XML 51 R16.htm IDEA: XBRL DOCUMENT v2.4.0.8
Financial Instruments And Investments
 9 Months Ended
Sep. 30, 2013
Financial Instruments And Investments [Abstract]  
Fair Value Disclosures [Text Block]
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 Revolving Credit Facility ("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, 2013
 
December 31, 2012
 
Carrying
Amount
 
Estimated
Fair
Value
 
Carrying
Amount
 
Estimated
Fair
Value
Pollution Control Bonds
$
193,135

 
$
195,519

 
$
193,135

 
$
215,228

Senior Notes
696,463

 
758,150

 
696,400

 
823,497

RGRT Senior Notes (1)
110,000

 
116,955

 
110,000

 
120,985

RCF (1)
15,491

 
15,491

 
22,155

 
22,155

Total
$
1,015,089

 
$
1,086,115

 
$
1,021,690

 
$
1,181,865

_______________ 
(1)
Nuclear fuel financing as of September 30, 2013 and December 31, 2012 is funded through the $110 million RGRT Senior Notes and $15.5 million and $22.2 million, respectively under the RCF. As of September 30, 2013 and December 31, 2012, no amount was outstanding under the RCF for working capital or general corporate purposes. 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 $202.9 million and $187.1 million at September 30, 2013 and December 31, 2012, 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, 2013
 
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
$
1,909

 
$
(100
)
 
$
729

 
$
(50
)
 
$
2,638

 
$
(150
)
U.S. Government Bonds
10,664

 
(477
)
 
7,086

 
(344
)
 
17,750

 
(821
)
Municipal Obligations
15,360

 
(455
)
 
5,316

 
(328
)
 
20,676

 
(783
)
Corporate Obligations
3,264

 
(127
)
 
400

 
(5
)
 
3,664

 
(132
)
Total Debt Securities
31,197

 
(1,159
)
 
13,531

 
(727
)
 
44,728

 
(1,886
)
Common Stock
1,007

 
(96
)
 
217

 
(18
)
 
1,224

 
(114
)
Total Temporarily Impaired Securities
$
32,204

 
$
(1,255
)
 
$
13,748

 
$
(745
)
 
$
45,952

 
$
(2,000
)
 
_________________
(1)
Includes approximately 112 securities.
 
December 31, 2012
 
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
$
1,792

 
$
(5
)
 
$
416

 
$
(9
)
 
$
2,208

 
$
(14
)
U.S. Government Bonds
6,633

 
(79
)
 
4,457

 
(114
)
 
11,090

 
(193
)
Municipal Obligations
5,306

 
(39
)
 
5,760

 
(241
)
 
11,066

 
(280
)
Corporate Obligations
452

 
(11
)
 
—

 
—

 
452

 
(11
)
Total Debt Securities
14,183

 
(134
)
 
10,633

 
(364
)
 
24,816

 
(498
)
Common Stock
3,603

 
(409
)
 
—

 
—

 
3,603

 
(409
)
Total Temporarily Impaired Securities
$
17,786

 
$
(543
)
 
$
10,633

 
$
(364
)
 
$
28,419

 
$
(907
)
 
_________________
(2)
Includes approximately 65 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 does not anticipate expending 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, 2013
 
December 31, 2012
 
Fair
Value
 
Unrealized
Gains
 
Fair
Value
 
Unrealized
Gains
Description of Securities:
 
 
 
 
 
 
 
Federal Agency Mortgage Backed Securities
$
13,753

 
$
531

 
$
17,289

 
$
1,036

U.S. Government Bonds
7,023

 
251

 
13,295

 
678

Municipal Obligations
14,296

 
728

 
22,797

 
1,531

Corporate Obligations
10,081

 
501

 
12,378

 
1,134

Total Debt Securities
45,153

 
2,011

 
65,759

 
4,379

Common Stock
89,534

 
34,116

 
73,210

 
22,839

Equity Mutual Funds
16,207

 
2,582

 
15,194

 
1,821

Cash and Cash Equivalents
6,061

 
—

 
4,471

 
—

Total
$
156,955

 
$
38,709

 
$
158,634

 
$
29,039


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 ten years or more. The mortgage-backed securities have an estimated weighted average maturity which generally range from three years to seven years and reflects anticipated future prepayments. The contractual year for maturity of these available-for-sale securities as of September 30, 2013 is as follows (in thousands): 
 
Total
 
2013
 
2014
through
2017
 
2018 through 2022
 
2023 and Beyond
Municipal Debt Obligations
$
34,972

 
$
555

 
$
12,200

 
$
17,498

 
$
4,719

Corporate Debt Obligations
13,745

 
—

 
4,144

 
5,533

 
4,068

U.S. Government Bonds
24,773

 
804

 
9,638

 
11,574

 
2,757


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, 2013 and 2012, 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,
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Unrealized losses included in pre-tax income
$
—

 
$
—

 
$
—

 
$
(166
)
 
$
(313
)
 
$
(536
)

 
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,
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
Proceeds from sales of available-for-sale securities
$
7,057

 
$
14,582

 
$
29,419

 
$
74,095

 
$
53,866

 
$
89,180

Gross realized gains included in pre-tax income
$
212

 
$
447

 
$
593

 
$
1,526

 
$
814

 
$
1,757

Gross realized losses included in pre-tax income
(13
)
 
(129
)
 
(306
)
 
(2,276
)
 
(340
)
 
(2,414
)
Unrealized losses included in pre-tax income
—

 
—

 
—

 
(166
)
 
(313
)
 
(536
)
Net gains (losses) in pre-tax income
$
199

 
$
318

 
$
287

 
$
(916
)
 
$
161

 
$
(1,193
)
Net unrealized holding gains included in accumulated other comprehensive income
$
4,300

 
$
6,169

 
$
8,861

 
$
11,986

 
$
6,802

 
$
18,470

Net (gains) losses reclassified out of accumulated other comprehensive income
(199
)
 
(318
)
 
(287
)
 
916

 
(161
)
 
1,193

Net gains in other comprehensive income
$
4,101

 
$
5,851

 
$
8,574

 
$
12,902

 
$
6,641

 
$
19,663


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 investment 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 investment 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 investment in debt securities, at September 30, 2013 and December 31, 2012, 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, 2013
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Trading Securities:
 
 
 
 
 
 
 
Investment in Debt Securities
$
1,493

 
$
—

 
$
—

 
$
1,493

Available for sale:
 
 
 
 
 
 
 
U.S. Government Bonds
$
24,773

 
$
24,773

 
$
—

 
$
—

Federal Agency Mortgage Backed Securities
16,391

 
—

 
16,391

 
—

Municipal Bonds
34,972

 
—

 
34,972

 
—

Corporate Asset Backed Obligations
13,745

 
—

 
13,745

 
—

Subtotal Debt Securities
89,881

 
24,773

 
65,108

 
—

Common Stock
90,758

 
90,758

 
—

 
—

Equity Mutual Funds
16,207

 
16,207

 
—

 
—

Cash and Cash Equivalents
6,061

 
6,061

 
—

 
—

Total available for sale
$
202,907

 
$
137,799

 
$
65,108

 
$
—

Description of Securities
Fair Value as of December 31, 2012
 
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Trading Securities:
 
 
 
 
 
 
 
Investment in Debt Securities
$
1,295

 
$
—

 
$
—

 
$
1,295

Available for sale:
 
 
 
 
 
 
 
U.S. Government Bonds
$
24,385

 
$
24,385

 
$
—

 
$
—

Federal Agency Mortgage Backed Securities
19,497

 
—

 
19,497

 
—

Municipal Bonds
33,863

 
—

 
33,863

 
—

Corporate Asset Backed Obligations
12,830

 
—

 
12,830

 
—

Subtotal Debt Securities
90,575

 
24,385

 
66,190

 
—

Common Stock
76,813

 
76,813

 
—

 
—

Equity Mutual Funds
15,194

 
15,194

 
—

 
—

Cash and Cash Equivalents
4,471

 
4,471

 
—

 
—

Total available for sale
$
187,053

 
$
120,863

 
$
66,190

 
$
—


There were no transfers in or out of Level 1 and Level 2 fair value measurements categories during the three, nine and twelve month periods ending September 30, 2013 and 2012. There were no purchases, sales, issuances, or settlements related to the assets in the Level 3 fair value measurement category during the three, nine and twelve months ended September 30, 2013.
The Company realized in the consolidated statement of operations as investment and interest income a gain on the sale of a debt security of $0.4 million during the twelve month period ending September 30, 2012. There were no other purchases, issuances, or settlements related to the assets in the Level 3 fair value measurements category during the three, nine and twelve month periods ending September 30, 2012.