Accounting for Derivative Instruments

12 Months Ended

Dec. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Accounting for Derivative Instruments

Accounting for Derivative Instruments

The Company is exposed to the impact of market fluctuations in the price of electricity and natural gas and basis costs, storage and ancillary capacity charges from independent system operators. The Company uses derivative instruments to manage exposure to these risks, and historically designated certain derivative instruments as cash flow hedges for accounting purposes. For derivatives designated in a qualifying cash flow hedging relationship, the effective portion of the change in fair value is recognized in accumulated other comprehensive income (“OCI”) and reclassified to earnings in the period in which the hedged item affects earnings. Any ineffective portion of the derivative’s change in fair value is recognized currently in earnings.

The Company also holds certain derivative instruments that are not held for trading purposes but are also not designated as hedges for accounting purposes. These derivative instruments represent economic hedges that mitigate the Company’s exposure to fluctuations in commodity prices. For these derivative instruments, changes in the fair value are recognized currently in earnings in retail revenues or retail costs of revenues, respectively.

As part of the Company’s strategy to optimize its assets and manage related risks, it also manages a portfolio of commodity derivative instruments held for trading purposes. The Company’s commodity trading activities are subject to limits within the Company’s Risk Management Policy. For these derivative instruments, changes in the fair value are recognized currently in earnings in net asset optimization revenues.

Derivative assets and liabilities are presented net in the Company’s combined and consolidated balance sheets when the derivative instruments are executed with the same counterparty under a master netting arrangement. The Company’s derivative contracts include transactions that are executed both on an exchange and centrally cleared as well as over-the-counter, bilateral contracts that are transacted directly with a third party. To the extent the Company has paid or received collateral related to the derivative assets or liabilities, such amounts would be presented net against the related derivative asset or liability’s fair value. As of December 31, 2014 and 2013, the Company had not paid or received any collateral amounts. The specific types of derivative instruments the Company may execute to manage the commodity price risk include the following:

•Forward contracts, which commit the Company to purchase or sell energy commodities in the future;

•Futures contracts, which are exchange-traded standardized commitments to purchase or sell a commodity or financial instrument;

•Swap agreements, which require payments to or from counterparties based upon the differential between two prices for a predetermined notional quantity; and,

•Option contracts, which convey to the option holder the right but not the obligation to purchase or sell a commodity.

The Company has entered into other energy-related contracts that do not meet the definition of a derivative instrument or qualify for the normal purchase or normal sale exception and are therefore not accounted for at fair value including the following:

•Forward electricity and natural gas purchase contracts for retail customer load; and,

•Natural gas transportation contracts and storage agreements.

Volumetric Underlying Derivative Transactions

The following table summarizes the net notional volume buy/(sell) of the Company’s open derivative financial instruments accounted for at fair value, broken out by commodity, as of:

Non-trading

Commodity	Notional	December 31, 2014	December 31, 2013
Natural Gas	MMBtu	9,690	3,513
Natural Gas Basis	MMBtu	2,710	373
Electricity	MWh	607	465

Trading

Commodity	Notional	December 31, 2014		December 31, 2013
Natural Gas	MMBtu	(155	)	2,259
Natural Gas Basis	MMBtu	(56	)	1,443

Gains (Losses) on Derivative Instruments

Gains (losses) on derivative instruments, net and current period settlements on derivative instruments were as follows for the periods indicated (in thousands):

	Year Ended December 31,
	2014			2013			2012
Loss on non-trading derivatives—cash flow hedges, net (including ineffectiveness gain (loss) of ($288) and $930 for the years ended December 31, 2013 and 2012, respectively.)	$	—		$	84		$	(17,942	)
Gain (loss) on non-trading derivatives, net	(8,713		)	1,345			(1,074		)
Gain (loss) on trading derivatives, net (including gain on trading derivatives—affiliates, net of $203, $1,509 and $506 for the years ended December 31, 2014, 2013 and 2012, respectively)	(5,822		)	5,138			(2,469		)
Gain (loss) on derivatives, net	$	(14,535	)	$	6,567		$	(21,485	)
Current period settlements on non-trading derivatives—cash flow hedges	$	—		$	(1,180	)	$	18,707
Current period settlements on non-trading derivatives	(6,289		)	1,833			7,782
Current period settlements on trading derivatives (including current period settlements on trading derivatives—affiliates, net of $315, ($1,780) and $87 for the years ended December 31, 2014, 2013 and 2012, respectively)	2,810			387			312
Total current period settlements on derivatives	$	(3,479	)	$	1,040		$	26,801

Gains (losses) on trading derivative instruments are recorded in net asset optimization revenues and gains (losses) on non-trading derivative instruments are recorded in retail revenues or retail cost of revenues on the combined and consolidated statements of operations.

Fair Value of Derivative Instruments

The following tables summarize the fair value and offsetting amounts of the Company’s derivative instruments by counterparty and collateral received or paid as of (in thousands):

	December 31, 2014
Description	Gross Assets		Gross Amounts Offset			Net Assets		Cash Collateral Offset		Net Amount Presented
Non-trading commodity derivatives	$	3,642	$	(3,562	)	$	80	$	—	$	80
Trading commodity derivatives	234		(98		)	136		—		136
Total Current Derivative Assets	3,876		(3,660		)	216		—		216
Non-trading commodity derivatives	313		(313		)	—		—		—
Total Non-current Derivative Assets	313		(313		)	—		—		—
Total Derivative Assets	$	4,189	$	(3,973	)	$	216	$	—	$	216

	December 31, 2014
Description	Gross  Liabilities			Gross Amounts Offset		Net Liabilities			Cash Collateral Offset		Net Amount Presented
Non-trading commodity derivatives	$	(14,911	)	$	3,562	$	(11,349	)	$	—	$	(11,349	)
Trading commodity derivatives	(275		)	98		(177		)	—		(177		)
Total Current Derivative Liabilities	(15,186		)	3,660		(11,526		)	—		(11,526		)
Non-trading commodity derivatives	(791		)	313		(478		)	—		(478		)
Total Non-current Derivative Liabilities	(791		)	313		(478		)	—		(478		)
Total Derivative Liabilities	$	(15,977	)	$	3,973	$	(12,004	)	$	—	$	(12,004	)

	December 31, 2013
Description	Gross Assets		Gross Amounts Offset			Net Assets		Cash Collateral Offset		Net Amount Presented
Non-trading commodity derivatives	$	11,564	$	(6,898	)	$	4,666	$	—	$	4,666
Trading commodity derivatives	3,949		(544		)	3,405		—		3,405
Total Current Derivative Assets	15,513		(7,442		)	8,071		—		8,071
Non-trading commodity derivatives	100		(94		)	6		—		6
Trading commodity derivatives	14		(14		)	—		—		—
Total Non-current Derivative Assets	114		(108		)	6		—		6
Total Derivative Assets	$	15,627	$	(7,550	)	$	8,077	$	—	$	8,077

	December 31, 2013
Description	Gross  Liabilities			Gross Amounts Offset		Net Liabilities			Cash Collateral Offset		Net Amount Presented
Non-trading commodity derivatives	$	(8,289	)	$	6,898	$	(1,391	)	$	—	$	(1,391	)
Trading commodity derivatives	(986		)	544		(442		)	—		(442		)
Total Current Derivative Liabilities	(9,275		)	7,442		(1,833		)	—		(1,833		)
Non-trading commodity derivatives	(120		)	94		(26		)	—		(26		)
Trading commodity derivatives	(6		)	14		8			—		8
Total Non-current Derivative Liabilities	(126		)	108		(18		)	—		(18		)
Total Derivative Liabilities	$	(9,401	)	$	7,550	$	(1,851	)	$	—	$	(1,851	)

Accumulated Other Comprehensive Income

The following table summarizes the effects on the Company’s accumulated OCI balance attributable to cash flow hedge derivative instruments for the periods indicated (in thousands):

	Year Ended December 31,
	2014		2013
Accumulated OCI balance, beginning of period	$	—	$	(2,536	)
Deferred gain (loss) on cash flow hedge derivative instruments	—		2,620
Reclassification of accumulated OCI net to income	—		(84		)
Accumulated OCI balance, end of period	$	—	$	—

The amounts reclassified from accumulated OCI into income and any amounts recognized in income from the ineffective portion of cash flow hedges are recorded in retail cost of revenues. In June 2013, the Company elected to discontinue cash flow hedge accounting.