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Derivative Instruments
 6 Months Ended
Jun. 30, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Derivative Instruments

We use derivative and non-derivative contracts to manage risks related to obtaining adequate supplies and the price fluctuations of natural gas, electricity and propane. Our natural gas, electric and propane distribution operations have entered into agreements with suppliers to purchase natural gas, electricity and propane for resale to our customers. Aspire Energy has entered into contracts with producers to secure natural gas to meet its obligations. Purchases under these contracts typically either do not meet the definition of derivatives or are considered “normal purchases and normal sales” and are accounted for on an accrual basis. Both our propane distribution and natural gas marketing operations may also enter into fair value hedges of their inventory or cash flow hedges of their future purchase commitments in order to mitigate the impact of wholesale price fluctuations. As of June 30, 2019, our natural gas and electric distribution operations did not have any outstanding derivative contracts.
Volume of Derivative Activity
As of June 30, 2019, the volume of our open commodity derivative contracts were as follows:
Business unit
 
Commodity
 
Quantity hedged (in millions)
 
Designation
 
Longest Expiration date of hedge
PESCO
 
Natural gas (Dts)
 
30.6
 
Cash flows hedges
 
October 2023
PESCO
 
Natural gas (Dts)
 
5.6
 
Not designated
 
October 2022
Sharp
 
Propane (gallons)
 
12.1
 
Cash flows hedges
 
June 2022

PESCO entered into natural gas futures contracts associated with the purchase and sale of natural gas to specific customers. We designated and accounted for them as cash flow hedges. The change in fair value of the natural gas futures contracts is recorded as unrealized gain (loss) in other comprehensive income (loss) and later recognized in the statement of income in the same period and in the same line item as the hedged transaction. We expect to reclassify approximately $0.5 million from accumulated other comprehensive loss to earnings during the next 12-month period ended June 30, 2020.
Sharp entered into futures and swap agreements to mitigate the risk of fluctuations in wholesale propane index prices associated with the propane volumes expected to be purchased during the heating season. Under the futures and swap agreements, Sharp will receive the difference between: (i) the index prices (Mont Belvieu prices in August 2018 through March 2023), and (ii) the per gallon propane swap prices, to the extent the index prices exceed the contracted prices. If the index prices are lower than the swap prices, Sharp will pay the difference. We designated and accounted for propane swaps as cash flows hedges. The change in the fair value of the swap agreements is recorded as unrealized gain (loss) in
other comprehensive income (loss) and later recognized in the statement of income in the same period and in the same line item as the hedged transaction. We expect to reclassify approximately $1.0 million from accumulated other comprehensive income (loss) to earnings during the next 12-month period ended June 30, 2020.
Balance Sheet Offsetting

PESCO has entered into master netting agreements with counterparties that enable it to net the counterparties' outstanding accounts receivable and payable, which are presented on a net basis in the condensed consolidated balance sheets. The following table summarizes the accounts receivable and payable on a gross and net basis at June 30, 2019 and December 31, 2018:
 
 
At June 30, 2019
(in thousands)
 
Gross amounts
 
Amounts offset
 
Net amounts
Accounts receivable
 
$
2,964

 
$
927

 
$
2,037

Accounts payable
 
$
10,418

 
$
927

 
$
9,491

 
 
At December 31, 2018
(in thousands)
 
Gross amounts
 
Amounts offset
 
Net amounts
Accounts receivable
 
$
12,368

 
$
3,834

 
$
8,534

Accounts payable
 
$
24,741

 
$
3,834

 
$
20,907


Broker Margin
Futures exchanges have contract specific margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily MTM relative to maintenance margin requirements. We maintain separate broker margin accounts for Sharp and PESCO. The balance related to the margin accounts are as follows:
(in thousands)
Balance Sheet Location
 
At June 30, 2019
 
At December 31, 2018
Sharp
Other Current Assets
 
$
1,841

 
$
2,170

PESCO
Other Current Assets
 
$
1,592

 
$
2,810


    
Financial Statements Presentation

The following tables present information about the fair value and related gains and losses of our derivative contracts. We did not have any derivative contracts with a credit-risk-related contingency.

The fair values of the derivative contracts recorded in the condensed consolidated balance sheets as of June 30, 2019 and December 31, 2018, are as follows: 
 
 
Derivative Assets
 
 
 
 
Fair Value As Of
(in thousands)
 
Balance Sheet Location
 
June 30, 2019
 
December 31, 2018
Derivatives not designated as hedging instruments
 
 
 
 
 
 
Natural gas futures contracts
 
Derivative assets, at fair value
 
$
2,747

 
$
4,024

Derivatives designated as fair value hedges
 
 
 
 
 
 
Propane put options
 
Derivative assets, at fair value
 
—

 
71

Derivatives designated as cash flow hedges
 
 
 
 
 
 
Natural gas futures contracts
 
Derivative assets, at fair value
 
7,715

 
9,059

Propane swap agreements
 
Derivative assets, at fair value
 
109

 
11

Total asset derivatives
 
 
 
$
10,571

 
$
13,165


 
 
 
Liability Derivatives
 
 
 
 
Fair Value As Of
(in thousands)
 
Balance Sheet Location
 
June 30, 2019
 
December 31, 2018
Derivatives not designated as hedging instruments
 
 
 
 
 
 
Natural gas futures contracts
 
Derivative liabilities, at fair value
 
$
3,144

 
$
4,562

Derivatives designated as cash flow hedges
 
 
 
 
 
 
Natural gas futures contracts
 
Derivative liabilities, at fair value
 
6,663

 
8,705

Propane swap agreements
 
Derivative liabilities, at fair value
 
1,187

 
1,604

Total liability derivatives
 
 
 
$
10,994

 
$
14,871


The effects of gains and losses from derivative instruments on the condensed consolidated financial statements are as follows: 
  
 
 
 
Amount of Gain (Loss) on Derivatives:
 
 
Location of Gain
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
(in thousands)
 
(Loss) on Derivatives
 
2019
 
2018
 
2019
 
2018
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
Natural gas futures contracts
 
Cost of sales
 
$
28

 
$
(128
)
 
$
6

 
$
(2,963
)
Propane swap agreements
 
Cost of sales
 
—

 
(4
)
 
—

 
(13
)
Derivatives designated as cash flow hedges
 
 
 
 
 
 
 
 
 
 
Propane swap agreements
 
Cost of sales
 
252

 
(181
)
 
858

 
(645
)
Propane swap agreements
 
Other comprehensive income (loss)
 
(494
)
 
106

 
515

 
(886
)
       Natural gas futures contracts
 
Cost of sales
 
(125
)
 
(161
)
 
(698
)
 
137

       Natural gas swap contracts
 
Cost of sales
 
—

 
(31
)
 
11

 
(481
)
       Natural gas swap contracts
 
Other comprehensive income (loss)
 
(2,463
)
 
523

 
763

 
588

       Natural gas futures contracts
 
Other comprehensive income (loss)
 
(8
)
 
861

 
(67
)
 
(871
)
Total
 
 
 
$
(2,810
)
 
$
985

 
$
1,388

 
$
(5,134
)


As of June 30, 2019, the following amounts were recorded in the condensed consolidated balance sheets related to fair value hedges:
(in thousands)
 
Carrying Amount of Hedged Item
Cumulative Adjustment Included in Carrying Amount of Hedged Item
Balance Sheet Location of Hedged Items
 
At June 30, 2019
At December 31, 2018
At June 30, 2019
At December 31, 2018
Inventory
 
$
—

$
212

$
—

$
—