Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2013

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 has used forward physical contracts, commodity price swap contracts and commodity price option features to manage the Company's commodity price risk exposures in the past. 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; and

• natural gas futures and swaps, natural gas options and natural gas commodity purchases and sales are used to manage Enogex's natural gas exposure associated with its storage and transportation contracts and asset management activities.

Normal purchases and normal sales contracts are not recorded in PRM Assets or Liabilities in the CondensedConsolidatedBalance Sheets and earnings are recognized 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 purchase and 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 Condensed 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 Condensed 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 solelyto 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 (Loss) 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 operations and natural gas transportation 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 had no instruments designated as cash flow hedges at March 31, 2013.

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.

AtMarch 31, 2013andDecember 31, 2012, the Company hadnoderivative instruments that were designated as fair value hedges.

Derivatives Not Designated as Hedging Instruments

Derivative instruments not designated as hedging instruments are utilized in Enogex's asset management 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 March 31, 2013, 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)	7.0	71.3
Fixed Swaps/Futures	0.1	0.1
Basis Swaps	5.2	11.6

(A) Natural gas in MMBtu's.  

(B) 94.2 percent of the natural gas contracts have durations of one year or less, 4.2 percenthave durations of more than one year and less than two years and 1.6 percenthave 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 Condensed Consolidated Balance Sheet atMarch 31, 2013are as follows:

		Fair Value
Instrument	Balance Sheet Location	Assets		Liabilities
		(In millions)
Derivatives Not Designated as Hedging Instruments
Natural Gas
Financial Futures/Swaps	Other Current Assets	$	0.1	$	0.2
Physical Purchases/Sales	Current PRM	0.4		0.4
Total		$	0.5	$	0.6
Total Gross Derivatives (A)		$	0.5	$	0.6

(A) See Note 5 for a reconciliation of the Company's total derivatives fair value to the Company's Condensed Consolidated Balance Sheet atMarch 31, 2013.

The fair value of the derivative instruments that are presented in the Company's Condensed Consolidated Balance Sheet atDecember 31, 2012are 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	$	—	$	0.5
Total		$	—	$	0.5
Derivatives Not Designated as Hedging Instruments
Natural Gas
Financial Futures/Swaps	Current PRM	$	0.1	$	—
	Other Current Assets	5.0		4.7
Physical Purchases/Sales	Current PRM	0.4		0.3
Total		$	5.5	$	5.0
Total Gross Derivatives (A)		$	5.5	$	5.5

(A) See Note 5 for a reconciliation of the Company's total derivatives fair value to the Company's Condensed Consolidated Balance Sheet atDecember 31, 2012.

Income Statement Presentation Related to Derivative Instruments

The following tables present the effect of derivative instruments on the Company's Condensed Consolidated Statement of Income for the three months endedMarch 31, 2013.

Derivatives in Cash Flow Hedging Relationships

(In millions)	Amount Recognized in Other Comprehensive Income		Amount Reclassified from Accumulated Other Comprehensive Income (Loss) into Income			Amount Recognized in Income
Natural Gas Financial Futures/Swaps	$	—	$	0.2		$	—
Interest Rate Swap	—		(0.2		)	—
Total	$	—	$	—		$	—

Derivatives Not Designated as Hedging Instruments

(In millions)	Amount Recognized in Income
Natural Gas Financial Futures/Swaps	$	(0.3	)
Total	$	(0.3	)

The following tables present the effect of derivative instruments on the Company's Condensed Consolidated Statement of Income for the three months endedMarch 31, 2012.

Derivatives in Cash Flow Hedging Relationships

(In millions)	Amount Recognized in Other Comprehensive Income		Amount Reclassified from Accumulated Other Comprehensive Income (Loss) into Income			Amount Recognized in Income
Natural Gas Financial Futures/Swaps	$	0.3	$	5.2		$	—
Interest Rate Swap	—		(0.2		)	—
Total	$	0.3	$	5.0		$	—

Derivatives Not Designated as Hedging Instruments

(In millions)	Amount Recognized in Income
Natural Gas Physical Purchases/Sales	$	(2.4	)
Natural Gas Financial Futures/Swaps	0.4
Total	$	(2.0	)

For derivatives designated as cash flow hedges in the tables above, amounts reclassified from Accumulated Other Comprehensive Income (Loss) into income (effective portion) and amounts recognized in income (ineffective portion) for the threemonths endedMarch 31, 2013 and 2012, if any, are reported in Operating Revenues. For derivatives not designated as hedges in the tables above, amounts recognized in income for the threemonths endedMarch 31, 2013 and 2012, 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, the Company would have been required to postnocash collateral to satisfy its obligation under its financial and physical contracts relating to derivative instruments that are in a net liability position atMarch 31, 2013.  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.