Note 4 - Derivative Instruments

6 Months Ended

Jun. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note 4 - Derivative Instruments

A description of our objectives and strategies for using derivative instruments, related accounting policies and methods used to determine their fair values are described in Note 2. See Note 3 for additional fair value disclosures.

Certain of our derivative instruments contain credit-risk-related or other contingent features that could require us to post collateral in the normal course of business when our financial instruments are in net liability positions. As of June 30, 2013, for agreements with such features, derivative instruments with liability fair values totaled $39 million, for which we had posted no collateral to our counterparties. In addition, our energy marketing receivables and payables, which also have credit-risk-related or other contingent features, are discussed in Note 2. Our derivative instrument activities are included within operating cash flows as an adjustment to net income of $14 million and $18 million for the six months ended June 30, 2013 and 2012, respectively. See Note 3 for additional derivative instrument information. The following table summarizes the various ways in which we account for our derivative instruments and the impact on our unaudited Condensed Consolidated Financial Statements.

	Recognition and Measurement
Accounting Treatment	Statements of Financial Position	Income Statement
Cash flow hedge	Derivative carried at fair value	Ineffective portion of the gain or loss on the derivative instrument is recognized in earnings
	Effective portion of the gain or loss on the derivative instrument is reported initially as a component of accumulated OCI (loss)	Effective portion of the gain or loss on the derivative instrument is reclassified out of accumulated OCI (loss) and into earnings when the hedged transaction affects earnings
Fair value hedge	Derivative carried at fair value	Gains or losses on the derivative instrument and the hedged item are recognized in earnings. As a result, to
	Changes in fair value of the hedged item are recorded as adjustments to the carrying amount of the hedged item	the extent the hedge is effective, the gains or losses will offset and there is no impact on earnings. Any hedge ineffectiveness will impact earnings
Not designated as hedges	Derivative carried at fair value	Realized and unrealized gains or losses on the derivative instrument are recognized in earnings
	Distribution operations’ gains and losses on derivative instruments are deferred as regulatory assets or liabilities until included in cost of goods sold	The gain or loss on these derivative instruments is reflected in natural gas costs and is ultimately included in billings to customers

Distribution Operations

The following amounts represent net realized gains (losses) related to hedging natural gas costs for the periods presented.

	Three months ended June 30,						Six months ended June 30,
In millions	2013			2012			2013			2012
Nicor Gas	$	9		$	(25	)	$	8		$	(26	)
Elizabethtown Gas		(1	)		(7	)		(4	)		(16	)

Quantitative Disclosures Related to Derivative Instruments

As of the dates presented, our derivative instruments were comprised of both long and short natural gas positions. A long position is a contract to purchase natural gas, and a short position is a contract to sell natural gas. We had net long natural gas contracts outstanding in the following quantities:

In Bcf (1)	June 30, 2013 (2)			December 31, 2012			June 30, 2012
Hedge designation
Cash flow hedges		3			6			7
Not designated as hedges		221			96			47
Total hedges		224			102			54
Hedge position
Short position		(2,311	)		(1,955	)		(2,018	)
Long position		2,535			2,057			2,072
Net long position		224			102			54

(1) Volumes related to Nicor Gas exclude variable-priced contracts, which are accounted for as derivatives, but whose fair values are not directly impacted by changes in commodity prices.

(2) Approximately 98% of these contracts have durations of two years or less and the remaining 2% expire between 2 and 6 years.

Derivative Instruments in our Unaudited Condensed Consolidated Statements of Financial Position

The following table presents the fair values and unaudited Condensed Consolidated Statements of Financial Position classifications of our derivative instruments as of the dates presented.

	Classification		June 30, 2013						December 31, 2012						June 30, 2012						December 31, 2011
In millions		(1) (2)	Assets			Liabilities			Assets			Liabilities			Assets			Liabilities			Assets			Liabilities
Designated as cash flow hedges and fair value hedges
Natural gas contracts	Current		$	2		$	(1	)	$	1		$	(2	)	$	6		$	(7	)	$	9		$	(12	)
Natural gas contracts	Long-term			-			-			3			-			-			-			-			-
Interest rate swap agreements	Long-term			-			-			-			-			17			-			13			(13	)
Total				2			(1	)		4			(2	)		23			(7	)		22			(25	)
Not designated as cash flow hedges
Natural gas contracts	Current			456			(445	)		394			(355	)		493			(489	)		706			(689	)
Natural gas contracts	Long-term			124			(139	)		45			(50	)		69			(66	)		133			(116	)
Total				580			(584	)		439			(405	)		562			(555	)		839			(805	)
Gross amount of recognized assets and liabilities				582			(585	)		443			(407	)		585			(562	)		861			(830	)
Gross amounts offset in our unaudited Condensed Consolidated Statements of Financial Position				(452	)		546			(299	)		368			(359	)		496			(573	)		720
Net amounts of assets and liabilities presented in our unaudited Condensed Consolidated Statements of Financial Position			$	130		$	(39	)	$	144		$	(39	)	$	226		$	(66	)	$	288		$	(110	)

(1) The gross amounts of recognized assets and liabilities are netted within our unaudited Condensed Consolidated Statements of Financial Position to the extent that we have netting arrangements with the counterparties.

(2) As required by the authoritative guidance related to derivatives and hedging, the gross amounts of recognized assets and liabilities above do not include cash collateral held on deposit in broker margin accounts of $94 million as of June 30, 2013, $69 million as of December 31, 2012, $137 million as of June 30, 2012 and $147 million as of December 31, 2011. Cash collateral is included in the “Gross amounts offset in our unaudited Condensed Consolidated Statements of Financial Position” line of this table.

Derivative Instruments Impacts in our Unaudited Condensed Consolidated Statements of Income

The following table presents the amounts of our derivative instruments in our unaudited Condensed Consolidated Statements of Income for the periods presented.

	Three months ended June 30,						Six months ended June 30,
In millions	2013			2012			2013			2012
Designated as cash flow hedges
Natural gas contracts - gain reclassified from OCI into cost of goods sold	$	1		$	3		$	1		$	4
Natural gas contracts – gain reclassified from OCI into operation and maintenance expense		-			1			-			1
Natural gas contracts – loss recognized in OCI (effective portion)		-			(1	)		-			-
Interest rate swaps - ineffectiveness recorded as an offset to interest expense		-			(1	)		(3	)		(3	)
Not designated as hedges
Natural gas contracts - net fair value adjustments recorded in operating revenues (1)		22			15			(2	)		19
Natural gas contracts - net fair value adjustments recorded in cost of goods sold (2)		(1	)		(1	)		(1	)		(3	)
Total (losses) gains on derivative instruments	$	22		$	16		$	(5	)	$	18

(1) Associated with the fair value of existing derivative instruments at June 30, 2013 and 2012.

(2) Excludes losses recorded in operating revenues or cost of goods sold associated with weather derivatives of $3 million for the six months ended June 30, 2013 and gains of $14 million for the six months ended June 30, 2012.

Any amounts recognized in operating income, related to ineffectiveness or due to a forecasted transaction that is no longer expected to occur were immaterial for the six months ended June 30, 2013 and 2012.

Our expected pre-tax net loss to be reclassified from OCI and recognized in cost of goods sold, operation and maintenance expenses, operating revenues and interest expense in our unaudited Condensed Consolidated Statements of Income over the next 12 months is $1 million. These pre-tax deferred gains and losses are recorded in OCI related to natural gas derivative contracts associated with retail operations and Nicor Gas and interest rate swaps with AGL Capital. The expected losses are based upon the fair values of these financial instruments at June 30, 2013.

There have been no other significant changes to our derivative instruments, as described in Note 2 and Note 4 to our Consolidated Financial Statements and related notes included in Item 8 of our 2012 Form 10-K.