XML 78 R31.htm IDEA: XBRL DOCUMENT v2.4.0.6
Fair Value Measurements (MEC) (MidAmerican Energy Company and Subsidiaries [Member])
 12 Months Ended
Dec. 31, 2012
MidAmerican Energy Company and Subsidiaries [Member]
  
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]  
Fair Value Disclosures [Text Block]
(14)
Fair Value Measurements

The carrying value of MidAmerican Energy's cash, certain cash equivalents, receivables, payables, accrued liabilities and short-term borrowings approximates fair value because of the short-term maturity of these instruments. MidAmerican Energy has various financial assets and liabilities that are measured at fair value on the Consolidated Financial Statements using inputs from the three levels of the fair value hierarchy. A financial asset or liability classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The three levels are as follows:

•
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that MidAmerican Energy has the ability to access at the measurement date.
•
Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
•
Level 3 - Unobservable inputs reflect MidAmerican Energy's judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. MidAmerican Energy develops these inputs based on the best information available, including its own data.
The following table presents MidAmerican Energy's assets and liabilities recognized on the Consolidated Balance Sheets and measured at fair value on a recurring basis (in millions):
 
 
Input Levels for Fair Value Measurements
 
 
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
Other(1)
 
Total
As of As of December 31, 2012:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
1

 
$
22

 
$
7

 
$
(23
)
 
$
7

Money market mutual funds(2)
 
163

 
—

 
—

 
—

 
163

Debt securities:
 
 
 
 
 
 
 
 
 
 
United States government obligations
 
104

 
—

 
—

 
—

 
104

International government obligations
 
—

 
1

 
—

 
—

 
1

Corporate obligations
 
—

 
32

 
—

 
—

 
32

Municipal obligations
 
—

 
4

 
—

 
—

 
4

Agency, asset and mortgage-backed obligations
 
—

 
6

 
—

 
—

 
6

Auction rate securities
 
—

 
—

 
21

 
—

 
21

Equity securities:
 


 

 

 

 

United States companies
 
187

 
—

 
—

 
—

 
187

International companies
 
2

 
—

 
—

 
—

 
2

Investment funds
 
1

 
—

 
—

 
—

 
1

 
 
$
458

 
$
65

 
$
28

 
$
(23
)
 
$
528

 
 
 
 
 
 
 
 
 
 
 
Liabilities - commodity derivatives
 
$
(10
)
 
$
(90
)
 
$
(7
)
 
$
30

 
$
(77
)
 
 
 
 
 
 
 
 
 
 
 
As of As of December 31, 2011:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Commodity derivatives
 
$
1

 
$
47

 
$
26

 
$
(45
)
 
$
29

Debt securities:
 
 
 
 
 
 
 
 
 
 
United States government obligations
 
89

 
—

 
—

 
—

 
89

International government obligations
 
—

 
1

 
—

 
—

 
1

Corporate obligations
 
—

 
30

 
—

 
—

 
30

Municipal obligations
 
—

 
12

 
—

 
—

 
12

Agency, asset and mortgage-backed obligations
 
—

 
7

 
—

 
—

 
7

Auction rate securities
 
—

 
—

 
16

 
—

 
16

Equity securities:
 
 
 
 
 
 
 
 
 
 
United States companies
 
166

 
—

 
—

 
—

 
166

International companies
 
1

 
—

 
—

 
—

 
1

 
 
$
257

 
$
97

 
$
42

 
$
(45
)
 
$
351

 
 
 
 
 
 
 
 
 
 
 
Liabilities - commodity derivatives
 
$
(37
)
 
$
(148
)
 
$
(4
)
 
$
78

 
$
(111
)

(1)
Represents netting under master netting arrangements and a net cash collateral receivable of $7 million and $33 million as of December 31, 2012 and 2011, respectively.
(2)
Amounts are included in cash and cash equivalents and investments and nonregulated property, net on the Consolidated Balance Sheets. The fair value of these money market mutual funds approximates cost.

Derivative contracts are recorded on the Consolidated Balance Sheets as either assets or liabilities and are stated at estimated fair value unless they are designated as normal purchases or normal sales and qualify for the exception afforded by GAAP. When available, the fair value of derivative contracts is estimated using unadjusted quoted prices for identical contracts in the market in which MidAmerican Energy transacts. When quoted prices for identical contracts are not available, MidAmerican Energy uses forward price curves. Forward price curves represent MidAmerican Energy's estimates of the prices at which a buyer or seller could contract today for delivery or settlement at future dates. MidAmerican Energy bases its forward price curves upon market price quotations, when available, or internally developed and commercial models, with internal and external fundamental data inputs. Market price quotations are obtained from independent energy brokers, exchanges, direct communication with market participants and actual transactions executed by MidAmerican Energy. Market price quotations for certain major electricity and natural gas trading hubs are generally readily obtainable for the applicable term of MidAmerican Energy's outstanding derivative contracts; therefore, MidAmerican Energy's forward price curves for those locations and periods reflect observable market quotes. Market price quotations for other electricity and natural gas trading hubs are not as readily obtainable due to the length of the contract. Given that limited market data exists for these contracts, as well as for those contracts that are not actively traded, MidAmerican Energy uses forward price curves derived from internal models based on perceived pricing relationships to major trading hubs that are based on unobservable inputs. The estimated fair value of these derivative contracts is a function of underlying forward commodity prices, interest rates, related volatility, counterparty creditworthiness and duration of contracts. Refer to Note 13 for further discussion regarding MidAmerican Energy's risk management and hedging activities.

MidAmerican Energy's investments in money market mutual funds and debt and equity securities are accounted for as available-for-sale securities and are stated at fair value. When available, a readily observable quoted market price or net asset value of an identical security in an active market is used to record the fair value. In the absence of a quoted market price or net asset value of an identical security, the fair value is determined using pricing models or net asset values based on observable market inputs and quoted market prices of securities with similar characteristics. The fair value of MidAmerican Energy's investments in auction rate securities, where there is no current liquid market, is determined using pricing models based on available observable market data and MidAmerican Energy's judgment about the assumptions, including liquidity and nonperformance risks, which market participants would use when pricing the asset.

The following table reconciles the beginning and ending balances of MidAmerican Energy's assets measured at fair value on a recurring basis using significant Level 3 inputs for the years ended December 31 (in millions):
 
 
Commodity Derivatives
 
Auction Rate Securities
 
 
2012
 
2011
 
2010
 
2012
 
2011
 
2010
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
 
$
22

 
$
14

 
$
21

 
$
16

 
$
20

 
$
16

Changes included in earnings(1)
 
5

 
23

 
14

 
—

 
—

 
—

Changes in fair value recognized in OCI
 
—

 
(3
)
 
—

 
5

 
1

 
4

Changes in fair value recognized in net regulatory assets
 
(3
)
 
12

 
5

 
—

 
—

 
—

Sales
 
—

 
—

 
—

 
—

 
(5
)
 
—

Settlements
 
(24
)
 
(25
)
 
(29
)
 
—

 
—

 
—

Transfers to Level 2
 
—

 
—

 
3

 
—

 
—

 
—

Transfers from Level 2
 
—

 
1

 
—

 
—

 
—

 
—

Ending balance
 
$
—

 
$
22

 
$
14

 
$
21

 
$
16

 
$
20

(1)
Changes included in earnings are reported as nonregulated operating revenue on the Consolidated Statements of Operations. Net unrealized gains included in earnings for the years ended December 31, 2012, 2011 and 2010, related to commodity derivatives held at December 31, 2012 , 2011 and 2010, totaled $- million, $15 million and $8 million, respectively.

MidAmerican Energy's long-term debt is carried at cost on the Consolidated Financial Statements. The fair value of MidAmerican Energy's long-term debt is a Level 2 fair value measurement and has been estimated based upon quoted market prices, where available, or at the present value of future cash flows discounted at rates consistent with comparable maturities with similar credit risks. The carrying value of MidAmerican Energy's variable-rate long-term debt approximates fair value because of the frequent repricing of these instruments at market rates. The following table presents the carrying value and estimated fair value of MidAmerican Energy's long-term debt as of December 31, (in millions):
 
2012
 
2011
 
Carrying
Value
 
Fair Value
 
Carrying
Value
 
Fair Value
 
 
 
 
 
 
 
 
Long-term debt
$
3,259

 
$
3,737

 
$
3,115

 
$
3,620