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Fair Value Measurements
12 Months Ended
Dec. 31, 2012
Fair Value Disclosures [Abstract]  
Fair Value Measurements
FAIR VALUE MEASUREMENTS

Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement within the fair value hierarchy levels.

There have been no significant transfers between Level 1 and Level 2 derivative balances during 2012 or 2011. The following tables set forth, by level within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis (in thousands):
 
As of Dec. 31, 2012
 
Level 1 (a)
Level 2
Level 3
 
Cash Collateral and Counterparty Netting
Total
Assets:
 
 
 
 
 
 
Commodity derivatives - Oil and Gas:
 
 
 
 
 
 
Options -- Oil
$

$
378

$

 
$

$
378

Basis Swaps -- Oil

1,325


 

1,325

Options -- Gas



 


Basis Swaps -- Gas

2,000


 

2,000

Commodity derivatives - Utilities


43

 

43

Cash equivalents
15,462



 

15,462

Total
$
15,462

$
3,703

$
43

 
$

$
19,208

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Commodity derivatives - Oil and Gas:
 
 
 
 
 
 
Options -- Oil
$

$
1,131

$

 
$
(336
)
$
795

Basis Swaps -- Oil

502


 
(450
)
52

Options -- Gas



 


Basis Swaps -- Gas

1,127


 
(620
)
507

Commodity derivatives - Utilities

8,576


 
(8,576
)

Interest rate swaps

118,088


 
(5,960
)
112,128

Total
$

$
129,424

$

 
$
(15,942
)
$
113,482

______________
(a)
Level 1 assets and liabilities are described in Note 5.

The following table presents the quantitative information about level 3 fair value measurements (dollars in thousands):
 
Fair Value at
Valuation
Unobservable
Range (Weighted)
 
Dec. 31, 2012
Technique
Input
Average
Assets:
 
 
 
 
Commodity derivatives - Utilities (a)
$
43

Independent price quotes
Long-term natural gas prices - Basis Differential
$
(0.13
)
_____________
(a)
The significant unobservable inputs used in the fair value measurement of the long-term OTC contracts are based on the average of price quotes from an independent third party market participant and the OTC contract broker. The unobservable inputs are long-term natural gas prices. Significant changes to these inputs along with the contract term would impact the derivative asset/liability and regulatory asset/liability, but will not impact the results of operations until the contract is settled under the original terms of the contract. The contracts will be classified as Level 2 once settlement is within 60 months of maturity and quoted market prices from a market exchange are available.
 
As of Dec. 31, 2011
 
Level 1 (a)
Level 2
Level 3
 
Cash Collateral and Counterparty Netting
Total
Assets:
 
 
 
 
 
 
Commodity derivatives - Oil and Gas:
 
 
 
 
 
 
Options -- Oil
$

$

$
768

 
$
5

$
773

Basis Swaps -- Oil

727


 

727

Options -- Gas



 


Basis Swaps -- Gas

9,158


 

9,158

Commodity derivatives - Utilities

(9,520
)

 
19,416

9,896

Cash equivalents
6,005



 

6,005

Total
$
6,005

$
365

$
768

 
$
19,421

$
26,559

 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
Commodity derivatives - Oil and Gas:
 
 
 
 
 
 
Options -- Oil
$

$

$
1,165

 
$
5

$
1,170

Basis Swaps -- Oil

2,200


 

2,200

Options -- Gas



 


Basis Swaps -- Gas

7


 

7

Commodity derivatives - Utilities

7,156


 

7,156

Interest rate swaps

122,867


 

122,867

Total
$

$
132,230

$
1,165

 
$
5

$
133,400


_________
(a)
Level 1 assets and liabilities are described in Note 5.


The following tables present the changes in level 3 recurring fair value (in thousands):
 
As of Dec. 31, 2012
As of Dec. 31, 2011
Assets:
Commodity
Derivatives -- Oil
Commodity
Derivatives -- Utilities
Total
Commodity
Derivatives -- Oil
Balances as of beginning of period
$
768

$

$
768

$
266

Total gain (loss) included in revenue




Total gain (loss) included in AOCI
(360
)
(54
)
(414
)
598

Purchases

192

192


Issuances




Settlements
(4
)

(4
)
(96
)
Transfers into level 3 (a)




Transfers out of level 3(b)(c)
(404
)
(95
)
(499
)

Balances at end of period
$

$
43

$
43

$
768

 
 
 
 
 
Changes in unrealized gains (losses) relating to instruments still held as of period-end
$

$
(54
)
$
(54
)
$
(101
)

 
As of Dec. 31, 2012
As of Dec. 31, 2011
Liabilities:
Commodity
Derivatives -- Oil
Commodity
Derivatives -- Utilities
Total
Commodity
Derivatives -- Oil
Balances as of beginning of period
$
1,165

$

$
1,165

$

Total gain (loss) included in revenue




Total gain (loss) included in AOCI
182


182

1,165

Purchases




Issuances




Settlements




Transfers into level 3 (a)




Transfers out of level 3(b)(c)
(1,347
)

(1,347
)

Balances at end of period
$

$

$

$
1,165

 
 
 
 
 
Changes in unrealized gains (losses) relating to instruments still held as of period-end
$

$

$

$

__________
(a)
Transfers into Level 3 would occur when significant inputs used to value the derivative instruments become less observable such as a significant decrease in the frequency and volume in which the instrument is traded, negatively impacting the availability of observable pricing inputs.
(b)
Transfers out of Level 3 would occur when the significant inputs become more observable such as the time between the valuation date and the delivery date of a transaction becomes shorter, positively impacting the availability of observable pricing inputs.
(c)
Previously, we utilized pricing methodologies developed by our Energy Marketing segment to value our Oil and Gas derivatives. Oil and Gas now obtains available observable inputs including quoted prices traded on active exchanges from multiple sources to value our options. Therefore, options in the Oil and Gas segment have been reclassified from Level 3 to Level 2.

Fair Value Measures

As required by accounting standards for derivatives and hedging, fair values within the following tables are presented on a gross basis and do not reflect the netting of asset and liability positions permitted in accordance with accounting standards for offsetting and under terms of our master netting agreements. Further, the amounts do not include net cash collateral on deposit in margin accounts at Dec. 31, 2012 and 2011, to collateralize certain financial instruments, which are included in Derivative assets and/or Derivative liabilities. Therefore, the gross balances are not indicative of either our actual credit exposure or net economic exposure. Additionally, the amounts below will not agree with the amounts presented on our Consolidated Balance Sheets, nor will they correspond to the fair value measurements presented in Note 3.

The following tables present the fair value and balance sheet classification of our derivative instruments as of Dec. 31. exclusive of cash collateral (in thousands):
 
 
2012
2011
 
Balance Sheet Location
Fair Value of Asset Derivatives
Fair Value of Liability Derivatives
Fair Value of Asset Derivatives
Fair Value of Liability Derivatives
Derivatives designated as hedges:
 
 
 
 
 
Commodity derivatives
Derivative assets - current
$
2,874

$

$
8,739

$

Commodity derivatives
Derivative assets - non-current
510


1,919


Commodity derivatives
Derivative liabilities - current

1,993


2,559

Commodity derivatives
Derivative liabilities - non-current

821


818

Interest rate swaps
Derivative liabilities - current

7,038


6,513

Interest rate swaps
Derivative liabilities - non-current

16,941


20,363

Total derivatives designated as hedges
$
3,384

$
26,793

$
10,658

$
30,253

 
 
 
 
 
 
Derivatives not designated as hedges:
 
 
 
 
Commodity derivatives
Derivative assets - current
$
362

$

$

$
9,572

Commodity derivatives
Derivative assets - non-current



(52
)
Commodity derivatives
Derivative liabilities - current
1,180

4,957



Commodity derivatives
Derivative liabilities - non-current
406

5,153


7,156

Interest rate swaps
Derivative liabilities - current

94,108


75,295

Interest rate swaps
Derivative liabilities - non-current



20,696

Total derivatives not designated as hedges
$
1,948

$
104,218

$

$
112,667



A description of our derivative activities is discussed in Note 3. The following tables present the impact that derivatives had on our Consolidated Statements of Income.

Cash Flow Hedges

The impact of cash flow hedges on our Consolidated Statements of Income and Balance Sheets for the years ended are presented as follows (in thousands):
 
Dec. 31, 2012
Derivatives in Cash Flow Hedging Relationships
Amount of Gain/(Loss) Recognized in AOCI Derivative (Effective Portion)
Location of Gain/ (Loss) Reclassified from AOCI into Income (Effective Portion)
Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)
Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
 
 
 
 
 
 
Interest rate swaps
$
(4,794
)
Interest expense
$
(7,607
)
 
$

Commodity derivatives
2,639

Revenue
8,784

 

Total
$
(2,155
)
 
$
1,177

 
$


 
Dec. 31, 2011
Derivatives in Cash Flow Hedging Relationships
Amount of Gain/(Loss) Recognized in AOCI Derivative (Effective Portion)
Location of Gain/ (Loss) Reclassified from AOCI into Income (Effective Portion)
Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)
Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
 
 
 
 
 
 
Interest rate swaps
$
(12,280
)
Interest expense
$
(7,664
)
 
$

Commodity derivatives
7,741

Revenue
5,487

 

Total
$
(4,539
)
 
$
(2,177
)
 
$


 
Dec. 31, 2010
Derivatives in Cash Flow Hedging Relationships
Amount of Gain/(Loss) Recognized in AOCI Derivative (Effective Portion)
Location of Gain/ (Loss) Reclassified from AOCI into Income (Effective Portion)
Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)
Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)
 
 
 
 
 
 
Interest rate swaps
$
(13,527
)
Interest expense
$
(7,609
)
 
$

Commodity derivatives
15,456

Revenue
14,339

 

Total
$
1,929

 
$
6,730

 
$



Derivatives Not Designated as Hedge Instruments

The impact of derivative instruments that have not been designated as hedging instruments on our Consolidated Statements of Income for the years ended Dec. 31 was as follows (in thousands):
 
 
2012
2011
2010
Derivatives Not Designated as Hedging Instruments
Location of Gain/(Loss) on Derivatives Recognized in Income
Amount of Gain/(Loss) on Derivatives Recognized in Income
Amount of Gain/(Loss) on Derivatives Recognized in Income
Amount of Gain/(Loss) on Derivatives Recognized in Income
 
 
 
 
 
Interest rate swaps - unrealized
Unrealized gain (loss) on interest rate swap, net
$
1,882

$
(42,010
)
$
(15,193
)
Interest rate swaps - realized
Interest expense
(12,959
)
(13,373
)
(13,312
)
 
 
$
(11,077
)
$
(55,383
)
$
(28,505
)