FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2011

FAIR VALUE MEASUREMENTS [Abstract]

FAIR VALUE MEASUREMENTS [Text Block]

7. FAIR VALUE MEASUREMENTS

The fair value of assets and liabilities that are measured on a recurring basis are categorized in the table below (in millions) into three broad levels (with Level 1 considered the most reliable) based upon the valuation inputs.

	Quoted prices in active markets		Significant observable inputs		Significant unobservable inputs
	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2011
Assets
Money market funds	$	59.0	$	-	$	-	$	59.0
Commodity derivatives		11.4		27.4		9.2		48.0
	$	70.4	$	27.4	$	9.2	$	107.0
Liabilities
Commodity derivatives	$	36.5	$	23.2	$	1.7	$	61.4
Interest rate derivatives		-		5.0		-		5.0
	$	36.5	$	28.2	$	1.7	$	66.4

December 31, 2010
Assets
Money market funds	$	82.9	$	-	$	-	$	82.9
Commodity derivatives		21.3		35.7		9.3		66.3
Interest rate derivative		-		1.0		-		1.0
	$	104.2	$	36.7	$	9.3	$	150.2
Liabilities
Commodity derivatives	$	55.4	$	31.3	$	12.3	$	99.0
Interest rate derivative		-		3.2		-		3.2
	$	55.4	$	34.5	$	12.3	$	102.2

	Quoted prices in active markets		Significant observable inputs		Significant unobservable inputs
	(Level 1)		(Level 2)		(Level 3)		Total
June 30, 2010
Assets
Money market funds	$	112.8	$	-	$	-	$	112.8
Commodity derivatives		20.7		27.5		10.2		58.4
	$	133.5	$	27.5	$	10.2	$	171.2
Liabilities
Commodity derivatives	$	56.4	$	50.4	$	3.1	$	109.9
Interest rate derivative		-		4.5		-		4.5
	$	56.4	$	54.9	$	3.1	$	114.4

When available and appropriate, the company uses quoted market prices in active markets to determine fair value and classifies such items within Level 1.  For derivatives, Level 1 values include only those derivative instruments traded on the NYMEX.  The company enters into over-the-counter instruments with values that are similar to, and correlate with, quoted prices for exchange-traded instruments in active markets; the fair values of these over-the-counter items consider credit risk and are classified within Level 2.  In certain instances, the company may be required to determine a fair value using significant unobservable inputs such as indicative broker prices; the resulting valuation is classified as Level 3.

A description of the company’s objectives and strategies for using derivative instruments, and related accounting policies, is included in Note 3 – Accounting Policies – Derivative instruments and Credit risk and concentrations.

The following table presents a reconciliation of the Level 3 beginning and ending net derivative asset (liability) balances (in millions):

	Three months ended June 30						Six months ended June 30
	2011			2010			2011			2010
Beginning of period	$	(3.8	)	$	(7.6	)	$	(3.0	)	$	5.0
Net realized/unrealized gains (losses)
Included in regulatory assets and liabilities		2.2			.5			5.1			(.8	)
Included in net income		(.1	)		(.5	)		(.5	)		(6.8	)
Settlements, net of purchases**		2.0			3.1			.5			3.9
Transfers into Level 3		-			2.8			1.5			2.8
Transfers out of Level 3		7.2			8.8			3.9			3.0
End of period	$	7.5		$	7.1		$	7.5		$	7.1
Net unrealized gains (losses) included in net income above relating to derivatives still held at June 30	$	.6		$	(.2	)	$	.5		$	.9
** There were no purchases for the three and six months ended June 30, 2011.

Net realized/unrealized gains (losses) included in net income are attributable to Nicor Enerchange and are classified as operating revenues.

Transfers into and out of Level 3 reflect the liquidity at the relevant natural gas trading locations and dates which affects the significance of unobservable inputs used in the valuation.  Transfers into and out of Level 3 are determined using values at the end of the interim period in which the transfer occurred.

Nicor maintains margin accounts related to financial derivative transactions.  The company’s policy is not to offset the fair value of assets and liabilities recognized for derivative instruments or any related margin account.  The following table represents the balance sheet classification of margin accounts related to derivative instruments (in millions):

	June 30		December 31		June 30
	2011		2010		2010
Assets
Margin accounts - derivative instruments	$	33.8	$	50.9	$	52.6
Other - noncurrent		3.8		8.1		13.5
Liabilities
Other - current	$	.3	$	-	$	1.9
Other - noncurrent		.6		-		3.1

In addition, the recorded amount of restricted short and long-term investments and short-term borrowings approximates fair value.  Long-term debt outstanding, including current maturities, is recorded at the principal balance outstanding, net of unamortized discounts.  The principal balance of Nicor Gas’ First Mortgage Bonds outstanding at June 30, 2011, December 31, 2010 and June 30, 2010 was $500 million.  Based on quoted prices or market interest rates, the fair value of the company’s First Mortgage Bonds outstanding was approximately $566 million, $554 million and $561 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.