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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 Company
Qualitative and Quantitative Risk Management Disclosures

DTE Energy

Credit quality of trading counterparties sensitivity analysis, VaR NONE

Roll-forward of MTM energy contracts

Analysis of assets and liabilities from risk mgmt trading activities NONE

Maturity and source of fair value MTM positions (tenor) NONE

Allegheny Energy, Inc. AEP

Cash flow hedges MTM Mark to Market of net assets and liabilities Carrying value and estimated fair value

Counterparty credit quality and VaR analysis NONE

Balance sheet MTM positions

Maturity and source of fair value MTM positions NONE

Anadarko

NONE

CMS Energy

NONE

NONE

Analysis of assets and liabilities from risk mgmt trading activities NONE Analysis of assets and liabilities from risk mgmt trading activities NONE

NONE

Constellation Energy

VaR analysis NONE

NONE NONE

NONE NONE

Exelon Corp.

Edison Mission Energy FX Energy, Inc.
MidAmerican Energy Co.

Credit quality of trading counterparties NONE

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

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)

Nicor, Inc.

Credit quality and credit ratings of trading counterparties

Changes in fair value of MTM energy contracts

OneOK

Credit quality and credit ratings of trading counterparties Credit quality and credit ratings of trading counterparties NONE

Changes in fair value of MTM energy contracts

Analysis of assets and liabilities from risk mgmt trading activities NONE

Maturity and source of fair value MTM positions Maturity and source of fair value MTM positions NONE

WPS Energy

NONE

Enbridge Energy

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


				
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