Progress Energy 2010 Annual Report Download - page 103

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Progress Energy Annual Report 2010
that in the next twelve months losses of $7 million, net
of tax, primarily related to terminated hedges, will be
reclassified to interest expense. The actual amounts
that will be reclassified to earnings may vary from the
expected amounts as a result of changes in the timing
of debt issuances at the Parent and the Utilities and
changes in market value of currently open forward
starting swaps.
At December 31, 2009, including amounts related to
terminated hedges, we had $35 million of after-tax losses
recorded in accumulated other comprehensive income
related to forward starting swaps.
At December 31, 2008, including amounts related to
terminated hedges, we had $56 million of after-tax losses
recorded in accumulated other comprehensive income
related to forward starting swaps.
At December 31, 2010, we had $1.050 billion notional
of open forward starting swaps. During January 2011,
Progress Energy terminated $300 million notional of
forward starting swaps in conjunction with the issuance
of debt (See Note 11A).
At December 31, 2009, we had $325 million notional of
open forward starting swaps.
FAIR VALUE HEDGES
For interest rate fair value hedges, the change in the fair
value of the hedging derivative is recorded in net interest
charges and is offset by the change in the fair value of
the hedged item. At December 31, 2010 and 2009, we did
not have any outstanding positions in such contracts.
C. Contingent Features
Certain of our commodity derivative instruments contain
provisions defining fair value thresholds requiring the
posting of collateral for hedges in a liability position
greater than such threshold amounts. The thresholds are
tiered and based on the individual company’s credit rating
with Moody’s, S&P and Fitch Ratings (Fitch). Higher credit
ratings have a higher threshold requiring a lower amount
of the outstanding liability position to be covered by
posted collateral. Conversely, lower credit ratings require
a higher amount of the outstanding liability position to be
covered by posted collateral. If our credit ratings were to
be downgraded, we may have to post additional collateral
on certain hedges in liability positions.
In addition, certain of our commodity derivative
instruments contain provisions that require our debt to
maintain an investment grade credit rating from Moody’s,
S&P and Fitch. If our debt were to fall below investment
grade, we would be in violation of these provisions, and the
counterparties to the commodity derivative instruments
could request immediate payment or demand immediate
and฀ongoing฀full฀overnight฀collateralization฀on฀commodity฀
derivative instruments in net liability positions.
The aggregate fair value of all commodity derivative
instruments with credit risk-related contingent features
that are in a net liability position at December 31, 2010,
is $446 million, for which we have posted collateral
of $164 million in the normal course of business. If the
credit risk-related contingent features underlying these
agreements were triggered at December 31, 2010,
we would have been required to post an additional
$282 million of collateral with its counterparties.