Derivative Instruments

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

We use derivative and non-derivative contracts to manage risks related to obtaining adequate supplies and the price fluctuations of natural gas, electricity and propane. Our natural gas, electric and propane distribution operations have entered into agreements with suppliers to purchase natural gas, electricity and propane for resale to our customers. Aspire Energy has entered into contracts with producers to secure natural gas to meet its obligations. Purchases under these

contracts typically either do not meet the definition of derivatives or are considered “normal purchases and normal sales” and are accounted for on an accrual basis. Our propane distribution operations may also enter into fair value hedges of their inventory or cash flow hedges of their future purchase commitments in order to mitigate the impact of wholesale price fluctuations. As of March 31, 2020, our natural gas and electric distribution operations did not have any outstanding derivative contracts.

PESCO's Derivative Instruments

As discussed in Note 3, Acquisitions and Divestitures, during the fourth quarter of 2019, we sold PESCO's assets and contracts, and therefore, no longer have natural gas futures and contracts recorded in our condensed consolidated financial statements.

Volume of Derivative Activity

As of March 31, 2020, the volume of our commodity derivative contracts were as follows:



Business unit	Commodity	Quantity hedged (in millions)	Designation	Longest Expiration date of hedge
Sharp	Propane (gallons)	15.9	Cash flows hedges	June 2022

Sharp entered into futures and swap agreements to mitigate the risk of fluctuations in wholesale propane index prices associated with the propane volumes expected to be purchased during the heating season. Under the futures and swap agreements, Sharp will receive the difference between: (i) the index prices (Mont Belvieu prices for March 2020 through March 2024), and (ii) the per gallon propane swap prices, to the extent the index prices exceed the contracted prices. If the index prices are lower than the swap prices, Sharp will pay the difference. We designated and accounted for propane swaps as cash flows hedges. The change in the fair value of the swap agreements is recorded as unrealized gain (loss) in other comprehensive income (loss) and later recognized in the statement of income in the same period and in the same line item as the hedged transaction. We expect to reclassify approximately $1.5 million from accumulated other comprehensive loss to earnings during the next 12-month period ended March 31, 2021.

Broker Margin

Futures exchanges have contract specific margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily mark-to-market relative to maintenance margin requirements. We currently maintain a broker margin account for Sharp, with the balance related to the account is as follows:



(in thousands)	Balance Sheet Location	March 31, 2020		December 31, 2019
Sharp	Other Current Assets	$	3,111	$	2,317

Financial Statements Presentation

The following tables present information about the fair value and related gains and losses of our derivative contracts. We did not have any derivative contracts with a credit-risk-related contingency.

As of March 31, 2020 and December 31, 2019, we did not have material fair value hedges. The fair values of the derivative contracts recorded in the condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, are as follows:



	Derivative Assets
		Fair Value As Of
(in thousands)	Balance Sheet Location	March 31, 2020		December 31, 2019
Derivatives designated as cash flow hedges
Propane swap agreements	Derivative assets, at fair value	$	151	$	—
Total asset derivatives		$	151	$	—



	Derivative Liabilities
		Fair Value As Of
(in thousands)	Balance Sheet Location	March 31, 2020		December 31, 2019
Derivatives designated as cash flow hedges
Propane swap agreements	Derivative liabilities, at fair value	$	1,986	$	1,844
Total liability derivatives		$	1,986	$	1,844

The effects of gains and losses from derivative instruments on the condensed consolidated financial statements are as follows:



		Amount of Gain (Loss) on Derivatives:
	Location of Gain	For the Three Months Ended March 31,
(in thousands)	(Loss) on Derivatives	2020		2019
Derivatives designated as cash flow hedges
Propane swap agreements	Cost of sales	$	1,227	$	606
Propane swap agreements	Other comprehensive income	9		1,009
Natural gas swap contracts	Other comprehensive loss	—		(59		)
Natural gas futures contracts	Other comprehensive income	—		3,226
Total		$	1,236	$	4,782