Financial Instruments And Investments

9 Months Ended

Sep. 30, 2011

Financial Instruments And Investments [Abstract]

Financial Instruments and Investments

Financial Instruments and Investments

FASB guidance requires the Company to disclose estimated fair values for its financial instruments. The Company has determined that cash and temporary investments, investment in debt securities, accounts receivable, decommissioning trust funds, long-term debt, short-term borrowings under the RCF, accounts payable and customer deposits meet the definition of financial instruments. The carrying amounts of cash and temporary investments, accounts receivable, accounts payable and customer deposits approximate fair value because of the short maturity of these items. Investments in debt securities and decommissioning trust funds are carried at fair value.

Long-Term Debt and Short-Term Borrowings Under the RCF. The fair values of the Company’s long-term debt and short-term borrowings under the RCF are based on estimated market prices for similar issues and are presented below (in thousands):

	September 30, 2011				December 31, 2010
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Pollution Control Bonds	$	193,135	$	207,552	$	193,135	$	192,924
Senior Notes	546,649		603,490		546,610		574,700
RGRT Senior Notes (1)	110,000		115,235		110,000		110,371
RCF (1)	17,793		17,793		4,704		4,704
Total	$	867,577	$	944,070	$	854,449	$	882,699

(1) Nuclear fuel financing as of September 30, 2011 is funded through the $110.0 million RGRT Senior Notes and $17.8 million under the RCF. The interest rate on the Company’s borrowings under the RCF is reset throughout the quarter reflecting current market rates. Consequently, the carrying value approximates fair value.

Marketable Securities. The Company’s marketable securities, included in decommissioning trust funds in the balance sheets, are reported at fair value which was $158.4 million and $153.9 million at September 30, 2011 and December 31, 2010, respectively. These securities are classified as available for sale under FASB guidance for certain investments in debt and equity securities and are valued using prices and other relevant information generated by market transactions involving identical or comparable securities. The reported fair values include gross unrealized losses on marketable securities whose impairment the Company has deemed to be temporary. The tables below present the gross unrealized losses and the fair value of these securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):

	September 30, 2011
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Description of Securities (1):
Federal Agency Mortgage Backed Securities	$	4,431	$	(28	)	$	—	$	—		$	4,431	$	(28	)
U.S. Government Bonds	1,938		(28		)	—		—			1,938		(28		)
Municipal Obligations	7,979		(180		)	2,571		(45		)	10,550		(225		)
Corporate Obligations	4,423		(159		)	92		(4		)	4,515		(163		)
Total Debt Securities	18,771		(395		)	2,663		(49		)	21,434		(444		)
Common Stock	20,284		(3,000		)	2,255		(760		)	22,539		(3,760		)
Total Temporarily Impaired Securities	$	39,055	$	(3,395	)	$	4,918	$	(809	)	$	43,973	$	(4,204	)

(1) Includes approximately 127 securities.

	December 31, 2010
	Less than 12 Months					12 Months or Longer					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Description of Securities (2):
Federal Agency Mortgage Backed Securities	$	2,290	$	(51	)	$	441	$	(27	)	$	2,731	$	(78	)
U.S. Government Bonds	9,583		(124		)	—		—			9,583		(124		)
Municipal Obligations	13,145		(278		)	3,763		(145		)	16,908		(423		)
Corporate Obligations	1,855		(18		)	—		—			1,855		(18		)
Total Debt Securities	26,873		(471		)	4,204		(172		)	31,077		(643		)
Common Stock	6,943		(774		)	4,303		(420		)	11,246		(1,194		)
Total Temporarily Impaired Securities	$	33,816	$	(1,245	)	$	8,507	$	(592	)	$	42,323	$	(1,837	)

(2) Includes approximately 96 securities.

The Company monitors the length of time the security trades below its cost basis along with the amount and percentage of the unrealized loss in determining if a decline in fair value of marketable securities below recorded cost is considered to be other than temporary. In addition, the Company will research the future prospects of individual securities as necessary. As a result of these factors, as well as the Company’s intent and ability to hold these securities until their market price recovers, these securities are considered temporarily impaired. The Company will not have a requirement to expend monies held in trust before 2044 or a later period when the Company begins to decommission Palo Verde.

The reported fair values also include gross unrealized gains on marketable securities which have not been recognized in the Company’s net income. The table below presents the unrecognized gross unrealized gains and the fair value of these securities, aggregated by investment category (in thousands):

	September 30, 2011				December 31, 2010
	Fair Value		Unrealized Gains		Fair Value		Unrealized Gains
Description of Securities:
Federal Agency Mortgage Backed Securities	$	24,272	$	1,251	$	18,472	$	793
U.S. Government Bonds	10,437		1,034		10,450		183
Municipal Obligations	24,417		1,427		15,633		592
Corporate Obligations	7,298		475		7,223		362
Total Debt Securities	66,424		4,187		51,778		1,930
Common Stock	43,225		10,419		56,770		14,142
Cash and Cash Equivalents	4,815		—		3,007		—
Total	$	114,464	$	14,606	$	111,555	$	16,072

The Company’s marketable securities include investments in municipal, corporate and federal debt obligations. Substantially all of the Company’s mortgage-backed securities, based on contractual maturity, are due in 10 years or more. The mortgage-backed securities have an estimated weighted average maturity which generally range from 3 to 7 years and reflects anticipated future prepayments. The contractual year for maturity of these available-for-sale securities as of September 30, 2011 is as follows (in thousands):

	Total		2011 through 2012		2013 through 2016		2017 through 2021		2022 and Beyond
Municipal Debt Obligations	$	34,967	$	1,321	$	13,035	$	13,043	$	7,568
Corporate Debt Obligations	11,813		1,378		3,893		3,533		3,009
U.S. Government Bonds	12,375		1,320		1,109		6,428		3,518

The Company recognizes impairment losses on certain of its securities deemed to be other than temporary. In accordance with FASB guidance, these impairment losses are recognized in net income, and a lower cost basis is established for these securities. For the three, nine and twelve months ended September 30, 2011 and 2010, the Company recognized other than temporary impairment losses on its available-for-sale securities as follows (in thousands):

	Three Months Ended					Nine Months Ended						Twelve Months Ended
	September 30,					September 30,						September 30,
	2011			2010		2011			2010			2011			2010
Gross unrealized holding losses included in pre-tax income	$	(1,547	)	$	—	$	(1,746	)	$	(263	)	$	(1,746	)	$	(408	)

The Company’s marketable securities in its decommissioning trust funds are sold from time to time and the Company uses the specific identification basis to determine the amount to reclassify out of accumulated other comprehensive income and into net income. The proceeds from the sale of these securities and the related effects on pre-tax income are as follows (in thousands):

	Three Months Ended						Nine Months Ended						Twelve Months Ended
	September 30,						September 30,						September 30,
	2011			2010			2011			2010			2011			2010
Proceeds from sales of available-for-sale securities	$	31,435		$	12,731		$	67,841		$	46,936		$	82,561		$	74,799
Gross realized gains included in pre-tax income	$	552		$	95		$	1,248		$	621		$	1,657		$	3,981
Gross realized losses included in pre-tax income	(289		)	(288		)	(583		)	(960		)	(512		)	(1,327		)
Gross unrealized losses included in pre-tax income	(1,547		)	—			(1,746		)	(263		)	(1,746		)	(408		)
Net gains (losses) in pre-tax income	$	(1,284	)	$	(193	)	$	(1,081	)	$	(602	)	$	(601	)	$	2,246
Net unrealized holding gains (losses) included in accumulated other comprehensive income	$	(7,503	)	$	7,019		$	(4,914	)	$	3,041		$	(1,290	)	$	4,619
Net gains (losses) reclassified out of accumulated other comprehensive income	1,284			193			1,081			602			601			(2,246		)
Net gains (losses) in other comprehensive income	$	(6,219	)	$	7,212		$	(3,833	)	$	3,643		$	(689	)	$	2,373

Fair Value Measurements. FASB guidance requires the Company to provide expanded quantitative disclosures for financial assets and liabilities recorded on the balance sheet at fair value. Financial assets carried at fair value include the Company’s decommissioning trust investments and investments in debt securities which are included in deferred charges and other assets on the consolidated balance sheets. The Company has no liabilities that are measured at fair value on a recurring basis. The FASB guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

• Level 1 – Observable inputs that reflect quoted market prices for identical assets and liabilities in active markets. Financial assets utilizing Level 1 inputs include the nuclear decommissioning trust investments in active exchange-traded equity securities and U.S. treasury securities that are in a highly liquid and active market.

• Level 2 – Inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly. Financial assets utilizing Level 2 inputs include the nuclear decommissioning trust investments in fixed income securities. The fair value of these financial instruments is based on evaluated prices that reflect observable market information, such as actual trade information of similar securities, adjusted for observable differences.

• Level 3 – Unobservable inputs using data that is not corroborated by market data and primarily based on internal Company analysis using models and various other analyses. Financial assets utilizing Level 3 inputs include the Company’s investments in debt securities.

The securities in the Company’s decommissioning trust funds are valued using prices and other relevant information generated by market transactions involving identical or comparable securities. FASB guidance identifies this valuation technique as the “market approach” with observable inputs. The Company analyzes available-for-sale securities to determine if losses are other than temporary.

The fair value of the Company’s decommissioning trust funds and investments in debt securities, at September 30, 2011 and December 31, 2010, and the level within the three levels of the fair value hierarchy defined by FASB guidance are presented in the table below (in thousands):

Description of Securities	Fair Value as of September 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Trading Securities:
Investments in Debt Securities	$	2,776	$	—	$	—	$	2,776
Available for sale:
U.S. Government Bonds	$	12,375	$	12,375	$	—	$	—
Federal Agency Mortgage Backed Securities	28,703		—		28,703		—
Municipal Bonds	34,967		—		34,967		—
Corporate Asset Backed Obligations	11,813		—		11,813		—
Subtotal Debt Securities	87,858		12,375		75,483		—
Common Stock	65,764		65,764		—		—
Cash and Cash Equivalents	4,815		4,815		—		—
Total available for sale	$	158,437	$	82,954	$	75,483	$	—

Description of Securities	Fair Value as of December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Trading Securities:
Investments in Debt Securities	$	2,909	$	—	$	—	$	2,909
Available for sale:
U.S. Government Bonds	$	20,033	$	20,033	$	—	$	—
Federal Agency Mortgage Backed Securities	21,204		—		21,204		—
Municipal Bonds	32,541		—		32,541		—
Corporate Asset Backed Obligations	9,077		—		9,077		—
Subtotal Debt Securities	82,855		20,033		62,822		—
Common Stock	68,016		68,016		—		—
Cash and Cash Equivalents	3,007		3,007		—		—
Total available for sale	$	153,878	$	91,056	$	62,822	$	—

There were no transfers in and out of Level 1 and Level 2 fair value measurements categories during the three, nine and twelve month periods ending September 30, 2011 and September 30, 2010. There were no purchases, sales, issuances, and settlements related to the assets in the Level 3 fair value measurement category during the three, nine and twelve month periods ending September 30, 2011 and 2010.