Financial instruments:

12 Months Ended

Dec. 31, 2011

Financial instruments:

Financial instruments:

2. Financial instruments:

    Authoritative guidance regarding fair value measurements for financial and non-financial assets and liabilities defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements.

    The guidance establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

•

Level 1.  Quoted prices from active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Quoted prices in active markets provide the most reliable evidence of fair value and are used to measure fair value whenever available. Level 1 primarily consists of financial instruments that are exchange-traded.

•

Level 2.  Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Level 2 primarily consists of financial instruments that are non-exchange-traded but have significant observable inputs.

•

Level 3.  Pricing inputs that include significant inputs which are generally less observable from objective sources. These inputs may include internally developed methodologies that result in management's best estimate of fair value. Level 3 financial instruments are those whose fair value is based on significant unobservable inputs.

    As required by the guidance, assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:

• (1)

  Market approach.    The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business) and deriving fair value based on these inputs.

• (2)

  Income approach.    The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.
  
  
  

  (3)

  Cost approach.    The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost). This approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset or comparable utility adjusted for obsolescence.

    The table below details assets and liabilities measured at fair value on a recurring basis for the periods ending December 31, 2011 and 2010, respectively.

		Fair Value Measurements at Reporting Date Using
		December 31, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Valuation Technique
		(dollars in thousands)
Decommissioning funds:
Domestic equity	$	102,285		$	102,285	$	–		$	–		(1)
International equity		39,618			39,618		–			–		(1)
Corporate bonds		41,338			–		41,338			–		(1)
U.S. Treasury and government agency securities		41,697			41,697		–			–		(1)
Agency mortgage and asset backed securities		28,519			–		28,519			–		(1)
Derivative instruments		(982	)		–		–			(982	)	(3)
Other		16,122			16,122		–			–		(1)
Bond, reserve and construction funds		2,720			2,720		–			–		(1)
Long-term investments		80,055			72,342		–			7,713	(1)	(1) (3)
Interest rate options		69,446	(2)		–		–			69,446		(3)
Natural gas swaps		(7,220	)		–		(7,220	)		–		(1)

		Fair Value Measurements at Reporting Date Using
		December 31, 2010			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Valuation Technique
		(dollars in thousands)
Decommissioning funds
Domestic equity	$	105,523		$	105,523	$	–		$	–		(1)
International equity		43,619			43,619		–			–		(1)
Corporate bonds		53,847			–		53,847			–		(1)
U.S. Treasury and government agency securities		47,649			47,649		–			–		(1)
Agency mortgage and asset backed securities		7,926			–		7,926			–		(1)
Derivative instruments		(452	)		–		–			(452	)	(3)
Other		7,371			7,371		–			–		(1)
Bond, reserve and construction funds		2,815			2,815		–			–		(1)
Long-term investments		79,212			70,541		–			8,671	(1)	(1) (3)
Natural gas swaps		(2,054	)		–		(2,054	)		–		(1)

(1)

Represents auction rate securities investments we hold.

(2)

Interest rate options as reflected on the Consolidated Balance Sheet includes the fair value of the interest rate options offset by $43,070,000 of collateral received by the counterparties at December 31, 2011.

    The following tables present the changes in Level 3 assets measured at fair value on a recurring basis during the years ended December 31, 2011 and 2010, respectively.

		Year Ended December 31, 2011
		Decommissioning funds			Long-term investments			Interest rate options
		(dollars in thousands)
Assets:
Balance at December 31, 2010	$	(452	)	$	8,671		$	–
Total gains or losses (realized/unrealized):
Included in earnings (or changes in net assets)		(530	)		142			(30,554	)
Impairment included in other comprehensive deficit Purchases, issuances, liquidations					(1,100	)		100,000
Balance at December 31, 2011	$	(982	)	$	7,713		$	69,446

		Year Ended December 31, 2010
		Decommissioning funds			Long-term investments
		(dollars in thousands)
Assets:
Balance at December 31, 2009	$	(260	)	$	27,010
Total gains or losses (realized/unrealized):
Included in earnings (or changes in net assets)		(192	)		–
Impairment included in other comprehensive deficit		–			661
Purchases, issuances, liquidations		–			(19,000	)
Balance at December 31, 2010	$	(452	)	$	8,671

    The assets included in the "Long-term investments" column in each of the Level 3 tables above are auction rate securities. As a result of market conditions, including the failure of auctions for the auction rate securities in which we invested, the fair value of these auction rate securities was determined using an income approach based on a discounted cash flow model. The discounted cash flow model utilized projected cash flows at current rates, which was adjusted for illiquidity premiums based on discussions with market participants. At December 31, 2011, we held auction rate securities with maturity dates ranging from November 1, 2044 to December 1, 2045.

    In 2010, we sold $19,000,000 of our auction rate securities which resulted in a loss of $475,000. Also in 2010, we had a temporary impairment on our auction rate securities of $1,029,000. Based on the fair value of the auction rate securities held at December 31, 2011, we recorded a ($142,000) incremental adjustment to the temporary impairment. The temporary impairment is reflected in "Accumulated other comprehensive margin (deficit)" on the consolidated balance sheets. The various assumptions we utilized to determine the fair value of our auction rate securities investments will vary from period to period based on the prevailing economic conditions. A 25 basis point increase in the illiquidity premium used to determine the fair value of these investments at December 31, 2011, would have resulted in an additional decrease in the fair value of our auction rate securities investments by approximately $503,000.

    These investments were rated A3 by Moody's Investors Service and AAA by Fitch as of December 31, 2011. On February 15, 2012, we sold the remaining $8,600,000 of auction rate securities we held at December 31, 2011, which resulted in a loss of $1,075,000.

    The estimated fair values of our long-term debt at December 31, 2011 and 2010 were as follows (in thousands):

		2011				2010
		Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt	$	5,562,925	$	6,781,065	$	4,657,127	$	5,139,336

    The fair value of long-term debt is estimated based on quoted market prices for the same or similar issues or on the current rates offered to us for debt of similar maturities. Our three primary sources of long-term debt consist of first mortgage bonds, pollution control revenue bonds and long-term debt issued by the Federal Financing Bank. We also have small amounts of long term debt provided by CFC and by CoBank. The valuations for the first mortgage bonds and the pollution control revenue bonds are provided by a third-party investment banking firm. These valuations are based on market prices for similar debt in active markets. Valuations for debt issued by the Federal Financing Bank are based on U.S. Treasury rates as of December 31, 2011 (plus a spread of ¹/8 percent). The additional spread of ¹/8 percent is reflective of the "cost" the Rural Utilities Service attributes to making these loans. We use an interest rate quote sheet provided by CoBank for valuation of the CoBank debt. The quotes contained in CoBank's rate sheet are adjusted for our "A" credit rating. The rates on the CFC debt are fixed and the valuation is based on rate quotes provided by CFC.

    We use the methods and assumptions described above to estimate the fair value of each class of financial instruments. For cash and cash equivalents, restricted cash and receivables, the carrying amount approximates fair value because of the short-term maturity of those instruments.

Derivative instruments

    Our risk management and compliance committee provides general oversight over all risk management activities, including but not limited to, commodity trading, investment portfolio management and interest rate risk management. We use commodity trading derivatives, which are designated as hedging instruments under authoritative guidance for accounting for derivatives and hedging, to manage our exposure to fluctuations in the market price of natural gas. Consistent with our rate-making treatment for energy costs which are flowed-through to our members, unrealized gains or losses on natural gas swaps are reflected as an unbilled receivable. To hedge the risk of rising interest rates due to the significant amount of new long-term debt we will incur in connection with anticipated capital expenditures, we have entered into interest rate options. Hedge accounting is not applied to our interest rate options. Consistent with our rate-making treatment, unrealized gains or losses from the interest rate options are recorded to the related regulatory asset. Within our nuclear decommissioning trust fund, derivatives including options, swaps and credit default swaps which are non-speculative, are utilized to mitigate volatility associated with duration, default, yield curve and the interest rate risks of the portfolio. We do not hold or enter into derivative transactions for trading or speculative purposes. Consistent with our rate-making treatment, unrealized gains or losses from the decommissioning trust fund are recorded as an increase or decrease to the regulatory asset or liability.

    We are exposed to credit risk as a result of entering into these hedging arrangements. Credit risk is the potential loss resulting from a counterparty's nonperformance under an agreement. We manage credit risk with policies and procedures for, among other things, counterparty analysis, exposure measurement, and exposure monitoring and mitigation.

    It is possible that volatility in commodity prices and/or interest rates could cause us to have credit risk exposures with one or more natural gas counterparties and we currently have credit risk exposure to our interest rate options counterparties. If such counterparties fail to perform their obligations, we could suffer a financial loss. However, as of December 31, 2011, all of the counterparties with transaction amounts outstanding under our hedging programs are rated investment grade by the major rating agencies or have provided a guaranty from one of their affiliates that is rated investment grade.

    We have entered into International Swaps and Derivatives Association agreements with our natural gas hedge and interest rate option counterparties that mitigate credit exposure by creating contractual rights relating to creditworthiness, collateral, termination and netting (which allows us to use the net value of affected transactions with the same counterparty in the event of default by the counterparty or early termination of the agreement).

    Additionally, we have implemented procedures to monitor the creditworthiness of our counterparties and to evaluate nonperformance in valuing counterparty positions. We have contracted with a third party to assist in monitoring certain of our counterparties' credit standing and condition. Net liability positions are generally not adjusted as we use derivative transactions as hedges and have the ability and intent to perform under each of our contracts. In the instance of net asset positions, we consider general market conditions and the observable financial health and outlook of specific counterparties, forward looking data such as credit default swaps, when available, and historical default probabilities from credit rating agencies in evaluating the potential impact of nonperformance risk to derivative positions.

    The contractual agreements contain provisions that could require us or the counterparty to post collateral or credit support. The amount of collateral or credit support that could be required is calculated as the difference between the aggregate fair value of the hedges and pre-established credit thresholds. The credit thresholds are contingent upon each party's credit standing and credit ratings from the major credit rating agencies. The collateral and credit support requirements vary by contract and by counterparty.

    Gas hedges.    Under the natural gas swap arrangements, we pay the counterparty a fixed price for specified natural gas quantities and receive a payment for such quantities based on a market price index. These payment obligations are netted, such that if the market price index is lower than the fixed price, we will make a net payment, and if the market price index is higher than the fixed price, we will receive a net payment.

    At December 31, 2011 and December 31, 2010 the estimated fair value of our natural gas contracts was an unrealized loss of approximately $7,220,000 and $2,054,000, respectively.

    As of December 31, 2011, neither we nor any counterparties were required to post credit support or collateral under the natural gas swap agreements. If the credit-risk-related contingent features underlying these agreements were triggered on December 31, 2011 due to our credit rating being downgraded below investment grade, we could have been required to post letters of credit totaling up to $7,220,000 with our counterparties.

    The following table reflects the volume activity of our natural gas derivatives as of December 31, 2011 that is expected to settle or mature each year:

	Natural Gas Swaps
Year	(MMBtu)
	(in millions)
2012	6.23
2013	0.83
Total	7.06

    Interest rate options.    We are exposed to the risk of rising interest rates due to the significant amount of new long-term debt we will incur in connection with anticipated capital expenditures, particularly the construction of Plant Vogtle Units No. 3 and No. 4. We have entered into a conditional term sheet with the Department of Energy to finance up to $3.057 billion of the cost to construct Plant Vogtle Units No. 3 and No.4. The term sheet provides for quarterly draws from 2012 through 2017 and interest rates that will be based on U.S. Treasury rates at the time of each draw, plus a fixed spread. In fourth quarter of 2011, we completed the purchase of $100,000,000 in interest rate options to hedge the interest rates on approximately $2.2 billion of the Department of Energy-guaranteed loan, representing a substantial portion of the expected borrowings from 2013 through 2017.

    The interest rate options, commonly known as LIBOR swaptions, give us the right, but not the obligation, to enter into a swap in which we would pay a fixed rate and receive a floating LIBOR rate. However, the swaptions are required to be cash settled based on their value on the expiration date, thereby effectively capping our interest rates by offsetting the present value cost of an increase in interest rates above the fixed rate. The cash settlement value depends on the extent to which prevailing LIBOR swap rates exceed the fixed rate on the underlying swap, and the value would be zero if swap rates are at or below the fixed rate upon expiration. The fixed rates on the LIBOR swaptions we purchased are in the range of 100 to 200 basis points above current LIBOR swap rates and the weighted average fixed rate is 4.17%. The swaptions' expiration dates, which range from 2013 through 2017, are timed to match the expected quarterly draw dates of the Department of Energy-guaranteed loan advances to be hedged. As the interest rate options' value is independent from the Department of Energy-guaranteed loan, the interest rate options could also serve as a hedge of interest rates on an alternative source of financing.

    We paid the entire premiums at the time we entered into these interest rate option transactions and have no additional payment obligations. However, upon expiration of the interest rate options, each counterparty will be obligated to pay us the cash value of the interest rate options, if any. To manage our credit exposure to these counterparties, we negotiated credit support provisions that require each counterparty to provide us collateral in the form of cash or securities to the extent that the value of the interest rate options outstanding for that counterparty exceeds a certain threshold. The collateral thresholds range from $0 to $10,000,000 depending on each counterparty's credit rating. As of December 31, 2011, we held $43,070,000 of funds posted as collateral by the counterparties. The collateral received is recorded as long-term restricted cash on our balance sheets. The liability associated with the collateral is recorded as an offset to the fair values of the interest rate options.

    These derivatives are recorded at fair value and hedge accounting is not applied. At December 31, 2011, the fair value of these interest rate options was approximately $69,446,000. We are deferring gains or losses from the change in fair value of each interest rate option and related carrying and other incidental costs in accordance with our approved rate-making for these costs. The deferred costs, which are not expected to exceed $135,000,000, and deferred gains, if any, from the settlement of the interest rate options will be amortized and collected in rates over the life of the expected Department of Energy-guaranteed loan or alternative financing.

    We estimate the value of the LIBOR swaptions utilizing an option pricing model based on several inputs including the notional amount, the forward LIBOR swap rates, the option volatility, the fixed rate on the underlying swap, the time to expiration, the term of the underlying swap and discount rates, as well as credit attributes, including the credit spread of the counterparty and the amount of credit support that is available for each swaption. The fair value of the swaptions is sensitive to certain of these inputs, especially option volatility. We are able to effectively observe all of these factors using a variety of market sources except for the credit spreads of certain counterparties and the option volatility. We are able to estimate option volatility implied by valuations we obtain from various sources, but the valuations, and therefore the implied option volatilities vary considerably from one source to another. Since valuations of comparable instruments are generally not publicly available, we have categorized these LIBOR swaptions as Level 3. We considered both any intrinsic value and the remaining time value associated with the derivatives and considered counterparty credit risk in our determination of all estimated fair values. We believe the estimated fair values for the LIBOR swaptions we hold are based on the most accurate information available for these types of derivative contracts.

    The following table reflects the notional amount of forecasted debt issuances we have hedged in each year with LIBOR swaptions as of December 31, 2011:

Year		LIBOR Swaption Notional Dollar Amount
		(in thousands)
2012	$	–
2013		754,452
2014		563,425
2015		470,625
2016		310,533
2017		80,169
Total	$	2,179,204

    The table below reflects the fair value of derivative instruments and their effect on our consolidated balance sheets for the period ending December 31, 2011 and December 31, 2010.

	Balance Sheet Location		Fair Value
			2011			2010
			(dollars in thousands)
Designated as hedges under authoritative guidance related to derivatives and hedging activities:
Assets
Natural gas swaps	Receivables	$	7,220		$	2,054
Total assets designated as hedges under authoritative guidance related to derivatives and hedging activities		$	7,220		$	2,054
Liabilities
Natural gas swaps	Other current liabilities	$	7,220		$	2,629
Natural gas swaps	Other current liabilities		–			(575	)
Total liabilities designated as hedges under authoritative guidance related to derivatives and hedging activities		$	7,220		$	2,054
Not designated as hedges under authoritative guidance related to derivatives and hedging activities:
Assets
Nuclear decommissioning trust	Nuclear Decommissioning trust fund	$	792		$	290
Nuclear decommissioning trust	Nuclear Decommissioning trust fund		(1,774	)		(742	)
Nuclear decommissioning trust	Regulatory assets		1,447			359
Nuclear decommissioning trust	Regulatory assets		(929	)		(231	)
Interest rate options	Other long-term assets		69,446			–
Interest rate options	Regulatory assets		30,554			–
Total not designated as hedges under authoritative guidance related to derivatives and hedging activities		$	99,537		$	(324	)

    The following table presents the gains and (losses) on derivative instruments recognized in margin or deferred on the balance sheet for the year ended December 31, 2011 and December 31, 2010.

Effect of Derivative Instruments on the Consolidated Statement of Revenues and Expenses or Balance Sheet
	Consolidated Statement of Revenues and Expenses or Balance Sheet Location		2011			2010			2009
			(dollars in thousands)
Designated as hedges under authoritative guidance related to derivatives and hedging activities
Natural Gas Swaps	Purchased power	$	195		$	–		$	46
Natural Gas Swaps	Purchased power		(4,151	)		(19,734	)		(30,635	)
Not designated as hedges under authoritative guidance related to derivatives and hedging activities
Nuclear decommissioning trust	Regulatory asset		3,602			2,689			3,477
Nuclear decommissioning trust	Regulatory asset		(2,557	)		(2,564	)		(3,702	)
Total losses on derivatives		$	(2,911	)	$	(19,609	)	$	(30,814	)

Investments in debt and equity securities

    Under the accounting guidance for Investments — Debt and Equity Securities, investment securities we hold are classified as available-for-sale. Available-for-sale securities are carried at market value with unrealized gains and losses, net of any tax effect, added to or deducted from patronage capital, except that, in accordance with our rate-making treatment, unrealized gains and losses from investment securities held in the nuclear decommissioning trust fund are directly added to or deducted from the regulatory asset for asset retirement obligations. Realized gains and losses on the nuclear decommissioning trust fund are also recorded to the regulatory asset. All realized and unrealized gains and losses are determined using the specific identification method. Approximately 58% of these gross unrealized losses were in effect for less than one year.

    For those securities considered to be available-for-sale, the following table summarizes the activities for those securities as of December 31, 2011 and 2010:

		(dollars in thousands)
	Gross Unrealized
2011		Cost		Gains		Losses			Fair Value
Equity	$	149,263	$	29,789	$	(9,996	)	$	169,056
Debt		160,218		18,021		(11,063	)		167,176
Other		15,646		1,035		(1,541	)		15,140
Total	$	325,127	$	48,845	$	(22,600	)	$	351,372
		Gross Unrealized
2010	Cost		Gains		Losses			Fair Value
Equity	$	137,492	$	42,622	$	(2,482	)	$	177,632
Debt		158,706		9,130		(4,879	)		162,957
Other		7,035		3		(118	)		6,920
Total	$	303,233	$	51,755	$	(7,479	)	$	347,509

    All of the available-for-sale investments are marked to market in the accompanying consolidated balance sheets, therefore the carrying value equals the fair value.

    The contractual maturities of debt securities available-for-sale, which are included in the estimated fair value table above, at December 31, 2011 and 2010 are as follows:

		(dollars in thousands)
		2011				2010
		Cost		Fair Value		Cost		Fair Value
Due within one year	$	2,074	$	2,051	$	24,887	$	24,862
Due after one year through five years		32,149		32,598		32,182		32,979
Due after five years through ten years		68,987		74,010		59,336		62,375
Due after ten years		57,008		58,517		42,301		42,741
Total	$	160,218	$	167,176	$	158,706	$	162,957

    The following table summarizes the realized gains and losses and proceeds from sales of securities for the years ended December 31, 2011, 2010 and 2009:

		(dollars in thousands)
		For the years ended December 31,
		2011			2010			2009
Gross realized gains	$	31,130		$	24,634		$	17,537
Gross realized losses		(16,215	)		(10,395	)		(24,475	)
Proceeds from sales		1,064,377			622,124			633,707

Investment in associated companies,

    Investments in associated companies were as follows at December 31, 2011 and 2010:

		(dollars in thousands)
		2011		2010
National Rural Utilities Cooperative
Finance Corporation (CFC)	$	23,993	$	23,979
CoBank, ACB		3,345		3,433
CT Parts, LLC		5,633		5,640
Georgia Transmission Corporation		19,291		17,634
Georgia System Operations
Corporation		3,911		4,009
Other		1,453		1,430
Total	$	57,626	$	56,125

    The National Rural Utilities Cooperative Finance Corporation (CFC) investments are primarily in the form of capital term certificates and are required in conjunction with our membership in CFC. Accordingly, there is no market for these investments. The investments in CoBank and Georgia Transmission represent capital credits. Any distributions of capital credits are subject to the discretion of the board of directors of CoBank and Georgia Transmission. The investments in Georgia System Operations represent loan advances. The loan repayment schedule ends in December 2015.

    CT Parts, LLC is an affiliated organization formed by Oglethorpe and Smarr EMC for the purpose of purchasing and maintaining a spare parts inventory and administration of contracted services for combustion turbine generation facilities. Such investment is recorded at cost.

    We and our 39 members are members of Georgia Transmission. Georgia Transmission provides transmission services to its members for delivery of its members' power purchases from us and other power suppliers. We have entered into an agreement with Georgia Transmission to provide transmission services for third party transactions and for service to our own facilities. For 2011, 2010, and 2009, we incurred expenses from Georgia Transmission of $25,128,000, $25,491,000, and $23,678,000, respectively.

    We, Georgia Transmission and 38 of our members are members of Georgia Systems Operations. Georgia Systems Operations operates the system control center and currently provides us system operations services and administrative support services. For 2011, 2010, and 2009, we incurred expenses from Georgia Systems Operations of $17,793,000, $16,848,000, and $17,467,000, respectively.

    Smarr EMC is a Georgia electric membership corporation owned by 36 of our 39 members. Smarr EMC owns two combustion turbine facilities. We provide operations, financial and management services for Smarr EMC.

Rocky Mountain transactions

    In December 1996 and January 1997, we entered into six long-term lease transactions relating to our 74.61% undivided interest in the Rocky Mountain pumped storage hydro facility, through our wholly owned subsidiary, RMLC. RMLC leases from six owner trusts the undivided interest in Rocky Mountain and subleases it back to us. The Deposit on Rocky Mountain transactions, which is carried at cost, was made in connection with these lease transactions and is invested in guaranteed investment contracts which will be held to maturity (the end of the 30-year lease-back period). At the end of the base lease term, we have the option, through RMLC, to purchase any owner trust's undivided interest in Rocky Mountain. If we elect to exercise the purchase option, the funds in the guaranteed investment contracts will be used to pay a portion ($371,850,000) of the fixed purchase price.

    In addition to the funding of the guaranteed investment contracts, the proceeds also funded the Payment Undertaking Agreements with Rabobank Nederland. RMLC paid $640,611,000 to fund these Payment Undertaking Agreements with Rabobank whose senior debt obligations are rated AA by S&P and Aaa by Moody's. In return, Rabobank undertook to pay all of RMLC's periodic basic rent payments under the Facility Subleases and to pay the remaining portion of the fixed purchase price ($714,923,000) should we, through RMLC, elect to purchase the facility at the end of the base lease term. RMLC's corresponding lease obligations have been extinguished for financial reporting purposes. RMLC remains liable for all payments of basic rent under the Facility Leases if the Payment Undertaker fails to make such payments, although the owner trusts have agreed to use due diligence to pursue the Payment Undertaker before pursuing payment from us or RMLC. In 2011, RMLC would have been required to make basic rent payments totaling $58,033,000 to the owner trusts if the Payment Undertaker had failed to make such payments. The fair value amount relating to the guarantee of basic rent payments is immaterial principally due to the high credit rating of the Payment Undertaker.

    The operative agreements relating to the Rocky Mountain lease transactions require us to maintain surety bonds with a surety bond provider that meets minimum credit rating requirements to secure certain of our payment obligations under the Rocky Mountain lease transactions. The operative agreements relating to the Rocky Mountain lease transactions provide that the surety bond provider must maintain a credit rating of at least AA from S&P or Aa2 from Moody's, and if such rating is not maintained, then we must, within 60 days of becoming aware of such fact, provide (i) a replacement surety bond from a surety bond provider that has such credit ratings, (ii) a letter of credit from a bank with such credit ratings, (iii) other acceptable credit enhancement or (iv) any combination thereof.

    In November 2008, the surety bond provider's (AMBAC) credit ratings fell below the minimum threshold, triggering the requirement for us to provide the replacement credit enhancement discussed above. In two separate transactions that closed in May 2009 (relating to five of the leases) and in August 2009 (relating to the sixth lease), we entered into agreements with Berkshire Hathaway Assurance Corporation pursuant to which they are providing us with supplemental credit enhancement to the credit enhancement provided by AMBAC, thereby satisfying our obligation to provide replacement credit enhancement.

    Berkshire is currently rated AA+ by S&P and Aa1 by Moody's. If Berkshire is downgraded below AA by S&P and Aa2 by Moody's, we will be obligated to replace, within 60 days of becoming aware of that fact, the Berkshire surety bonds for all six of the lease transactions, with other qualified credit enhancement.

    The assets of RMLC are not available to pay our creditors or our affiliates' creditors.