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Fair Value Measurements
 12 Months Ended
Dec. 31, 2013
Fair Value Measurements

11. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements of Long-term Debt

 

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities classified as Level 2 measurement inputs. These instruments are not marked-to-market. The estimates presented are not necessarily indicative of the amounts that we could realize in a current market exchange.

 

The book values and fair values of Long-term Debt as of December 31, 2013 and 2012 are summarized in the following table:

   December 31,
   2013 2012
   Book Value Fair Value Book Value Fair Value
   (in millions)
 Long-term Debt $ 18,377 $ 19,672 $ 17,757 $ 20,907

Fair Value Measurements of Other Temporary Investments

 

Other Temporary Investments include funds held by trustees primarily for the payment of securitization bonds and Securities Available for Sale, including marketable securities that we intend to hold for less than one year and investments by our protected cell of EIS. See “Other Temporary Investments” section of Note 1.

 

The following is a summary of Other Temporary Investments:

     December 31, 2013 
       Gross Gross Estimated 
        Unrealized Unrealized  Fair
 Other Temporary Investments Cost Gains Losses Value
     (in millions) 
 Restricted Cash (a) $ 250 $ - $ - $ 250 
 Fixed Income Securities:             
  Mutual Funds   80   -   -   80 
 Equity Securities - Mutual Funds   12   11   -   23 
 Total Other Temporary Investments $ 342 $ 11 $ - $ 353 
                 
     December 31, 2012 
       Gross Gross Estimated 
        Unrealized Unrealized  Fair 
 Other Temporary Investments Cost Gains Losses Value 
     (in millions) 
 Restricted Cash (a) $ 241 $ - $ - $ 241 
 Fixed Income Securities:             
  Mutual Funds   65   2   -   67 
 Equity Securities - Mutual Funds   10   6   -   16 
 Total Other Temporary Investments $ 316 $ 8 $ - $ 324 
                 
 (a)Primarily represents amounts held for the repayment of debt.

The following table provides the activity for our fixed income and equity securities within Other Temporary Investments for the years ended December 31, 2013, 2012 and 2011:

  Years Ended December 31,
  2013 2012 2011
  (in millions)
 Proceeds from Investment Sales$ - $ - $ 268
 Purchases of Investments  17   2   154
 Gross Realized Gains on Investment Sales  -   -   4
 Gross Realized Losses on Investment Sales  -   -   -

As of December 31, 2013 and 2012, we had no Other Temporary Investments with an unrealized loss position. As of December 31, 2013, fixed income securities were primarily debt based mutual funds with short and intermediate maturities. Mutual funds may be sold and do not contain maturity dates.

Fair Value Measurements of Trust Assets for Decommissioning and SNF Disposal

 

I&M records securities held in trust funds for decommissioning nuclear facilities and for the disposal of SNF at fair value. See “Nuclear Trust Funds” section of Note 1.

 

The following is a summary of nuclear trust fund investments as of December 31, 2013 and December 31, 2012:

     December 31,
     2013 2012
     Estimated Gross Other-Than-  Estimated Gross Other-Than-
    FairUnrealizedTemporaryFairUnrealizedTemporary
    ValueGainsImpairmentsValueGainsImpairments
     (in millions)
 Cash and Cash Equivalents $ 19 $ - $ - $ 17 $ - $ -
 Fixed Income Securities:                  
  United States Government   609   26   (4)   648   58   (1)
  Corporate Debt   37   2   (1)   35   5   (1)
  State and Local Government   255   1   -   270   1   (1)
   Subtotal Fixed Income Securities   901   29   (5)   953   64   (3)
 Equity Securities - Domestic   1,012   506   (82)   736   285   (77)
 Spent Nuclear Fuel and                  
  Decommissioning Trusts $ 1,932 $ 535 $ (87) $ 1,706 $ 349 $ (80)

The following table provides the securities activity within the decommissioning and SNF trusts for the years ended December 31, 2013, 2012 and 2011:

  Years Ended December 31,
  2013 2012 2011
  (in millions)
 Proceeds from Investment Sales$ 858 $ 988 $ 1,111
 Purchases of Investments  910   1,045   1,167
 Gross Realized Gains on Investment Sales  18   25   33
 Gross Realized Losses on Investment Sales  8   9   22

The adjusted cost of fixed income securities was $872 million and $889 million as of December 31, 2013 and 2012, respectively. The adjusted cost of equity securities was $506 million and $451 million as of December 31, 2013 and 2012, respectively.

 

The fair value of fixed income securities held in the nuclear trust funds, summarized by contractual maturities, as of December 31, 2013 was as follows:

  Fair Value of 
  Fixed Income 
  Securities 
  (in millions) 
 Within 1 year$ 79 
 1 year – 5 years  384 
 5 years – 10 years  188 
 After 10 years  250 
 Total$ 901 

Fair Value Measurements of Financial Assets and Liabilities

 

For a discussion of fair value accounting and the classification of assets and liabilities within the fair value hierarchy, see the “Fair Value Measurements of Assets and Liabilities” section of Note 1.

 

The following tables set forth, by level within the fair value hierarchy, our financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 and 2012. As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have not been any significant changes in our valuation techniques.

 Assets and Liabilities Measured at Fair Value on a Recurring Basis
 December 31, 2013
             
    Level 1 Level 2 Level 3 Other Total
 Assets:(in millions)
                  
 Cash and Cash Equivalents (a)$ 16 $ 1 $ - $ 101 $ 118
                  
 Other Temporary Investments              
 Restricted Cash (a)  231   8   -   11   250
 Fixed Income Securities:              
  Mutual Funds  80   -   -   -   80
 Equity Securities - Mutual Funds (b)  23   -   -   -   23
 Total Other Temporary Investments  334   8   -   11   353
                  
 Risk Management Assets              
 Risk Management Commodity Contracts (c) (d)  22   549   142   (273)   440
 Cash Flow Hedges:              
  Commodity Hedges (c)  -   15   -   (8)   7
 Fair Value Hedges  -   1   -   3   4
 De-designated Risk Management Contracts (e)  -   -   -   6   6
 Total Risk Management Assets   22   565   142   (272)   457
                  
 Spent Nuclear Fuel and Decommissioning Trusts              
 Cash and Cash Equivalents (f)  8   -   -   11   19
 Fixed Income Securities:              
  United States Government  -   609   -   -   609
  Corporate Debt  -   37   -   -   37
  State and Local Government  -   255   -   -   255
   Subtotal Fixed Income Securities  -   901   -   -   901
 Equity Securities - Domestic (b)  1,012   -   -   -   1,012
 Total Spent Nuclear Fuel and Decommissioning Trusts  1,020   901   -   11   1,932
                  
 Total Assets$ 1,392 $ 1,475 $ 142 $ (149) $ 2,860
                  
 Liabilities:              
                  
 Risk Management Liabilities              
 Risk Management Commodity Contracts (c) (d)$ 30 $ 475 $ 22 $ (282) $ 245
 Cash Flow Hedges:              
  Commodity Hedges (c)  -   11   3   (8)   6
  Interest Rate/Foreign Currency Hedges  -   2   -   -   2
 Fair Value Hedges  -   11   -   3   14
 Total Risk Management Liabilities $ 30 $ 499 $ 25 $ (287) $ 267

Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2012
            
   Level 1 Level 2 Level 3 Other Total
Assets:(in millions)
                 
Cash and Cash Equivalents (a)$ 6 $ 1 $ - $ 272 $ 279
                 
Other Temporary Investments              
Restricted Cash (a)  227   5   -   9   241
Fixed Income Securities:              
 Mutual Funds  67   -   -   -   67
Equity Securities - Mutual Funds (b)  16   -   -   -   16
Total Other Temporary Investments  310   5   -   9   324
                 
Risk Management Assets              
Risk Management Commodity Contracts (c) (g)  47   938   131   (599)   517
Cash Flow Hedges:              
 Commodity Hedges (c)  8   28   -   (12)   24
Fair Value Hedges  -   2   -   2   4
De-designated Risk Management Contracts (e)  -   -   -   14   14
Total Risk Management Assets   55   968   131   (595)   559
                 
Spent Nuclear Fuel and Decommissioning Trusts              
Cash and Cash Equivalents (f)  7   -   -   10   17
Fixed Income Securities:              
 United States Government  -   648   -   -   648
 Corporate Debt  -   35   -   -   35
 State and Local Government  -   270   -   -   270
  Subtotal Fixed Income Securities  -   953   -   -   953
Equity Securities - Domestic (b)  736   -   -   -   736
Total Spent Nuclear Fuel and Decommissioning Trusts  743   953   -   10   1,706
                 
Total Assets$ 1,114 $ 1,927 $ 131 $ (304) $ 2,868
                 
Liabilities:              
                 
Risk Management Liabilities              
Risk Management Commodity Contracts (c) (g)$ 45 $ 838 $ 45 $ (636) $ 292
Cash Flow Hedges:              
 Commodity Hedges (c)  -   48   -   (12)   36
 Interest Rate/Foreign Currency Hedges  -   37   -   -   37
Fair Value Hedges  -   2   -   2   4
Total Risk Management Liabilities $ 45 $ 925 $ 45 $ (646) $ 369

(a)       Amounts in "Other" column primarily represent cash deposits in bank accounts with financial institutions or with third parties. Level 1 and Level 2 amounts primarily represent investments in money market funds.

(b)       Amounts represent publicly traded equity securities and equity-based mutual funds.

(c)       Amounts in "Other" column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for "Derivatives and Hedging."

(d)       The December 31, 2013 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows: Level 1 matures $4 million in 2014, $(11) million in periods 2015-2017 and $(1) million in periods 2018-2019; Level 2 matures $25 million in 2014, $37 million in periods 2015-2017, $7 million in periods 2018-2019 and $5 million in periods 2020-2030; Level 3 matures $27 million in 2014, $60 million in periods 2015-2017, $14 million in periods 2018-2019 and $19 million in periods 2020-2030. Risk management commodity contracts are substantially comprised of power contracts.

(e)       Represents contracts that were originally MTM but were subsequently elected as normal under the accounting guidance for "Derivatives and Hedging." At the time of the normal election, the MTM value was frozen and no longer fair valued. This MTM value will be amortized into revenues over the remaining life of the contracts.

(f)       Amounts in "Other" column primarily represent accrued interest receivables from financial institutions. Level 2 amounts primarily represent investments in money market funds.

(g)       The December 31, 2012 maturity of the net fair value of risk management contracts prior to cash collateral, assets/(liabilities), is as follows: Level 1 matures $9 million in 2013, $(3) million in periods 2014-2016 and $(4) million in periods 2017-2018; Level 2 matures $16 million in 2013, $61 million in periods 2014-2016, $16 million in periods 2017-2018 and $7 million in periods 2019-2030; Level 3 matures $18 million in 2013, $31 million in periods 2014-2016, $13 million in periods 2017-2018 and $24 million in periods 2019-2030. Risk management commodity contracts are substantially comprised of power contracts.

There have been no transfers between Level 1 and Level 2 during the years ended December 31, 2013, 2012 and 2011.

 

The following tables set forth a reconciliation of changes in the fair value of net trading derivatives and other investments classified as Level 3 in the fair value hierarchy:

   Net Risk Management
Year Ended December 31, 2013 Assets (Liabilities)
   (in millions)
Balance as of December 31, 2012 $ 86
Realized Gain (Loss) Included in Net Income (or Changes in Net Assets) (a) (b)   (9)
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets)   
 Relating to Assets Still Held at the Reporting Date (a)   37
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income   (3)
Purchases, Issuances and Settlements (c)   (16)
Transfers into Level 3 (d) (e)   19
Transfers out of Level 3 (e) (f)   (4)
Changes in Fair Value Allocated to Regulated Jurisdictions (g)   7
Balance as of December 31, 2013 $ 117
     
   Net Risk Management
Year Ended December 31, 2012 Assets (Liabilities)
   (in millions)
Balance as of December 31, 2011 $ 69
Realized Gain (Loss) Included in Net Income (or Changes in Net Assets) (a) (b)   (15)
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets)   
 Relating to Assets Still Held at the Reporting Date (a)   29
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income   -
Purchases, Issuances and Settlements (c)   32
Transfers into Level 3 (d) (e)   1
Transfers out of Level 3 (e) (f)   (35)
Changes in Fair Value Allocated to Regulated Jurisdictions (g)   5
Balance as of December 31, 2012 $ 86
     
   Net Risk Management
Year Ended December 31, 2011 Assets (Liabilities)
   (in millions)
Balance as of December 31, 2010 $ 85
Realized Gain (Loss) Included in Net Income (or Changes in Net Assets) (a) (b)   (10)
Unrealized Gain (Loss) Included in Net Income (or Changes in Net Assets)   
 Relating to Assets Still Held at the Reporting Date (a)   9
Realized and Unrealized Gains (Losses) Included in Other Comprehensive Income   -
Purchases, Issuances and Settlements (c)   (3)
Transfers into Level 3 (d) (e)   13
Transfers out of Level 3 (e) (f)   (12)
Changes in Fair Value Allocated to Regulated Jurisdictions (g)   (13)
Balance as of December 31, 2011 $ 69

(a)       Included in revenues on the statements of income.

(b)       Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.

(c)       Represents the settlement of risk management commodity contracts for the reporting period.

(d)       Represents existing assets or liabilities that were previously categorized as Level 2.

(e)       Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

(f)       Represents existing assets or liabilities that were previously categorized as Level 3.

(g)       Relates to the net gains (losses) of those contracts that are not reflected on the statements of income. These net gains (losses) are recorded as regulatory liabilities/assets.

The following tables quantify the significant unobservable inputs used in developing the fair value of our Level 3 positions as of December 31, 2013 and 2012:

 

Significant Unobservable Inputs
December 31, 2013
                 
  Fair Value Valuation Significant Input/Range
  Assets Liabilities Technique Unobservable Input Low High
  (in millions)          
Energy Contracts $ 132 $ 22 Discounted Cash Flow Forward Market Price (a) $ 11.42 $ 120.72
          Counterparty Credit Risk (b)  316
FTRs   10   3 Discounted Cash Flow Forward Market Price (a)   (5.10)   10.44
Total $142 $25          
                 
Significant Unobservable Inputs
December 31, 2012
                 
  Fair Value Valuation Significant Input/Range
  Assets Liabilities Technique Unobservable Input Low High
  (in millions)          
Energy Contracts $ 124 $ 38 Discounted Cash Flow Forward Market Price (a) $ 9.40 $ 111.97
          Counterparty Credit Risk (b)  397
FTRs   7   7 Discounted Cash Flow Forward Market Price (a)   (3.21)   14.79
Total $131 $45          

(a) Represents market prices in dollars per MWh.

(b) Represents average price of credit default swaps used to calculate counterparty credit risk, reported in basis points.
Appalachian Power Co [Member]
  
Fair Value Measurements

10. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements of Long-term Debt

 

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities classified as Level 2 measurement inputs. These instruments are not marked-to-market. The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange.

 

The book values and fair values of Long-term Debt for the Registrant Subsidiaries as of December 31, 2013 and 2012 are summarized in the following table:

   December 31,
   2013 2012
 Company Book Value Fair Value Book Value Fair Value
              
   (in thousands)
 APCo $ 4,194,357 $ 4,587,079 $ 3,702,442 $ 4,555,143
 I&M   2,039,016   2,174,891   2,057,666   2,372,017
 OPCo   2,735,175   3,007,191   3,860,440   4,560,337
 PSO   999,810   1,111,149   949,871   1,175,759
 SWEPCo   2,043,332   2,214,730   2,046,228   2,400,509

Fair Value Measurements of Financial Assets and Liabilities

 

For a discussion of fair value accounting and the classification of assets and liabilities within the fair value hierarchy, see the “Fair Value Measurements of Assets and Liabilities” section of Note 1.

 

The following tables set forth, by level within the fair value hierarchy, the Registrant Subsidiaries' financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 and 2012. As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have not been any significant changes in management's valuation techniques.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2013
APCo         
  Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                
Other Cash Deposits (e)$ 2,714 $ - $ - $ 36 $ 2,750
                
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)  827   54,448   12,097   (29,616)   37,756
Cash Flow Hedges:              
 Commodity Hedges (a)  -   389   -   (26)   363
Total Risk Management Assets   827   54,837   12,097   (29,642)   38,119
                
Total Assets$ 3,541 $ 54,837 $ 12,097 $ (29,606) $ 40,869
                
Liabilities:              
                
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ 700 $ 49,220 $ 1,535 $ (32,609) $ 18,846
Cash Flow Hedges:              
 Commodity Hedges (a)  -   313   -   (26)   287
Total Risk Management Liabilities $ 700 $ 49,533 $ 1,535 $ (32,635) $ 19,133

Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2012
APCo         
  Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)$ 4,161 $ 166,916 $ 17,058 $ (123,117) $ 65,018
Cash Flow Hedges:              
 Commodity Hedges (a)  -   498   -   (196)   302
Total Risk Management Assets $ 4,161 $ 167,414 $ 17,058 $ (123,313) $ 65,320
                
Liabilities:              
                
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ 1,959 $ 158,665 $ 6,079 $ (132,884) $ 33,819
Cash Flow Hedges:              
 Commodity Hedges (a)  -   1,551   -   (196)   1,355
Total Risk Management Liabilities $ 1,959 $ 160,216 $ 6,079 $ (133,080) $ 35,174

(a)       Amounts in “Other” column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for “Derivatives and Hedging.”

(b)       Substantially comprised of power contracts for APCo, I&M and OPCo and coal contracts for PSO and SWEPCo.

(c)       Amounts in “Other” column primarily represent accrued interest receivables from financial institutions. Level 1 amounts primarily represent investments in money market funds.

(d)       Amounts represent publicly traded equity securities and equity-based mutual funds.

(e)       Amounts in “Other” column primarily represent cash deposits with third parties. Level 1 and Level 2 amounts primarily represent investments in money market funds.

There have been no transfers between Level 1 and Level 2 during the years ended December 31, 2013, 2012 and 2011.

 

The following tables set forth a reconciliation of changes in the fair value of net trading derivatives classified as Level 3 in the fair value hierarchy:

 

Year Ended December 31, 2013 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (3,568)   (2,466)   (5,042)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   328   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   -   -   -   -   -
Purchases, Issuances and Settlements (c)   481   390   765   -   -
Transfers into Level 3 (d) (e)   1,340   911   1,874   -   -
Transfers out of Level 3 (e) (f)   (925)   (637)   (1,303)   -   -
Transfer of OPCo Generation to Parent   -   -   (12,051)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   2,255   1,425   2,920   -   -
Balance as of December 31, 2013 $ 10,562 $ 7,164 $ 2,920 $ - $ -

Year Ended December 31, 2012 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (5,204)   (3,554)   (7,452)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   5,401   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   23   13   28   -   -
Purchases, Issuances and Settlements (c)   11,200   7,734   16,214   -   -
Transfers into Level 3 (d) (e)   1,392   860   1,909   -   -
Transfers out of Level 3 (e) (f)   (1,930)   (1,144)   (2,527)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   3,527   2,369   (810)   -   -
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
                 
Year Ended December 31, 2011 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2010 $ 5,131 $ 3,108 $ 6,583 $ 1 $ 2
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (2,154)   (1,261)   (2,711)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   7,741   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   (73)   (47)   (100)   -   -
Purchases, Issuances and Settlements (c)   1,574   847   1,858   -   -
Transfers into Level 3 (d) (e)   2,488   1,531   3,257   -   -
Transfers out of Level 3 (e) (f)   (3,003)   (1,906)   (4,032)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   (1,992)   (1,009)   (9,930)   (1)   (2)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -

(a)       Included in revenues on the statements of income.

(b)       Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.

(c)       Represents the settlement of risk management commodity contracts for the reporting period.

(d)       Represents existing assets or liabilities that were previously categorized as Level 2.

(e)       Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

(f)       Represents existing assets or liabilities that were previously categorized as Level 3.

(g)       Relates to the net gains (losses) of those contracts that are not reflected on the statements of income. These net gains (losses) are recorded as regulatory assets/liabilities.

The following tables quantify the significant unobservable inputs used in developing the fair value of Level 3 positions as of December 31, 2013 and 2012

Significant Unobservable Inputs
December 31, 2013
 APCo          
   Fair Value Valuation Significant Forward Price Range
   Assets Liabilities Technique Unobservable Input (a) Low High
   (in thousands)          
 Energy Contracts $ 9,359 $ 960 Discounted Cash Flow Forward Market Price $ 13.04 $ 80.50
 FTRs   2,738   575 Discounted Cash Flow Forward Market Price   (5.10)   10.44
 Total $12,097 $1,535          
                  
Significant Unobservable Inputs
December 31, 2012
 APCo          
   Fair Value Valuation Significant Forward Price Range
   Assets Liabilities Technique Unobservable Input (a) Low High
   (in thousands)          
 Energy Contracts $ 15,310 $ 3,920 Discounted Cash Flow Forward Market Price $ 9.40 $ 68.80
 FTRs   1,748   2,159 Discounted Cash Flow Forward Market Price   (3.21)   14.79
 Total $17,058 $6,079          

(a)       Represents market prices in dollars per MWh.
Indiana Michigan Power Co [Member]
  
Fair Value Measurements

10. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements of Long-term Debt

 

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities classified as Level 2 measurement inputs. These instruments are not marked-to-market. The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange.

 

The book values and fair values of Long-term Debt for the Registrant Subsidiaries as of December 31, 2013 and 2012 are summarized in the following table:

   December 31,
   2013 2012
 Company Book Value Fair Value Book Value Fair Value
              
   (in thousands)
 APCo $ 4,194,357 $ 4,587,079 $ 3,702,442 $ 4,555,143
 I&M   2,039,016   2,174,891   2,057,666   2,372,017
 OPCo   2,735,175   3,007,191   3,860,440   4,560,337
 PSO   999,810   1,111,149   949,871   1,175,759
 SWEPCo   2,043,332   2,214,730   2,046,228   2,400,509

Fair Value Measurements of Trust Assets for Decommissioning and SNF Disposal

 

I&M records securities held in trust funds for decommissioning nuclear facilities and for the disposal of SNF at fair value. See “Nuclear Trust Funds” section of Note 1.

 

The following is a summary of nuclear trust fund investments as of December 31, 2013 and 2012:

    December 31,
    2013 2012
    Estimated Gross Other-Than-  Estimated Gross Other-Than-
   FairUnrealizedTemporaryFairUnrealizedTemporary
   ValueGainsImpairmentsValueGainsImpairments
    (in thousands)
 Cash and Cash Equivalents $ 18,804 $ - $ - $ 16,783 $ - $ -
 Fixed Income Securities:                  
  United States Government   608,875   26,114   (3,824)   647,918   58,268   (747)
  Corporate Debt   36,782   2,450   (1,123)   35,399   4,903   (1,352)
  State and Local Government   254,638   748   (370)   270,090   1,006   (863)
   Subtotal Fixed Income Securities  900,295   29,312   (5,317)   953,407   64,177   (2,962)
 Equity Securities - Domestic   1,012,511   505,538   (81,677)   735,582   284,599   (76,557)
 Spent Nuclear Fuel and                  
  Decommissioning Trusts $ 1,931,610 $ 534,850 $ (86,994) $ 1,705,772 $ 348,776 $ (79,519)

The following table provides the securities activity within the decommissioning and SNF trusts for the years ended December 31, 2013, 2012 and 2011:

  Years Ended December 31,
  2013 2012 2011
  (in thousands)
 Proceeds from Investment Sales$ 858,406 $ 987,550 $ 1,110,909
 Purchases of Investments  909,998   1,045,422   1,166,690
 Gross Realized Gains on Investment Sales  18,326   24,605   33,382
 Gross Realized Losses on Investment Sales  8,108   8,881   22,159

The adjusted cost of fixed income securities was $872 million and $889 million as of December 31, 2013 and 2012, respectively. The adjusted cost of equity securities was $506 million and $451 million as of December 31, 2013 and 2012, respectively.

 

The fair value of fixed income securities held in the nuclear trust funds, summarized by contractual maturities, as of December 31, 2013 was as follows:

  Fair Value of 
  Fixed Income 
  Securities 
     
  (in thousands) 
 Within 1 year$ 79,100 
 1 year – 5 years  383,623 
 5 years – 10 years  187,800 
 After 10 years  249,772 
 Total$ 900,295 

Fair Value Measurements of Financial Assets and Liabilities

 

For a discussion of fair value accounting and the classification of assets and liabilities within the fair value hierarchy, see the “Fair Value Measurements of Assets and Liabilities” section of Note 1.

 

The following tables set forth, by level within the fair value hierarchy, the Registrant Subsidiaries' financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 and 2012. As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have not been any significant changes in management's valuation techniques.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2013
I&M         
   Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                 
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)$ 561 $ 38,667 $ 8,205 $ (20,766) $ 26,667
Cash Flow Hedges:              
 Commodity Hedges (a)  -   234   -   (18)   216
Total Risk Management Assets   561   38,901   8,205   (20,784)   26,883
                 
Spent Nuclear Fuel and Decommissioning Trusts              
Cash and Cash Equivalents (c)  8,082   -   -   10,722   18,804
Fixed Income Securities:              
 United States Government  -   608,875   -   -   608,875
 Corporate Debt  -   36,782   -   -   36,782
 State and Local Government  -   254,638   -   -   254,638
  Subtotal Fixed Income Securities  -   900,295   -   -   900,295
Equity Securities - Domestic (d)  1,012,511   -   -   -   1,012,511
Total Spent Nuclear Fuel and Decommissioning Trusts  1,020,593   900,295   -   10,722   1,931,610
                 
Total Assets$ 1,021,154 $ 939,196 $ 8,205 $ (10,062) $ 1,958,493
                 
Liabilities:              
                 
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ 475 $ 35,061 $ 1,041 $ (22,796) $ 13,781
Cash Flow Hedges:              
 Commodity Hedges (a)  -   212   -   (18)   194
Total Risk Management Liabilities $ 475 $ 35,273 $ 1,041 $ (22,814) $ 13,975

  Assets and Liabilities Measured at Fair Value on a Recurring Basis
  December 31, 2012
I&M         
   Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                 
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)$ 2,858 $ 120,242 $ 11,717 $ (84,474) $ 50,343
Cash Flow Hedges:              
 Commodity Hedges (a)  -   330   -   (130)   200
Total Risk Management Assets   2,858   120,572   11,717   (84,604)   50,543
                 
Spent Nuclear Fuel and Decommissioning Trusts              
Cash and Cash Equivalents (c)  6,508   -   -   10,275   16,783
Fixed Income Securities:              
 United States Government  -   647,918   -   -   647,918
 Corporate Debt  -   35,399   -   -   35,399
 State and Local Government  -   270,090   -   -   270,090
  Subtotal Fixed Income Securities  -   953,407   -   -   953,407
Equity Securities - Domestic (d)  735,582   -   -   -   735,582
Total Spent Nuclear Fuel and Decommissioning Trusts  742,090   953,407   -   10,275   1,705,772
                 
Total Assets$ 744,948 $ 1,073,979 $ 11,717 $ (74,329) $ 1,756,315
                 
Liabilities:              
                 
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ 1,346 $ 110,621 $ 4,176 $ (91,183) $ 24,960
Cash Flow Hedges:              
 Commodity Hedges (a)  -   1,061   -   (130)   931
 Interest Rate/Foreign Currency Hedges  -   19,524   -   -   19,524
Total Risk Management Liabilities $ 1,346 $ 131,206 $ 4,176 $ (91,313) $ 45,415

(a)       Amounts in “Other” column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for “Derivatives and Hedging.”

(b)       Substantially comprised of power contracts for APCo, I&M and OPCo and coal contracts for PSO and SWEPCo.

(c)       Amounts in “Other” column primarily represent accrued interest receivables from financial institutions. Level 1 amounts primarily represent investments in money market funds.

(d)       Amounts represent publicly traded equity securities and equity-based mutual funds.

(e)       Amounts in “Other” column primarily represent cash deposits with third parties. Level 1 and Level 2 amounts primarily represent investments in money market funds.

There have been no transfers between Level 1 and Level 2 during the years ended December 31, 2013, 2012 and 2011.

 

The following tables set forth a reconciliation of changes in the fair value of net trading derivatives classified as Level 3 in the fair value hierarchy:

 

Year Ended December 31, 2013 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (3,568)   (2,466)   (5,042)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   328   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   -   -   -   -   -
Purchases, Issuances and Settlements (c)   481   390   765   -   -
Transfers into Level 3 (d) (e)   1,340   911   1,874   -   -
Transfers out of Level 3 (e) (f)   (925)   (637)   (1,303)   -   -
Transfer of OPCo Generation to Parent   -   -   (12,051)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   2,255   1,425   2,920   -   -
Balance as of December 31, 2013 $ 10,562 $ 7,164 $ 2,920 $ - $ -

Year Ended December 31, 2012 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (5,204)   (3,554)   (7,452)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   5,401   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   23   13   28   -   -
Purchases, Issuances and Settlements (c)   11,200   7,734   16,214   -   -
Transfers into Level 3 (d) (e)   1,392   860   1,909   -   -
Transfers out of Level 3 (e) (f)   (1,930)   (1,144)   (2,527)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   3,527   2,369   (810)   -   -
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
                 
Year Ended December 31, 2011 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2010 $ 5,131 $ 3,108 $ 6,583 $ 1 $ 2
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (2,154)   (1,261)   (2,711)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   7,741   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   (73)   (47)   (100)   -   -
Purchases, Issuances and Settlements (c)   1,574   847   1,858   -   -
Transfers into Level 3 (d) (e)   2,488   1,531   3,257   -   -
Transfers out of Level 3 (e) (f)   (3,003)   (1,906)   (4,032)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   (1,992)   (1,009)   (9,930)   (1)   (2)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -

(a)       Included in revenues on the statements of income.

(b)       Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.

(c)       Represents the settlement of risk management commodity contracts for the reporting period.

(d)       Represents existing assets or liabilities that were previously categorized as Level 2.

(e)       Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

(f)       Represents existing assets or liabilities that were previously categorized as Level 3.

(g)       Relates to the net gains (losses) of those contracts that are not reflected on the statements of income. These net gains (losses) are recorded as regulatory assets/liabilities.

The following tables quantify the significant unobservable inputs used in developing the fair value of Level 3 positions as of December 31, 2013 and 2012

Significant Unobservable Inputs
December 31, 2013
 I&M         
   Fair Value Valuation Significant Forward Price Range
   Assets Liabilities Technique Unobservable Input (a) Low High
   (in thousands)          
 Energy Contracts $ 6,348 $ 651 Discounted Cash Flow Forward Market Price $ 13.04 $ 80.50
 FTRs   1,857   390 Discounted Cash Flow Forward Market Price   (5.10)   10.44
 Total $8,205 $1,041          
                  
Significant Unobservable Inputs
December 31, 2012
 I&M         
   Fair Value Valuation Significant Forward Price Range
   Assets Liabilities Technique Unobservable Input (a) Low High
   (in thousands)          
 Energy Contracts $ 10,516 $ 2,693 Discounted Cash Flow Forward Market Price $ 9.40 $ 68.80
 FTRs   1,201   1,483 Discounted Cash Flow Forward Market Price   (3.21)   14.79
 Total $11,717 $4,176          

(a)       Represents market prices in dollars per MWh.
Ohio Power Co [Member]
  
Fair Value Measurements

10. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements of Long-term Debt

 

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities classified as Level 2 measurement inputs. These instruments are not marked-to-market. The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange.

 

The book values and fair values of Long-term Debt for the Registrant Subsidiaries as of December 31, 2013 and 2012 are summarized in the following table:

   December 31,
   2013 2012
 Company Book Value Fair Value Book Value Fair Value
              
   (in thousands)
 APCo $ 4,194,357 $ 4,587,079 $ 3,702,442 $ 4,555,143
 I&M   2,039,016   2,174,891   2,057,666   2,372,017
 OPCo   2,735,175   3,007,191   3,860,440   4,560,337
 PSO   999,810   1,111,149   949,871   1,175,759
 SWEPCo   2,043,332   2,214,730   2,046,228   2,400,509

Fair Value Measurements of Financial Assets and Liabilities

 

For a discussion of fair value accounting and the classification of assets and liabilities within the fair value hierarchy, see the “Fair Value Measurements of Assets and Liabilities” section of Note 1.

 

The following tables set forth, by level within the fair value hierarchy, the Registrant Subsidiaries' financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 and 2012. As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have not been any significant changes in management's valuation techniques.

 

 Assets and Liabilities Measured at Fair Value on a Recurring Basis
 December 31, 2013
OPCo         
  Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                
Other Cash Deposits (e)$ 19,387 $ - $ - $ 12 $ 19,399
                
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)  -   -   3,269   (349)   2,920
Cash Flow Hedges:              
 Commodity Hedges (a)  -   162   -   -   162
Total Risk Management Assets   -   162   3,269   (349)   3,082
                
Total Assets$ 19,387 $ 162 $ 3,269 $ (337) $ 22,481
                
Liabilities:              
                
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ - $ - $ 349 $ (349) $ -
Cash Flow Hedges:              
 Commodity Hedges (a)  -   -   -   -   -
Total Risk Management Liabilities $ - $ - $ 349 $ (349) $ -

 Assets and Liabilities Measured at Fair Value on a Recurring Basis
 December 31, 2012
OPCo              
  Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                
Other Cash Deposits (e)$ - $ 26 $ - $ 39 $ 65
                
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)  5,848   238,254   23,973   (175,890)   92,185
Cash Flow Hedges:              
 Commodity Hedges (a)  -   688   -   (272)   416
Total Risk Management Assets   5,848   238,942   23,973   (176,162)   92,601
                
Total Assets$ 5,848 $ 238,968 $ 23,973 $ (176,123) $ 92,666
                
Liabilities:              
                
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ 2,753 $ 226,536 $ 8,544 $ (189,616) $ 48,217
Cash Flow Hedges:              
 Commodity Hedges (a)  -   2,175   -   (272)   1,903
Total Risk Management Liabilities $ 2,753 $ 228,711 $ 8,544 $ (189,888) $ 50,120

(a)       Amounts in “Other” column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for “Derivatives and Hedging.”

(b)       Substantially comprised of power contracts for APCo, I&M and OPCo and coal contracts for PSO and SWEPCo.

(c)       Amounts in “Other” column primarily represent accrued interest receivables from financial institutions. Level 1 amounts primarily represent investments in money market funds.

(d)       Amounts represent publicly traded equity securities and equity-based mutual funds.

(e)       Amounts in “Other” column primarily represent cash deposits with third parties. Level 1 and Level 2 amounts primarily represent investments in money market funds.

There have been no transfers between Level 1 and Level 2 during the years ended December 31, 2013, 2012 and 2011.

 

The following tables set forth a reconciliation of changes in the fair value of net trading derivatives classified as Level 3 in the fair value hierarchy:

 

Year Ended December 31, 2013 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (3,568)   (2,466)   (5,042)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   328   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   -   -   -   -   -
Purchases, Issuances and Settlements (c)   481   390   765   -   -
Transfers into Level 3 (d) (e)   1,340   911   1,874   -   -
Transfers out of Level 3 (e) (f)   (925)   (637)   (1,303)   -   -
Transfer of OPCo Generation to Parent   -   -   (12,051)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   2,255   1,425   2,920   -   -
Balance as of December 31, 2013 $ 10,562 $ 7,164 $ 2,920 $ - $ -

Year Ended December 31, 2012 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (5,204)   (3,554)   (7,452)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   5,401   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   23   13   28   -   -
Purchases, Issuances and Settlements (c)   11,200   7,734   16,214   -   -
Transfers into Level 3 (d) (e)   1,392   860   1,909   -   -
Transfers out of Level 3 (e) (f)   (1,930)   (1,144)   (2,527)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   3,527   2,369   (810)   -   -
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
                 
Year Ended December 31, 2011 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2010 $ 5,131 $ 3,108 $ 6,583 $ 1 $ 2
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (2,154)   (1,261)   (2,711)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   7,741   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   (73)   (47)   (100)   -   -
Purchases, Issuances and Settlements (c)   1,574   847   1,858   -   -
Transfers into Level 3 (d) (e)   2,488   1,531   3,257   -   -
Transfers out of Level 3 (e) (f)   (3,003)   (1,906)   (4,032)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   (1,992)   (1,009)   (9,930)   (1)   (2)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -

(a)       Included in revenues on the statements of income.

(b)       Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.

(c)       Represents the settlement of risk management commodity contracts for the reporting period.

(d)       Represents existing assets or liabilities that were previously categorized as Level 2.

(e)       Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

(f)       Represents existing assets or liabilities that were previously categorized as Level 3.

(g)       Relates to the net gains (losses) of those contracts that are not reflected on the statements of income. These net gains (losses) are recorded as regulatory assets/liabilities.

The following tables quantify the significant unobservable inputs used in developing the fair value of Level 3 positions as of December 31, 2013 and 2012

Significant Unobservable Inputs
December 31, 2013
 OPCo          
   Fair Value Valuation Significant Forward Price Range
   Assets Liabilities Technique Unobservable Input (a) Low High
   (in thousands)          
 Energy Contracts $ - $ - Discounted Cash Flow Forward Market Price $ - $ -
 FTRs   3,269   349 Discounted Cash Flow Forward Market Price   (5.10)   10.44
 Total $3,269 $349          
                  
Significant Unobservable Inputs
December 31, 2012
 OPCo          
   Fair Value Valuation Significant Forward Price Range
   Assets Liabilities Technique Unobservable Input (a) Low High
   (in thousands)          
 Energy Contracts $ 21,516 $ 5,510 Discounted Cash Flow Forward Market Price $ 9.40 $ 68.80
 FTRs   2,457   3,034 Discounted Cash Flow Forward Market Price   (3.21)   14.79
 Total $23,973 $8,544          

(a)       Represents market prices in dollars per MWh.
Public Service Co of Oklahoma [Member]
  
Fair Value Measurements

10. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements of Long-term Debt

 

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities classified as Level 2 measurement inputs. These instruments are not marked-to-market. The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange.

 

The book values and fair values of Long-term Debt for the Registrant Subsidiaries as of December 31, 2013 and 2012 are summarized in the following table:

   December 31,
   2013 2012
 Company Book Value Fair Value Book Value Fair Value
              
   (in thousands)
 APCo $ 4,194,357 $ 4,587,079 $ 3,702,442 $ 4,555,143
 I&M   2,039,016   2,174,891   2,057,666   2,372,017
 OPCo   2,735,175   3,007,191   3,860,440   4,560,337
 PSO   999,810   1,111,149   949,871   1,175,759
 SWEPCo   2,043,332   2,214,730   2,046,228   2,400,509

Fair Value Measurements of Financial Assets and Liabilities

 

For a discussion of fair value accounting and the classification of assets and liabilities within the fair value hierarchy, see the “Fair Value Measurements of Assets and Liabilities” section of Note 1.

 

The following tables set forth, by level within the fair value hierarchy, the Registrant Subsidiaries' financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 and 2012. As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have not been any significant changes in management's valuation techniques.

 

 Assets and Liabilities Measured at Fair Value on a Recurring Basis
 December 31, 2013
PSO         
  Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)$ - $ 1,078 $ - $ 5 $ 1,083
Cash Flow Hedges:              
 Commodity Hedges (a)  -   84   -   -   84
Total Risk Management Assets$ - $ 1,162 $ - $ 5 $ 1,167
                
Liabilities:              
                
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ - $ 81 $ - $ 4 $ 85
Cash Flow Hedges:              
 Commodity Hedges (a)  -   -   -   -   -
Total Risk Management Liabilities $ - $ 81 $ - $ 4 $ 85

 Assets and Liabilities Measured at Fair Value on a Recurring Basis
 December 31, 2012
PSO         
  Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)$ - $ 1,657 $ - $ (1,142) $ 515
Cash Flow Hedges:              
 Commodity Hedges (a)  -   42   -   (17)   25
Total Risk Management Assets$ - $ 1,699 $ - $ (1,159) $ 540
                
Liabilities:              
                
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ - $ 7,021 $ - $ (1,142) $ 5,879
Cash Flow Hedges:              
 Commodity Hedges (a)  -   17   -   (17)   -
Total Risk Management Liabilities$ - $ 7,038 $ - $ (1,159) $ 5,879

(a)       Amounts in “Other” column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for “Derivatives and Hedging.”

(b)       Substantially comprised of power contracts for APCo, I&M and OPCo and coal contracts for PSO and SWEPCo.

(c)       Amounts in “Other” column primarily represent accrued interest receivables from financial institutions. Level 1 amounts primarily represent investments in money market funds.

(d)       Amounts represent publicly traded equity securities and equity-based mutual funds.

(e)       Amounts in “Other” column primarily represent cash deposits with third parties. Level 1 and Level 2 amounts primarily represent investments in money market funds.

There have been no transfers between Level 1 and Level 2 during the years ended December 31, 2013, 2012 and 2011.

 

The following tables set forth a reconciliation of changes in the fair value of net trading derivatives classified as Level 3 in the fair value hierarchy:

 

Year Ended December 31, 2013 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (3,568)   (2,466)   (5,042)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   328   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   -   -   -   -   -
Purchases, Issuances and Settlements (c)   481   390   765   -   -
Transfers into Level 3 (d) (e)   1,340   911   1,874   -   -
Transfers out of Level 3 (e) (f)   (925)   (637)   (1,303)   -   -
Transfer of OPCo Generation to Parent   -   -   (12,051)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   2,255   1,425   2,920   -   -
Balance as of December 31, 2013 $ 10,562 $ 7,164 $ 2,920 $ - $ -

Year Ended December 31, 2012 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (5,204)   (3,554)   (7,452)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   5,401   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   23   13   28   -   -
Purchases, Issuances and Settlements (c)   11,200   7,734   16,214   -   -
Transfers into Level 3 (d) (e)   1,392   860   1,909   -   -
Transfers out of Level 3 (e) (f)   (1,930)   (1,144)   (2,527)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   3,527   2,369   (810)   -   -
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
                 
Year Ended December 31, 2011 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2010 $ 5,131 $ 3,108 $ 6,583 $ 1 $ 2
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (2,154)   (1,261)   (2,711)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   7,741   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   (73)   (47)   (100)   -   -
Purchases, Issuances and Settlements (c)   1,574   847   1,858   -   -
Transfers into Level 3 (d) (e)   2,488   1,531   3,257   -   -
Transfers out of Level 3 (e) (f)   (3,003)   (1,906)   (4,032)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   (1,992)   (1,009)   (9,930)   (1)   (2)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -

(a)       Included in revenues on the statements of income.

(b)       Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.

(c)       Represents the settlement of risk management commodity contracts for the reporting period.

(d)       Represents existing assets or liabilities that were previously categorized as Level 2.

(e)       Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

(f)       Represents existing assets or liabilities that were previously categorized as Level 3.

(g)       Relates to the net gains (losses) of those contracts that are not reflected on the statements of income. These net gains (losses) are recorded as regulatory assets/liabilities.
Southwestern Electric Power Co [Member]
  
Fair Value Measurements

10. FAIR VALUE MEASUREMENTS

 

Fair Value Measurements of Long-term Debt

 

The fair values of Long-term Debt are based on quoted market prices, without credit enhancements, for the same or similar issues and the current interest rates offered for instruments with similar maturities classified as Level 2 measurement inputs. These instruments are not marked-to-market. The estimates presented are not necessarily indicative of the amounts that could be realized in a current market exchange.

 

The book values and fair values of Long-term Debt for the Registrant Subsidiaries as of December 31, 2013 and 2012 are summarized in the following table:

   December 31,
   2013 2012
 Company Book Value Fair Value Book Value Fair Value
              
   (in thousands)
 APCo $ 4,194,357 $ 4,587,079 $ 3,702,442 $ 4,555,143
 I&M   2,039,016   2,174,891   2,057,666   2,372,017
 OPCo   2,735,175   3,007,191   3,860,440   4,560,337
 PSO   999,810   1,111,149   949,871   1,175,759
 SWEPCo   2,043,332   2,214,730   2,046,228   2,400,509

Fair Value Measurements of Financial Assets and Liabilities

 

For a discussion of fair value accounting and the classification of assets and liabilities within the fair value hierarchy, see the “Fair Value Measurements of Assets and Liabilities” section of Note 1.

 

The following tables set forth, by level within the fair value hierarchy, the Registrant Subsidiaries' financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2013 and 2012. As required by the accounting guidance for “Fair Value Measurements and Disclosures,” financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels. There have not been any significant changes in management's valuation techniques.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2013
SWEPCo         
  Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                
Cash and Cash Equivalents (e)$ 15,871 $ - $ - $ 1,370 $ 17,241
                
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)  -   1,233   -   (151)   1,082
Cash Flow Hedges:              
 Commodity Hedges (a)  -   97   -   -   97
Total Risk Management Assets   -   1,330   -   (151)   1,179
                
Total Assets$ 15,871 $ 1,330 $ - $ 1,219 $ 18,420
                
Liabilities:              
                
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ - $ 154 $ - $ (154) $ -
Cash Flow Hedges:              
 Commodity Hedges (a)  -   -   -   -   -
Total Risk Management Liabilities $ - $ 154 $ - $ (154) $ -

 Assets and Liabilities Measured at Fair Value on a Recurring Basis
 December 31, 2012
SWEPCo         
  Level 1 Level 2 Level 3 Other Total
Assets:(in thousands)
                
Risk Management Assets              
Risk Management Commodity Contracts (a) (b)$ - $ 2,804 $ - $ (2,133) $ 671
Cash Flow Hedges:              
 Commodity Hedges (a)  -   41   -   (17)   24
Total Risk Management Assets $ - $ 2,845 $ - $ (2,150) $ 695
                
Liabilities:              
                
Risk Management Liabilities              
Risk Management Commodity Contracts (a) (b)$ - $ 3,261 $ - $ (2,133) $ 1,128
Cash Flow Hedges:              
 Commodity Hedges (a)  -   17   -   (17)   -
Total Risk Management Liabilities $ - $ 3,278 $ - $ (2,150) $ 1,128

(a)       Amounts in “Other” column primarily represent counterparty netting of risk management and hedging contracts and associated cash collateral under the accounting guidance for “Derivatives and Hedging.”

(b)       Substantially comprised of power contracts for APCo, I&M and OPCo and coal contracts for PSO and SWEPCo.

(c)       Amounts in “Other” column primarily represent accrued interest receivables from financial institutions. Level 1 amounts primarily represent investments in money market funds.

(d)       Amounts represent publicly traded equity securities and equity-based mutual funds.

(e)       Amounts in “Other” column primarily represent cash deposits with third parties. Level 1 and Level 2 amounts primarily represent investments in money market funds.

There have been no transfers between Level 1 and Level 2 during the years ended December 31, 2013, 2012 and 2011.

 

The following tables set forth a reconciliation of changes in the fair value of net trading derivatives classified as Level 3 in the fair value hierarchy:

 

Year Ended December 31, 2013 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (3,568)   (2,466)   (5,042)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   328   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   -   -   -   -   -
Purchases, Issuances and Settlements (c)   481   390   765   -   -
Transfers into Level 3 (d) (e)   1,340   911   1,874   -   -
Transfers out of Level 3 (e) (f)   (925)   (637)   (1,303)   -   -
Transfer of OPCo Generation to Parent   -   -   (12,051)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   2,255   1,425   2,920   -   -
Balance as of December 31, 2013 $ 10,562 $ 7,164 $ 2,920 $ - $ -

Year Ended December 31, 2012 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (5,204)   (3,554)   (7,452)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   5,401   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   23   13   28   -   -
Purchases, Issuances and Settlements (c)   11,200   7,734   16,214   -   -
Transfers into Level 3 (d) (e)   1,392   860   1,909   -   -
Transfers out of Level 3 (e) (f)   (1,930)   (1,144)   (2,527)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   3,527   2,369   (810)   -   -
Balance as of December 31, 2012 $ 10,979 $ 7,541 $ 15,429 $ - $ -
                 
Year Ended December 31, 2011 APCo I&M OPCo PSO SWEPCo
                 
  (in thousands)
Balance as of December 31, 2010 $ 5,131 $ 3,108 $ 6,583 $ 1 $ 2
Realized Gain (Loss) Included in Net Income               
 (or Changes in Net Assets) (a) (b)   (2,154)   (1,261)   (2,711)   -   -
Unrealized Gain (Loss) Included in Net               
 Income (or Changes in Net Assets) Relating               
 to Assets Still Held at the Reporting Date (a)   -   -   7,741   -   -
Realized and Unrealized Gains (Losses)               
 Included in Other Comprehensive Income   (73)   (47)   (100)   -   -
Purchases, Issuances and Settlements (c)   1,574   847   1,858   -   -
Transfers into Level 3 (d) (e)   2,488   1,531   3,257   -   -
Transfers out of Level 3 (e) (f)   (3,003)   (1,906)   (4,032)   -   -
Changes in Fair Value Allocated to Regulated               
 Jurisdictions (g)   (1,992)   (1,009)   (9,930)   (1)   (2)
Balance as of December 31, 2011 $ 1,971 $ 1,263 $ 2,666 $ - $ -

(a)       Included in revenues on the statements of income.

(b)       Represents the change in fair value between the beginning of the reporting period and the settlement of the risk management commodity contract.

(c)       Represents the settlement of risk management commodity contracts for the reporting period.

(d)       Represents existing assets or liabilities that were previously categorized as Level 2.

(e)       Transfers are recognized based on their value at the beginning of the reporting period that the transfer occurred.

(f)       Represents existing assets or liabilities that were previously categorized as Level 3.

(g)       Relates to the net gains (losses) of those contracts that are not reflected on the statements of income. These net gains (losses) are recorded as regulatory assets/liabilities.