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Derivative Instruments, Hedging Activities and Fair Value Measurements (Tables)
 9 Months Ended
Sep. 30, 2012
Derivative Instruments, Hedging Activities and Fair Value Measurements [Abstract]  
Hedging Instruments Under the FASB's Derivative and Hedging Guidance
We may utilize interest rate swaps, forward starting swaps and similar derivative instruments to manage our exposure to changes in interest rates charged on borrowings under certain consolidated debt agreements.  The following table summarizes our portfolio of interest rate swaps at September 30, 2012:

Hedged Transaction
Number and Type
of Derivatives
Outstanding
 
Notional
Amount
 
Period of
Hedge
Rate
Swap
Accounting
Treatment
   Senior Notes AA
10 fixed-to-floating swaps
 
$
750.0
 
1/2011 to 2/2016
3.2% to 1.4%
Fair value hedge
   Undesignated swaps
6 floating-to-fixed swaps
 
$
600.0
 
5/2010 to 7/2014
0.5% to 2.0%
Mark-to-market

The following table summarizes our portfolio of forward starting swaps outstanding at September 30, 2012.  Forward starting swaps hedge the expected underlying benchmark interest rates related to future issuances of debt.

Hedged Transaction
Number and Type
 of Derivatives
 Outstanding
 
Notional
Amount
 
 
Expected
Termination
Date
 
 
Average Rate
Locked
 
Accounting
Treatment
Future debt offering
16 forward starting swaps
 
$
1,000.0
 
 
 
3/2013
 
 
 
3.7
%
Cash flow hedge

The prices of natural gas, NGLs, crude oil, refined products and certain petrochemical products are subject to fluctuations in response to changes in supply and demand, market conditions and a variety of additional factors that are beyond our control.  In order to manage such price risks, we enter into commodity derivative instruments such as physical forward contracts, futures contracts, fixed-for-float swaps, basis swaps and options contracts.  The following table summarizes our commodity derivative instruments outstanding at September 30, 2012 (volume measures as noted):

 
Volume (1)
Accounting
Derivative Purpose
Current (2)
Long-Term (2)
Treatment
Derivatives designated as hedging instruments:
 
 
 
Natural gas processing:
 
 
 
Forecasted natural gas purchases for plant thermal reduction ("PTR") (Bcf) (3)
7.2
n/a
Cash flow hedge
Forecasted sales of NGLs (MMBbls) (4)
0.8
n/a
Cash flow hedge
Octane enhancement:
 
 
 
Forecasted purchases of NGLs (MMBbls)
0.4
0.4
Cash flow hedge
Forecasted sales of octane enhancement products (MMBbls)
2.3
0.5
Cash flow hedge
Natural gas marketing:
 
 
 
Forecasted sales of natural gas (Bcf)
3.1
n/a
Cash flow hedge
Natural gas storage inventory management activities (Bcf)
14.5
n/a
Fair value hedge
NGL marketing:
 
 
 
Forecasted purchases of NGLs and related hydrocarbon products (MMBbls)
1.5
n/a
Cash flow hedge
Forecasted sales of NGLs and related hydrocarbon products (MMBbls)
4.4
0.1
Cash flow hedge
Refined products marketing:
 
 
 
Forecasted purchases of refined products (MMBbls)
0.4
n/a
Cash flow hedge
Forecasted sales of refined products (MMBbls)
0.8
n/a
Cash flow hedge
Crude oil marketing:
 
 
 
Forecasted purchases of crude oil (MMBbls)
4.3
0.4
Cash flow hedge
Forecasted sales of crude oil (MMBbls)
6.2
0.9
Cash flow hedge
Derivatives not designated as hedging instruments:
 
 
 
Natural gas risk management activities (Bcf) (5,6)
164.2
34.5
Mark-to-market
Refined products risk management activities (MMBbls) (6)
1.1
n/a
Mark-to-market
Crude oil risk management activities (MMBbls) (6)
5.1
n/a
Mark-to-market
(1)   Volume for derivatives designated as hedging instruments reflects the total amount of volumes hedged whereas volume for derivatives not designated as hedging instruments reflects the absolute value of derivative notional volumes.
(2)   The maximum term for derivatives designated as cash flow hedges, derivatives designated as fair value hedges and derivatives not designated as hedging instruments is December 2013, March 2013 and October 2015, respectively.
(3)   PTR represents the British thermal unit ("Btu") equivalent of the NGLs extracted from natural gas by a processing plant, and includes the natural gas used as plant fuel to extract those liquids, plant flare and other shortages.
(4)   Forecasted sales of NGL volumes under natural gas processing exclude 1.0 MMBbls of additional hedges executed under contracts that have been designated as normal sales agreements.
(5)   Current volumes include 49.3 Bcf of physical derivative instruments that are predominantly priced at an index plus a premium or minus a discount related to location differences.
(6)   Reflects the use of derivative instruments to manage risks associated with transportation, processing and storage assets.
Derivative Assets and Liabilities Balance Sheet
The following table provides a balance sheet overview of our derivative assets and liabilities at the dates indicated:

 
Asset Derivatives
 
Liability Derivatives
 
 
September 30, 2012
 
December 31, 2011
 
September 30, 2012
 
December 31, 2011
 
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Balance
Sheet
Location
Fair
Value
Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
Other current
assets
 
$
16.0
 
Other current
assets
 
$
43.7
 
Other current
liabilities
 
$
180.5
 
Other current
liabilities
 
$
163.6
 
Interest rate derivatives
Other assets
 
 
29.1
 
Other assets
 
 
44.2
 
Other liabilities
 
 
--
 
Other liabilities
 
 
127.1
 
Total interest rate derivatives
 
 
 
45.1
 
 
 
 
87.9
 
 
 
 
180.5
 
 
 
 
290.7
 
Commodity derivatives
Other current
assets
 
 
59.5
 
Other current
assets
 
 
20.3
 
Other current
liabilities
 
 
57.1
 
Other current
liabilities
 
 
30.3
 
Commodity derivatives
Other assets
 
 
5.3
 
Other assets
 
 
--
 
Other liabilities
 
 
3.5
 
Other liabilities
 
 
0.2
 
Total commodity derivatives
 
 
 
64.8
 
 
 
 
20.3
 
 
 
 
60.6
 
 
 
 
30.5
 
Total derivatives designated as hedging instruments
 
 
$
109.9
 
 
 
$
108.2
 
 
 
$
241.1
 
 
 
$
321.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
Other current
assets
 
$
--
 
Other current
assets
 
$
--
 
Other current
liabilities
 
$
12.0
 
Other current
liabilities
 
$
10.1
 
Interest rate derivatives
Other assets
 
 
--
 
Other assets
 
 
--
 
Other liabilities
 
 
7.5
 
Other liabilities
 
 
10.6
 
Total interest rate derivatives
 
 
 
--
 
 
 
 
--
 
 
 
 
19.5
 
 
 
 
20.7
 
Commodity derivatives
Other current
assets
 
 
12.8
 
Other current
assets
 
 
34.4
 
Other current
liabilities
 
 
15.7
 
Other current
liabilities
 
 
32.5
 
Commodity derivatives
Other assets
 
 
2.1
 
Other assets
 
 
12.6
 
Other liabilities
 
 
1.4
 
Other liabilities
 
 
2.0
 
Total commodity derivatives
 
 
 
14.9
 
 
 
 
47.0
 
 
 
 
17.1
 
 
 
 
34.5
 
Total derivatives not designated as hedging instruments
 
 
$
14.9
 
 
 
$
47.0
 
 
 
$
36.6
 
 
 
$
55.2
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative Instruments Effects on Statements of Operations
The following tables present the effect of our derivative instruments designated as fair value hedges on our Unaudited Condensed Statements of Consolidated Operations for the periods presented:

Derivatives in Fair Value
Hedging Relationships
 
Location
 
Gain/(Loss) Recognized in
Income on Derivative
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Interest rate derivatives
Interest expense
 
$
3.0
 
 
$
23.6
 
 
$
6.1
 
 
$
32.4
 
Commodity derivatives
Revenue
 
 
(0.4
)
 
 
8.6
 
 
 
(16.1
)
 
 
7.3
 
   Total
 
 
$
2.6
 
 
$
32.2
 
 
$
(10.0
)
 
$
39.7
 
 
Derivatives in Fair Value
Hedging Relationships
 
Location
 
Gain/(Loss) Recognized in
Income on Hedged Item
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Interest rate derivatives
Interest expense
 
$
(2.9
)
 
$
(22.5
)
 
$
(6.3
)
 
$
(32.2
)
Commodity derivatives
Revenue
 
 
(1.8
)
 
 
(7.7
)
 
 
14.5
 
 
 
(8.8
)
   Total
 
 
$
(4.7
)
 
$
(30.2
)
 
$
8.2
 
 
$
(41.0
)

The following tables present the effect of our derivative instruments designated as cash flow hedges on our Unaudited Condensed Statements of Consolidated Operations and Unaudited Condensed Statements of Consolidated Comprehensive Income for the periods presented:

Derivatives in Cash Flow
Hedging Relationships
Location
 
Gain/(Loss) Reclassified
from Accumulated Other Comprehensive
Income/(Loss) to Income (Effective Portion)
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Interest rate derivatives
Interest expense
 
$
(4.5
)
 
$
(1.6
)
 
$
(10.9
)
 
$
(4.6
)
Commodity derivatives
Revenue
 
 
0.3
 
 
 
(33.2
)
 
 
(12.3
)
 
 
(181.7
)
Commodity derivatives
Operating costs and expenses
 
 
(1.2
)
 
 
(1.9
)
 
 
(24.8
)
 
 
2.9
 
   Total
 
 
$
(5.4
)
 
$
(36.7
)
 
$
(48.0
)
 
$
(183.4
)

Derivatives in Cash Flow
Hedging Relationships
Location
 
Gain/(Loss) Recognized in Income
on Derivative (Ineffective Portion)
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Commodity derivatives
Revenue
 
$
(1.1
)
 
$
--
 
 
$
(0.2
)
 
$
0.2
 
Commodity derivatives
Operating costs and expenses
 
 
0.1
 
 
 
(0.9
)
 
 
0.4
 
 
 
(0.9
)
   Total
 
 
$
(1.0
)
 
$
(0.9
)
 
$
0.2
 
 
$
(0.7
)

The following table presents the effect of our derivative instruments not designated as hedging instruments on our Unaudited Condensed Statements of Consolidated Operations for the periods presented:

Derivatives Not Designated
as Hedging Instruments
Location
 
Gain/(Loss) Recognized in
Income on Derivative
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Interest rate derivatives
Interest expense
 
$
(2.2
)
 
$
(8.8
)
 
$
(5.5
)
 
$
(19.3
)
Commodity derivatives
Revenue
 
 
(3.9
)
 
 
4.3
 
 
 
26.2
 
 
 
17.6
 
Commodity derivatives
Operating costs and expenses
 
 
--
 
 
 
--
 
 
 
(2.8
)
 
 
--
 
Foreign currency derivatives
Other income
 
 
--
 
 
 
0.2
 
 
 
--
 
 
 
0.2
 
   Total
 
 
$
(6.1
)
 
$
(4.3
)
 
$
17.9
 
 
$
(1.5
)
Derivative Instruments Effects on Statements of Comprehensive Income
The following tables present the effect of our derivative instruments designated as cash flow hedges on our Unaudited Condensed Statements of Consolidated Operations and Unaudited Condensed Statements of Consolidated Comprehensive Income for the periods presented:

Derivatives in Cash Flow
Hedging Relationships
 
Change in Value
Recognized in Other Comprehensive Income/(Loss) on
Derivative (Effective Portion)
 
 
 
For the Three Months
 
 
For the Nine Months
 
 
 
Ended September 30,
 
 
Ended September 30,
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Interest rate derivatives
 
$
(20.2
)
 
$
(260.1
)
 
$
(75.3
)
 
$
(306.1
)
Commodity derivatives – Revenue
 
 
(59.5
)
 
 
8.8
 
 
 
0.7
 
 
 
(166.0
)
Commodity derivatives – Operating costs and expenses
 
 
1.0
 
 
 
(14.9
)
 
 
(13.8
)
 
 
(13.2
)
   Total
 
$
(78.7
)
 
$
(266.2
)
 
$
(88.4
)
 
$
(485.3
)

Derivatives in Cash Flow
Hedging Relationships
Location
 
Gain/(Loss) Reclassified
from Accumulated Other Comprehensive
Income/(Loss) to Income (Effective Portion)
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Interest rate derivatives
Interest expense
 
$
(4.5
)
 
$
(1.6
)
 
$
(10.9
)
 
$
(4.6
)
Commodity derivatives
Revenue
 
 
0.3
 
 
 
(33.2
)
 
 
(12.3
)
 
 
(181.7
)
Commodity derivatives
Operating costs and expenses
 
 
(1.2
)
 
 
(1.9
)
 
 
(24.8
)
 
 
2.9
 
   Total
 
 
$
(5.4
)
 
$
(36.7
)
 
$
(48.0
)
 
$
(183.4
)
Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income/(Loss) to Income (Effective Portion)
Derivatives in Cash Flow
Hedging Relationships
Location
 
Gain/(Loss) Reclassified
from Accumulated Other Comprehensive
Income/(Loss) to Income (Effective Portion)
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Interest rate derivatives
Interest expense
 
$
(4.5
)
 
$
(1.6
)
 
$
(10.9
)
 
$
(4.6
)
Commodity derivatives
Revenue
 
 
0.3
 
 
 
(33.2
)
 
 
(12.3
)
 
 
(181.7
)
Commodity derivatives
Operating costs and expenses
 
 
(1.2
)
 
 
(1.9
)
 
 
(24.8
)
 
 
2.9
 
   Total
 
 
$
(5.4
)
 
$
(36.7
)
 
$
(48.0
)
 
$
(183.4
)
Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion)

Derivatives in Cash Flow
Hedging Relationships
Location
 
Gain/(Loss) Recognized in Income
on Derivative (Ineffective Portion)
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Commodity derivatives
Revenue
 
$
(1.1
)
 
$
--
 
 
$
(0.2
)
 
$
0.2
 
Commodity derivatives
Operating costs and expenses
 
 
0.1
 
 
 
(0.9
)
 
 
0.4
 
 
 
(0.9
)
   Total
 
 
$
(1.0
)
 
$
(0.9
)
 
$
0.2
 
 
$
(0.7
)
Gain/(Loss) Recognized in Income on Derivative
Derivatives Not Designated
as Hedging Instruments
Location
 
Gain/(Loss) Recognized in
Income on Derivative
 
 
  
 
For the Three Months
 
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Ended September 30,
 
 
 
 
2012
 
 
2011
 
 
2012
 
 
2011
 
Interest rate derivatives
Interest expense
 
$
(2.2
)
 
$
(8.8
)
 
$
(5.5
)
 
$
(19.3
)
Commodity derivatives
Revenue
 
 
(3.9
)
 
 
4.3
 
 
 
26.2
 
 
 
17.6
 
Commodity derivatives
Operating costs and expenses
 
 
--
 
 
 
--
 
 
 
(2.8
)
 
 
--
 
Foreign currency derivatives
Other income
 
 
--
 
 
 
0.2
 
 
 
--
 
 
 
0.2
 
   Total
 
 
$
(6.1
)
 
$
(4.3
)
 
$
17.9
 
 
$
(1.5
)
Fair Value Measurements of Financial Assets and Liabilities Measured on a Recurring Basis
The following table sets forth, by level within the fair value hierarchy, the carrying values of our financial assets and liabilities at September 30, 2012.  These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input that is significant to their respective fair value.  Our assessment of the relative significance of such inputs requires judgment.

 
 
Fair Value Measurements Using
 
 
 
 
 
Quoted Prices
 
 
 
 
 
 
 
 
 
in Active
 
 
Significant
 
 
 
 
 
 
 
Markets for
 
 
Other
 
 
Significant
 
 
Carrying
 
 
 
Identical Assets
 
 
Observable
 
 
Unobservable
 
 
Value
 
 
 
and Liabilities
 
 
Inputs
 
 
Inputs
 
 
at September 30,
 
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
 
2012
 
Financial assets:
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
--
 
 
$
45.1
 
 
$
--
 
 
$
45.1
 
Commodity derivatives
 
 
22.4
 
 
 
44.0
 
 
 
13.3
 
 
 
79.7
 
Total
 
$
22.4
 
 
$
89.1
 
 
$
13.3
 
 
$
124.8
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
 
$
--
 
 
$
200.0
 
 
$
--
 
 
$
200.0
 
Commodity derivatives
 
 
32.5
 
 
 
41.1
 
 
 
4.1
 
 
 
77.7
 
Total
 
$
32.5
 
 
$
241.1
 
 
$
4.1
 
 
$
277.7
 
Reconciliation of Changes in the Fair Value of Level 3 Financial Assets and Liabilities
The following table sets forth a reconciliation of changes in the overall fair values of our recurring Level 3 financial assets and liabilities for the periods presented:

 
  
 
For the Nine Months
 
 
  
 
Ended September 30,
 
 
Location                                 
 
2012
 
 
2011
 
Balance, January 1
 
 
$
0.4
 
 
$
(25.9
)
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
Net income (1)
Revenue
 
 
0.5
 
 
 
(0.5
)
Other comprehensive income (loss)
Commodity derivative instruments – changes in fair value of cash flow hedges
 
 
0.5
 
 
 
16.2
 
Settlements
 
 
 
(0.5
)
 
 
0.8
 
Transfers out of Level 3 (2)
 
 
 
--
 
 
 
9.8
 
Balance, March 31
 
 
 
0.9
 
 
 
0.4
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
Net income (1)
Revenue
 
 
(1.3
)
 
 
1.9
 
Other comprehensive income (loss)
Commodity derivative instruments – changes in fair value of cash flow hedges
 
 
6.0
 
 
 
--
 
Settlements
 
 
 
(0.7
)
 
 
(0.2
)
Balance, June 30
 
 
 
4.9
 
 
 
2.1
 
Total gains (losses) included in:
 
 
 
 
 
 
 
 
 
Net income (1)
Revenue
 
 
(0.6
)
 
 
0.8
 
Other comprehensive income (loss)
Commodity derivative instruments – changes in fair value of cash flow hedges
 
 
3.5
 
 
 
--
 
Settlements
 
 
 
1.4
 
 
 
(2.2
)
Balance, September 30
 
 
$
9.2
 
 
$
0.7
 
 
 
 
 
 
 
 
 
 
 
(1)   There were $0.8 million of unrealized gains and $1.1 million of unrealized losses included in these amounts for the three and nine months ended September 30, 2012, respectively. There were $0.7 million and $2.5 million of unrealized gains included in these amounts for the three and nine months ended September 30, 2011, respectively.
(2)   Transfers out of Level 3 into Level 2 during 2011 were primarily due to the change in observability of forward NGL prices.
 
Fair Value Measurements, Valuation Techniques
The following table provides quantitative information about our recurring Level 3 fair value measurements at September 30, 2012:

 
 
Fair Value
 
 
 
   
 
 
Financial
Assets
 
 
Financial
Liabilities
 
Valuation
Techniques
Unobservable
Input
Range
Commodity derivatives – Propane
 
$
4.2
 
 
$
0.7
 
Discounted cash flow
Forward prices in excess of 1 year
$0.92-$0.98 /gallon
Commodity derivatives – Normal butane
 
 
0.4
 
 
 
0.7
 
Discounted cash flow
Forward prices in excess of 1 year
$1.49-$1.51 /gallon
Commodity derivatives – Natural gasoline
 
 
8.4
 
 
 
1.5
 
Discounted cash flow
Forward prices in excess of 1 year
$1.97-$2.02/gallon
Commodity derivatives – Crude oil
 
 
0.2
 
 
 
0.9
 
Discounted cash flow
Pricing data relative to quality and
   location attributes of crude oil
$92.19-$92.56 /barrel
Commodity derivatives – Natural gas
 
 
0.1
 
 
 
0.3
 
Discounted cash flow
Forward prices in excess of 3 years
$4.14-$4.39 /MMBtu
   Total
 
$
13.3
 
 
$
4.1
 
 
 
   
Nonrecurring Fair Value Measurements
The following table presents information regarding certain long-lived assets measured at fair value on a nonrecurring basis for the nine months ended September 30, 2012.

 
 
 
 
 
Fair Value Measurements Using
 
 
 
 
 
 
 
Quoted Prices
 
 
Significant
 
 
 
 
 
 
 
Carrying
 
 
in Active
 
 
Other
 
 
Significant
 
 
 
 
 
Value at
 
 
Markets for
 
 
Observable
 
 
Unobservable
 
 
Total Non-Cash
 
 
 
September 30,
 
 
Identical Assets
 
 
Inputs
 
 
Inputs
 
 
Impairment
 
 
 
2012
 
 
(Level 1)
 
 
(Level 2)
 
 
(Level 3)
 
 
Loss
 
Impairment of long-lived assets  held and used
 
$
2.2
 
 
$
--
 
 
$
--
 
 
$
2.2
 
 
$
2.6
 
Impairment of long-lived assets disposed of by sale
 
 
--
 
 
 
--
 
 
 
--
 
 
 
--
 
 
 
0.3
 
Impairment of long-lived assets disposed of
   other than by sale
 
 
--
 
 
 
--
 
 
 
--
 
 
 
--
 
 
 
54.7
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
57.6