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 | ) |
|