Accounting for Derivative Instruments

12 Months Ended

Dec. 31, 2016

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.

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 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, 2016 and 2015, the Company had paid zero and $0.1 million in collateral, respectively. 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 (in thousands):

Non-trading

Commodity	Notional	December 31, 2016	December 31, 2015
Natural Gas	MMBtu	8,016	7,543
Natural Gas Basis	MMBtu	—	455
Electricity	MWh	3,958	1,187

Trading

Commodity	Notional	December 31, 2016		December 31, 2015
Natural Gas	MMBtu	(953	)	8
Natural Gas Basis	MMBtu	(380	)	(455	)

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,
	2016			2015			2014
Gain (loss) on non-trading derivatives, net	22,254			(18,423		)	(8,713		)
Gain (loss) on trading derivatives, net (including gain on trading derivatives—affiliates, net of $0, $0 and $203 for the years ended December 31, 2016, 2015 and 2014, respectively)	153			(74		)	(5,822		)
Gain (loss) on derivatives, net	$	22,407		$	(18,497	)	$	(14,535	)
Current period settlements on non-trading derivatives (1) (2)	(2,284		)	20,279			(6,289		)
Current period settlements on trading derivatives (including current period settlements on trading derivatives—affiliates, net of $0, $0 and $315 for the years ended December 31, 2016, 2015 and 2014, respectively)	138			268			2,810
Total current period settlements on derivatives (1) (2)	$	(2,146	)	$	20,547		$	(3,479	)

(1) Excludes settlements of $1.0 million and $3.4 million, respectively, for the years ended December 31, 2016 and 2015, respectively related to non-trading derivative liabilities assumed in the acquisitions of CenStar and Oasis.

(2) Excludes settlements of $25.6 million for the year ended December 31, 2016 related to non-trading derivative liabilities assumed in the acquisitions of Provider Companies and Major Energy Companies.

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 cost of revenues on the 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, 2016
Description	Gross Assets		Gross Amounts Offset			Net Assets		Cash Collateral Offset		Net Amount Presented
Non-trading commodity derivatives	$	19,657	$	(11,844	)	$	7,813	$	—	$	7,813
Trading commodity derivatives	614		(83		)	531		—		531
Total Current Derivative Assets	20,271		(11,927		)	8,344		—		8,344
Non-trading commodity derivatives	7,874		(4,791		)	3,083		—		3,083
Total Non-current Derivative Assets	7,874		(4,791		)	3,083		—		3,083
Total Derivative Assets	$	28,145	$	(16,718	)	$	11,427	$	—	$	11,427

	December 31, 2016
Description	Gross  Liabilities			Gross Amounts Offset		Net Liabilities			Cash Collateral Offset		Net Amount Presented
Non-trading commodity derivatives	$	(662	)	$	69	$	(593	)			$	(593	)
Trading commodity derivatives	(92		)	5		(87		)	—		(87		)
Total Current Derivative Liabilities	(754		)	74		(680		)	—		(680		)
Non-trading commodity derivatives	(305		)	237		(68		)	—		(68		)
Total Non-current Derivative Liabilities	(305		)	237		(68		)	—		(68		)
Total Derivative Liabilities	$	(1,059	)	$	311	$	(748	)	$	—	$	(748	)

	December 31, 2015
Description	Gross Assets		Gross Amounts Offset			Net Assets		Cash Collateral Offset		Net Amount Presented
Non-trading commodity derivatives	$	589	$	(389	)	$	200	$	—	$	200
Trading commodity derivatives	411		(6		)	405		—		405
Total Current Derivative Assets	1,000		(395		)	605		—		605
Non-trading commodity derivatives	—		—			—		—		—
Total Non-current Derivative Assets	—		—			—		—		—
Total Derivative Assets	$	1,000	$	(395	)	$	605	$	—	$	605

	December 31, 2015
Description	Gross  Liabilities			Gross Amounts Offset		Net Liabilities			Cash Collateral Offset		Net Amount Presented
Non-trading commodity derivatives	$	(13,618	)	$	3,151	$	(10,467	)	$	100	$	(10,367	)
Trading commodity derivatives	(320		)	67		(253		)	—		(253		)
Total Current Derivative Liabilities	(13,938		)	3,218		(10,720		)	100		(10,620		)
Non-trading commodity derivatives	(950		)	332		(618		)	—		(618		)
Total Non-current Derivative Liabilities	(950		)	332		(618		)	—		(618		)
Total Derivative Liabilities	$	(14,888	)	$	3,550	$	(11,338	)	$	100	$	(11,238	)