DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | 9 Months Ended |
Jun. 30, 2014 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES | ' |
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES |
The Utility has a risk management policy that allows for the purchase of natural gas derivative instruments with the goal of managing price risk associated with purchasing natural gas on behalf of its customers. This policy prohibits speculation and permits the Utility to hedge up to 70% of its normal volumes purchased for up to a 36-month period. Costs and cost reductions, including carrying costs, associated with the Utility’s use of natural gas derivative instruments are allowed to be passed on to the Utility’s customers through the operation of its Purchased Gas Adjustment (PGA) Clause, through which the Missouri Public Service Commission (MoPSC) allows the Utility to recover gas supply costs, subject to prudence review by the MoPSC. Accordingly, the Utility does not expect any adverse earnings impact as a result of the use of these derivative instruments. The Utility does not designate these instruments as hedging instruments for financial reporting purposes because gains or losses associated with the use of these derivative instruments are deferred and recorded as regulatory assets or regulatory liabilities pursuant to ASC Topic 980, “Regulated Operations,” and, as a result, have no direct impact on the Statements of Consolidated Income. The timing of the operation of the PGA Clause may cause interim variations in short-term cash flows, because the Utility is subject to cash margin requirements associated with changes in the values of these instruments. Nevertheless, carrying costs associated with such requirements are recovered through the PGA Clause. |
From time to time, the Utility purchases NYMEX futures and options contracts to help stabilize operating costs associated with forecasted purchases of gasoline and diesel fuels used to power vehicles and equipment used in the course of its business. At June 30, 2014, Laclede Gas held 0.2 million gallons of gasoline futures contracts at an average price of $2.71 per gallon. Most of these contracts, the longest of which extends to September 2014, are designated as cash flow hedges of forecasted transactions pursuant to ASC Topic 815. The gains or losses on these derivative instruments are not subject to the Utility’s PGA Clause. |
In the course of its business, Laclede Group’s gas marketing subsidiary, LER, which includes its 100% owned subsidiary LER Storage Services, Inc., enters into commitments associated with the purchase or sale of natural gas. Certain of LER’s derivative natural gas contracts are designated as normal purchases or normal sales and, as such, are excluded from the scope of ASC Topic 815 and are accounted for as executory contracts on an accrual basis. Any of LER’s derivative natural gas contracts that are not designated as normal purchases or normal sales are accounted for at fair value. At June 30, 2014, the fair values of 63.0 million MMBtu of non-exchange traded natural gas commodity contracts were reflected in the Consolidated Balance Sheet of the Company. Of these contracts, 39.0 million MMBtu will settle during fiscal year 2014, 22.6 million MMBtu will settle during fiscal year 2015, while the remaining 1.4 million MMBtu will settle during fiscal year 2016. These contracts have not been designated as hedges; therefore, changes in the fair value of these contracts are reported in earnings each period. |
Furthermore, LER manages the price risk associated with its fixed-priced commitments by either closely matching the offsetting physical purchase or sale of natural gas at fixed prices or through the use of NYMEX or Ice Clear Europe (ICE) futures, swap, and option contracts to lock in margins. |
At June 30, 2014, LER’s unmatched fixed-price positions were not material to Laclede Group’s financial position or results of operations. LER’s NYMEX and ICE natural gas futures, swap, and option contracts used to lock in margins may be designated as cash flow hedges of forecasted transactions for financial reporting purposes. |
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On April 14, 2014, as amended on July 8, 2014, Laclede Group entered into certain interest rate swap agreements to effectively lock in interest rates on a portion of the long-term debt it anticipates issuing to finance its pending acquisition of Alagasco. These derivative instruments have been designated as cash flow hedges of forecasted transactions. These forward starting swaps involve the payment of a fixed interest rate and the receipt of a floating interest rate (the London Interbank Offered Rate, also known as LIBOR) over the terms specified in the contracts. At June 30, 2014, the notional amount of interest rate swaps outstanding was $375.0 with stated maturities ranging from 2019 to 2044 and fixed interest rates ranging between 1.89% and 3.54%. On July 8, 2014, these swaps were amended with fixed interest rates ranging between 1.95% and 3.56%. The notional amount of the interest rate swaps and stated maturities were unchanged under the amendment. |
The Company’s and the Utility's exchange-traded/cleared derivative instruments consist primarily of NYMEX, OTCBB, and ICE positions. The NYMEX and OTCBB is the primary national commodities exchange on which natural gas derivatives are traded. Open NYMEX/ICE and OTCBB natural gas futures and swap positions at June 30, 2014 were as follows: |
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| Gas Utility | | Gas Marketing | | | |
| MMBtu | | Avg. Price | | MMBtu | | Avg. Price | | | |
(millions) | Per | (millions) | Per | | | |
| MMBtu | | MMBtu | | | |
NYMEX/ICE Open short futures positions | | | | | | | | | | |
Fiscal 2014 | — | | | $ | — | | | 3.09 | | | $ | 4.45 | | | | |
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Fiscal 2015 | — | | | — | | | 3.15 | | | 4.63 | | | | |
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Fiscal 2016 | — | | | — | | | 0.05 | | | 4.22 | | | | |
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NYMEX/ICE Open long futures positions | | | | | | | | | | |
Fiscal 2014 | 1.71 | | | $ | 3.82 | | | 1.39 | | | $ | 4.5 | | | | |
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Fiscal 2015 | 0.94 | | | 3.84 | | | 3.05 | | | 4.53 | | | | |
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Fiscal 2016 | — | | | — | | | 0.2 | | | 4.2 | | | | |
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Fiscal 2017 | — | | | — | | | 0.02 | | | 4.28 | | | | |
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ICE Open long basis swap positions | | | | | | | | | | |
Fiscal 2014 | — | | | $ | — | | | 3.45 | | | $ | 0.38 | | | | |
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Fiscal 2015 | — | | | — | | | 1.16 | | | 0.38 | | | | |
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Fiscal 2016 | — | | | — | | | 2.75 | | | 0.58 | | | | |
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Fiscal 2017 | — | | | — | | | 6.87 | | | 0.5 | | | | |
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Fiscal 2018 | — | | | — | | | 1.09 | | | 0.5 | | | | |
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ICE Open short basis swap positions | | | | | | | | | | |
Fiscal 2014 | — | | | $ | — | | | 2.62 | | | $ | 0.02 | | | | |
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Fiscal 2015 | — | | | — | | | 0.62 | | | 0.09 | | | | |
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OTCBB Open long futures positions | | | | | | | | | | |
Fiscal 2014 | 3.85 | | | $ | 4.06 | | | — | | | $ | — | | | | |
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Fiscal 2015 | 15.62 | | | 4.29 | | | — | | | — | | | | |
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Fiscal 2016 | 1.78 | | | 4.27 | | | — | | | — | | | | |
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At June 30, 2014, the Utility had 26.0 million MMBtu of other price mitigation in place through the use of NYMEX and OTCBB natural gas option-based strategies while Gas Marketing had none. |
Derivative instruments designated as cash flow hedges of forecasted transactions are recognized on the Condensed Consolidated Balance Sheets and Balance Sheets for the Company and the Utility, respectively, at fair value and the change in the fair value of the effective portion of these hedge instruments is recorded, net of tax, in other comprehensive income (OCI). Accumulated other comprehensive income (AOCI) is a component of Total Common Stock Equity. Amounts are reclassified from AOCI into earnings when the hedged items affect net income, using the same revenue or expense category that the hedged item impacts. Based on market prices at June 30, 2014, it is expected that approximately $0.4 of pre-tax unrealized loss and $0.1 of pre-tax unrealized gains will be reclassified into the Statements of Condensed Consolidated Income and Statements of Condensed Income for the Company and the Utility, respectively, during the next twelve months. Cash flows from hedging transactions are classified in the same category as the cash flows from the items that are being hedged in the Statements of Consolidated Cash Flows and Statements of Cash Flows for the Company and the Utility, respectively. |
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The Effect of Derivative Instruments on the Statements of Condensed Consolidated Income and Statements of Condensed Consolidated Comprehensive Income |
| Location of Gain (Loss) | Three Months Ended June 30, | | Nine Months Ended June 30, |
| Recorded in Income | 2014 | | 2013 | | 2014 | | 2013 |
Derivatives in Cash Flow Hedging Relationships | | | | | | | |
Effective portion of gain (loss) recognized in OCI on derivatives: | | | | | | | |
Gas Marketing natural gas contracts | $ | 0.1 | | | $ | 5.5 | | | $ | (5.1 | ) | | $ | 3.6 | |
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Gas Utility gasoline and heating oil contracts | — | | | (0.1 | ) | | 0.1 | | | 0.1 | |
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Interest rate swaps | | (10.5 | ) | | 22.2 | | | (10.5 | ) | | 17.7 | |
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Total | | $ | (10.4 | ) | | $ | 27.6 | | | $ | (15.5 | ) | | $ | 21.4 | |
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Effective portion of gain (loss) reclassified from AOCI to income: | | | | | | | |
Natural gas contracts | Gas Marketing Operating Revenues | $ | (1.1 | ) | | $ | (1.5 | ) | | $ | (4.6 | ) | | $ | (3.1 | ) |
| Gas Marketing Operating Expenses | 0.3 | | | 0.2 | | | 1.7 | | | (0.5 | ) |
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Sub-total | | (0.8 | ) | | (1.3 | ) | | (2.9 | ) | | (3.6 | ) |
Gasoline and heating oil contracts | Gas Utility Other Operations and Maintenance Expenses | — | | | — | | | 0.1 | | | 0.1 | |
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Total | | $ | (0.8 | ) | | $ | (1.3 | ) | | $ | (2.8 | ) | | $ | (3.5 | ) |
Ineffective portion of gain (loss) on derivatives recognized in income: | | | | | | | |
Natural gas contracts | Gas Marketing Operating Revenues | $ | — | | | $ | — | | | $ | (0.1 | ) | | $ | (0.4 | ) |
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| Gas Marketing Operating Expenses | — | | | — | | | 0.1 | | | (0.2 | ) |
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Sub-total | | — | | | — | | | — | | | (0.6 | ) |
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Gasoline and heating oil contracts | Gas Utility Other Operations and Maintenance Expenses | — | | | — | | | — | | | (0.1 | ) |
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Total | | $ | — | | | $ | — | | | $ | — | | | $ | (0.7 | ) |
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Derivatives Not Designated as Hedging Instruments * | | | | | | | |
Gain (loss) recognized in income on derivatives: | | | | | | | |
Natural gas contracts | Gas Marketing Operating Revenues | $ | (3.2 | ) | | $ | 0.2 | | | $ | 12.9 | | | $ | 0.4 | |
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Total | | $ | (3.2 | ) | | $ | 0.2 | | | $ | 12.9 | | | $ | 0.4 | |
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* | Gains and losses on Laclede Gas’ natural gas derivative instruments, which are not designated as hedging instruments for financial reporting purposes, are deferred pursuant to the Utility’s PGA Clause and initially recorded as regulatory assets or regulatory liabilities. These gains and losses are excluded from the table above because they have no direct impact on the Statements of Consolidated Income. Such amounts are recognized in the Statements of Consolidated Income as a component of Gas Utility Natural and Propane Gas operating expenses when they are recovered through the PGA Clause and reflected in customer billings. | | | | | | | | | | | | | | | |
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Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheet at June 30, 2014 | | | | | | | |
| Asset Derivatives* | | Liability Derivatives* | | | | | | | |
| Balance Sheet Location | Fair | | Balance Sheet Location | Fair | | | | | | | |
Value | Value | | | | | | | |
Derivatives designated as hedging instruments | | | | | | | | | | | |
Gas Utility: | | | | | | | | | | | | |
Gasoline and heating oil contracts | Prepayments and other | $ | 0.1 | | | Prepayments and other | $ | — | | | | | | | | |
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Gas Marketing: | | | | | | | | | | | | |
Natural gas contracts | Prepayments and other | 0.8 | | | Prepayments and other | 0.5 | | | | | | | | |
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| Deferred Charges - Other | 0.3 | | | Deferred Charges - Other | 0.4 | | | | | | | | |
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Other: | | | | | | | | | | | | |
Interest rate swaps | Current Liabilities - Other | — | | | Current Liabilities - Other | 10.5 | | | | | | | | |
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Sub-total | | 1.2 | | | | 11.4 | | | | | | | | |
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Derivatives not designated as hedging instruments | | | | | | | | | | | |
Gas Utility: | | | | | | | | | | | | |
Natural gas contracts | Prepayments and other | 8.4 | | | Prepayments and other | 4.7 | | | | | | | | |
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| Accounts Receivable – Other | 4.2 | | | Accounts Receivable – Other | — | | | | | | | | |
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| Deferred Charges - Other | — | | | Deferred Charges - Other | 0.2 | | | | | | | | |
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Sub-total | | 12.6 | | | | 4.9 | | | | | | | | |
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Gas Marketing: | | | | | | | | | | | | |
Natural gas contracts | Prepayments and other | 3.5 | | | Prepayments and other | 0.9 | | | | | | | | |
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| Deferred Charges - Other | 1.9 | | | Deferred Charges - Other | 0.2 | | | | | | | | |
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| Current Liabilities - Other | — | | | Current Liabilities - Other | 0.1 | | | | | | | | |
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Sub-total | | 5.4 | | | | 1.2 | | | | | | | | |
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Total derivatives | | $ | 19.2 | | | | $ | 17.5 | | | | | | | | |
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Fair Value of Derivative Instruments in the Condensed Consolidated Balance Sheet at September 30, 2013 | | | | | | | |
| Asset Derivatives* | | Liability Derivatives* | | | | | | | |
| Balance Sheet Location | Fair | * | Balance Sheet Location | Fair | | | | | | | |
Value | Value | | | | | | | |
Derivatives designated as hedging instruments | | | | | | | | | | | |
Gas Utility: | | | | | | | | | | | | |
Gasoline and heating oil contracts | Accounts Receivable – Other | $ | 0.1 | | | Accounts Receivable – Other | $ | — | | | | | | | | |
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Gas Marketing: | | | | | | | | | | | | |
Natural gas contracts | Prepayments and other | 2.2 | | | Prepayments and other | 0.5 | | | | | | | | |
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Sub-total | | 2.3 | | | | 0.5 | | | | | | | | |
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Derivatives not designated as hedging instruments | | | | | | | | | | | |
Gas Utility: | | | | | | | | | | | | |
Natural gas contracts | Accounts Receivable – Other | 1.5 | | | Accounts Receivable – Other | 3.5 | | | | | | | | |
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| Current Liabilities - Other | 0.2 | | | Current Liabilities - Other | 4 | | | | | | | | |
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| Deferred Credits and Other Liabilities - Other | — | | | Deferred Credits and Other Liabilities - Other | 1.4 | | | | | | | | |
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Sub-total | | 1.7 | | | | 8.9 | | | | | | | | |
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Gas Marketing: | | | | | | | | | | | | |
Natural gas contracts | Prepayments and other | 1.9 | | | Prepayments and other | 0.2 | | | | | | | | |
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| Current Liabilities - Other | 0.2 | | | Current Liabilities - Other | 0.8 | | | | | | | | |
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| Deferred Charges - Other | 0.2 | | | Deferred Charges - Other | 0.1 | | | | | | | | |
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| Deferred Credits and Other Liabilities - Other | — | | | Deferred Credits and Other Liabilities - Other | 0.1 | | | | | | | | |
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Sub-total | | 2.3 | | | | 1.2 | | | | | | | | |
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Total derivatives | | $ | 6.3 | | | | $ | 10.6 | | | | | | | | |
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* | The fair values of Asset Derivatives and Liability Derivatives exclude the fair value of cash margin receivables or payables with counterparties subject to netting arrangements. Fair value amounts of derivative contracts (including the fair value amounts of cash margin receivables and payables) for which there is a legal right to set off are presented net on the Consolidated Balance Sheets. As such, the gross balances presented in the table above are not indicative of the Company’s net economic exposure. Refer to Note 7, Fair Value Measurements, for information on the valuation of derivative instruments. | | | | | | | | | | | | | | | |
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Following is a reconciliation of the amounts in the tables above to the amounts presented in the Condensed Consolidated Balance Sheets: |
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| 30-Jun-14 | | 30-Sep-13 | | | | | | | | | |
Fair value of asset derivatives presented above: | $ | 19.2 | | | $ | 6.3 | | | | | | | | | | |
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Fair value of cash margin receivables offset with derivatives | — | | | 1.7 | | | | | | | | | | |
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Netting of assets and liabilities with the same counterparty | (6.7 | ) | | (4.7 | ) | | | | | | | | | |
Total | $ | 12.5 | | | $ | 3.3 | | | | | | | | | | |
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Derivative Instrument Assets, per Balance Sheets: | | | | | | | | | | | | |
Prepayments and other | $ | 11.9 | | | $ | 3.3 | | | | | | | | | | |
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Deferred Charges - Other | 0.6 | | | — | | | | | | | | | | |
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Total | $ | 12.5 | | | $ | 3.3 | | | | | | | | | | |
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Fair value of liability derivatives presented above | $ | 17.5 | | | $ | 10.6 | | | | | | | | | | |
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Fair value of cash margin payables offset with derivatives | — | | | — | | | | | | | | | | |
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Netting of assets and liabilities with the same counterparty | (6.7 | ) | | (4.7 | ) | | | | | | | | | |
Total | $ | 10.8 | | | $ | 5.9 | | | | | | | | | | |
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Derivative Instrument Liabilities, per Balance Sheets: | | | | | | | | | | | | |
Current Liabilities - Other | $ | 10.6 | | | $ | 4.4 | | | | | | | | | | |
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Deferred Credits and Other Liabilities - Other | 0.2 | | | 1.5 | | | | | | | | | | |
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Total | $ | 10.8 | | | $ | 5.9 | | | | | | | | | | |
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Additionally, at June 30, 2014, and September 30, 2013, the Company had $2.6 and $3.2, respectively, in cash margin receivables not offset with derivatives, that are presented in Accounts Receivable - Other. |
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Following is a reconciliation of the amounts in the tables above to the amounts presented in the Utility Balance Sheets: |
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| 30-Jun-14 | | 30-Sep-13 | | | | | | | | | |
Fair value of asset derivatives presented above: | $ | 12.7 | | | $ | 1.8 | | | | | | | | | | |
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Fair value of cash margin receivables offset with derivatives | — | | | 1.9 | | | | | | | | | | |
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Netting of assets and liabilities with the same counterparty | (4.7 | ) | | (3.7 | ) | | | | | | | | | |
Total | $ | 8 | | | $ | — | | | | | | | | | | |
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Derivative Instrument Assets, per Balance Sheets: | | | | | | | | | | | | |
Prepayments and other | $ | 8 | | | $ | — | | | | | | | | | | |
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Deferred Charges - Other | — | | | — | | | | | | | | | | |
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Total | $ | 8 | | | $ | — | | | | | | | | | | |
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Fair value of liability derivatives presented above | $ | 4.9 | | | $ | 8.9 | | | | | | | | | | |
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Fair value of cash margin payables offset with derivatives | — | | | — | | | | | | | | | | |
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Netting of assets and liabilities with the same counterparty | (4.7 | ) | | (3.7 | ) | | | | | | | | | |
Total | $ | 0.2 | | | $ | 5.2 | | | | | | | | | | |
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Derivative Instrument Liabilities, per Balance Sheets: | | | | | | | | | | | | |
Current Liabilities - Other | $ | — | | | $ | 5.2 | | | | | | | | | | |
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Deferred Credits and Other Liabilities - Other | 0.2 | | | — | | | | | | | | | | |
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Total | $ | 0.2 | | | $ | 5.2 | | | | | | | | | | |
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Additionally, at June 30, 2014, and September 30, 2013, the Utility had $0.9, and $2.9, respectively, in cash margin receivables not offset with derivatives, that are presented in Accounts Receivable - Other. |