Progress Energy 2004 Annual Report Download - page 52

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The Company uses natural gas hedging instruments to
manage a portion of the market risk associated with
fluctuations in the future sales price of the Company’s
natural gas. In addition, the Company may engage in
limited economic hedging activity using natural gas and
electricity financial instruments.
In 2004, PEF entered into derivative instruments related to
its exposure to price fluctuations on fuel oil purchases. At
December 31, 2004, the fair values of these instruments
were a $2 million long-term derivative asset position
included in other assets and deferred debits and a
$5 million short-term derivative liability position included
in other current liabilities. These instruments receive
regulatory accounting treatment. Gains are recorded in
regulatory liabilities and losses are recorded in
regulatory assets.
Refer to Note 18 for additional information with regard to
the Company’s commodity contracts and use of
derivative financial instruments.
The Company performs sensitivity analyses to estimate
its exposure to the market risk of its commodity positions.
A hypothetical 10% increase or decrease in quoted
market prices in the near term on the Company’s
derivative commodity instruments would not have had a
material effect on the Company’s consolidated financial
position, results of operations or cash flows as of
December 31, 2004.
50
Market Risk Disclosures