Description
Energy DerivativesSurvey of Energy, Utility and Power companies Annual Report (Form 10-K)Quantitative and Qualitative Disclosures about Derivatives and Risk Management ActivitiesFAS 133 analysis
Survey of Energy, Utility and Power companies Annual Report (Form 10-K) Quantitative and Qualitative Disclosures about Derivatives and Risk Management Activities
FAS 133 analysis by Phillip Green, Senior Business Analyst, Derivatives Trading Desk, LLC Company
Qualitative and Quantitative Risk Management Disclosures
DTE Energy
Credit quality of trading counterparties sensitivity analysis, VaR NONE Counterparty credit quality and VaR analysis NONE
Roll-forward of MTM energy contracts
Analysis of assets and liabilities from risk mgmt trading activities NONE Balance sheet MTM positions
Maturity and source of fair value MTM positions (tenor) NONE Maturity and source of fair value MTM positions NONE
Allegheny Energy, Inc. AEP
Cash flow hedges MTM Mark to Market of net assets and liabilities Carrying value and estimated fair value NONE
Anadarko
NONE
CMS Energy
NONE
Analysis of assets and liabilities from risk mgmt trading activities NONE
NONE
Constellation Energy
VaR analysis
NONE
NONE
Exelon Corp.
NONE
NONE
Analysis of assets and liabilities from risk mgmt trading activities NONE
NONE
Edison Mission Energy FX Energy, Inc.
MidAmerican Energy Co.
Credit quality of trading counterparties NONE NONE
NONE
NONE
NONE NONE
NONE Analysis of assets and liabilities from risk mgmt trading activities Analysis of assets and liabilities from risk mgmt trading activities NONE
NONE NONE
Cinergy Corp.
Sensitivity analysis, VaR analysis
Changes in fair value of MTM energy contracts
Maturity and source of fair value MTM positions (tenor) Maturity and source of fair value MTM positions (tenor) Maturity and source of fair value MTM positions Maturity and source of fair value MTM positions
Nicor, Inc.
Credit quality and credit ratings of trading counterparties Credit quality and credit ratings of trading counterparties Credit quality and credit ratings of trading counterparties
Changes in fair value of MTM energy contracts
OneOK
Changes in fair value of MTM energy contracts
Analysis of assets and liabilities from risk mgmt trading activities NONE
WPS Energy
NONE
Enbridge Energy
NONE
NONE
NONE
NONE
Notes: MTM = Mark-to-market FAS 133 = Financial Accounting Standards Board
Accounting for Derivative Instruments and Hedging Activities
Summary This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.
Background on Fair Value Disclosures in energy, power and utility company 10K Annual Reports
The SEC has promised that it will review more Form 10-Ks than it ever has before. During the past few years, the SEC brought numerous enforcement actions against public companies and their chief executive and financial officers for allegedly failing to properly fulfill their MD&A (Management’s Discussion and Analysis of Financial Conditions and Results of Operations) disclosure requirements. As such, in this environment, companies need to carefully review their procedures for preparing MD&A. What the company did last year may not be enough.
Q: How does energy trading competitors and other energy, power and utility companies do on Fair value disclosure in their 10K’s? A: Of the 15 companies surveyed, all of the companies except one, Enbridge, included the Fair Value Disclosure in their 10K Annual Reports, most with substantial detail, definitions, and strategy.
The Sarbanes-Oxley Act of 2002 requires the CEOs and CFOs of public companies to make certain certifications relating to the financial statements included in SEC filings. In view of the required disclosures about the impact of material trends and uncertainties on an issuer’s financial condition and results, additional information about trading activities may be necessary. The following additional disclosures about trading contracts should be considered: 1. Disclosure of both the realized and the unrealized changes in fair value. 2. Identification of the impact changes have in valuation techniques on the fair value. 3. Disclosure of the fair value of both contracts where those values are determined directly from quoted market prices and contracts where the fair values are estimated. 4. Disclosure of the maturities of the contracts outstanding at the latest balance sheet date. 5. Disclosure of the fair value of claims against counterparties that are in a net asset position at the most recent balance sheet date, based on the credit quality of the contract counterparty (e.g., investment grade, non-investment grade, and no external ratings). 6. Balanced disclosures regarding risk management in connection with the trading activities, including the management of risks related to changes in credit quality or market fluctuations of underlying financial instruments. Phillip Green, Senior Business Analyst, Derivatives Trading Desk March 9, 2009
doc_853995224.pdf
Energy DerivativesSurvey of Energy, Utility and Power companies Annual Report (Form 10-K)Quantitative and Qualitative Disclosures about Derivatives and Risk Management ActivitiesFAS 133 analysis
Survey of Energy, Utility and Power companies Annual Report (Form 10-K) Quantitative and Qualitative Disclosures about Derivatives and Risk Management Activities
FAS 133 analysis by Phillip Green, Senior Business Analyst, Derivatives Trading Desk, LLC Company
Qualitative and Quantitative Risk Management Disclosures
DTE Energy
Credit quality of trading counterparties sensitivity analysis, VaR NONE Counterparty credit quality and VaR analysis NONE
Roll-forward of MTM energy contracts
Analysis of assets and liabilities from risk mgmt trading activities NONE Balance sheet MTM positions
Maturity and source of fair value MTM positions (tenor) NONE Maturity and source of fair value MTM positions NONE
Allegheny Energy, Inc. AEP
Cash flow hedges MTM Mark to Market of net assets and liabilities Carrying value and estimated fair value NONE
Anadarko
NONE
CMS Energy
NONE
Analysis of assets and liabilities from risk mgmt trading activities NONE
NONE
Constellation Energy
VaR analysis
NONE
NONE
Exelon Corp.
NONE
NONE
Analysis of assets and liabilities from risk mgmt trading activities NONE
NONE
Edison Mission Energy FX Energy, Inc.
MidAmerican Energy Co.
Credit quality of trading counterparties NONE NONE
NONE
NONE
NONE NONE
NONE Analysis of assets and liabilities from risk mgmt trading activities Analysis of assets and liabilities from risk mgmt trading activities NONE
NONE NONE
Cinergy Corp.
Sensitivity analysis, VaR analysis
Changes in fair value of MTM energy contracts
Maturity and source of fair value MTM positions (tenor) Maturity and source of fair value MTM positions (tenor) Maturity and source of fair value MTM positions Maturity and source of fair value MTM positions
Nicor, Inc.
Credit quality and credit ratings of trading counterparties Credit quality and credit ratings of trading counterparties Credit quality and credit ratings of trading counterparties
Changes in fair value of MTM energy contracts
OneOK
Changes in fair value of MTM energy contracts
Analysis of assets and liabilities from risk mgmt trading activities NONE
WPS Energy
NONE
Enbridge Energy
NONE
NONE
NONE
NONE
Notes: MTM = Mark-to-market FAS 133 = Financial Accounting Standards Board
Accounting for Derivative Instruments and Hedging Activities
Summary This Statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction.
Background on Fair Value Disclosures in energy, power and utility company 10K Annual Reports
The SEC has promised that it will review more Form 10-Ks than it ever has before. During the past few years, the SEC brought numerous enforcement actions against public companies and their chief executive and financial officers for allegedly failing to properly fulfill their MD&A (Management’s Discussion and Analysis of Financial Conditions and Results of Operations) disclosure requirements. As such, in this environment, companies need to carefully review their procedures for preparing MD&A. What the company did last year may not be enough.
Q: How does energy trading competitors and other energy, power and utility companies do on Fair value disclosure in their 10K’s? A: Of the 15 companies surveyed, all of the companies except one, Enbridge, included the Fair Value Disclosure in their 10K Annual Reports, most with substantial detail, definitions, and strategy.
The Sarbanes-Oxley Act of 2002 requires the CEOs and CFOs of public companies to make certain certifications relating to the financial statements included in SEC filings. In view of the required disclosures about the impact of material trends and uncertainties on an issuer’s financial condition and results, additional information about trading activities may be necessary. The following additional disclosures about trading contracts should be considered: 1. Disclosure of both the realized and the unrealized changes in fair value. 2. Identification of the impact changes have in valuation techniques on the fair value. 3. Disclosure of the fair value of both contracts where those values are determined directly from quoted market prices and contracts where the fair values are estimated. 4. Disclosure of the maturities of the contracts outstanding at the latest balance sheet date. 5. Disclosure of the fair value of claims against counterparties that are in a net asset position at the most recent balance sheet date, based on the credit quality of the contract counterparty (e.g., investment grade, non-investment grade, and no external ratings). 6. Balanced disclosures regarding risk management in connection with the trading activities, including the management of risks related to changes in credit quality or market fluctuations of underlying financial instruments. Phillip Green, Senior Business Analyst, Derivatives Trading Desk March 9, 2009
doc_853995224.pdf