Print Page  Close Window

SEC Filings

10-Q
SOUTHERN CO GAS filed this Form 10-Q on 11/04/2016
Entire Document
 << Previous Page | Next Page >>

Value at Risk (VaR)
VaR is the maximum potential loss in portfolio value over a specified time period that is not expected to be exceeded within a given degree of probability. Southern Company Gas' VaR may not be comparable to that of other companies due to differences in the factors used to calculate VaR. Southern Company Gas' VaR is determined on a 95% confidence interval and a 1-day holding period, which means that 95% of the time, the risk of loss in a day from a portfolio of positions is expected to be less than or equal to the amount of VaR calculated. Southern Company Gas' open exposure is managed in accordance with established policies that limit market risk and require daily reporting of potential financial exposure to senior management, including the Chief Risk Officer. Because Southern Company Gas generally manages physical gas assets and economically protects its positions by hedging in the futures markets, Southern Company Gas' open exposure is generally mitigated. Southern Company Gas employs daily risk testing, using both VaR and stress testing, to evaluate the risk of its positions.
Southern Company Gas actively monitors open commodity positions and the resulting VaR. Southern Company Gas also continues to maintain a relatively small risk exposure as total buy volume is close to sell volume, with minimal open natural gas price risk. Based on a 95% confidence interval and employing a 1-day holding period, SouthStar’s portfolio of positions for the predecessor period January 1, 2016 through June 30, 2016, the successor period July 1, 2016 through September 30, 2016, and the predecessor nine months ended September 30, 2015 was immaterial and wholesale gas services had the following VaRs.
 
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
 
 
Three months ended September 30, 2016
 
 
Three months ended September 30, 2015
 
July 1, 2016, through September 30, 2016
 
 
January 1, 2016, through June 30, 2016
 
Nine months ended September 30, 2015
 
 
(in millions)
 
 
(in millions)
 
(in millions)
 
 
(in millions)
Period end
 
$
1.8

 
 
$
2.0

 
$
1.8

 
 
$
1.9

 
$
2.0

Average
 
2.0

 
 
2.6

 
2.0

 
 
2.0

 
3.4

High
 
2.6

 
 
3.9

 
2.6

 
 
2.5

 
7.3

Low
 
1.4

 
 
1.8

 
1.4

 
 
1.6

 
1.8

Interest Rate Risk
Interest rate fluctuations expose Southern Company Gas' variable-rate debt to changes in interest expense and cash flows. Southern Company Gas' policy is to manage interest expense using a combination of fixed-rate and variable-rate debt. Based on $906 million of variable-rate debt outstanding at September 30, 2016, a 100 basis point change in market interest rates would have resulted in an increase in pre-tax interest expense of $9 million on an annualized basis.
In January 2015, Southern Company Gas executed $800 million in notional value 10-year and 30-year fixed-rate, forward-starting interest rate swaps to hedge potential interest rate volatility prior to issuances of long-term debt in the fourth quarter 2015 and during 2016. Southern Company Gas designated the forward-starting interest rate swaps, which were settled in conjunction with the debt issuances, as cash flow hedges. Southern Company Gas settled $200 million of these interest rate swaps in November 2015 for an immaterial loss, $400 million in May 2016 at a loss of $26 million, and the remaining $200 million in September 2016 at a loss of $35 million. Due to the application of pushdown accounting, only $5 million of the loss, which represents the loss incurred and deferred in the successor period, will be amortized into earnings.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
As of the end of the period covered by this Quarterly Report on Form 10-Q, Southern Company Gas conducted an evaluation under the supervision and with the participation of Southern Company Gas' management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Sections 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended). Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures are effective.
(b) Changes in internal control over financial reporting.
There have been no changes in Southern Company Gas' internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the third quarter 2016 that have materially affected or are reasonably likely to materially affect Southern Company Gas' internal control over financial reporting.


 << Previous Page | Next Page >>