APS 2015 Annual Report Download - page 74

Table of Contents
Commodity Price Risk
We are exposed to the impact of market fluctuations in the commodity price and transportation costs of electricity and natural
gas. Our risk management committee, consisting of officers and key management personnel, oversees company-wide energy risk
management activities to ensure compliance with our stated energy risk management policies. We manage risks associated with these
market fluctuations by utilizing various commodity instruments that may qualify as derivatives, including futures, forwards, options and
swaps. As part of our risk management program, we use such instruments to hedge purchases and sales of electricity and fuels. The
changes in market value of such contracts have a high correlation to price changes in the hedged commodities.
The following table shows the net pretax changes in mark-to-market of our derivative positions in 2015 and 2014 (dollars in
millions):
2015
2014
Mark-to-market of net positions at beginning of year $ (115)
$ (73)
Increase in regulatory asset (44)
(64)
Recognized in OCI:
Change in mark-to-market losses for future deliveries (1)
—
Mark-to-market losses realized during the period 6
22
Change in valuation techniques —
—
Mark-to-market of net positions at end of year $ (154)
$ (115)
The table below shows the fair value of maturities of our derivative contracts (dollars in millions) at December 31, 2015 by
maturities and by the type of valuation that is performed to calculate the fair values, classified in their entirety based on the lowest level
of input that is significant to the fair value measurement. See Note 1, “Derivative Accounting” and “Fair Value Measurements”, for
more discussion of our valuation methods.
Source of Fair Value
2016
2017
2018
2019
2020
Total
fair
value
Observable prices provided by other external sources
$ (65)
$ (40)
$ (16)
$ —
$ —
$ (121)
Prices based on unobservable inputs
(11)
(7)
(7)
(6)
(2)
(33)
Total by maturity
$ (76)
$ (47)
$ (23)
$ (6)
$ (2)
$ (154)
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