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Derivative instruments | 3 Months Ended
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Mar. 31, 2012
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | 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 March 31, 2012, 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 2011 Annual Report. Cascade At March 31, 2012, Cascade held a natural gas swap agreement, with total forward notional volumes of 214,000 MMBtu, which was not designated as a hedge. Cascade utilizes natural gas swap agreements to manage a portion of its regulated natural gas supply portfolio in order to manage fluctuations in the price of natural gas related to core customers in accordance with authority granted by the 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 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 March 31, 2012, the change in the fair market value of the derivative instrument of $52,000 was recorded as an increase to regulatory assets. For the three months ended March 31, 2011, the change in the fair market value of the derivative instruments of $6.6 million was recorded as a decrease to regulatory assets. Cascade's derivative instrument contains a cross-default provision that states if the entity fails to make payment with respect to certain of its indebtedness, in excess of specified amounts, the counterparty could require early settlement or termination of such entity's derivative instrument in a liability position. The fair value of Cascade's derivative instrument with a credit-risk-related contingent feature that is in a liability position at March 31, 2012, was $489,000. The aggregate fair value of assets that would have been needed to settle the instrument immediately if the credit-risk-related contingent feature was triggered on March 31, 2012, was $489,000. Fidelity At March 31, 2012, Fidelity held oil swap and collar agreements with total forward notional volumes of 4.0 million Bbl, natural gas swap agreements with total forward notional volumes of 10.9 million MMBtu, and natural gas basis swap agreements with total forward notional volumes of 2.6 million MMBtu, a majority of which were designated as cash flow hedging instruments. Fidelity utilizes these derivative instruments to manage a portion of the market risk associated with fluctuations in the price of oil and natural gas and basis differentials on its forecasted sales of oil and natural gas production. As of March 31, 2012, 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 21 months. Centennial At March 31, 2012, 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. For the three months ended March 31, 2012, $4.3 million (before tax) of ineffectiveness on oil and natural gas derivatives that qualified for hedge accounting was reclassified as a net loss into operating revenues and is reflected on the Consolidated Statements of Income. The amount of hedge ineffectiveness was immaterial for the three months ended March 31, 2011. For the three months ended March 31, 2012 and 2011, an immaterial gain and a loss of $1.7 million, respectively, related to derivative instruments that did not qualify for hedge accounting were reported in operating revenues on the Consolidated Statements of Income. 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, and there were no such reclassifications. Gains and losses on the oil and natural gas derivative instruments are reclassified from accumulated other comprehensive income (loss) into operating revenues on the Consolidated Statements of Income at the date the oil and natural gas quantities are settled. The proceeds received for oil and natural gas 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 more 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 the Consolidated Statements of Comprehensive Income. Based on March 31, 2012, fair values, over the next 12 months net gains of approximately $5.3 million (after tax) are estimated to be reclassified from accumulated other comprehensive income (loss) into earnings, subject to changes in oil and natural gas market prices and interest rates, 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 March 31, 2012, was $29.2 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 March 31, 2012, was $29.2 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 | Fair Value at | Fair Value at
March 31, 2012 | March 31, 2011 | December 31, 2011
|  | (In thousands)
Designated as hedges: |  |  |
Commodity derivatives | Commodity derivative instruments | $ | 25,560 |  | $ | 13,250 |  | $ | 27,687 |
| Other assets - noncurrent | 537 |  | 3,148 |  | 2,768 |
|  | 26,097 |  | 16,398 |  | 30,455 |
Not designated as hedges: |  |  |  |
Commodity derivatives | Commodity derivative instruments | 1,138 |  | — |  | — |
| Other assets - noncurrent | 45 |  | — |  | — |
|  | 1,183 |  | — |  | — |
Total asset derivatives |  | $ | 27,280 |  | $ | 16,398 |  | $ | 30,455 |
Liability Derivatives | Location on Consolidated Balance Sheets | Fair Value at | Fair Value at | Fair Value at
March 31, 2012 | March 31, 2011 | December 31, 2011
|  | (In thousands)
Designated as hedges: |  |  |
Commodity derivatives | Commodity derivative instruments | $ | 18,964 |  | $ | 35,990 |  | $ | 12,727 |
| Other liabilities - noncurrent | 6,098 |  | 18,082 |  | 937 |
Interest rate derivatives | Other accrued liabilities | 1,168 |  | — |  | 827 |
| Other liabilities - noncurrent | 2,153 |  | — |  | 3,935 |
|  | 28,383 |  | 54,072 |  | 18,426 |
Not designated as hedges: |  |  |  |  |  |
Commodity derivatives | Commodity derivative instruments | 1,219 |  | 4,509 |  | 437 |
| Other liabilities - noncurrent | 49 |  | — |  | — |
|  | 1,268 |  | 4,509 |  | 437 |
Total liability derivatives |  | $ | 29,651 |  | $ | 58,581 |  | $ | 18,863 |

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- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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