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.

•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 weather (Winter Storm Uri), 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.

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 customers’ 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.

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 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 October 2021 through August 2024. 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:


		September 30, 2021		December 31, 2020
	Units	Notional Amounts	Maximum Term (months) (a)	Notional Amounts	Maximum Term (months) (a)
Natural gas futures purchased	MMBtus	1,700,000	6	620,000	3
Natural gas options purchased, net	MMBtus	8,420,000	6	3,160,000	3
Natural gas basis swaps purchased	MMBtus	1,500,000	6	900,000	3
Natural gas over-the-counter swaps, net (b)	MMBtus	5,920,000	35	3,850,000	17
Natural gas physical contracts, net (c)	MMBtus	18,758,835	7	17,513,061	22
Electric wholesale contracts (c)	MWh	65,625	3	219,000	12

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 September 30, 2021, the Company posted $0.9 million related to such provisions, which is included in Other current assets on the Condensed Consolidated Balance Sheets.

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.


	Balance Sheet Location	September 30, 2021		December 31, 2020
Derivatives designated as hedges:
Asset derivative instruments:
Current commodity derivatives	Derivative assets, current	$	6,989	$	181
Noncurrent commodity derivatives	Other assets, non-current	32		43
Liability derivative instruments:
Current commodity derivatives	Derivative liabilities, current	—		(108)

Total derivatives designated as hedges		$	7,021	$	116

Derivatives not designated as hedges:
Asset derivative instruments:
Current commodity derivatives	Derivative assets, current	$	5,327	$	1,667
Noncurrent commodity derivatives	Other assets, non-current	1,580		151
Liability derivative instruments:
Current commodity derivatives	Derivative liabilities, current	(3,471)		(1,936)

Total derivatives not designated as hedges		$	3,436	$	(118)

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 and nine months ended September 30, 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 September 30,					Three Months Ended September 30,
	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	$	712	$	712	Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts)	$	(712)	$	(712)
Commodity derivatives	5,536		691		Fuel, purchased power and cost of natural gas sold	331		(178)
Total	$	6,248	$	1,403		$	(381)	$	(890)


	Nine Months Ended September 30,					Nine Months Ended September 30,
	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	$	2,138	$	2,138	Interest expense incurred net of amounts capitalized (including amortization of debt issuance costs, premiums and discounts)	$	(2,138)	$	(2,138)
Commodity derivatives	6,896		959		Fuel, purchased power and cost of natural gas sold	356		(734)
Total	$	9,034	$	3,097		$	(1,782)	$	(2,872)

As of September 30, 2021, $4.0 million of net gains related to our interest rate swaps and commodity derivatives are expected to be reclassified from AOCI into earnings as gains within the next 12 months. As market prices fluctuate, estimated and actual realized gains or losses will change during future periods.

The following table summarizes the impacts of derivative instruments not designated as hedge instruments on our Condensed Consolidated Statements of Income for the three and nine months ended September 30, 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 September 30,
		2021		2020
Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) on Derivatives Recognized in Income	Amount of Gain/(Loss) on Derivatives Recognized in Income
		(in thousands)
Commodity derivatives - Electric	Fuel, purchased power and cost of natural gas sold	$	2,494	$	(1,386)
Commodity derivatives - Natural Gas	Fuel, purchased power and cost of natural gas sold	4,004		1,777
		$	6,498	$	391


		Nine Months Ended September 30,
		2021		2020
Derivatives Not Designated as Hedging Instruments	Location of Gain/(Loss) on Derivatives Recognized in Income	Amount of Gain/(Loss) on Derivatives Recognized in Income
		(in thousands)
Commodity derivatives - Electric	Fuel, purchased power and cost of natural gas sold	$	(2,628)	$	(228)
Commodity derivatives - Natural Gas	Fuel, purchased power and cost of natural gas sold	6,186		2,992
		$	3,558	$	2,764

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) or gains included in our Regulatory asset or Regulatory liability related to the hedges in our Gas Utilities were $13.2 million and $(2.2) million as of September 30, 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.