Financial And Derivative Instruments And Trading Securities | FINANCIAL INSTRUMENTS AND TRADING SECURITIES Values of Financial Instruments GAAP establishes a hierarchical framework for disclosing the transparency of the inputs utilized in measuring assets and liabilities at fair value. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the classification of assets and liabilities within the fair value hierarchy levels. The three levels of the hierarchy and examples are as follows: • Level 1 - Quoted prices are available in active markets for identical assets or liabilities. The types of assets and liabilities included in level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on public exchanges. • Level 2 - Pricing inputs are not quoted prices in active markets, but are either directly or indirectly observable. The types of assets and liabilities included in level 2 are typically measured at net asset value, comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs. • Level 3 - Significant inputs to pricing have little or no transparency. The types of assets and liabilities included in level 3 are those with inputs requiring significant management judgment or estimation. Level 3 includes investments in private equity, real estate securities and other alternative investments, which are measured at net asset value. We record cash and cash equivalents, short-term borrowings and variable rate debt on our consolidated balance sheets at cost, which approximates fair value. We measure the fair value of fixed rate debt, a level 2 measurement, based on quoted market prices for the same or similar issues or on the current rates offered for instruments of the same remaining maturities and redemption provisions. The recorded amount of accounts receivable and other current financial instruments approximates fair value. All of our level 2 investments are held in investment funds that are measured at fair value using daily net asset values. In addition, we maintain certain level 3 investments in private equity, alternative investments and real estate securities that are also measured at fair value using net asset value, but require significant unobservable market information to measure the fair value of the underlying investments. The underlying investments in private equity are measured at fair value utilizing both market- and income-based models, public company comparables, investment cost or the value derived from subsequent financings. Adjustments are made when actual performance differs from expected performance; when market, economic or company-specific conditions change; and when other news or events have a material impact on the security. The underlying alternative investments include collateralized debt obligations, mezzanine debt and a variety of other investments. The fair value of these investments is measured using a variety of primarily market-based models utilizing inputs such as security prices, maturity, call features, ratings and other developments related to specific securities. The underlying real estate investments are measured at fair value using a combination of market- and income-based models utilizing market discount rates, projected cash flows and the estimated value into perpetuity. We measure fair value based on information available as of the measurement date. The following table provides the carrying values and measured fair values of our fixed-rate debt. As of September 30, 2015 As of December 31, 2014 Carrying Value Fair Value Carrying Value Fair Value (In Thousands) Fixed-rate debt $ 2,830,000 $ 3,071,423 $ 3,105,000 $ 3,488,410 Fixed-rate debt of VIEs 166,271 178,586 194,204 213,579 Recurring Fair Value Measurements The following table provides the amounts and their corresponding level of hierarchy for our assets that are measured at fair value. As of September 30, 2015 Level 1 Level 2 Level 3 Total (In Thousands) Nuclear Decommissioning Trust: Domestic equity funds $ — $ 48,651 $ 5,979 $ 54,630 International equity funds — 30,689 — 30,689 Core bond fund — 19,707 — 19,707 High-yield bond fund — 13,183 — 13,183 Emerging market bond fund — 11,628 — 11,628 Other fixed income fund — 4,923 — 4,923 Combination debt/equity/other funds — 18,938 — 18,938 Alternative investment fund — — 17,538 17,538 Real estate securities fund — — 10,403 10,403 Cash equivalents 117 — — 117 Total Nuclear Decommissioning Trust 117 147,719 33,920 181,756 Trading Securities: Domestic equity funds — 17,250 — 17,250 International equity fund — 4,308 — 4,308 Core bond fund — 11,505 — 11,505 Cash equivalents 159 — — 159 Total Trading Securities 159 33,063 — 33,222 Total Assets Measured at Fair Value $ 276 $ 180,782 $ 33,920 $ 214,978 As of December 31, 2014 Level 1 Level 2 Level 3 Total (In Thousands) Nuclear Decommissioning Trust: Domestic equity funds $ — $ 54,925 $ 6,047 $ 60,972 International equity funds — 30,791 — 30,791 Core bond fund — 19,289 — 19,289 High-yield bond fund — 13,198 — 13,198 Emerging market bond fund — 10,988 — 10,988 Other fixed income fund — 4,779 — 4,779 Combination debt/equity/other funds — 18,141 — 18,141 Alternative investment fund — — 16,970 16,970 Real estate securities fund — — 9,548 9,548 Cash equivalents 340 — — 340 Total Nuclear Decommissioning Trust 340 152,111 32,565 185,016 Trading Securities: Domestic equity funds — 18,698 — 18,698 International equity fund — 4,252 — 4,252 Core bond fund — 12,379 — 12,379 Cash equivalents 168 — — 168 Total Trading Securities 168 35,329 — 35,497 Total Assets Measured at Fair Value $ 508 $ 187,440 $ 32,565 $ 220,513 The following table provides reconciliations of assets measured at fair value using significant level 3 inputs for the three and nine months ended September 30, 2015 . Domestic Equity Funds Alternative Investment Fund Real Estate Securities Fund Net Balance (In Thousands) Balance as of June 30, 2015 $ 5,910 $ 17,425 $ 10,042 $ 33,377 Total realized and unrealized gains included in: Regulatory liabilities 273 113 361 747 Purchases 200 — 103 303 Sales (404 ) — (103 ) (507 ) Balance as of September 30, 2015 $ 5,979 $ 17,538 $ 10,403 $ 33,920 Balance as of December 31, 2014 $ 6,047 $ 16,970 $ 9,548 $ 32,565 Total realized and unrealized gains included in: Regulatory liabilities 836 568 855 2,259 Purchases 300 — 299 599 Sales (1,204 ) — (299 ) (1,503 ) Balance as of September 30, 2015 $ 5,979 $ 17,538 $ 10,403 $ 33,920 The following table provides reconciliations of assets measured at fair value using significant level 3 inputs for the three and nine months ended September 30, 2014 . Domestic Equity Funds Alternative Investment Fund Real Estate Securities Fund Net Balance (In Thousands) Balance as of June 30, 2014 $ 6,288 $ 16,446 $ 9,026 $ 31,760 Total realized and unrealized gains included in: Regulatory liabilities 113 377 245 735 Purchases 95 — 92 187 Sales (126 ) — (92 ) (218 ) Balance as of September 30, 2014 $ 6,370 $ 16,823 $ 9,271 $ 32,464 Balance as of December 31, 2013 $ 5,817 $ 15,675 $ 8,511 $ 30,003 Total realized and unrealized gains included in: Regulatory liabilities 722 1,148 760 2,630 Purchases 191 — 257 448 Sales (360 ) — (257 ) (617 ) Balance as of September 30, 2014 $ 6,370 $ 16,823 $ 9,271 $ 32,464 Portions of the gains and losses contributing to changes in net assets in the above table are unrealized. The following table summarizes the unrealized gains and losses we recorded to regulatory liabilities on our consolidated financial statements during the three and nine months ended September 30, 2015 and 2014 , attributed to level 3 assets and liabilities. See Note 3, “Rate Matters and Regulation,” in the 2014 Form 10-K for additional information regarding our regulatory assets and liabilities. Domestic Equity Funds Alternative Investment Fund Real Estate Securities Fund Net Balance (In Thousands) Total unrealized gains (losses): Three months ended September 30, 2015 $ (132 ) $ 113 $ 259 $ 240 Three months ended September 30, 2014 (13 ) 377 154 518 Nine months ended September 30, 2015 (368 ) 567 556 755 Nine months ended September 30, 2014 362 1,149 503 2,014 Some of our investments in the Nuclear Decommissioning Trust (NDT) and our trading securities portfolio are measured at net asset value and do not have readily determinable fair values. These investments are either with investment companies or companies that follow accounting guidance consistent with investment companies. In certain situations these investments may have redemption restrictions. The following table provides additional information on these investments. As of September 30, 2015 As of December 31, 2014 As of September 30, 2015 Fair Value Unfunded Commitments Fair Value Unfunded Commitments Redemption Frequency Length of Settlement (In Thousands) Nuclear Decommissioning Trust: Domestic equity funds $ 5,979 $ 2,048 $ 6,047 $ 2,348 (a) (a) Alternative investment fund (b) 17,538 — 16,970 — Quarterly 65 days Real estate securities fund 10,403 — 9,548 — Quarterly 80 days Total Nuclear Decommissioning Trust 33,920 2,048 32,565 2,348 Trading Securities: Domestic equity funds 17,250 — 18,698 — Upon Notice 1 day International equity funds 4,308 — 4,252 — Upon Notice 1 day Core bond fund 11,505 — 12,379 — Upon Notice 1 day Total Trading Securities 33,063 — 35,329 — Total $ 66,983 $ 2,048 $ 67,894 $ 2,348 _______________ (a) This investment is in three long-term private equity funds that do not permit early withdrawal. Our investments in these funds cannot be distributed until the underlying investments have been liquidated, which may take years from the date of initial liquidation. Two funds have begun to make distributions. Our initial investment in the third fund occurred in the third quarter of 2013. This fund’s term is expected to be 15 years, subject to the general partner’s right to extend the term for up to three additional one-year periods. (b) There is a holdback on final redemptions. Price Risk We use various types of fuel, including coal, natural gas, uranium and diesel to operate our plants and also purchase power to meet customer demand. Our prices and consolidated financial results are exposed to market risks from commodity price changes for electricity and other energy-related products as well as from interest rates. Volatility in these markets impacts our costs of purchased power, costs of fuel for our generating plants and our participation in energy markets. We strive to manage our customers’ and our exposure to market risks through regulatory, operating and financing activities and when we deem appropriate, we economically hedge a portion of these risks through the use of derivative financial instruments for non-trading purposes. Interest Rate Risk We have entered into numerous fixed and variable rate debt obligations. We manage our interest rate risk related to these debt obligations by limiting our exposure to variable interest rate debt, diversifying maturity dates and entering into treasury yield hedge transactions. We may also use other financial derivative instruments such as interest rate swaps. |