RISK MANAGEMENT ACTIVITIES

3 Months Ended

Mar. 31, 2013

RISK MANAGEMENT ACTIVITIES

RISK MANAGEMENT ACTIVITIES

NOTE 3 — RISK MANAGEMENT ACTIVITIES

The following tables show our assets and liabilities from risk management activities:

		March 31, 2013
(Millions)	Balance Sheet Presentation *	Assets from Risk Management Activities		Liabilities from Risk Management Activities
Utility Segments
Nonhedge derivatives
Natural gas contracts	Current	$	9.8	$	3.7
Natural gas contracts	Long-term	1.9		—
Financial transmission rights (FTRs)	Current	1.0		0.1
Petroleum product contracts	Current	0.1		—
Coal contracts	Current	0.1		2.8
Coal contracts	Long-term	—		2.0
Cash flow hedges
Natural gas contracts	Current	—		0.1
Nonregulated Segments
Nonhedge derivatives
Natural gas contracts	Current	24.3		19.7
Natural gas contracts	Long-term	10.0		5.3
Electric contracts	Current	147.2		114.5
Electric contracts	Long-term	38.4		42.0
	Current	182.5		140.9
	Long-term	50.3		49.3
Total		$	232.8	$	190.2

*   We classify assets and liabilities from risk management activities as current or long-term based upon the maturities of the underlying contracts.

		December 31, 2012
(Millions)	Balance Sheet Presentation *	Assets from Risk Management Activities		Liabilities from Risk Management Activities
Utility Segments
Nonhedge derivatives
Natural gas contracts	Current	$	2.5	$	14.0
Natural gas contracts	Long-term	0.9		0.8
FTRs	Current	2.1		0.1
Petroleum product contracts	Current	0.2		—
Coal contracts	Current	0.3		4.7
Coal contracts	Long-term	2.2		4.3
Cash flow hedges
Natural gas contracts	Current	—		0.4
Nonregulated Segments
Nonhedge derivatives
Natural gas contracts	Current	51.7		48.5
Natural gas contracts	Long-term	11.5		7.6
Electric contracts	Current	88.6		114.2
Electric contracts	Long-term	30.7		45.7
	Current	145.4		181.9
	Long-term	45.3		58.4
Total		$	190.7	$	240.3

*   We classify assets and liabilities from risk management activities as current or long-term based upon the maturities of the underlying contracts.

The following tables show the potential effect of netting arrangements on our financial position for recognized derivative assets and liabilities:

	March 31, 2013
(Millions)	Gross Amount		Gross Amount Not Offset in the Balance Sheet, including Cash Collateral		Net Amount
Derivative assets subject to master netting or similar arrangements
Utility Segments	$	12.8	$	3.4	$	9.4
Nonregulated Segments	219.7		160.3		59.4
Total	232.5		163.7		68.8
Derivative assets not subject to master netting or similar arrangements	0.3				0.3
Total risk management assets	$	232.8			$	69.1
Derivative liabilities subject to master netting or similar arrangements
Utility Segments	$	3.9	$	3.4	$	0.5
Nonregulated Segments	181.4		160.3		21.1
Total	185.3		163.7		21.6
Derivative liabilities not subject to master netting or similar arrangements	4.9				4.9
Total risk management liabilities	$	190.2			$	26.5

	December 31, 2012
(Millions)	Gross Amount		Gross Amount Not Offset in the Balance Sheet, including Cash Collateral		Net Amount
Derivative assets subject to master netting or similar arrangements
Utility Segments	$	5.7	$	3.0	$	2.7
Nonregulated Segments	182.5		145.4		37.1
Total	188.2		148.4		39.8
Derivative assets not subject to master netting or similar arrangements	2.5				2.5
Total risk management assets	$	190.7			$	42.3
Derivative liabilities subject to master netting or similar arrangements
Utility Segments	$	15.3	$	3.8	$	11.5
Nonregulated Segments	215.4		159.8		55.6
Total	230.7		163.6		67.1
Derivative liabilities not subject to master netting or similar arrangements	9.6				9.6
Total risk management liabilities	$	240.3			$	76.7

Our master netting and similar arrangements have conditional rights of setoff that can be enforced under a variety of situations, including counterparty default or credit rating downgrade below investment grade. Financial collateral received or provided is restricted to the extent that is it required per the terms of the related agreements. We have trade receivables and trade payables, subject to master netting or similar arrangements, that are not included in the above table. These amounts may offset (or conditionally offset) the net amounts presented in the above table. The net amounts in the above table represent the netting of fair value balances under master netting or similar arrangements, and the netting of cash collateral, as applicable.

The following table shows our cash collateral positions:

(Millions)	March 31, 2013		December 31, 2012
Cash collateral provided to others:
Related to contracts under master netting or similar arrangements	$	24.3	$	39.9
Other	1.1		1.1
Cash collateral received from others related to contracts under master netting or similar arrangements *	—		0.2

*   Reflected in other current liabilities on the balance sheets.

Certain of our derivative and nonderivative commodity instruments contain provisions that could require “adequate assurance” in the event of a material change in our creditworthiness, or the posting of additional collateral for instruments in net liability positions, if triggered by a decrease in credit ratings. The following table shows the aggregate fair value of all derivative instruments with specific credit risk related contingent features that were in a liability position:

(Millions)	March 31, 2013		December 31, 2012
Integrys Energy Services	$	67.2	$	108.9
Utility segments	3.8		14.0

If all of the credit risk related contingent features contained in commodity instruments (including derivatives, nonderivatives, normal purchase and normal sales contracts, and applicable payables and receivables) had been triggered, our collateral requirement would have been as follows:

(Millions)	March 31, 2013		December 31, 2012
Collateral that would have been required:
Integrys Energy Services	$	124.6	$	173.8
Utility segments	0.4		10.1
Collateral already satisfied:
Integrys Energy Services — Letters of credit	3.2		3.2
Collateral remaining:
Integrys Energy Services	121.4		170.6
Utility segments	0.4		10.1

Utility Segments

Non-Hedge Derivatives

Utility derivatives include natural gas purchase contracts, coal purchase contracts, financial derivative contracts (futures, options, and swaps), and FTRs used to manage electric transmission congestion costs. Both the electric and natural gas utility segments use futures, options, and swaps to manage the risks associated with the market price volatility of natural gas supply costs, and the costs of gasoline and diesel fuel used by utility vehicles. The electric utility segment also uses oil futures and options to manage price risk related to coal transportation.

The utilities had the following notional volumes of outstanding nonhedge derivative contracts:

	March 31, 2013			December 31, 2012
	Purchases	Sales	Other Transactions	Purchases	Sales	Other Transactions
Natural gas (millions of therms)	595.4	—	N/A	1,072.6	0.1	N/A
FTRs (millions of kilowatt-hours)	N/A	N/A	1,579.0	N/A	N/A	4,057.2
Petroleum products (barrels)	50,855.0	N/A	N/A	62,811.0	N/A	N/A
Coal contracts (millions of tons)	4.7	0.2	N/A	5.1	N/A	N/A

The table below shows the unrealized gains (losses) recorded related to nonhedge derivatives at the utilities:

		Three Months Ended March 31
(Millions)	Financial Statement Presentation	2013			2012
Natural gas contracts	Balance Sheet — Regulatory assets (current)	$	13.0		$	(6.4	)
Natural gas contracts	Balance Sheet — Regulatory assets (long-term)	0.8			(0.8		)
Natural gas contracts	Balance Sheet — Regulatory liabilities (current)	5.9			(3.7		)
Natural gas contracts	Balance Sheet — Regulatory liabilities (long-term)	0.8			0.1
Natural gas contracts	Income Statement — Utility cost of fuel, natural gas, and purchased power	—			0.1
Natural gas contracts	Income Statement — Operating and maintenance expense	0.2			—
FTRs	Balance Sheet — Regulatory assets (current)	0.2			0.4
FTRs	Balance Sheet — Regulatory liabilities (current)	(0.4		)	(0.3		)
Petroleum product contracts	Balance Sheet — Regulatory assets (current)	—			0.1
Petroleum product contracts	Balance Sheet — Regulatory liabilities (current)	—			0.1
Petroleum product contracts	Income Statement — Operating and maintenance expense	—			0.1
Coal contracts	Balance Sheet — Regulatory assets (current)	1.9			(3.1		)
Coal contracts	Balance Sheet — Regulatory assets (long-term)	2.3			(3.5		)
Coal contracts	Balance Sheet — Regulatory liabilities (current)	(0.2		)	—
Coal contracts	Balance Sheet — Regulatory liabilities (long-term)	(2.2		)	—

Nonregulated Segments

NonHedge Derivatives

Integrys Energy Services enters into derivative contracts such as futures, forwards, options, and swaps that are used to manage commodity price risk primarily associated with retail electric and natural gas customer contracts.

Integrys Energy Services had the following notional volumes of outstanding nonhedge derivative contracts:

	March 31, 2013		December 31, 2012
(Millions)	Purchases	Sales	Purchases	Sales
Commodity contracts
Natural gas (therms)	641.5	556.2	782.0	679.0
Electric (kilowatt-hours)	56,100.1	34,502.0	54,127.6	31,809.6
Foreign exchange contracts (Canadian dollars)	0.4	0.4	0.4	0.4

Gains (losses) related to nonhedge derivatives are recognized currently in earnings, as shown in the table below:

		Three Months Ended March 31
(Millions)	Income Statement Presentation	2013			2012
Natural gas contracts	Nonregulated revenue	$	3.4		$	4.0
Natural gas contracts	Nonregulated cost of sales	(1.6		)	—
Natural gas contracts	Nonregulated revenue (reclassified from accumulated OCI) *	(0.1		)	(1.2		)
Electric contracts	Nonregulated revenue	64.0			(68.6		)
Electric contracts	Nonregulated revenue (reclassified from accumulated OCI) *	(1.0		)	(0.7		)
Total		$	64.7		$	(66.5	)

* Represents amounts reclassified from accumulated OCI related to cash flow hedges that were dedesignated in prior periods.

In the next 12 months, pre-tax losses of $0.1 million and $2.4 million related to discontinued cash flow hedges of natural gas contracts and electric contracts, respectively, are expected to be recognized in earnings as the forecasted transactions occur. These amounts are expected to be offset by the settlement of the related nonderivative customer contracts.