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Quantitative and Qualitative Disclosures about Derivatives and Risk Management Activities

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					  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

                  Qualitative and
 Company           Quantitative
                       Risk
                   Management
                   Disclosures

DTE Energy       Credit quality     Roll-forward     Analysis of        Maturity
                 of trading         of MTM           assets and         and source
                 counterparties     energy           liabilities from   of fair value
                 sensitivity        contracts        risk mgmt          MTM
                 analysis, VaR                       trading            positions
                                                     activities         (tenor)

Allegheny        NONE               Cash flow        NONE               NONE
                                    hedges MTM
Energy, Inc.
AEP              Counterparty       Mark to          Balance sheet      Maturity
                 credit quality     Market of net    MTM                and source
                 and VaR            assets and       positions          of fair value
                 analysis           liabilities                         MTM
                                                                        positions

Anadarko         NONE               Carrying         NONE               NONE
                                    value and
                                    estimated fair
                                    value

CMS              NONE               NONE             Analysis of        NONE
                                                     assets and
Energy                                               liabilities from
                                                     risk mgmt
                                                     trading
                                                     activities
Constellation    VaR analysis       NONE             NONE               NONE
Energy
Exelon        NONE             NONE            Analysis of        NONE
                                               assets and
Corp.                                          liabilities from
                                               risk mgmt
                                               trading
                                               activities

Edison        Credit quality   NONE            NONE               NONE
              of trading
Mission       counterparties
Energy
FX Energy,    NONE             NONE            NONE               NONE
Inc.
MidAmerican   NONE             NONE            Analysis of        NONE
Energy Co.                                     assets and
                                               liabilities from
                                               risk mgmt
                                               trading
                                               activities

Cinergy       Sensitivity      Changes in      Analysis of        Maturity
              analysis, VaR    fair value of   assets and         and source
Corp.         analysis         MTM energy      liabilities from   of fair value
                               contracts       risk mgmt          MTM
                                               trading            positions
                                               activities         (tenor)

Nicor, Inc.   Credit quality   Changes in      NONE               Maturity
              and credit       fair value of                      and source
              ratings of       MTM energy                         of fair value
              trading          contracts                          MTM
              counterparties                                      positions
                                                                  (tenor)

OneOK         Credit quality   Changes in      Analysis of        Maturity
              and credit       fair value of   assets and         and source
              ratings of       MTM energy      liabilities from   of fair value
              trading          contracts       risk mgmt          MTM
              counterparties                   trading            positions
                                               activities

WPS           Credit quality   NONE            NONE               Maturity
              and credit                                          and source
Energy        ratings of                                          of fair value
              trading                                             MTM
              counterparties                                      positions
Enbridge             NONE              NONE               NONE               NONE
Energy



                                          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

				
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