Derivative Instruments

9 Months Ended

Sep. 30, 2012

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 Public Service Commission of Wisconsin (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 September 30, 2012, we recognized $3.0 million in regulatory assets and $23.0 million in regulatory liabilities related to derivatives in comparison to $29.6 million in regulatory assets and $21.7 million in regulatory liabilities as of December 31, 2011.

We record our current derivative assets on the balance sheet in prepayments and other current assets and the current portion of the liabilities in other current liabilities. The long-term portion of our derivative assets of $1.6 million is recorded in other deferred charges and other assets as of September 30, 2012, and the long-term portion of our derivative liabilities of $0.2 million is recorded in other deferred credits and other liabilities as of September 30, 2012. Our Consolidated Condensed Balance Sheets as of September 30, 2012 and

December 31, 2011 include:

	September 30, 2012				December 31, 2011
	Derivative Asset		Derivative Liability		Derivative Asset		Derivative Liability
	(Millions of Dollars)
Natural Gas	$	12.0	$	—	$	2.1	$	9.1
Fuel Oil	0.9		—		0.3		0.1
FTRs	7.3		—		5.7		—
Coal	11.0		2.1		12.5		—
Total	$	31.2	$	2.1	$	20.6	$	9.2

Our Consolidated Condensed 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) were as follows:

	Three Months Ended September 30, 2012				Three Months Ended September 30, 2011
	Volume	Gains (Losses)			Volume	Gains (Losses)
		(Millions of Dollars)				(Millions of Dollars)
Natural Gas	17.2 million Dth	$	(5.3	)	15.7 million Dth	$	(10.5	)
Fuel Oil	1.7 million gallons	0.1			2.2 million gallons	2.4
FTRs	5,927 MW	2.9			5,896 MW	5.2
Total		$	(2.3	)		$	(2.9	)

	Nine Months Ended September 30, 2012				Nine Months Ended September 30, 2011
	Volume	Gains (Losses)			Volume	Gains (Losses)
		(Millions of Dollars)				(Millions of Dollars)
Natural Gas	56.0 million Dth	$	(35.7	)	54.0 million Dth	$	(27.7	)
Fuel Oil	5.5 million gallons	1.5			8.8 million gallons	4.9
FTRs	16,581 MW	5.1			18,439 MW	10.5
Total		$	(29.1	)		$	(12.3	)

As of September 30, 2012 and December 31, 2011, we posted collateral of $0.4 million and $11.9 million, respectively, in our margin accounts. These amounts are recorded on the balance sheets in other current assets.