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FAIR VALUE (Tables)
 6 Months Ended
Jun. 30, 2014
Fair Value Disclosures [Abstract]  
Fair value of assets and liabilities measured on a recurring basis, categorized by level within the fair value hierarchy
The following tables show assets and liabilities that were accounted for at fair value on a recurring basis, categorized by level within the fair value hierarchy:
 
 
June 30, 2014
(Millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Risk Management Assets
 
 

 
 

 
 

 
 

Utility Segments
 
 

 
 

 
 

 
 

Natural gas contracts
 
$
1.1

 
$
9.1

 
$
—

 
$
10.2

Financial transmission rights (FTRs)
 
—

 
—

 
5.9

 
5.9

Petroleum product contracts
 
0.3

 
—

 
—

 
0.3

Coal contracts
 
—

 
—

 
2.7

 
2.7

IES Segment
 
 

 
 
 
 

 
 

Natural gas contracts
 
20.6

 
29.0

 
29.9

 
79.5

Electric contracts
 
98.6

 
126.2

 
19.5

 
244.3

Total Risk Management Assets
 
$
120.6

 
$
164.3

 
$
58.0

 
$
342.9

 
 
 
 
 
 
 
 
 
Investment in exchange-traded funds
 
$
16.8

 
$
—

 
$
—

 
$
16.8

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 

 
 

 
 

 
 

Utility Segments
 
 

 
 

 
 

 
 

Natural gas contracts
 
$
0.4

 
$
0.6

 
$
—

 
$
1.0

FTRs
 
—

 
—

 
0.7

 
0.7

Coal contracts
 
—

 
—

 
1.8

 
1.8

IES Segment
 
 

 
 

 
 
 
 

Natural gas contracts
 
9.5

 
20.3

 
24.9

 
54.7

Electric contracts
 
122.3

 
43.9

 
4.6

 
170.8

Total Risk Management Liabilities
 
$
132.2

 
$
64.8

 
$
32.0

 
$
229.0

 
 
 
 
 
 
 
 
 
Contingent consideration related to the acquisition of Compass Energy Services (Compass) *
 
$
—

 
$
—

 
$
6.6

 
$
6.6


*
In July 2014, IES settled the contingent liability for $4.3 million.
 
 
December 31, 2013
(Millions)
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
 
Risk Management Assets
 
 
 
 
 
 
 
 
Utility Segments
 
 
 
 
 
 
 
 
Natural gas contracts
 
$
2.4

 
$
7.7

 
$
—

 
$
10.1

FTRs
 
—

 
—

 
2.1

 
2.1

Petroleum product contracts
 
0.1

 
—

 
—

 
0.1

Coal contracts
 
—

 
—

 
0.2

 
0.2

IES Segment
 
 
 
 
 
 
 
 
Natural gas contracts
 
16.3

 
35.2

 
35.6

 
87.1

Electric contracts
 
65.1

 
134.9

 
15.9

 
215.9

Total Risk Management Assets
 
$
83.9

 
$
177.8

 
$
53.8

 
$
315.5

 
 
 
 
 
 
 
 
 
Investment in exchange-traded funds
 
$
15.9

 
$
—

 
$
—

 
$
15.9

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Risk Management Liabilities
 
 
 
 
 
 
 
 
Utility Segments
 
 
 
 
 
 
 
 
Natural gas contracts
 
$
0.5

 
$
0.6

 
$
—

 
$
1.1

FTRs
 
—

 
—

 
0.3

 
0.3

Coal contracts
 
—

 
—

 
2.7

 
2.7

IES Segment
 
 
 
 
 
 
 
 
Natural gas contracts
 
14.3

 
22.0

 
25.2

 
61.5

Electric contracts
 
98.8

 
58.7

 
3.5

 
161.0

Total Risk Management Liabilities
 
$
113.6

 
$
81.3

 
$
31.7

 
$
226.6

 
 
 
 
 
 
 
 
 
Contingent consideration related to the acquisition of Compass *
 
$
—

 
$
—

 
$
7.8

 
$
7.8



*
In July 2014, IES settled the contingent liability for $4.3 million.

Schedule of transfers between the levels of the fair value hierarchy
The following tables show net risk management assets transferred between the levels of the fair value hierarchy:
 
 
IES Segment — Natural Gas Contracts
 
 
Three Months Ended June 30, 2014
 
Three Months Ended June 30, 2013
(Millions)
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Transfers into Level 1 from
 
N/A

 
$
0.1

 
$
—

 
N/A

 
$
—

 
$
—

Transfers into Level 2 from
 
$
—

 
N/A

 
0.4

 
$
—

 
N/A

 
—

Transfers into Level 3 from
 
—

 
0.7

 
N/A

 
—

 
1.3

 
N/A


 
 
IES Segment — Natural Gas Contracts
 
 
Six Months Ended June 30, 2014
 
Six Months Ended June 30, 2013
(Millions)
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Transfers into Level 1 from
 
N/A

 
$
0.1

 
$
—

 
N/A

 
$
—

 
$
—

Transfers into Level 2 from
 
$
—

 
N/A

 
0.5

 
$
—

 
N/A

 
—

Transfers into Level 3 from
 
—

 
1.6

 
N/A

 
—

 
1.5

 
N/A


 
 
IES Segment — Electric Contracts
 
 
Three Months Ended June 30, 2014
 
Three Months Ended June 30, 2013
(Millions)
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Transfers into Level 1 from
 
N/A

 
$
0.2

 
$
—

 
N/A

 
$
—

 
$
—

Transfers into Level 2 from
 
$
—

 
N/A

 
4.1

 
$
—

 
N/A

 
(0.1
)
Transfers into Level 3 from
 
—

 
3.8

 
N/A

 
—

 
6.2

 
N/A


 
 
IES Segment — Electric Contracts
 
 
Six Months Ended June 30, 2014
 
Six Months Ended June 30, 2013
(Millions)
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Transfers into Level 1 from
 
N/A

 
$
0.2

 
$
—

 
N/A

 
$
—

 
$
—

Transfers into Level 2 from
 
$
—

 
N/A

 
8.5

 
$
—

 
N/A

 
5.4

Transfers into Level 3 from
 
—

 
6.4

 
N/A

 
—

 
6.2

 
N/A
Significant unobservable inputs used in the valuation of derivatives categorized in Level 3
The amounts and percentages listed in the table below represent the range of unobservable inputs used in the valuations that individually had a significant impact on the fair value determination and caused a derivative to be classified as Level 3 at June 30, 2014:
 
 
Fair Value (Millions)
 
 
 
 
 
 
 
 
Assets
 
Liabilities
 
Valuation Technique
 
Unobservable Input
 
Average or Range
Utility Segments
 
 

 
 

 
 
 
 
 
 
FTRs
 
$
5.9

 
$
0.7

 
Market-based
 
Forward market prices ($/megawatt-month) (1)
 
$222.54
Coal contracts
 
2.7

 
1.8

 
Market-based
 
Forward market prices ($/ton) (2)
 
$12.49 — $15.90
IES Segment
 
 

 
 

 
 
 
 
 
 
Natural gas contracts
 
29.9

 
24.9

 
Market-based
 
Forward market prices ($/dekatherm) (3)
 
($1.55) — $8.68
 
 
 

 
 

 
 
 
Probability of default (4)
 
 11.7% — 51.0%
Electric contracts
 
19.5

 
4.6

 
Market-based
 
Forward market prices ($/megawatt-hours) (3)
 
($3.55) — $12.13
 
 
 
 
 
 
 
 
Probability of default (4)
 
26.0%
 
 
 

 
 

 
 
 
Option volatilities (5)
 
18.8% — 163.5%
 
 
 
 
 
 
 
 
Monthly curve shaping (6)
 
(65.2)% — (14.8)%
Contingent consideration related to the acquisition of Compass
 
N/A

 
6.6

 
Income-based
 
Growth rate (7)
 
(34.3)% — 48.7%

(1) 
Represents forward market prices developed using historical cleared pricing data from MISO.

(2) 
Represents third-party forward market pricing.

(3) 
Represents unobservable basis spreads developed using historical settled prices that are applied to observable market prices at various natural gas and electric locations, as well as unobservable adjustments made to extend observable market prices beyond the quoted period through the end of the transaction term.

(4) 
Based on Moody's one-year counterparty default percentages.

(5) 
Represents the range of volatilities used in the valuation of options. Volatilities are derived from an internal model using volatility curves from third parties.

(6) 
Represents adjustments made to forward market price curves to disaggregate average prices of multiple periods into discrete monthly prices.

(7) 
Represents the range of assumed growth rates of earnings before interest, taxes, and amortization input into the valuation model. In July 2014, IES settled this contingent liability for $4.3 million.

Reconciliation of changes in Level 3 fair value measurements
The following tables set forth a reconciliation of changes in the fair value of items categorized as Level 3 measurements:
Three Months Ended June 30, 2014
 
IES Segment
 
Utility Segments
 
 
(Millions)
 
Natural Gas
 
Electric
 
Contingent Consideration
 
FTRs
 
Coal 
Contracts
 
Total
Balance at the beginning of the period
 
$
5.5

 
$
18.7

 
$
(7.8
)
 
$
0.7

 
$
0.3

 
$
17.4

Net realized and unrealized gains (losses) included in earnings
 
0.2

 
(1.0
)
 
—

 
—

 
—

 
(0.8
)
Net unrealized gains recorded as regulatory assets or liabilities
 
—

 
—

 
—

 
0.2

 
0.8

 
1.0

Purchases
 
—

 
0.6

 
—

 
5.6

 
—

 
6.2

Sales
 
—

 
—

 
—

 
—

 
—

 
—

Settlements
 
(1.0
)
 
(3.1
)
 
1.2

 
(1.3
)
 
(0.2
)
 
(4.4
)
Net transfers into Level 3
 
0.7

 
3.8

 
—

 
—

 
—

 
4.5

Net transfers out of Level 3
 
(0.4
)
 
(4.1
)
 
—

 
—

 
—

 
(4.5
)
Balance at the end of the period
 
$
5.0

 
$
14.9

 
$
(6.6
)
 
$
5.2

 
$
0.9

 
$
19.4

 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized gains (losses) included in earnings related to instruments still held at the end of the period
 
$
0.2

 
$
(1.0
)
 
$
—

 
$
—

 
$
—

 
$
(0.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2013
 
IES Segment
 
Utility Segments
 
 
(Millions)
 
Natural Gas
 
Electric
 
Contingent Consideration
 
FTRs
 
Coal 
Contracts
 
Total
Balance at the beginning of the period
 
$
1.7

 
$
6.1

 
$
—

 
$
0.9

 
$
(4.6
)
 
$
4.1

Net realized and unrealized (losses) gains included in earnings
 
(1.4
)
 
(9.4
)
 
—

 
0.1

 
—

 
(10.7
)
Net unrealized (losses) gains recorded as regulatory assets or liabilities
 
—

 
—

 
—

 
(0.7
)
 
3.6

 
2.9

Purchases
 
7.0

 
0.9

 
(7.7
)
 
4.9

 
—

 
5.1

Sales
 
—

 
—

 
—

 
(0.1
)
 
—

 
(0.1
)
Settlements
 
(0.9
)
 
0.2

 
—

 
(1.2
)
 
(1.3
)
 
(3.2
)
Net transfers into Level 3
 
1.3

 
6.2

 
—

 
—

 
—

 
7.5

Net transfers out of Level 3
 
—

 
0.1

 
—

 
—

 
—

 
0.1

Balance at the end of the period
 
$
7.7

 
$
4.1

 
$
(7.7
)
 
$
3.9

 
$
(2.3
)
 
$
5.7

 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized losses included in earnings related to instruments still held at the end of the period
 
$
(1.4
)
 
$
(9.4
)
 
$
—

 
$
—

 
$
—

 
$
(10.8
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
 
IES Segment
 
Utility Segments
 
 
(Millions)
 
Natural Gas
 
Electric
 
Contingent Consideration
 
FTRs
 
Coal 
Contracts
 
Total
Balance at the beginning of the period
 
$
10.4

 
$
12.4

 
$
(7.8
)
 
$
1.8

 
$
(2.5
)
 
$
14.3

Net realized and unrealized (losses) gains included in earnings
 
(6.0
)
 
11.6

 
—

 
0.4

 
—

 
6.0

Net unrealized gains recorded as regulatory assets or liabilities
 
—

 
—

 
—

 
0.2

 
3.0

 
3.2

Purchases
 
—

 
1.3

 
—

 
5.5

 
—

 
6.8

Sales
 
—

 
(0.7
)
 
—

 
—

 
—

 
(0.7
)
Settlements
 
(0.5
)
 
(7.6
)
 
1.2

 
(2.7
)
 
0.4

 
(9.2
)
Net transfers into Level 3
 
1.6

 
6.4

 
—

 
—

 
—

 
8.0

Net transfers out of Level 3
 
(0.5
)
 
(8.5
)
 
—

 
—

 
—

 
(9.0
)
Balance at the end of the period
 
$
5.0

 
$
14.9

 
$
(6.6
)
 
$
5.2

 
$
0.9

 
$
19.4

 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized (losses) gains included in earnings related to instruments still held at the end of the period
 
$
(6.0
)
 
$
11.6

 
$
—

 
$
—

 
$
—

 
$
5.6

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2013
 
IES Segment
 
Utility Segments
 
 
(Millions)
 
Natural Gas
 
Electric
 
Contingent Consideration
 
FTRs
 
Coal 
Contracts
 
Total
Balance at the beginning of the period
 
$
3.9

 
$
(4.3
)
 
$
—

 
$
2.0

 
$
(6.5
)
 
$
(4.9
)
Net realized and unrealized (losses) gains included in earnings
 
(2.9
)
 
5.7

 
—

 
0.4

 
—

 
3.2

Net unrealized (losses) gains recorded as regulatory assets or liabilities
 
—

 
—

 
—

 
(0.9
)
 
6.7

 
5.8

Purchases
 
7.0

 
1.6

 
(7.7
)
 
4.9

 
—

 
5.8

Sales
 
—

 
—

 
—

 
(0.1
)
 
—

 
(0.1
)
Settlements
 
(1.8
)
 
0.3

 
—

 
(2.4
)
 
(2.5
)
 
(6.4
)
Net transfers into Level 3
 
1.5

 
6.2

 
—

 
—

 
—

 
7.7

Net transfers out of Level 3
 
—

 
(5.4
)
 
—

 
—

 
—

 
(5.4
)
Balance at the end of the period
 
$
7.7

 
$
4.1

 
$
(7.7
)
 
$
3.9

 
$
(2.3
)
 
$
5.7

 
 
 
 
 
 
 
 
 
 
 
 
 
Net unrealized (losses) gains included in earnings related to instruments still held at the end of the period
 
$
(2.9
)
 
$
5.7

 
$
—

 
$
—

 
$
—

 
$
2.8
Schedule of carrying value and estimated fair value of financial instruments not recorded at fair value
The following table shows the financial instruments included on our balance sheets that are not recorded at fair value:
 
 
June 30, 2014
 
December 31, 2013
(Millions)
 
Carrying Amount
 
Fair Value
 
Carrying Amount
 
Fair Value
Long-term debt
 
$
2,956.2

 
$
3,083.1

 
$
3,056.2

 
$
3,031.6

Preferred stock of subsidiary
 
51.1

 
60.9

 
51.1

 
61.2