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Derivative Instruments and Hedging Activities
 12 Months Ended
Dec. 31, 2011
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities

The Company is exposed to certain risks relating to its ongoing business operations.  The primary risks managed using derivatives instruments are commodity price risk and interest rate risk. The Company is also exposed to credit risk in its business operations.
 
Commodity Price Risk
 
The Company primarily uses forward physical contracts, commodity price swap contracts and commodity price option features to manage the Company's commodity price risk exposures. Commodity derivative instruments used by the Company are as follows:

•
NGLs put options and NGLs swaps are used to manage Enogex's NGLs exposure associated with its processing agreements;
•
natural gas swaps are used to manage Enogex's keep-whole natural gas exposure associated with its processing operations and Enogex's natural gas exposure associated with operating its gathering, transportation and storage assets;
•
natural gas futures and swaps and natural gas commodity purchases and sales are used to manage OER's natural gas exposure associated with its storage and transportation contracts; and
•
natural gas futures and swaps, natural gas options and natural gas commodity purchases and sales are used to manage OER's marketing and trading activities.
 
Normal purchases and normal sales contracts are not recorded in PRM Assets or Liabilities in the Consolidated Balance Sheets and earnings recognition is recorded in the period in which physical delivery of the commodity occurs.  Management applies normal purchases and normal sales treatment to: (i) commodity contracts for the purchase and sale of natural gas used in or produced by Enogex's operations, (ii) commodity contracts for the sale of NGLs produced by Enogex's gathering and processing business, (iii) electric power contracts by OG&E and (iv) fuel procurement by OG&E.
 
The Company recognizes its non-exchange traded derivative instruments as PRM Assets or Liabilities in the Consolidated Balance Sheets at fair value with such amounts classified as current or long-term based on their anticipated settlement.  Exchange traded transactions are settled on a net basis daily through margin accounts with a clearing broker and, therefore, are recorded at fair value on a net basis in Other Current Assets in the Consolidated Balance Sheets.

Interest Rate Risk
 
The Company's exposure to changes in interest rates primarily relates to short-term variable-rate debt and commercial paper.  The Company manages its interest rate exposure by monitoring and limiting the effects of market changes in interest rates.  The Company utilizes interest rate derivatives to alter interest rate exposure in an attempt to reduce the effects of these changes.  Interest rate derivatives are used solely to modify interest rate exposure and not to modify the overall leverage of the debt portfolio.

Credit Risk
 
The Company is exposed to certain credit risks relating to its ongoing business operations. Credit risk includes the risk that counterparties that owe the Company money or energy will breach their obligations. If the counterparties to these arrangements fail to perform, the Company may be forced to enter into alternative arrangements. In that event, the Company's financial results could be adversely affected and the Company could incur losses.

Cash Flow Hedges
 
For derivatives that are designated and qualify as a cash flow hedge, the effective portion of the change in fair value of the derivative instrument is reported as a component of Accumulated Other Comprehensive Income and recognized into earnings in the same period during which the hedged transaction affects earnings.  The ineffective portion of a derivative's change in fair value or hedge components excluded from the assessment of effectiveness is recognized currently in earnings. The Company measures the ineffectiveness of commodity cash flow hedges using the change in fair value method whereby the change in the expected future cash flows designated as the hedge transaction are compared to the change in fair value of the hedging instrument.  Forecasted transactions, which are designated as the hedged transaction in a cash flow hedge, are regularly evaluated to assess whether they continue to be probable of occurring.  If the forecasted transactions are no longer probable of occurring, hedge accounting will cease on a prospective basis and all future changes in the fair value of the derivative will be recognized directly in earnings.
 
The Company designates as cash flow hedges derivatives used to manage commodity price risk exposure for Enogex's NGLs volumes and corresponding keep-whole natural gas resulting from its natural gas processing contracts (processing hedges) and natural gas positions resulting from its natural gas gathering and processing, pipeline and storage operations (operational gas hedges).  The Company also designates as cash flow hedges certain derivatives used to manage natural gas commodity exposure for certain natural gas storage inventory positions. Enogex's cash flow hedges at December 31, 2011 mature by the end of the first quarter of 2012.
 
Fair Value Hedges
 
For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedge risk are recognized currently in earnings.  The Company includes the gain or loss on the hedged items in Operating Revenues as the offsetting loss or gain on the related hedging derivative.
 
At December 31, 2011 and 2010, the Company had no derivative instruments that were designated as fair value hedges.
 
Derivatives Not Designated As Hedging Instruments
 
Derivative instruments not designated as hedging instruments are utilized in OER's asset management, marketing and trading activities.  For derivative instruments not designated as hedging instruments, the gain or loss on the derivative is recognized currently in earnings.
 
Quantitative Disclosures Related to Derivative Instruments
 
At December 31, 2011, the Company had the following derivative instruments that were designated as cash flow hedges.
(In millions)
2011 Gross Notional Volume (A)
Enogex marketing hedges
 
Natural gas sales
3.2

(A)
Natural gas in MMBtu's.

At December 31, 2011, the Company had the following derivative instruments that were not designated as hedging instruments.
(In millions)
Gross Notional Volume (A)
 
Purchases
Sales
Natural gas (B)
 
 
Physical (C)(D)
14.3

51.8

Fixed Swaps/Futures
57.9

58.2

Options
17.6

12.8

Basis Swaps
8.2

7.5

(A)
Natural gas in MMBtu's.  
(B)
88.0 percent of the natural gas contracts have durations of one year or less, 5.5 percent have durations of more than one year and less than two years and 6.5 percent have durations of more than two years.
(C)
Of the natural gas physical purchases and sales volumes not designated as hedges, the majority are priced based on a monthly or daily index and the fair value is subject to little or no market price risk.
(D)
Natural gas physical sales volumes exceed natural gas physical purchase volumes due to the marketing of natural gas volumes purchased via Enogex's processing contracts, which are not derivative instruments and are excluded from the table above.

Balance Sheet Presentation Related to Derivative Instruments

The fair value of the derivative instruments that are presented in the Company's Consolidated Balance Sheet at December 31, 2011 are as follows:
 
 
Fair Value
Instrument
Balance Sheet Location
Assets       
Liabilities
 
 
(In millions)
Derivatives Designated as Hedging Instruments 
 
 
 
Natural Gas
 
 
 
Financial Futures/Swaps
Other Current Assets
$
5.2

$
0.3

Total
$
5.2

$
0.3

 
 
 
 
Derivatives Not Designated as Hedging Instruments 
 
 
 
Natural Gas
 
 
 
Financial Futures/Swaps
Current PRM
$
0.4

$
—

 
Other Current Assets
49.9

49.9

Physical Purchases/Sales
Current PRM
3.1

0.4

 
Non-Current PRM
0.3

0.1

Financial Options                                       
Other Current Assets
2.4

2.8

Total
$
56.1

$
53.2

Total Gross Derivatives (A)
$
61.3

$
53.5

(A)
See Note 6 for a reconciliation of the Company's total derivatives fair value to the Company's Consolidated Balance Sheet at December 31, 2011.

The fair value of the derivative instruments that are presented in the Company's Consolidated Balance Sheet at December 31, 2010 are as follows:
 
 
Fair Value
Instrument
Balance Sheet Location
Assets       
Liabilities
 
 
(In millions)
Derivatives Designated as Hedging Instruments 
 
 
 
NGLs
 
 
 
Financial Options
Current PRM
$
13.3

$
—

Natural Gas
 
 
 
Financial Futures/Swaps
Current PRM
—

28.8

 
Other Current Assets
0.6

0.3

Total
$
13.9

$
29.1

 
 
 
 
Derivatives Not Designated as Hedging Instruments 
 
 
 
Natural Gas
 
 
 
Financial Futures/Swaps
Current PRM
$
—

$
0.1

 
Other Current Assets
20.0

19.8

Physical Purchases/Sales
Current PRM
1.4

1.2

 
Non-Current PRM
0.8

—

Financial Options
Other Current Assets
0.5

0.7

Total
$
22.7

$
21.8

Total Gross Derivatives (A)
$
36.6

$
50.9

(A)
See Note 6 for a reconciliation of the Company's total derivatives fair value to the Company's Consolidated Balance Sheet at December 31, 2010.

Income Statement Presentation Related to Derivative Instruments
 
The following tables present the effect of derivative instruments on the Company's Consolidated Statement of Income in 2011.
 
Derivatives in Cash Flow Hedging Relationships
(In millions)

Amount Recognized in Other Comprehensive Income (A)
Amount Reclassified from Accumulated Other Comprehensive Income into Income


Amount Recognized in Income
NGLs Financial Options
$
(8.4
)
$
(9.8
)
$
—

Natural Gas Financial Futures/Swaps
2.9

(30.4
)
—

Total
$
(5.5
)
$
(40.2
)
$
—

(A)
The estimated net amount of gains or losses included in Accumulated Other Comprehensive Income at December 31, 2011 that is expected to be reclassified into income within the next 12 months is a loss of $4.9 million.

Derivatives Not Designated as Hedging Instruments

(In millions)
Amount Recognized in Income
Natural Gas Physical Purchases/Sales
$
(10.0
)
Natural Gas Financial Futures/Swaps
0.4

Total
$
(9.6
)
     
The following tables present the effect of derivative instruments on the Company's Consolidated Statement of Income in 2010.
 
Derivatives in Cash Flow Hedging Relationships
(In millions)

Amount Recognized in Other Comprehensive Income
Amount Reclassified from Accumulated Other Comprehensive Income into Income


Amount Recognized in Income
NGLs Financial Options
$
(9.7
)
$
1.2

$
—

NGLs Financial Futures/Swaps
1.7

(3.7
)
—

Natural Gas Financial Futures/Swaps
(14.9
)
(25.9
)
0.2

Total
$
(22.9
)
$
(28.4
)
$
0.2


Derivatives Not Designated as Hedging Instruments
(In millions)
Amount Recognized in Income
Natural Gas Physical Purchases/Sales
$
(11.7
)
Natural Gas Financial Futures/Swaps
3.2

Total
$
(8.5
)
 
The following tables present the effect of derivative instruments on the Company's Consolidated Statement of Income in 2009.
 
Derivatives in Cash Flow Hedging Relationships
(In millions)

Amount Recognized in Other Comprehensive Income
Amount Reclassified from Accumulated Other Comprehensive Income into Income


Amount Recognized in Income
NGLs Financial Options
$
(56.4
)
$
1.7

$
—

NGLs Financial Futures/Swaps
(33.7
)
12.6

—

Natural Gas Financial Futures/Swaps
(19.8
)
(26.5
)
(0.2
)
Total
$
(109.9
)
$
(12.2
)
$
(0.2
)

Derivatives Not Designated as Hedging Instruments
(In millions)
Amount Recognized in Income
Natural Gas Physical Purchases/Sales
$
(24.3
)
Natural Gas Financial Futures/Swaps
17.7

NGLs Financial Futures/Swaps
(0.2
)
Total
$
(6.8
)


For derivatives designated as cash flow hedges in the tables above, amounts reclassified from Accumulated Other Comprehensive Income into income (effective portion) and amounts recognized in income (ineffective portion) for the years ended December 31, 2011, 2010 and 2009, if any, are reported in Operating Revenues. For derivatives not designated as hedges in the tables above, amounts recognized in income for the years ended December 31, 2011, 2010 and 2009, if any, are reported in Operating Revenues. 

Credit-Risk Related Contingent Features in Derivative Instruments

In the event Moody's Investors Services or Standard & Poor's Ratings Services were to lower the Company's senior unsecured debt rating to a below investment grade rating, at December 31, 2011, the Company would have been required to post $2.1 million of cash collateral to satisfy its obligation under its financial and physical contracts relating to derivative instruments that are in a net liability position at December 31, 2011.  In addition, the Company could be required to provide additional credit assurances in future dealings with third parties, which could include letters of credit or cash collateral.