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SEC Filings

10-Q
SOUTHERN CO GAS filed this Form 10-Q on 11/04/2016
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NOTES TO THE CONDENSED FINANCIAL STATEMENTS: (Continued)
(UNAUDITED)


On January 23, 2015, Southern Company Gas executed $800 million in notional value of 10-year and 30-year fixed-rate forward-starting interest rate swaps to hedge potential interest rate volatility prior to its 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 upon pricing the first mortgage bonds in May 2016 at a loss of $26 million, and the remaining $200 million upon pricing the senior notes in September 2016 at a loss of $35 million. Due to the application of acquisition accounting, only $5 million of the pre-tax loss incurred and deferred in the successor period will be amortized to interest expense through 2046 and is immaterial on an annual basis.
Derivative Financial Statement Presentation and Amounts
The derivative contracts of Southern Company Gas are subject to master netting arrangements or similar agreements and are reported net on its financial statements. Some of these energy-related and interest rate derivative contracts may contain certain provisions that permit intra-contract netting of derivative receivables and payables for routine billing and offsets related to events of default and settlements. At September 30, 2016 and December 31, 2015, the value of energy-related derivatives and interest rate derivatives was reflected in the balance sheets as follows:
 
 
 
 
Asset Derivatives
 
 
 
Liability Derivatives
 
 
 
 
Successor
 
 
Predecessor
 
 
 
Successor
 
 
Predecessor
Derivative Category
 
Balance Sheet Location
 
September 30, 2016
 
 
December 31, 2015
 
Balance Sheet Location
 
September 30, 2016
 
 
December 31, 2015
 
 
 
 
(in millions)
 
 
(in millions)
 
 
 
(in millions)
 
 
(in millions)
Derivatives designated as hedging instruments for regulatory purposes
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from risk management activities – current
 
$
8

 
 
$
10

 
Liabilities from risk management activities – current
 
$
(6
)
 
 
$
(28
)
 
 
Other deferred charges and assets
 

 
 

 
Other deferred credits and liabilities
 

 
 
(2
)
Total derivatives designated as hedging instruments for regulatory purposes
 
$
8

 
 
$
10

 
 
 
$
(6
)
 
 
$
(30
)
Derivatives designated as hedging instruments in cash flow and fair value hedges
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from risk management activities – current
 
$
2

 
 
$
3

 
Liabilities from risk management activities – current
 
$
(3
)
 
 
$
(5
)
 
 
Other deferred charges and assets
 

 
 

 
Other deferred credits and liabilities
 
(1
)
 
 
(2
)
Interest rate derivatives:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from risk management activities – current
 

 
 
9

 
Liabilities from risk management activities – current
 

 
 

Total derivatives designated as hedging instruments in cash flow and fair value hedges
 
$
2

 
 
$
12

 
 
 
$
(4
)
 
 
$
(7
)
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
Energy-related derivatives
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets from risk management activities – current
 
$
304

 
 
$
741

 
Liabilities from risk management activities – current
 
$
(345
)
 
 
$
(644
)
 
 
Other deferred charges and assets
 
58

 
 
179

 
Other deferred credits and liabilities
 
(74
)
 
 
(185
)
Total derivatives not designated as hedging instruments
 
$
362

 
 
$
920

 
 
 
$
(419
)
 
 
$
(829
)
Gross amount of recognized assets and liabilities (a) (b)
 
$
372

 
 
$
942

 
 
 
$
(429
)
 
 
$
(866
)
Gross amounts offset in the balance sheet (b)
 
(258
)
 
 
(724
)
 
 
 
369

 
 
820

Net amounts of derivatives assets and liabilities, presented in the balance sheet (c)
 
$
114

 
 
$
218

 
 
 
$
(60
)
 
 
$
(46
)
(a) The gross amounts of recognized assets and liabilities are netted on the consolidated balance sheets to the extent that there were netting arrangements with the counterparties.
(b) The gross amounts of recognized assets and liabilities do not include cash collateral held on deposit in broker margin accounts of $111 million as of September 30, 2016 and $96 million as of December 31, 2015.
(c) As of September 30, 2016 and December 31, 2015, letters of credit from counterparties offset an immaterial portion of these assets under master netting arrangements.


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