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Interest Rate Swap Agreement | 9 Months Ended
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Sep. 30, 2025
Interest Rate Swap Agreement [Abstract] |
Interest Rate Swap Agreement | 5. Interest Rate Swap Agreement The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is interest rate risk. The Company utilizes an interest rate swap agreement to effectively convert the Company’s $12,000 variable-rate debt issue to a fixed rate. Interest rate swaps are contracts in which a series of interest rate cash flows are exchanged over a prescribed period. The notional amount on which the interest payments are based ($12,000) is not exchanged. The interest rate swap provides that the Company pays the counterparty a fixed interest rate of 3.16% on the notional amount of $12,000. In exchange, the counterparty pays the Company a variable interest rate based on 59% of the daily simple Secured Overnight Financing Rate plus a spread adjustment of 11.448 basis points on the notional amount. The intent is for the variable rate received from the swap counterparty to approximate the variable rate the Company pays to bondholders on its variable rate debt issue, resulting in a fixed rate being paid to the swap counterparty and reducing the Company’s interest rate risk. The Company’s net payment rate on the swap averaged 0.54% and (0.03)% for the three months ended September 30, 2025 and 2024, respectively, and 0.53% and (0.04)% for the nine months ended September 30, 2025 and 2024, respectively. The interest rate swap agreement is classified as a financial derivative used for non-trading activities. The accounting standards regarding accounting for derivatives and hedging activities require companies to recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. In accordance with the standards, the interest rate swap is recorded on the balance sheet in other deferred credits at fair value (see Note 6). The Company uses regulatory accounting treatment rather than hedge accounting to defer the unrealized gains and losses on its interest rate swap. These unrealized gains and losses are recorded as a regulatory asset or regulatory liability. Based on current ratemaking treatment, the Company expects the unrealized gains and losses to be recognized in rates as a component of interest expense as the swap settlements occur. Swap settlements are recorded in the income statement with the hedged item as interest expense. Swap settlements resulted in the reclassification from regulatory assets to interest expense of $16 and $(1) for the three months ended September 30, 2025 and 2024, respectively, and $48 and $(3) for the nine months ended September 30, 2025 and 2024, respectively. The overall swap result was a loss of $1 and $252 for the three months ended September 30, 2025 and 2024, respectively, and $170 and $15 for the nine months ended September 30, 2025 and 2024, respectively. The Company expects to reclassify $116 before tax from regulatory assets to interest expense as a result of swap settlements over the next 12 months. The interest rate swap agreement contains provisions that require the Company to maintain a credit rating of at least BBB- with Standard & Poor’s. If the Company’s rating were to fall below this rating, it would be in violation of these provisions, and the counterparty to the derivative could request immediate payment if the derivative was in a liability position. On July 30, 2025, Standard & Poor’s affirmed the Company’s credit rating at A-, with a stable outlook and adequate liquidity. The Company’s interest rate swap was in a liability position as of September 30, 2025. If a violation due to credit rating, or some other default provision, were triggered on September 30, 2025, the Company would have been required to pay the counterparty approximately $519. The interest rate swap will expire on October 1, 2029. Other than the interest rate swap, the Company has no other derivative instruments.

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