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Risk Management And Derivatives | 9 Months Ended
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Sep. 30, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Risk Management And Derivatives | (7) Risk Mana gement and Derivatives Market and Credit Risk Disclosures 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. 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 but not limited to, the following market risks: • 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 weather, geopolitical events, pandemics, market speculation, recession, inflation, pipeline constraints, and other factors that may impact natural gas and electric supply and demand; and • Interest rate risk associated with future debt, including reduced access to liquidity during periods of extreme capital markets volatility. 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 periodic 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. Derivatives and Hedging Activity Our derivative and hedging activities included in the accompanying Consolidated Balance Sheets, Consolidated Statements of Income, and 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 enter 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 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 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 Consolidated Statements of Income. To support our Choice Gas Program customers, 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 October 2024 through August 2026. 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 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 and (short) positions as of:
| September 30, 2024 |  | December 31, 2023 |
| Notional Amounts (MMBtus) |  | Maximum Term (months) (a) |  | Notional Amounts (MMBtus) |  | Maximum Term (months) (a) |
Natural gas futures purchased |  | 1,800,000 |  |  | 6 |  |  | 650,000 |  |  | 3 |
Natural gas options purchased, net |  | 7,680,000 |  |  | 6 |  |  | 2,850,000 |  |  | 3 |
Natural gas basis swaps purchased |  | 1,800,000 |  |  | 6 |  |  | 1,050,000 |  |  | 3 |
Natural gas over-the-counter swaps, net (b) |  | 4,890,000 |  |  | 22 |  |  | 3,890,000 |  |  | 21 |
Natural gas physical contracts, net (c) |  | 32,240,665 |  |  | 6 |  |  | 12,582,415 |  |  | 10 |
(a) Term reflects the maximum forward period hedged. (b) As of September 30, 2024, 2,276,000 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 September 30, 2024, the Company post ed $0.5 million re lated to such provisions, which is included in Other current assets on the Consolidated Balance Sheets. Derivatives by Balance Sheet Classification The following table presents the fair value and balance sheet classification of our derivative instruments as of:
| Balance Sheet Location | September 30, 2024 |  | December 31, 2023 |
|  | (in millions) |
Derivatives designated as hedges: |  |  |  |  |
Liability derivative instruments: |  |  |  |  |
Current commodity derivatives | Derivative liabilities, current | $ | (0.6 | ) | $ | (2.7 | )
Noncurrent commodity derivatives | Other assets, non-current |  | - |  |  | (0.2 | )
Total derivatives designated as hedges |  | $ | (0.6 | ) | $ | (2.9 | )
Derivatives not designated as hedges: |  |  |  |  |
Liability derivative instruments: |  |  |  |  |
Current commodity derivatives | Derivative liabilities, current | $ | (3.9 | ) | $ | (3.8 | )
Noncurrent commodity derivatives | Other deferred credits and other liabilities |  | (0.1 | ) |  | (0.1 | )
Total derivatives not designated as hedges |  | $ | (4.0 | ) | $ | (3.9 | )
Derivatives Designated as Hedge Instruments The impact of cash flow hedges on our Consolidated Statements of Comprehensive Income and Consolidated Statements of Income are presented below for the three and nine months ended September 30, 2024, and 2023. 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 September 30, |  |  | Three Months Ended September 30, |
| 2024 |  | 2023 |  |  | 2024 |  | 2023 |
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 millions) |  |  | (in millions) |
Interest rate swaps | $ | 0.8 |  | $ | 0.7 |  | Interest expense | $ | (0.8 | ) | $ | (0.7 | )
Commodity derivatives |  | 0.1 |  |  | (0.2 | ) | Fuel, purchased power, and cost of natural gas sold |  | - |  |  | - |
Total | $ | 0.9 |  | $ | 0.5 |  |  | $ | (0.8 | ) | $ | (0.7 | )
| Nine Months Ended September 30, |  |  | Nine Months Ended September 30, |
| 2024 |  | 2023 |  |  | 2024 |  | 2023 |
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 millions) |  |  | (in millions) |
Interest rate swaps | $ | 2.2 |  | $ | 2.1 |  | I nterest expense | $ | (2.2 | ) | $ | (2.1 | )
Commodity derivatives |  | 3.1 |  |  | 1.3 |  | Fuel, purchased power, and cost of natural gas sold |  | (3.2 | ) |  | (2.5 | )
Total | $ | 5.3 |  | $ | 3.4 |  |  | $ | (5.4 | ) | $ | (4.6 | )
As of September 30, 2024, $2.9 million o f 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 Consolidated Statements of Income for the three and nine months ended September 30, 2024, and 2023. 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 September 30, |
|  | 2024 |  | 2023 |
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 millions) |
Commodity derivatives | Fuel, purchased power, and cost of natural gas sold | $ | (0.3 | ) | $ | 0.3 |
|  | $ | (0.3 | ) | $ | 0.3 |
|  | Nine Months Ended September 30, |
|  | 2024 |  | 2023 |
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 millions) |
Commodity derivatives | Fuel, purchased power, and cost of natural gas sold | $ | 0.4 |  | $ | (2.4 | )
|  | $ | 0.4 |  | $ | (2.4 | )
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. We had $3.2 million in net unrealized losses i ncluded in our Regulatory asset accounts related to these financial instruments in our Gas Utilities as of September 30, 2024, and the amount was $5.1 million as of December 31, 2023.

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- 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://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org/1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/815/tableOfContent + Details
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