XML 43 R18.htm IDEA: XBRL DOCUMENT v2.4.0.6
Accounting for Derivative Instruments and Hedging Activities (Tables)
 6 Months Ended
Jun. 30, 2012
Derivative [Line Items]  
Schedule of Notional Amounts of Outstanding Derivative Positions
The Company had the following outstanding interest rate and commodity contracts as of June 30, 2012:

Derivatives not designated as hedging instruments:
Number of Units
Puget Energy:
 
Interest rate swaps

$450.0
 million
Puget Energy and Puget Sound Energy:
 

Natural gas derivatives
508,805,338
 MMBtus
Electric generation fuel
137,635,000
 MMBtus
Purchased electricity
11,629,550
 MWhs
Schedule of Credit Risk Related Contingent Features
The table below presents the fair value of the overall contractual contingent liability positions for the Company's derivative activity at June 30, 2012:

Puget Energy and Puget Sound Energy
Contingent Feature
(Dollars in Thousands)
Fair Value 1
Liability
Posted
Collateral
Contingent
Collateral
Credit rating 2
$
(37,833
)
$
—

$
37,833

Requested credit for adequate assurance
(74,936
)
—

—

Forward value of contract 3
(12,093
)
—

—

Total
$
(124,862
)
$
—

$
37,833


__________
1 
Represents the derivative fair value of contracts with contingent features for counterparties in net derivative liability positions at June 30, 2012. Excludes NPNS, accounts payable and accounts receivable.
2 
Failure by PSE to maintain an investment grade credit rating from each of the major credit rating agencies provides counterparties a contractual right to demand collateral.
3 
Collateral requirements may vary, based on changes in the forward value of underlying transactions relative to contractually defined collateral thresholds.
PUGET ENERGY [Member]
  
Derivative [Line Items]  
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value
The following tables present the fair value and locations of the Company's derivative instruments recorded on the balance sheets:

Derivatives Not Designated as Hedging Instruments
Puget Energy
June 30, 2012
December 31, 2011
(Dollars in Thousands)
Assets 1
Liabilities 2
Assets 1
Liabilities 2
Interest rate swaps:
 
 
 
 
Current
$
—

$
6,223

$
—

$
25,210

Long-term
—

13,924

—

27,199

Total interest rate swaps
$
—

$
20,147

$
—

$
52,409

 
 
 
 
 
Puget Energy and Puget Sound Energy
 
 
 
 
Electric portfolio:
 

 

 

 

Current
$
4,031

$
160,033

$
5,212

$
173,582

Long-term
9,523

50,048

5,508

90,752

Natural gas portfolio: 3
 

 

 

 

Current
2,942

110,990

1,435

128,297

Long-term
6,458

49,237

4,576

78,607

Total energy derivatives
$
22,954

$
370,308

$
16,731

$
471,238


___________
1 
Balance sheet location: Unrealized gain on derivative instruments.
2 
Balance sheet location: Unrealized loss on derivative instruments.
3 
PSE had a net derivative liability and an offsetting regulatory asset of $150.8 million at June 30, 2012 and $200.9 million at December 31, 2011 related to financial contracts used to economically hedge the cost of physical gas purchased to serve natural gas customers. All fair value adjustments on derivatives relating to the natural gas business have been reclassified to a deferred account in accordance with ASC 980, “Regulated Operations” (ASC 980) due to the Purchased Gas Adjustment (PGA) mechanism. All increases and decreases in the cost of natural gas supply are passed on to customers with the PGA mechanism and the gains and losses on the hedges in future periods will be recorded as gas costs.
Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance
The following tables present the net unrealized (gain) loss of the Company's derivative instruments recorded on the statements of income:
Puget Energy
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2012
2011
2012
2011
Natural gas / Power NPNS 1
$
—

$
(2,720
)
$
(2,151
)
$
(10,769
)
Natural gas for power generation
(13,647
)
1,261

(13,698
)
(40,262
)
Power
(50,429
)
(15,536
)
(43,501
)
918

Total net unrealized (gain) loss on derivative instruments
$
(64,076
)
$
(16,995
)
$
(59,350
)
$
(50,113
)
Interest expense – interest rate swaps
$
(8,563
)
$
14,171

$
(4,102
)
$
12,245

Other deductions – interest rate swaps
$
925

$
16,126

$
(13,398
)
$
14,326

___________
1 
Amount represents amortization related to contracts that were recorded at fair value as of the date of the merger.
Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss)
The following tables present the effect of hedging instruments on Puget Energy's OCI and statements of income, related to derivatives that were in a previous cash flow hedge relationship:

Puget Energy
(Dollars in Thousands)
Three Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships
Gain (Loss) Recognized
 in OCI on Derivatives
(Effective Portion 1)
Gain (Loss) Reclassified from Accumulated OCI
into Income (Effective Portion 2)
 
2012
2011
Location
2012
2011
Interest rate contracts:
$
—

$
—

Interest expense
$
(10,905
)
$
(24,246
)
Commodity contracts:
Electric derivatives
—

—

Electric generation fuel
—

(20
)
 
 

 

Purchased electricity
(188
)
(252
)
Total
$
—

$
—

 
$
(11,093
)
$
(24,518
)

Puget Energy
(Dollars in Thousands)
Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships
Gain (Loss) Recognized
 in OCI on Derivatives
(Effective Portion 1)
Gain (Loss) Reclassified from Accumulated OCI
into Income (Effective Portion 2)
 
2012
2011
Location
2012
2011
Interest rate contracts:
$
—

$
—

Interest expense
$
(14,763
)
$
(30,758
)
Commodity contracts:
Electric derivatives
—

—

Electric generation fuel
100

(50
)
 
 

 

Purchased electricity
12

(510
)
Total
$
—

$
—

 
$
(14,651
)
$
(31,318
)
________
1 
Changes in OCI are reported in after-tax dollars.
2 
A reclassification of a loss in OCI increases accumulated OCI and decreases earnings.  Amounts reported are in pre-tax dollars.
Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location
The following tables present the effect of the Company's derivatives not designated as hedging instruments on income:
Puget Energy
 
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
Location
2012
2011
2012
2011
Interest rate contracts:
Other deductions
$
(7,297
)
$
(25,412
)
$
(6,770
)
$
(25,460
)
 
Interest expense
(9,902
)
(22,699
)
(19,264
)
(27,276
)
Commodity contracts:
 
 

 

 

 

Electric derivatives
Unrealized gain (loss) on derivative instruments, net 1
64,076

14,275

57,199

39,344

 
Electric generation fuel
(2,981
)
(8,808
)
(25,974
)
(49,622
)
 
Purchased electricity
(39,540
)
(19,158
)
(84,953
)
(33,830
)
Total gain (loss) recognized in income on derivatives
 
$
4,356

$
(61,802
)
$
(79,762
)
$
(96,844
)
___________
1 
Differs from the amounts stated in the statements of income as it does not include amortization related to contracts that were recorded at fair value at the time of the February 2009 merger and subsequently designated as NPNS of $0.0 million and $2.2 million for the three and six months ended June 30, 2012 and $2.7 million and $10.8 million for the three and six months ended June 30, 2011, respectively.
PUGET SOUND ENERGY, INC. [Member]
  
Derivative [Line Items]  
Schedule of Derivative Instruments in Statement of Financial Position, Fair Value
___________
1 
Balance sheet location: Unrealized gain on derivative instruments.
2 
Balance sheet location: Unrealized loss on derivative instruments.
3 
PSE had a net derivative liability and an offsetting regulatory asset of $150.8 million at June 30, 2012 and $200.9 million at December 31, 2011 related to financial contracts used to economically hedge the cost of physical gas purchased to serve natural gas customers. All fair value adjustments on derivatives relating to the natural gas business have been reclassified to a deferred account in accordance with ASC 980, “Regulated Operations” (ASC 980) due to the Purchased Gas Adjustment (PGA) mechanism. All increases and decreases in the cost of natural gas supply are passed on to customers with the PGA mechanism and the gains and losses on the hedges in future periods will be recorded as gas costs.
Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance
Puget Sound Energy
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
2012
2011
2012
2011
Natural gas for power generation
$
(13,647
)
$
1,476

$
(13,696
)
$
(23,201
)
Power
(46,203
)
(11,124
)
(36,019
)
7,569

Total net unrealized (gain) loss on derivative instruments
$
(59,850
)
$
(9,648
)
$
(49,715
)
$
(15,632
)
Schedule of Derivative Instruments, Effect on Other Comprehensive Income (Loss)
The following tables present the effect of hedging instruments on PSE's OCI and statements of income, related to derivatives that were in a previous cash flow hedge relationship:

Puget Sound Energy
(Dollars in Thousands)
Three Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships
Gain (Loss) Recognized
 in OCI on Derivatives 
(Effective Portion 1)
Gain (Loss) Reclassified from Accumulated OCI
into Income (Effective Portion 2)
 
2012
2011
Location
2012
2011
Interest rate contracts:
$
—

$
—

Interest expense
$
(122
)
$
(123
)
Commodity contracts:
Electric derivatives
—

—

Electric generation fuel
(4,414
)
(237
)
 
 

 

Purchased electricity
—

(4,663
)
Total
$
—

$
—

 
$
(4,536
)
$
(5,023
)

Puget Sound Energy
(Dollars in Thousands)
Six Months Ended June 30,
Derivatives in Cash Flow Hedging Relationships
Gain (Loss) Recognized
 in OCI on Derivatives 
(Effective Portion 1)
Gain (Loss) Reclassified from Accumulated OCI
into Income (Effective Portion 2)
 
2012
2011
Location
2012
2011
Interest rate contracts:
$
—

$
—

Interest expense
$
(244
)
$
(246
)
Commodity contracts:
Electric derivatives
—

—

Electric generation fuel
97

(17,109
)
 
 

 

Purchased electricity
(7,468
)
(7,159
)
Total
$
—

$
—

 
$
(7,615
)
$
(24,514
)
___________
1 
Changes in OCI are reported in after-tax dollars.
2 
A reclassification of a loss in OCI increases accumulated OCI and decreases earnings.  Amounts reported are in pre-tax dollars.
Schedule of Other Derivatives Not Designated as Hedging Instruments, Statements of Financial Performance and Financial Position, Location
Puget Sound Energy
 
Three Months Ended June 30,
Six Months Ended June 30,
(Dollars in Thousands)
Location
2012
2011
2012
2011
Commodity contracts:
 
 
 
 
 
Electric derivatives
Unrealized gain (loss) on derivative instruments, net
$
59,850

$
9,648

$
49,715

$
15,632

 
Electric generation fuel
(2,981
)
(8,808
)
(25,974
)
(49,622
)
 
Purchased electricity
(39,540
)
(19,158
)
(84,953
)
(33,830
)
Total gain (loss) recognized in income on derivatives
 
$
17,329

$
(18,318
)
$
(61,212
)
$
(67,820
)