Fair Value Measurements

9 Months Ended

Sep. 30, 2011

3.Fair Value Measurements

The fair value hierarchy gives the highest priority to quoted prices in active markets (Level 1) and the lowest priority to unobservable data (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. The lowest level input that is significant to a fair value measurement in its entirety determines the applicable level in the fair value hierarchy. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.

The following table summarizes our financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2011, and December 31, 2010:

		September 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(in thousands)
Nuclear decommissioning trust ⁽¹⁾			$ 94,847		$ 94,847		$ -		$ -
Unrestricted investments and other ⁽²⁾⁽³⁾			82		82		-		-
	Total Financial Assets		$ 94,929		$ 94,929		$ -		$ -

Derivatives – gas and power ⁽⁴⁾			$ 3 ,530		$ 3,530		$ -		$ -
	Total Financial Liabilities		$ 3,530		$ 3,530		$ -		$ -

		December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
		(in thousands)
Nuclear decommissioning trust ⁽¹⁾			$ 97,531		$ 97,531		$ -		$ -
Unrestricted investments and other ⁽²⁾⁽³⁾			7,942		80		-		7,862
Derivatives – renewable energy credit sales			257		-		257		-
	Total Financial Assets		$ 105,730		$ 97,611		$ 257		$ 7,862

Derivatives – gas and power ⁽⁴⁾			$ 6,904		$ 6,831		$ 73		$ -
Derivative – interest rate hedge ⁽⁵⁾			10,944		-		10,944		-
	Total Financial Liabilities		$ 17,848		$ 6,831		$ 11,017		$ -

⁽¹⁾		For additional information about our nuclear decommissioning trust see Note 5 below.
⁽²⁾		Unrestricted investments and other includes investments that were available for sale and classified as Level 1 related to equity securities.
⁽³⁾		Unrestricted investments and other includes auction rate securities and preferred stock ("ARS"). As of December 31, 2010, we owned five ARS; during 2011, we sold all five ARS. For additional information, see Note 5 below and Note 10 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K.
⁽⁴⁾		Derivatives – gas and power represents natural gas futures contracts and purchased power contracts. For additional information about our derivative financial instruments, see Notes 1 and 4 of the Notes to Consolidated Financial Statements in our 2010 Annual Report on Form 10-K.
⁽⁵⁾		Derivative – interest rate hedge represents the fair value of the interest rate hedge. On May 14, 2010, we entered into an interest rate hedge with an initial notional amount of $300.0 million and a settlement rate tied to the 30 -year U.S. Treasury bond. At December 31, 2010, the fair value of this interest rate hedge was a liability of $10.9 million, which is recorded on our balance sheet as a current liability. On January 21, 2011, we terminated the interest rate hedge in accordance with the terms of the transaction, resulting in a settlement payment of $3.4 million, the fair value of the hedge as of that date. The $3.4 million is recorded as a regulatory asset and will be amortized over the life of the long-term debt we issued on April 7, 2011.

The following table presents the net change in the assets and liabilities measured at fair value on a recurring basis and included in the Level 3 fair value category:

			Nine Months Ended September 30, 2011
			(in thousands)
Balance as of January 1, 2011			$ 7,862
	Total realized gain:
		Included in other income (expense), net	3,227
	Purchases, sales, issuances, and settlements		(11,089	)
	Transfers out of Level 3		-
Balance as of September 30, 2011			$ -

The realized gain was recorded in other income (expense), net, in our Condensed Consolidated Statements of Revenues, Expenses, and Patronage Capital.

- 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

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