ |
3.5 |
|
|
Natural gas contracts |
|
0.5 |
|
— |
|
— |
|
0.5 |
|
|
Petroleum products contracts |
|
0.5 |
|
— |
|
— |
|
0.5 |
|
|
Total |
|
$ |
1.0 |
|
$ |
— |
|
$ |
3.5 |
|
$ |
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management liabilities |
|
|
|
|
|
|
|
|
|
|
FTRs |
|
$ |
— |
|
$ |
— |
|
$ |
0.1 |
|
$ |
0.1 |
|
|
Natural gas contracts |
|
0.5 |
|
— |
|
— |
|
0.5 |
|
|
Coal contract |
|
— |
|
— |
|
4.3 |
|
4.3 |
|
|
Total |
|
$ |
0.5 |
|
$ |
— |
|
$ |
4.4 |
|
$ |
4.9 |
|
|
|
|
December 31, 2010 |
|
|
(Millions) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
|
Risk management assets |
|
|
|
|
|
|
|
|
|
|
FTRs |
|
$ |
— |
|
$ |
— |
|
$ |
2.2 |
|
$ |
2.2 |
|
|
Natural gas contracts |
|
0.4 |
|
— |
|
— |
|
0.4 |
|
|
Petroleum products contracts |
|
0.3 |
|
— |
|
— |
|
0.3 |
|
|
Coal contract |
|
— |
|
— |
|
3.7 |
|
3.7 |
|
|
Total |
|
$ |
0.7 |
|
$ |
— |
|
$ |
5.9 |
|
$ |
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management liabilities |
|
|
|
|
|
|
|
|
|
|
FTRs |
|
$ |
— |
|
$ |
— |
|
$ |
0.2 |
|
$ |
0.2 |
|
|
Natural gas contracts |
|
2.3 |
|
— |
|
— |
|
2.3 |
|
|
Coal contract |
|
— |
|
— |
|
1.2 |
|
1.2 |
|
|
Total |
|
$ |
2.3 |
|
$ |
— |
|
$ |
1.4 |
|
$ |
3.7 |
|
The risk management assets and liabilities listed in the tables 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. For more information on derivative instruments, see Note 3, “Risk Management Activities.” There were no transfers between the levels of the fair value hierarchy during the three and six months ended June 30, 2011, and 2010.
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, 2011 |
|
Six Months Ended June 30, 2011 |
|
|
(Millions) |
|
FTRs |
|
Coal Contract |
|
Total |
|
FTRs |
|
Coal Contract |
|
Total |
|
|
Balance at the beginning of period |
|
$ |
0.7 |
|
$ |
(4.9 |
) |
$ |
(4.2 |
) |
$ |
2.0 |
|
$ |
2.5 |
|
$ |
4.5 |
|
|
Net realized loss included in earnings |
|
(1.1 |
) |
— |
|
(1.1 |
) |
(1.3 |
) |
— |
|
(1.3 |
) |
|
Net unrealized loss recorded as regulatory assets or liabilities |
|
0.4 |
|
1.1 |
|
1.5 |
|
(0.6 |
) |
(5.9 |
) |
(6.5 |
) |
|
Purchases |
|
2.8 |
|
— |
|
2.8 |
|
2.8 |
|
— |
|
2.8 |
|
|
Sales |
|
— |
|
— |
|
— |
|
(0.1 |
) |
— |
|
(0.1 |
) |
|
Settlements |
|
0.6 |
|
(0.5 |
) |
0.1 |
|
0.6 |
|
(0.9 |
) |
(0.3 |
) |
|
Balance at the end of period |
|
$ |
3.4 |
|
$ |
(4.3 |
) |
$ |
(0.9 |
) |
$ |
3.4 |
|
$ |
(4.3 |
) |
$ |
(0.9 |
) |
|
(Millions) |
|
Three Months Ended June 30, 2010
FTRs |
|
Six Months Ended June 30, 2010
FTRs |
|
|
Balance at the beginning of period |
|
$ |
1.3 |
|
$ |
3.1 |
|
|
Net realized loss included in earnings |
|
3.6 |
|
3.2 |
|
|
Net unrealized loss recorded as regulatory assets or liabilities |
|
3.7 |
|
2.4 |
|
|
Net purchases and settlements |
|
(2.4 |
) |
(2.5 |
) |
|
Balance at the end of period |
|
$ |
6.2 |
|
$ |
6.2 |
|
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, 2011 |
|
December 31, 2010 |
|
|
(Millions) |
|
Carrying
Amount |
|
Fair
Value |
|
Carrying
Amount |
|
Fair
Value |
|
|
Long-term debt |
|
$ |
871.2 |
|
$ |
930.0 |
|
$ |
871.1 |
|
$ |
924.3 |
|
|
Preferred stock |
|
51.2 |
|
49.9 |
|
51.2 |
|
46.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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. |