Our activities in the energy industry 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 and our fuel procurement for several of our gas-fired generation assets, which include market fluctuations due to unpredictable factors such as the COVID-19 pandemic, weather (Winter Storm Uri), geopolitical events, market speculation, inflation, pipeline constraints, and other factors that may impact natural gas and electric supply and demand; and

•Interest rate risk associated with outstanding variable rate debt and 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’ generation plants or those plants 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 utility 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 use wholesale power purchase and sale contracts to manage purchased power costs and load requirements associated with serving our electric customers. Periodically, certain wholesale energy contracts are considered derivative instruments due to not qualifying for the normal purchase 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 risks using over-the-counter and exchange traded options and swaps with counterparties in anticipation of forecasted purchases and sales during time frames ranging from July 2022 through December 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:


	June 30, 2022		December 31, 2021
	Notional Amounts (MMBtus)	Maximum Term (months) (a)	Notional Amounts (MMBtus)	Maximum Term (months) (a)
Natural gas futures purchased	100,000	9	590,000	3
Natural gas options purchased, net	430,000	9	3,100,000	3
Natural gas basis swaps purchased	—	0	870,000	3
Natural gas over-the-counter swaps, net (b)	7,090,000	30	4,570,000	34
Natural gas physical contracts, net (c)	12,166,541	18	16,416,677	24

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 June 30, 2022, the Company posted $0.4 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 that allow us to settle positive and negative positions.


	Balance Sheet Location	June 30, 2022		December 31, 2021
Derivatives designated as hedges:
Asset derivative instruments:
Current commodity derivatives	Derivative assets, current	$	2	$	2,017
Noncurrent commodity derivatives	Other assets, non-current	256		18
Liability derivative instruments:
Current commodity derivatives	Derivative liabilities, current	(3,318)		—

Total derivatives designated as hedges		$	(3,060)	$	2,035

Derivatives not designated as hedges:
Asset derivative instruments:
Current commodity derivatives	Derivative assets, current	$	714	$	2,356
Noncurrent commodity derivatives	Other assets, non-current	923		804
Liability derivative instruments:
Current commodity derivatives	Derivative liabilities, current	(1,401)		(1,439)
Noncurrent commodity derivatives	Other deferred credits and other liabilities	—		(20)
Total derivatives not designated as hedges		$	236	$	1,701

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 six months ended June 30, 2022 and 2021. Note that this presentation does not reflect the 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 June 30,					Three Months Ended June 30,
	2022		2021			2022		2021
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	(4,371)		1,187		Fuel, purchased power and cost of natural gas sold	1,323		56
Total	$	(3,658)	$	1,900		$	610	$	(657)


	Six Months Ended June 30,					Six Months Ended June 30,
	2022		2021			2022		2021
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	$	1,426	$	1,426	Interest expense	$	(1,426)	$	(1,426)
Commodity derivatives	(5,238)		1,360		Fuel, purchased power and cost of natural gas sold	3,577		25
Total	$	(3,812)	$	2,786		$	2,151	$	(1,401)

As of June 30, 2022, $6.1 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.

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 six months ended June 30, 2022 and 2021. Note that this presentation does not reflect the expected 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 June 30,
		2022		2021
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	$	—	$	(3,598)
Commodity derivatives - Natural Gas	Fuel, purchased power and cost of natural gas sold	(2,332)		1,816
		$	(2,332)	$	(1,782)


		Six Months Ended June 30,
		2022		2021
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	$	—	$	(5,122)
Commodity derivatives - Natural Gas	Fuel, purchased power and cost of natural gas sold	1,162		2,182
		$	1,162	$	(2,940)

As discussed above, financial instruments used in our regulated Gas Utilities are not designated as cash flow hedges. However, 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 accounts related to these financial instruments in our Gas Utilities were $4.8 million and $2.6 million as of June 30, 2022 and December 31, 2021, respectively. For our Electric Utilities, the unrealized gains and losses arising from these derivatives are recognized in the Condensed Consolidated Statements of Income.