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Derivative instruments | 9 Months Ended
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Sep. 30, 2011
Derivative instruments [Abstract] |
Derivative instruments |
12. | Derivative instruments
| The Company's policy allows the use of derivative instruments as part of an overall energy price, foreign currency and interest rate risk management program to efficiently manage and minimize commodity price, foreign currency and interest rate risk. As of September 30, 2011, the Company had no outstanding foreign currency hedges. The following information should be read in conjunction with Notes 1 and 7 in the Company's Notes to Consolidated Financial Statements in the 2010 Annual Report.
| Cascade and Intermountain
| At September 30, 2011, Cascade held natural gas swap agreements, with total forward notional volumes of 676,000 MMBtu, which were not designated as hedges. Cascade utilizes, and Intermountain periodically utilizes, natural gas swap agreements to manage a portion of their regulated natural gas supply portfolios in order to manage fluctuations in the price of natural gas related to core customers in accordance with authority granted by the IPUC, WUTC and OPUC. Core customers consist of residential, commercial and smaller industrial customers. The fair value of the derivative instrument must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or a liability. Periodic changes in the fair market value of the derivative instruments are recorded on the Consolidated Balance Sheets as a regulatory asset or a regulatory liability, and settlements of these arrangements are expected to be recovered through the purchased gas cost adjustment mechanism. Gains and losses on the settlements of these derivative instruments are recorded as a component of purchased natural gas sold on the Consolidated Statements of Income as they are recovered through the purchased gas cost adjustment mechanism. Under the terms of these arrangements, Cascade and Intermountain will either pay or receive settlement payments based on the difference between the fixed strike price and the monthly index price applicable to each contract. For the three months ended September 30, 2011 and 2010, the change in the fair market value of the derivative instruments of $414,000 and $2.7 million, respectively, was recorded as an increase to regulatory assets. For the nine months ended September 30, 2011 and 2010, the change in the fair market value of the derivative instruments of $8.1 million and $6.3 million, respectively, was recorded as a decrease to regulatory assets.
| Certain of Cascade's derivative instruments contain credit-risk-related contingent features that permit the counterparties to require collateralization if Cascade's derivative liability positions exceed certain dollar thresholds. The dollar thresholds in certain of Cascade's agreements are determined and may fluctuate based on Cascade's credit rating on its debt. In addition, Cascade's derivative instruments contain cross-default provisions that state if the entity fails to make payment with respect to certain of its indebtedness, in excess of specified amounts, the counterparties could require early settlement or termination of such entity's derivative instruments in liability positions. The aggregate fair value of Cascade's derivative instruments with credit-risk-related contingent features that are in a liability position at September 30, 2011, was $1.3 million. The aggregate fair value of assets that would have been needed to settle the instruments immediately if the credit-risk-related contingent features were triggered on September 30, 2011, was $1.3 million.
| Fidelity
| At September 30, 2011, Fidelity held natural gas swap agreements with total forward notional volumes of 16.4 million MMBtu, natural gas basis swap agreements with total forward notional volumes of 8.2 million MMBtu, and oil swap, collar and put option agreements with total forward notional volumes of 3.1 million Bbl, all of which were designated as cash flow hedging instruments. At September 30, 2011, Fidelity held an oil call option agreement with total forward notional volumes of 92,000 Bbl, which did not qualify for hedge accounting. Fidelity utilizes these derivative instruments to manage a portion of the market risk associated with fluctuations in the price of natural gas and oil and basis differentials on its forecasted sales of natural gas and oil production.
| As of September 30, 2011, the maximum term of the derivative instruments, in which the exposure to the variability in future cash flows for forecasted transactions is being hedged, is 27 months.
| Centennial
| At September 30, 2011, Centennial held interest rate swap agreements with a total notional amount of $60.0 million, which were designated as cash flow hedging instruments. Centennial entered into these interest rate derivative instruments to manage a portion of its interest rate exposure on the forecasted issuance of long-term debt. Centennial's interest rate swap agreements have mandatory termination dates ranging from October 2012 through June 2013.
| Fidelity and Centennial
| The fair value of the derivative instruments must be estimated as of the end of each reporting period and is recorded on the Consolidated Balance Sheets as an asset or liability. Changes in the fair value attributable to the effective portion of hedging instruments, net of tax, are recorded in stockholders' equity as a component of accumulated other comprehensive income (loss). To the extent that the hedges are not effective, the ineffective portion of the changes in fair market value is recorded directly in earnings.
| The amount of hedge ineffectiveness was immaterial for the three and nine months ended September 30, 2011, and 2010, and there were no components of the derivative instruments' gain or loss excluded from the assessment of hedge effectiveness. Gains and losses must be reclassified into earnings as a result of the discontinuance of cash flow hedges if it is probable that the original forecasted transactions will not occur. There were no such reclassifications into earnings as a result of the discontinuance of hedges. The gain on the derivative instrument that did not qualify for hedge accounting was reported in operating revenues on the Consolidated Statements of Income and was $157,000 (before tax) and $336,000 (before tax) for the three and nine months ended September 30, 2011, respectively.
| Gains and losses on the natural gas and oil derivative instruments are reclassified from accumulated other comprehensive income (loss) into operating revenues on the Consolidated Statements of Income at the date the natural gas and oil quantities are settled. The proceeds received for natural gas and oil production are generally based on market prices. Gains and losses on the interest rate derivatives are reclassified from accumulated other comprehensive income (loss) into interest expense on the Consolidated Statements of Income in the same period the hedged item affects earnings. For further information regarding the gains and losses on derivative instruments qualifying as cash flow hedges that were recognized in other comprehensive income (loss) and the gains and losses reclassified from accumulated other comprehensive income (loss) into earnings, see Note 8.
| Based on September 30, 2011, fair values, over the next 12 months net gains of approximately $23.0 million (after tax) are estimated to be reclassified from accumulated other comprehensive income (loss) into earnings, subject to changes in natural gas and oil market prices, as the hedged transactions affect earnings.
| Certain of Fidelity's and Centennial's derivative instruments contain cross-default provisions that state if Fidelity or any of its affiliates or Centennial fails to make payment with respect to certain indebtedness, in excess of specified amounts, the counterparties could require early settlement or termination of derivative instruments in liability positions. The aggregate fair value of Fidelity's and Centennial's derivative instruments with credit-risk-related contingent features that are in a liability position at September 30, 2011, was $5.2 million. The aggregate fair value of assets that would have been needed to settle the instruments immediately if the credit-risk-related contingent features were triggered on September 30, 2011, was $5.2 million.
| The location and fair value of the Company's derivative instruments in the Consolidated Balance Sheets were as follows:
Asset Derivatives | Location on Consolidated Balance Sheets |  | Fair Value at September 30, 2011 |  |  | Fair Value at September 30, 2010 |  |  | Fair Value at December 31, 2010 |
|  |  | (In thousands) |
Designated as hedges: |  |  |  |  |  |  |  |  |
Commodity derivatives | Commodity derivative instruments |  | $ | 38,458 |  |  | $ | 26,803 |  |  | $ | 15,123 |
| Other assets – noncurrent |  |  | 15,575 |  |  |  | 8,423 |  |  |  | 4,104 |
|  |  |  | 54,033 |  |  |  | 35,226 |  |  |  | 19,227 |
Not designated as hedges: |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | Commodity derivative instruments |  |  | 336 |  |  |  | — |  |  |  | — |
Total asset derivatives |  |  | $ | 54,369 |  |  | $ | 35,226 |  |  | $ | 19,227 |
Liability Derivatives | Location on Consolidated Balance Sheets |  | Fair Value at September 30, 2011 |  |  | Fair Value at September 30, 2010 |  |  | Fair Value at December 31, 2010 |
|  |  | (In thousands) |
Designated as hedges: |  |  |  |  |  |  |  |  |
Commodity derivatives | Commodity derivative instruments |  | $ | 1,723 |  |  | $ | 4,649 |  |  | $ | 15,069 |
| Other liabilities – noncurrent |  |  | 157 |  |  |  | 1,845 |  |  |  | 6,483 |
Interest rate derivatives | Other liabilities – noncurrent |  |  | 3,491 |  |  |  | — |  |  |  | — |
|  |  |  | 5,371 |  |  |  | 6,494 |  |  |  | 21,552 |
Not designated as hedges: |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | Commodity derivative instruments |  |  | 1,305 |  |  |  | 21,154 |  |  |  | 9,359 |
| Other liabilities – noncurrent |  |  | — |  |  |  | 418 |  |  |  | — |
|  |  |  | 1,305 |  |  |  | 21,572 |  |  |  | 9,359 |
Total liability derivatives |  |  | $ | 6,676 |  |  | $ | 28,066 |  |  | $ | 30,911 |

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- Definition This element can be used to disclose the entity's entire derivative instruments and hedging activities disclosure as a single block of text. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising there from, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + Details
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