DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2011

Notes to Financial Statements [Abstract]

7.	DERIVATIVE INSTRUMENTS

A description of the company's objectives and strategies for using derivative instruments, and related accounting policies, is included in Note 3 - Accounting Policies - Derivative instruments and Credit risk and concentrations. All derivatives recognized on the Condensed Consolidated Balance Sheets are measured at fair value, as described in Note 6 - Fair Value Measurements.

Condensed Consolidated Balance Sheets. Derivative assets and liabilities are classified as shown in the table below (in millions):

	September 30		December 31		September 30
	2011		2010		2010
Derivatives designated as hedging instruments
Liabilities
Derivative instruments	$	.6	$	.9	$	1.3
Other - noncurrent		.1		-		.2
	$	.7	$	.9	$	1.5

Derivatives not designated as hedging instruments
Assets
Derivative instruments	$	2.7	$	7.4	$	3.1
Other - noncurrent		1.8		.9		.7
	$	4.5	$	8.3	$	3.8

Liabilities
Derivative instruments	$	30.2	$	49.5	$	67.3
Other - noncurrent		.5		3.8		7.2
	$	30.7	$	53.3	$	74.5

Volumes. As of September 30, 2011, December 31, 2010 and September 30, 2010, Nicor Gas held outstanding derivative contracts of approximately 30 Bcf, 49 Bcf and 48 Bcf, respectively, to hedge natural gas purchases for customer use, with hedges spanning as long as three years. Commodity price-risk exposure arising from Nicor Gas' natural gas purchases for company use is mitigated with derivative instruments that total to a net long position of 1.0 Bcf as of September 30, 2011 and 2010 and 0.8 Bcf as of December 31, 2010. The above volumes exclude contracts, such as variable-priced contracts, which are accounted for as derivatives but whose fair values are not directly impacted by changes in commodity prices.

Condensed Consolidated Statements of Income - cash flow hedges. Changes in the fair value of derivatives designated as a cash flow hedge are recognized in other comprehensive income until the hedged transaction is recognized in the Condensed Consolidated Statements of Income. Cash flow hedges are used by Nicor Gas to hedge purchases of natural gas for company use. Amounts related to such hedges were immaterial for the three and nine months ended September 30, 2011 and 2010.

Condensed Consolidated Statements of Income - derivatives not designated as hedges. The earnings of the company are subject to volatility for those derivatives not designated as hedges. Non-designated derivatives used by Nicor Gas, to hedge purchases of natural gas for company use, are recorded within operating and maintenance expense. Gains and losses recognized in income were immaterial for the three and nine months ended September 30, 2011 and 2010.

Nicor Gas' derivatives used to hedge the purchase of natural gas for its customers are also not designated as hedging instruments. Gains or losses on these derivatives are not recognized in pretax earnings, but are deferred as regulatory assets or liabilities until the related revenue is recognized. Net losses deferred for the three and nine months ended September 30, 2011 were $29.0 million and $32.6 million, respectively, and $47.5 million and $121.6 million, respectively, for the same periods in 2010.

Credit-risk-related contingent features. Provisions within certain derivative agreements require the company to post collateral if the company's net liability position exceeds a specified threshold. Also, certain derivative agreements contain credit-risk-related contingent features, whereby the company would be required to provide additional collateral or pay the amount due to the counterparty when a credit event occurs, such as if the company's credit rating was to be lowered. As of September 30, 2011, December 31, 2010 and September 30, 2010 for agreements with such features, derivative contracts with liability fair values totaled approximately $3 million, $12 million and $17 million, respectively, for which the company had posted no collateral to its counterparties. If it was assumed that the company had to post the maximum contractually specified collateral or settle the liability, the company would have been required to pay approximately $3 million, $11 million and $16 million at September 30, 2011, December 31, 2010 and September 30, 2010, respectively.

NORTHERN ILLINOIS GAS CO /IL/ /NEW/ 10-Q