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Risk Management and Hedging Activities (MEC)
 6 Months Ended
Jun. 30, 2015
MidAmerican Energy Company [Member]  
Derivatives, Fair Value [Line Items]  
Derivative Instruments and Hedging Activities Disclosure [Text Block]
(6)
Risk Management and Hedging Activities

MidAmerican Energy is exposed to the impact of market fluctuations in commodity prices and interest rates. MidAmerican Energy is principally exposed to electricity, natural gas, coal and fuel oil commodity price risk as it has an obligation to serve retail customer load in its regulated service territory. MidAmerican Energy also provides nonregulated retail electricity and natural gas services in competitive markets, which creates contractual obligations to provide electric and natural gas services. MidAmerican Energy's load and generating facilities represent substantial underlying commodity positions. Exposures to commodity prices consist mainly of variations in the price of fuel required to generate electricity, wholesale electricity that is purchased and sold, and natural gas supply for retail customers. Commodity prices are subject to wide price swings as supply and demand are impacted by, among many other unpredictable items, weather; market liquidity; generating facility availability; customer usage; storage; and transmission and transportation constraints. Interest rate risk exists on variable-rate debt and future debt issuances. MidAmerican Energy does not engage in a material amount of proprietary trading activities.

MidAmerican Energy has established a risk management process that is designed to identify, assess, monitor, report, manage and mitigate each of the various types of risk involved in its business. To mitigate a portion of its commodity price risk, MidAmerican Energy uses commodity derivative contracts, which may include forwards, futures, options, swaps and other agreements, to effectively secure future supply or sell future production generally at fixed prices. MidAmerican Energy manages its interest rate risk by limiting its exposure to variable interest rates primarily through the issuance of fixed-rate long-term debt and by monitoring market changes in interest rates. Additionally, MidAmerican Energy may from time to time enter into interest rate derivative contracts, such as interest rate swaps or locks, to mitigate its exposure to interest rate risk. MidAmerican Energy does not hedge all of its commodity price and interest rate risks, thereby exposing the unhedged portion to changes in market prices.
 
There have been no significant changes in MidAmerican Energy's accounting policies related to derivatives. Refer to Note 7 for additional information on derivative contracts.

The following table, which reflects master netting arrangements and excludes contracts that have been designated as normal under the normal purchases or normal sales exception afforded by GAAP, summarizes the fair value of MidAmerican Energy's derivative contracts, on a gross basis, and reconciles those amounts to the amounts presented on a net basis on the Balance Sheets (in millions):
 
Current
Assets -
Other
 
Other
Assets -
Other
 
Current
Liabilities -
Other
 
Other
Liabilities -
Other
 
Total
As of June 30, 2015:
 
 
 
 
 
 
 
 
 
Not designated as hedging contracts(1):
 
 
 
 
 
 
 
 
 
Commodity assets
$
11

 
$
3

 
$
15

 
$
—

 
$
29

Commodity liabilities
(1
)
 
—

 
(51
)
 
(5
)
 
(57
)
Total
10

 
3

 
(36
)
 
(5
)
 
(28
)
 
 
 
 
 
 
 
 
 
 
Designated as hedging contracts:
 
 
 
 
 
 
 
 
 
Commodity assets
—

 
—

 
2

 
2

 
4

Commodity liabilities
—

 
—

 
(24
)
 
(20
)
 
(44
)
Total
—

 
—

 
(22
)
 
(18
)
 
(40
)
 
 
 
 
 
 
 
 
 
 
Total derivatives
10

 
3

 
(58
)
 
(23
)
 
(68
)
Cash collateral receivable
—

 
—

 
26

 
5

 
31

Total derivatives - net basis
$
10

 
$
3

 
$
(32
)
 
$
(18
)
 
$
(37
)
As of December 31, 2014:
 
 
 
 
 
 
 
 
 
Not designated as hedging contracts(1):
 
 
 
 
 
 
 
 
 
Commodity assets
$
14

 
$
3

 
$
19

 
$
1

 
$
37

Commodity liabilities
—

 
—

 
(69
)
 
(4
)
 
(73
)
Total
14

 
3

 
(50
)
 
(3
)
 
(36
)
 
 
 
 
 
 
 
 
 
 
Designated as hedging contracts:
 
 
 
 
 
 
 
 
 
Commodity assets
—

 
—

 
4

 
2

 
6

Commodity liabilities
—

 
—

 
(27
)
 
(17
)
 
(44
)
Total
—

 
—

 
(23
)
 
(15
)
 
(38
)
 
 
 
 
 
 
 
 
 
 
Total derivatives
14

 
3

 
(73
)
 
(18
)
 
(74
)
Cash collateral receivable
—

 
—

 
42

 
5

 
47

Total derivatives - net basis
$
14

 
$
3

 
$
(31
)
 
$
(13
)
 
$
(27
)
(1)
MidAmerican Energy's commodity derivatives not designated as hedging contracts are generally included in regulated rates, and as of June 30, 2015 and December 31, 2014, a net regulatory asset of $28 million and $38 million, respectively, was recorded related to the net derivative liability of $28 million and $36 million, respectively.
Not Designated as Hedging Contracts

The following table reconciles the beginning and ending balances of MidAmerican Energy's net regulatory assets and summarizes the pre-tax gains and losses on commodity derivative contracts recognized in net regulatory assets, as well as amounts reclassified to earnings (in millions):
 
Three-Month Periods
 
Six-Month Periods
 
Ended June 30,
 
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Beginning balance
$
18

 
$
32

 
$
38

 
$
10

Changes in fair value recognized in net regulatory assets
17

 
20

 
19

 
62

Net losses reclassified to operating revenue
(6
)
 
(5
)
 
(22
)
 
(24
)
Net (losses) gains reclassified to cost of gas sold
(1
)
 
1

 
(7
)
 
—

Ending balance
$
28

 
$
48

 
$
28

 
$
48



The following table summarizes the pre-tax gains (losses) included on the Statements of Operations associated with MidAmerican Energy's commodity derivative contracts not designated as hedging contracts and not recorded as a net regulatory asset or liability (in millions):
 
Three-Month Periods
 
Six-Month Periods
 
Ended June 30,
 
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Nonregulated operating revenue
$
1

 
$
1

 
$
4

 
$
(8
)
Regulated cost of gas sold
1

 
—

 
2

 
—

Nonregulated cost of sales
(1
)
 
—

 
(5
)
 
21

Total
$
1

 
$
1

 
$
1

 
$
13



Designated as Hedging Contracts

MidAmerican Energy uses commodity derivative contracts accounted for as cash flow hedges to hedge electricity and natural gas commodity prices for delivery to nonregulated customers. The following table reconciles the beginning and ending balances of MidAmerican Energy's accumulated other comprehensive (income) loss (pre-tax) and summarizes pre-tax gains and losses on commodity derivative contracts designated and qualifying as cash flow hedges recognized in other comprehensive income ("OCI"), as well as amounts reclassified to earnings (in millions):
 
Three-Month Periods
 
Six-Month Periods
 
Ended June 30,
 
Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
 
 
 
 
Beginning balance
$
30

 
$
(13
)
 
$
34

 
$
11

Changes in fair value recognized in OCI
25

 
(21
)
 
19

 
(79
)
Net (losses) gains reclassified to nonregulated cost of sales
(16
)
 
6

 
(14
)
 
40

Ending balance
$
39

 
$
(28
)
 
$
39

 
$
(28
)


Realized gains and losses on hedges and hedge ineffectiveness are recognized in income as nonregulated operating revenue or nonregulated cost of sales depending upon the nature of the item being hedged. For the three-month periods ended June 30, 2015 and 2014, hedge ineffectiveness was insignificant, and for the six-month periods ended June 30, 2015 and 2014, hedge ineffectiveness was a pre-tax gain of $1 million and $- million, respectively. As of June 30, 2015, MidAmerican Energy had cash flow hedges with expiration dates extending through December 2019, and $22 million of pre-tax net unrealized losses are forecasted to be reclassified from AOCI into earnings over the next twelve months as contracts settle.

Derivative Contract Volumes

The following table summarizes the net notional amounts of outstanding commodity derivative contracts with fixed price terms that comprise the mark-to-market values as of (in millions):
 
Unit of
 
June 30,
 
December 31,
 
Measure
 
2015
 
2014
 
 
 
 
 
 
Electricity purchases
Megawatt hours
 
16

 
14

Natural gas purchases
Decatherms
 
17

 
19



Credit Risk

MidAmerican Energy is exposed to counterparty credit risk associated with wholesale energy supply and marketing activities with other utilities, energy marketing companies, financial institutions and other market participants. Credit risk may be concentrated to the extent MidAmerican Energy's counterparties have similar economic, industry or other characteristics and due to direct or indirect relationships among the counterparties. Before entering into a transaction, MidAmerican Energy analyzes the financial condition of each significant wholesale counterparty, establishes limits on the amount of unsecured credit to be extended to each counterparty, and evaluates the appropriateness of unsecured credit limits on an ongoing basis. To further mitigate wholesale counterparty credit risk, MidAmerican Energy enters into netting and collateral arrangements that may include margining and cross-product netting agreements and obtains third-party guarantees, letters of credit and cash deposits. If required, MidAmerican Energy exercises rights under these arrangements, including calling on the counterparty's credit support arrangement.

Collateral and Contingent Features

In accordance with industry practice, certain wholesale derivative contracts contain credit support provisions that in part base MidAmerican Energy's collateral requirements on its credit ratings for senior unsecured debt as reported by one or more of the three recognized credit rating agencies. These derivative contracts may either specifically provide bilateral rights to demand cash or other security if credit exposures on a net basis exceed specified rating-dependent threshold levels ("credit-risk-related contingent features") or provide the right for counterparties to demand "adequate assurance," or in some cases terminate the contract, in the event of a material adverse change in MidAmerican Energy's creditworthiness. These rights can vary by contract and by counterparty. As of June 30, 2015, MidAmerican Energy's credit ratings from the three recognized credit rating agencies were investment grade.

The aggregate fair value of MidAmerican Energy's derivative contracts in liability positions with specific credit-risk-related contingent features totaled $60 million and $52 million as of June 30, 2015 and December 31, 2014, respectively, for which MidAmerican Energy had posted collateral of $- million at each date. If all credit-risk-related contingent features for derivative contracts in liability positions had been triggered as of June 30, 2015 and December 31, 2014, MidAmerican Energy would have been required to post $52 million and $36 million, respectively, of additional collateral. MidAmerican Energy's collateral requirements could fluctuate considerably due to market price volatility, changes in credit ratings, changes in legislation or regulation, or other factors.