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Fair Value Measurement

6 Months Ended

Jun. 30, 2011



(B): Fair Value Measurement. Authoritative guidance regarding fair value measurements for financial and non-financial assets and liabilities defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements.

The guidance establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:
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  Level 1.  Quoted prices from active markets for identical assets or liabilities as of the measurement date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Quoted prices in active markets provide the most reliable evidence of fair value and are used without adjustment to measure fair value whenever available. Level 1 primarily consists of financial instruments that are exchange-traded.
  
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  Level 2.  Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Level 2 primarily consists of financial instruments that are non-exchange-traded but have significant observable inputs.
  
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  Level 3.  Pricing inputs that include significant inputs which are generally less observable from objective sources. These inputs may include internally developed methodologies that result in management's best estimate of fair value. Level 3 financial instruments are those whose fair value is based on significant unobservable inputs.

As required by the guidance, assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:

1.    Market approach.    The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business) and deriving fair value based on these inputs.

2.    Income approach.    The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts.

3.    Cost approach.    The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (often referred to as current replacement cost). This approach assumes that the fair value would not exceed what it would cost a market participant to acquire or construct a substitute asset or comparable utility, adjusted for obsolescence.

The tables below detail assets and liabilities measured at fair value on a recurring basis for the periods ended June 30, 2011 and December 31, 2010.


					Fair Value Measurements at Reporting Date Using
			June 30, 2011			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)

			(dollars in thousands)
Decommissioning funds:
	Domestic equity	$	109,215		$	109,215	$	—		$	—
	International equity		49,300			49,300		—			—
	Corporate bonds		43,139			43,139		—			—
	US Treasury and government agency securities		31,983			31,983		—			—
	Agency mortgage and asset backed securities		36,178			36,178		—			—
	Derivative instruments		(505	)		—		—			(505	)
	Other		8,925			8,925		—			—
Bond, reserve and construction funds			2,753			2,753		—			—
Long-term investments			81,342			73,294		—			8,048	⁽¹⁾
Natural gas swaps			(2,152	)		—		(2,152	)		—


					Fair Value Measurements at Reporting Date Using
			December 31, 2010			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)

			(dollars in thousands)
Decommissioning funds:
	Domestic equity	$	105,523		$	105,523	$	—		$	—
	International equity		43,619			43,619		—			—
	Corporate bonds		53,847			53,847		—			—
	US Treasury and government agency securities		47,649			47,649		—			—
	Agency mortgage and asset backed securities		7,926			7,926		—			—
	Derivative instruments		(452	)		—		—			(452	)
	Other		7,371			7,371		—			—
Bond, reserve and construction funds			2,815			2,815		—			—
Long-term investments			79,212			70,541		—			8,671	⁽¹⁾
Natural gas swaps			(2,054	)		—		(2,054	)		—



⁽¹⁾: Represents auction rate securities investments we hold.

The following tables present the changes in our Level 3 assets and liabilities measured at fair value on a recurring basis during the three and six months ended June 30, 2011 and 2010.


		Three Months Ended June 30, 2011
			Decommissioning funds			Long-term investments

			(dollars in thousands)
Assets (Liabilities):
Balance at March 31, 2011		$	(548	)	$	8,408
Total gains or losses (realized/unrealized):
	Included in earnings (or changes in net assets)		43			40
	Impairment included in other comprehensive deficit		—			—
Liquidations			—			(400	)

Balance at June 30, 2011		$	(505	)	$	8,048


		Three Months Ended June 30, 2010
			Decommissioning funds			Long-term investments

			(dollars in thousands)
Assets (Liabilities):
Balance at March 31, 2010		$	(435	)	$	26,376
Total gains or losses (realized/unrealized):
	Included in earnings (or changes in net assets)		124			—
	Impairment included in other comprehensive deficit		—			109
Liquidations			—			(2,000	)

Balance at June 30, 2010		$	(311	)	$	24,485


		Six Months Ended June 30, 2011
			Decommissioning funds			Long-term investments

			(dollars in thousands)
Assets (Liabilities):
Balance at January 1, 2011		$	(452	)	$	8,671
Total gains or losses (realized/unrealized):
	Included in earnings (or changes in net assets)		(53	)		77
	Impairment included in other comprehensive deficit		—			—
Liquidations			—			(700	)

Balance at June 30, 2011		$	(505	)	$	8,048


		Six Months Ended June 30, 2010
			Decommissioning funds			Long-term investments

			(dollars in thousands)
Assets (Liabilities):
Balance at January 1, 2010		$	(260	)	$	27,010
Total gains or losses (realized/unrealized):
	Included in earnings (or changes in net assets)		(51	)		—
	Impairment included in other comprehensive deficit		—			175
Liquidations			—			(2,700	)

Balance at June 30, 2010		$	(311	)	$	24,485

The assets included in the "Long-term investments" column in each of the Level 3 tables above are auction rate securities. As a result of market conditions, including the failure of auctions for the auction rate securities in which we invested, the fair value of these auction rate securities was determined using an income approach based on a discounted cash flow model. The discounted cash flow model utilized projected cash flows at current rates, which was adjusted for illiquidity premiums based on discussions with market participants. At June 30, 2011, we held auction rate securities with maturity dates ranging from November 1, 2044 to December 1, 2045.

At December 31, 2010, we had a temporary impairment on our auction rate securities of $1,029,000. Based on the fair value of the auction rate securities held at June 30, 2011, we recorded a ($77,000) incremental adjustment to the temporary impairment. The temporary impairment is reflected in "Accumulated other comprehensive margin (deficit)" on the condensed balance sheet. The various assumptions we utilized to determine the fair value of our auction rate securities investments will vary from period to period based on the prevailing economic conditions. If the market for our auction rate securities investments should deteriorate, we may need to increase the illiquidity premium used in preparing a discounted cash flow model for these securities. A 25 basis point increase in the illiquidity premium used to determine the fair value of these investments at June 30, 2011, would have resulted in an additional decrease in the fair value of our auction rate securities investments by approximately $540,000.

As of June 30, 2011, these investments were rated A3 by Moody's Investors Service and AAA by Fitch. Therefore, it is expected that the investments will not be settled at a price less than par value. Because we do not intend to sell these securities unless we can recover our cost basis in a relatively short period of time, and it is not more likely than not that we will be required to sell the securities, we considered the investments to be temporarily impaired at June 30, 2011.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 30
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

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