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Risk Management and Hedging Activities
 12 Months Ended
Dec. 31, 2011
Risk Management and Hedging Activities [Abstract]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
(7)    Risk Management and Hedging Activities

The Company is exposed to the impact of market fluctuations in commodity prices, interest rates and foreign currency exchange rates. The Company is principally exposed to electricity, natural gas, coal and fuel oil commodity price risk primarily through MEHC's ownership of the Utilities as they have an obligation to serve retail customer load in their regulated service territories. MidAmerican Energy also provides nonregulated retail electricity and natural gas services in competitive markets. The Utilities' load and generating facilities represent substantial underlying commodity positions. Exposures to commodity prices consist mainly of variations in the price of fuel required to generate electricity, wholesale electricity that is purchased and sold, and natural gas supply for regulated and nonregulated retail customers. Commodity prices are subject to wide price swings as supply and demand are impacted by, among many other unpredictable items, weather, market liquidity, generating facility availability, customer usage, storage, and transmission and transportation constraints. Interest rate risk exists on variable-rate debt and future debt issuances. Additionally, the Company is exposed to foreign currency exchange rate risk from its business operations and investments in Great Britain. The Company does not engage in a material amount of proprietary trading activities.

Each of the Company's business platforms has established a risk management process that is designed to identify, assess, monitor, report, manage and mitigate each of the various types of risk involved in its business. To mitigate a portion of its commodity price risk, the Company uses commodity derivative contracts, which may include forwards, futures, options, swaps and other agreements, to effectively secure future supply or sell future production generally at fixed prices. The Company manages its interest rate risk by limiting its exposure to variable interest rates primarily through the issuance of fixed-rate long-term debt and by monitoring market changes in interest rates. Additionally, the Company may from time to time enter into interest rate derivative contracts, such as interest rate swaps or locks, to mitigate the Company's exposure to interest rate risk. The Company does not hedge all of its commodity price, interest rate and foreign currency exchange rate risks, thereby exposing the unhedged portion to changes in market prices.

There have been no significant changes in the Company's accounting policies related to derivatives. Refer to Notes 2, 5 and 6 for additional information on derivative contracts.

The following table, which reflects master netting arrangements and excludes contracts that have been designated as normal under the normal purchases or normal sales exception afforded by GAAP, summarizes the fair value of the Company's derivative contracts, on a gross basis, and reconciles those amounts to the amounts presented on a net basis on the Consolidated Balance Sheets (in millions):
 
Derivative Assets
 
Derivative Liabilities
 
 
 
Current
 
Noncurrent
 
Current
 
Noncurrent
 
Total
As of December 31, 2011
 
 
 
 
 
 
 
 
 
Not designated as hedging contracts(1):
 
 
 
 
 
 
 
 
 
Commodity assets
$
93

 
$
14

 
$
73

 
$
13

 
$
193

Commodity liabilities
(47
)
 
(5
)
 
(324
)
 
(216
)
 
(592
)
Total
46

 
9

 
(251
)
 
(203
)
 
(399
)
 
 
 
 
 
 
 
 
 
 
Designated as hedging contracts:
 
 
 
 
 
 
 
 
 
Commodity assets
—

 
—

 
1

 
—

 
1

Commodity liabilities
(6
)
 
—

 
(24
)
 
(17
)
 
(47
)
Total
(6
)
 
—

 
(23
)
 
(17
)
 
(46
)
 
 
 
 
 
 
 
 
 
 
Total derivatives
40

 
9

 
(274
)
 
(220
)
 
(445
)
Cash collateral (payable) receivable
(2
)
 
—

 
114

 
44

 
156

Total derivatives - net basis
$
38

 
$
9

 
$
(160
)
 
$
(176
)
 
$
(289
)

As of December 31, 2010
 
 
 
 
 
 
 
 
 
Not designated as hedging contracts(1):
 
 
 
 
 
 
 
 
 
Commodity assets
$
204

 
$
18

 
$
47

 
$
38

 
$
307

Commodity liabilities
(64
)
 
(6
)
 
(269
)
 
(533
)
 
(872
)
Total
140

 
12

 
(222
)
 
(495
)
 
(565
)
 
 
 
 
 
 
 
 
 
 
Designated as hedging contracts:
 
 
 
 
 
 
 
 
 
Commodity assets
1

 
2

 
8

 
1

 
12

Commodity liabilities
(1
)
 
(1
)
 
(50
)
 
(8
)
 
(60
)
Total
—

 
1

 
(42
)
 
(7
)
 
(48
)
 
 
 
 
 
 
 
 
 
 
Total derivatives
140

 
13

 
(264
)
 
(502
)
 
(613
)
Cash collateral (payable) receivable
(9
)
 
—

 
106

 
44

 
141

Total derivatives - net basis
$
131

 
$
13

 
$
(158
)
 
$
(458
)
 
$
(472
)

(1)
The Company's commodity derivatives not designated as hedging contracts are generally included in regulated rates, and as of December 31, 2011 and 2010, a net regulatory asset of $400 million and $564 million, respectively, was recorded related to the net derivative liability of $399 million and $565 million, respectively.

Not Designated as Hedging Contracts

The following table reconciles the beginning and ending balances of the Company's net regulatory assets and summarizes the pre-tax gains and losses on commodity derivative contracts recognized in net regulatory assets, as well as amounts reclassified to earnings for the years ended December 31 (in millions):
 
2011
 
2010
 
2009
 
 
 
 
 
 
Beginning balance
$
564

 
$
353

 
$
446

Changes in fair value recognized in net regulatory assets
95

 
115

 
(119
)
Net losses reclassified from AOCI
—

 
49

 
—

Net losses reclassified to unamortized contract value regulatory asset
(168
)
 
—

 
—

Net gains reclassified to operating revenue
12

 
80

 
293

Net losses reclassified to cost of sales
(103
)
 
(33
)
 
(267
)
Ending balance
$
400

 
$
564

 
$
353


Designated as Hedging Contracts

The Company uses derivative contracts accounted for as cash flow hedges to hedge electricity and natural gas commodity prices for delivery to nonregulated customers, spring operational sales, natural gas storage and other transactions.

The following table reconciles the beginning and ending balances of the Company's accumulated other comprehensive loss (pre-tax) and summarizes pre-tax gains and losses on derivative contracts designated and qualifying as cash flow hedges recognized in other comprehensive income ("OCI"), as well as amounts reclassified to earnings for the years ended December 31 (in millions):
 
2011
 
2010
 
2009
 
Commodity
 
Commodity
 
Commodity
 
Interest Rate
 
 
 
Derivatives
 
Derivatives
 
Derivatives
 
Derivative
 
Total
 
 
 
 
 
 
 
 
 
 
Beginning balance(1)
$
37

 
$
81

 
$
83

 
$
6

 
$
89

Changes in fair value recognized in OCI
25

 
35

 
99

 
—

 
99

Net losses reclassified to regulatory assets
—

 
(49
)
 
—

 
—

 
—

Net gains reclassified to operating revenue
3

 
14

 
11

 
—

 
11

Net losses reclassified to cost of sales
(19
)
 
(44
)
 
(112
)
 
—

 
(112
)
Net losses reclassified to interest expense
—

 
—

 
—

 
(6
)
 
(6
)
Ending balance(1)
$
46

 
$
37

 
$
81

 
$
—

 
$
81


(1)
Certain derivative contracts, principally interest rate locks, have settled and the fair value at the date of settlement remains in AOCI and is recognized in earnings when the forecasted transactions impact earnings.

Realized gains and losses on hedges and hedge ineffectiveness are recognized in income as operating revenue, cost of sales, operating expense or interest expense depending upon the nature of the item being hedged. For the years ended December 31, 2011, 2010 and 2009, hedge ineffectiveness was insignificant. As of December 31, 2011, the Company had cash flow hedges with expiration dates extending through December 2015 and $27 million of pre-tax net unrealized losses are forecasted to be reclassified from AOCI into earnings over the next twelve months as contracts settle.

Derivative Contract Volumes

The following table summarizes the net notional amounts of outstanding commodity derivative contracts with fixed price terms that comprise the mark-to-market values as of December 31 (in millions):
 
Unit of
 
 
 
 
 
Measure
 
2011
 
2010
Electricity purchases (sales)
Megawatt hours
 
6

 
(11
)
Natural gas purchases
Decatherms
 
183

 
239

Fuel purchases
Gallons
 
19

 
20


Credit Risk

The Utilities extend unsecured credit to other utilities, energy marketing companies, financial institutions and other market participants in conjunction with their wholesale energy supply and marketing activities. Credit risk relates to the risk of loss that might occur as a result of nonperformance by counterparties on their contractual obligations to make or take delivery of electricity, natural gas or other commodities and to make financial settlements of these obligations. Credit risk may be concentrated to the extent that one or more groups of counterparties have similar economic, industry or other characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in market or other conditions. In addition, credit risk includes not only the risk that a counterparty may default due to circumstances relating directly to it, but also the risk that a counterparty may default due to circumstances involving other market participants that have a direct or indirect relationship with the counterparty.

The Utilities analyze the financial condition of each significant wholesale counterparty before entering into any transactions, establish limits on the amount of unsecured credit to be extended to each counterparty and evaluate the appropriateness of unsecured credit limits on an ongoing basis. To mitigate exposure to the financial risks of wholesale counterparties, the Utilities enter into netting and collateral arrangements that may include margining and cross-product netting agreements and obtain third-party guarantees, letters of credit and cash deposits. Counterparties may be assessed fees for delayed payments. If required, the Utilities exercise rights under these arrangements, including calling on the counterparty's credit support arrangement.

MidAmerican Energy also has potential indirect credit exposure to other market participants in the regional transmission organization ("RTO") markets where it actively participates, including the Midwest Independent Transmission System Operator, Inc. and the PJM Interconnection, L.L.C. In the event of a default by a RTO market participant on its market-related obligations, losses are allocated among all other market participants in proportion to each participant's share of overall market activity during the period of time the loss was incurred, diversifying MidAmerican Energy's exposure to credit losses from individual participants. Transactional activities of MidAmerican Energy and other participants in organized RTO markets are governed by credit policies specified in each respective RTO's governing tariff or related business practices. Credit policies of RTO's, which have been developed through extensive stakeholder participation, generally seek to minimize potential loss in the event of a market participant default without unnecessarily inhibiting access to the marketplace. MidAmerican Energy's share of historical losses from defaults by other RTO market participants has not been material.

Collateral and Contingent Features

In accordance with industry practice, certain wholesale derivative contracts contain provisions that require MEHC's subsidiaries, principally the Utilities, to maintain specific credit ratings from one or more of the major credit rating agencies on their unsecured debt. These derivative contracts may either specifically provide bilateral rights to demand cash or other security if credit exposures on a net basis exceed specified rating-dependent threshold levels ("credit-risk-related contingent features") or provide the right for counterparties to demand "adequate assurance" in the event of a material adverse change in the subsidiary's creditworthiness. These rights can vary by contract and by counterparty. As of December 31, 2011, these subsidiary's credit ratings from the three recognized credit rating agencies were investment grade.

The aggregate fair value of the Company's derivative contracts in liability positions with specific credit-risk-related contingent features totaled $571 million and $603 million as of December 31, 2011 and 2010, respectively, for which the Company had posted collateral of $125 million and $136 million, respectively. If all credit-risk-related contingent features for derivative contracts in liability positions had been triggered as of December 31, 2011 and 2010, the Company would have been required to post $332 million and $261 million, respectively, of additional collateral. The Company's collateral requirements could fluctuate considerably due to market price volatility, changes in credit ratings, changes in legislation or regulation, or other factors.