Progress Energy 2006 Annual Report Download - page 63

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Progress Energy Annual Report 2006
61
instruments were a $2 million long-term derivative asset
position included in other assets and deferred debits,
an $87 million short-term derivative liability position
included in other current liabilities and a $36 million
long-term derivative liability position included in other
liabilities and deferred credits. At December 31,
2005, the fair values of the instruments were a
$77 million short-term derivative asset position included
in other current assets, a $45 million long-term derivative
asset position included in other assets and deferred debits
and a $49 million long-term derivative liability position
included in other liabilities and deferred credits.
On January 8, 2007, we entered into derivative contracts
to hedge economically a portion of our 2007 synthetic
fuels cash flow exposure to the risk of rising oil prices
over an average annual oil price range of $63 to $77 per
barrel on a NYMEX basis. The notional quantity of these
oil price hedge instruments is 25 million barrels and will
provide protection for the equivalent of approximately
eight million tons of 2007 synthetic fuels production.
The cost of the hedges was approximately $65 million.
The contracts will be marked-to-market with changes
in fair value recorded through earnings from synthetic
fuels production.
CASH FLOW HEDGES
Our subsidiaries designate a portion of commodity
derivative instruments as cash flow hedges under SFAS
No. 133. The objective for holding these instruments
is to hedge exposure to market risk associated with
fluctuations in the price of natural gas and power for
our forecasted purchases and sales. Realized gains
and losses are recorded net in operating revenues or
operating expenses, as appropriate. The ineffective
portion of commodity cash flow hedges was not material
to our results of operations for 2006, 2005 and 2004.
The fair values of commodity cash flow hedges at
December 31 were as follows:
Our discontinued operations did not have material
outstanding positions in commodity cash flow hedges
at December 31, 2006. Excluded from the table above
are $163 million of derivative assets, which are included
in assets of discontinued operations, and $54 million of
derivative liabilities, which are included in liabilities of
discontinued operations on the Consolidated Balance
Sheet at December 31, 2005.
At December 31, 2006, the amount recorded in our
accumulated other comprehensive income (AOCI)
related to commodity cash flow hedges was not material.
At December 31, 2005, we had $69 million of after-tax
deferred income recorded in AOCI related to commodity
cash flow hedges.
(in millions) 2006 2005
Fair value of assets $2 $7
Fair value of liabilities –(4)
Fair value, net $2 $3