Derivative Instruments

12 Months Ended

Dec. 31, 2011

Derivative Instruments and Hedges, Assets [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

We utilize derivatives as part of our risk management program to manage the volatility and costs of purchased power, generation and natural gas purchases for the benefit of our customers and shareholders. Our approach is non-speculative and designed to mitigate risk and protect against price volatility. Regulated hedging programs require prior approval by the PSCW.

We record derivative instruments on the balance sheet as an asset or liability measured at its fair value, and changes in the derivative's fair value are recognized currently in earnings unless specific hedge accounting criteria are met or we receive regulatory treatment for the derivative. For most energy related physical and financial contracts in our regulated operations that qualify as derivatives, the PSCW allows the effects of the fair market value accounting to be offset to regulatory assets and liabilities. We do not offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivatives executed with the same counterparty under the same master netting arrangement. As of December 31, 2011, we recognized $29.6 million in regulatory assets and $21.7 million in regulatory liabilities related to derivatives in comparison to $22.0 million in regulatory assets and $15.3 million in regulatory liabilities as of December 31, 2010.

We record our current derivative assets on the balance sheet in other current assets and the current portion of the liabilities in other current liabilities. The long-term portion of our derivative assets of $2.5 million is recorded in other deferred charges and other assets, and the long-term portion of our derivative liabilities of $0.7 million is recorded in other long-term liabilities. Our Consolidated Balance Sheets as of December 31, 2011 and 2010 include:

	December 31, 2011				December 31, 2010
	Derivative Asset		Derivative Liability		Derivative Asset		Derivative Liability
	(Millions of Dollars)
Natural Gas	$	2.1	$	9.1	$	2.5	$	11.6
Fuel Oil	0.3		0.1		4.4		—
FTRs	5.7		—		5.9		—
Coal	12.5		—		2.9		—
Total	$	20.6	$	9.2	$	15.7	$	11.6

Our Consolidated Income Statements include gains (losses) on derivative instruments used in our risk management strategies under fuel and purchased power for those commodities supporting our electric operations and under cost of gas sold for the natural gas sold to our customers. Our estimated notional volumes and gains (losses) for the years ended December 31 were as follows:

	2011				2010
	Volume	Gains (Losses)			Volume	Gains (Losses)
		(Millions of Dollars)				(Millions of Dollars)
Natural Gas	71.8 million Dth	$	(33.4	)	83.2 million Dth	$	(43.8	)
Power	zero MWh	—			234,720 MWh	(0.5		)
Fuel Oil	13.0 million gallons	6.9			8.1 million gallons	(0.5		)
FTRs	23,718 MW	12.5			25,234 MW	19.2
Total		$	(14.0	)		$	(25.6	)

As of December 31, 2011 and 2010, we posted collateral of $11.9 million and $11.7 million, respectively, in our margin accounts. These amounts are recorded on the balance sheets in other current assets.

For the year ended December 31, 2011, we reclassified $0.2 million and for the years ended December 31, 2010 and 2009, we reclassified $0.4 million in treasury lock agreement settlement payments deferred in Accumulated Other Comprehensive Income, as an increase to Interest Expense. We estimate that during the next 12 months, $0.1 million will be reclassified from Accumulated Other Comprehensive Income as a reduction in earnings.