XML 28 R16.htm IDEA: XBRL DOCUMENT
v3.21.1

Risk Management and Derivatives: | 3 Months Ended
--- | ---
Mar. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Risk Management and Derivatives | Risk Management and Derivatives Market and Credit Risk Disclosures Our activities in the regulated and non-regulated energy sectors expose us to a number of risks in the normal operations of our businesses. Depending on the activity, we are exposed to varying degrees of market risk and credit risk. Market Risk Market risk is the potential loss that may occur as a result of an adverse change in market price, rate or supply. We are exposed to the following market risks, including, but not limited to: •Commodity price risk associated with our retail natural gas and wholesale electric power marketing activities, as well as our fuel procurement for several of our gas-fired generation assets, which include market fluctuations due to unpredictable factors such as Winter Storm Uri, weather, market speculation, pipeline constraints, and other factors that may impact natural gas and electric energy supply and demand; and •Interest rate risk associated with future debt, including reduced access to liquidity during periods of extreme capital markets volatility, such as the 2008 financial crisis and the COVID-19 pandemic. Credit Risk Credit risk is the risk of financial loss resulting from non-performance of contractual obligations by a counterparty. We attempt to mitigate our credit exposure by conducting business primarily with high credit quality entities, setting tenor and credit limits commensurate with counterparty financial strength, obtaining master netting agreements and mitigating credit exposure with less creditworthy counterparties through parental guarantees, cash collateral requirements, letters of credit and other security agreements. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current creditworthiness, as determined by review of their current credit information. We maintain a provision for estimated credit losses based upon historical experience, changes in current market conditions, expected losses and any specific customer collection issue that is identified. Derivatives and Hedging Activity Our derivative and hedging activities included in the accompanying Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Income and Condensed Consolidated Statements of Comprehensive Income are detailed below and in Note 8. The operations of our utilities, including natural gas sold by our Gas Utilities and natural gas used by our Electric Utilities’ generating facilities plants or those facilities under PPAs where our Electric Utilities must provide the generation fuel (tolling agreements), expose our utility customers to natural gas price volatility. Therefore, as allowed or required by state regulatory commissions, we have entered into commission-approved hedging programs utilizing natural gas futures, options, over-the-counter swaps and basis swaps to reduce our customers’ underlying exposure to these fluctuations. These transactions are considered derivatives, and in accordance with accounting standards for derivatives and hedging, mark-to-market adjustments are recorded as Derivative assets or Derivative liabilities on the accompanying Condensed Consolidated Balance Sheets, net of balance sheet offsetting as permitted by GAAP. For our regulated Utilities’ hedging plans, unrealized and realized gains and losses, as well as option premiums and commissions on these transactions are recorded as Regulatory assets or Regulatory liabilities in the accompanying Condensed Consolidated Balance Sheets in accordance with the state regulatory commission guidelines. When the related costs are recovered through our rates, the hedging activity is recognized in the Condensed Consolidated Statements of Income. We periodically use wholesale power purchase and sale contracts to manage purchased power costs and load requirements associated with serving our electric customers that are considered derivative instruments due to not qualifying for the normal purchases and normal sales exception to derivative accounting. Changes in the fair value of these commodity derivatives are recognized in the Condensed Consolidated Statements of Income. We buy, sell and deliver natural gas at competitive prices by managing commodity price risk. As a result of these activities, this area of our business is exposed to risks associated with changes in the market price of natural gas. We manage our exposure to such risk using over-the-counter and exchange traded options and swaps with counterparties in anticipation of forecasted purchases and sales during time frames ranging from April 2021 through August 2023. A portion of our over-the-counter swaps have been designated as cash flow hedges to mitigate the commodity price risk associated with deliveries under fixed price forward contracts to deliver gas to our Choice Gas Program customers. The gain or loss on these designated derivatives is reported in AOCI in the accompanying Condensed Consolidated Balance Sheets and reclassified into earnings in the same period that the underlying hedged item is recognized in earnings. Effectiveness of our hedging position is evaluated at least quarterly. The contract or notional amounts and terms of the electric and natural gas derivative commodity instruments held at our Utilities are composed of both long and short positions. We had the following net long positions as of:
|  | March 31, 2021 |  | December 31, 2020 |  |
| Units | Notional Amounts |  | Maximum Term (months) (a) |  | Notional Amounts |  | Maximum Term (months) (a) |  |  |  |
Natural gas futures purchased | MMBtus | — |  |  | 0 |  | 620,000 |  |  | 3 |  |  |  |
Natural gas options purchased, net | MMBtus | — |  |  | 0 |  | 3,160,000 |  |  | 3 |  |  |  |
Natural gas basis swaps purchased | MMBtus | — |  |  | 0 |  | 900,000 |  |  | 3 |  |  |  |
Natural gas over-the-counter swaps, net (b) | MMBtus | 3,590,000 |  |  | 29 |  | 3,850,000 |  |  | 17 |  |  |  |
Natural gas physical contracts, net (c) | MMBtus | 3,107,817 |  |  | 12 |  | 17,513,061 |  |  | 22 |  |  |  |
Electric wholesale contracts (c) | MWh | 183,025 |  |  | 9 |  | 219,000 |  |  | 12 |  |  |  |
__________ (a) Term reflects the maximum forward period hedged. (b) As of March 31, 2021, 442,900 MMBtus of natural gas over-the-counter swaps purchases were designated as cash flow hedges. (c) Volumes exclude derivative contracts that qualify for the normal purchases and normal sales exception permitted by GAAP. We have certain derivative contracts which contain credit provisions. These credit provisions may require the Company to post collateral when credit exposure to the Company is in excess of a negotiated line of unsecured credit. At March 31, 2021, the Company posted $1.4 million related to such provisions, which is included in Other current assets on the Condensed Consolidated Balance Sheets. Derivatives by Balance Sheet Classification As required by accounting standards for derivatives and hedges, fair values within the following tables are presented on a gross basis aside from the netting of asset and liability positions. Netting of positions is permitted in accordance with accounting standards for offsetting and under terms of our master netting agreements that allow us to settle positive and negative positions. The following table presents the fair value and balance sheet classification of our derivative instruments (in thousands) as of:
| Balance Sheet Location |  | March 31, 2021 | December 31, 2020
Derivatives designated as hedges: |  |  |  |
Asset derivative instruments: |  |  |  |
Current commodity derivatives | Derivative assets, current |  | $ | 285 |  | $ | 181 |
Noncurrent commodity derivatives | Other assets, non-current |  | 4 |  | 43 |
Liability derivative instruments: |  |  |  |
Current commodity derivatives | Derivative liabilities, current |  | — |  | (108) |
Noncurrent commodity derivatives | Other deferred credits and other liabilities |  | — |  | — |
Total derivatives designated as hedges |  |  | $ | 289 |  | $ | 116 |
Derivatives not designated as hedges: |  |  |  |
Asset derivative instruments: |  |  |  |
Current commodity derivatives | Derivative assets, current |  | $ | 1,632 |  | $ | 1,667 |
Noncurrent commodity derivatives | Other assets, non-current |  | 32 |  | 151 |
Liability derivative instruments: |  |  |  |
Current commodity derivatives | Derivative liabilities, current |  | (2,526) |  | (1,936) |
Noncurrent commodity derivatives | Other deferred credits and other liabilities |  | (43) |  | — |
Total derivatives not designated as hedges |  |  | $ | (905) |  | $ | (118) |
Derivatives Designated as Hedge Instruments The impacts of cash flow hedges on our Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Income are presented below for the three months ended March 31, 2021 and 2020. Note that this presentation does not reflect gains or losses arising from the underlying physical transactions; therefore, it is not indicative of the economic profit or loss we realized when the underlying physical and financial transactions were settled.
| Three Months Ended March 31, |  | Three Months Ended March 31,
| 2021 | 2020 |  | 2021 | 2020
Derivatives in Cash Flow Hedging Relationships | Amount of (Gain)/Loss Recognized in OCI | Income Statement Location | Amount of Gain/(Loss) Reclassified from AOCI into Income
| (in thousands) |  | (in thousands)
Interest rate swaps | $ | 713 |  | $ | 713 |  | Interest expense | $ | (713) |  | $ | (713) |
Commodity derivatives | 173 |  | 257 |  | Fuel, purchased power and cost of natural gas sold | (31) |  | (486) |
Total | $ | 886 |  | $ | 970 |  |  | $ | (744) |  | $ | (1,199) |
As of March 31, 2021, $0.9 million of net losses related to our interest rate swaps and commodity derivatives are expected to be reclassified from AOCI into earnings within the next 12 months. As market prices fluctuate, estimated and actual realized gains or losses will change during future periods. Derivatives Not Designated as Hedge Instruments The following table summarizes the impacts of derivative instruments not designated as hedge instruments on our Condensed Consolidated Statements of Income for the three months ended March 31, 2021 and 2020. Note that this presentation does not reflect gains or losses arising from the underlying physical transactions; therefore, it is not indicative of the economic profit or loss we realized when the underlying physical and financial transactions were settled.
|  | Three Months Ended March 31,
|  | 2021 | 2020
Derivatives Not Designated as Hedging Instruments | Income Statement Location | Amount of Gain/(Loss) on Derivatives Recognized in Income
|  | (in thousands)
Commodity derivatives - Electric | Fuel, purchased power and cost of natural gas sold | $ | (1,524) |  | $ | 1,362 |
Commodity derivatives - Natural Gas | Fuel, purchased power and cost of natural gas sold | 366 |  | 766 |
|  | $ | (1,158) |  | $ | 2,128 |
As discussed above, financial instruments used in our regulated Gas Utilities are not designated as cash flow hedges. There is no earnings impact because the unrealized gains and losses arising from the use of these financial instruments are recorded as Regulatory assets or Regulatory liabilities. The net unrealized losses included in our Regulatory asset or Regulatory liability related to the hedges in our Gas Utilities were $0.3 million and $2.2 million as of March 31, 2021 and December 31, 2020, respectively. For our Electric Utilities, the unrealized gains and losses arising from these derivatives are recognized in the Condensed Consolidated Statements of Income.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration