Note 12. Derivative Instruments, Hedging Activities and Fair Value Measurements

In the normal course of our business operations, we are exposed to certain risks, including changes in interest rates and commodity prices. In order to manage risks associated with assets, liabilities and certain anticipated future transactions, we use derivative instruments such as futures, forward contracts, swaps, options and other instruments with similar characteristics. Substantially all of our derivatives are used for non-trading activities.

Interest Rate Hedging Activities

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. This strategy may be used in controlling our overall cost of capital associated with such borrowings.

The following table summarizes our portfolio of interest rate swaps at June 30, 2017:

Hedged Transaction	Number and Type of Derivatives Outstanding		Notional Amount			Period of Hedge	Rate Swap	Accounting Treatment
Senior Notes OO	10 fixed-to-floating swaps		$	750.0		5/2015 to 5/2018	1.65% to 1.66%	Fair value hedge

The following table summarizes our portfolio of forward starting swaps at June 30, 2017:

Hedged Transaction	Number and Type of Derivatives Outstanding		Notional Amount			Expected Settlement Date	Average Rate Locked	Accounting Treatment
Future long-term debt offering	4 forward starting swaps		$	275.0		5/2018	2.02%	Cash flow hedge

Commodity Hedging Activities

The prices of natural gas, NGLs, crude oil, petrochemicals and refined 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 and basis swaps.

At June 30, 2017, our predominant commodity hedging strategies consisted of (i) hedging anticipated future purchases and sales of commodity products associated with transportation, storage and blending activities, (ii) hedging natural gas processing margins and (iii) hedging the fair value of commodity products held in inventory.

	The objective of our anticipated future commodity purchases and sales hedging program is to hedge the margins of certain transportation, storage, blending and operational activities by locking in purchase and sale prices through the use of derivative instruments and related contracts.



The objective of our natural gas processing hedging program is to hedge an amount of earnings associated with these activities. We achieve this objective by executing fixed-price sales for a portion of our expected equity NGL production using derivative instruments and related contracts. For certain natural gas processing contracts, the hedging of expected equity NGL production also involves the purchase of natural gas for plant thermal reduction, which is hedged using derivative instruments and related contracts.

	The objective of our inventory hedging program is to hedge the fair value of commodity products currently held in inventory by locking in the sales price of the inventory through the use of derivative instruments and related contracts.

The following table summarizes our portfolio of commodity derivative instruments outstanding at June 30, 2017 (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 (Bcf)	16.4	n/a	Cash flow hedge
Forecasted sales of NGLs (MMBbls)	2.3	n/a	Cash flow hedge
Natural gas marketing:
Forecasted purchases of natural gas for fuel (Bcf)	3.0	n/a	Cash flow hedge
Natural gas storage inventory management activities (Bcf)	3.5	n/a	Fair value hedge
NGL marketing:
Forecasted purchases of NGLs and related hydrocarbon products (MMBbls)	70.4	0.1	Cash flow hedge
Forecasted sales of NGLs and related hydrocarbon products (MMBbls)	85.3	0.9	Cash flow hedge
NGLs inventory management activities (MMBbls)	1.4	n/a	Fair value hedge
Refined products marketing:
Forecasted sales of refined products (MMBbls)	0.1	n/a	Cash flow hedge
Refined products inventory management activities (MMBbls)	4.8	n/a	Fair value hedge
Crude oil marketing:
Forecasted purchases of crude oil (MMBbls)	7.6	n/a	Cash flow hedge
Forecasted sales of crude oil (MMBbls)	12.7	n/a	Cash flow hedge
Derivatives not designated as hedging instruments:
Natural gas risk management activities (Bcf) (3,4)	169.2	20.4	Mark-to-market
NGL risk management activities (MMBbls) (4)	9.7	n/a	Mark-to-market
Crude oil risk management activities (MMBbls) (4)	35.3	17.5	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 2018, December 2017 and March 2020, respectively. (3) Current and long-term volumes include 61.0 Bcf and 9.3 Bcf, respectively, of physical derivative instruments that are predominantly priced at a marked-based index plus a premium or minus a discount related to location differences. (4) Reflects the use of derivative instruments to manage risks associated with transportation, processing and storage assets.

On January 3, 2017, the Chicago Mercantile Exchange (“CME”) modified its exchange rules to characterize daily variation margin amounts as “final settlement” values. The modified rule (“CME Rule 814”) impacts derivative financial instruments traded on exchanges administered by the CME, including the New York Mercantile Exchange. As a result of this rule change, we began reporting the affected derivative instruments on a net basis on our balance sheet during the first quarter of 2017. The netting process results in the elimination of derivative assets, derivative liabilities and associated restricted cash and related amounts with each other as if the underlying derivative instruments had settled on the balance sheet date. Historically through December 31, 2016, we reported such derivatives on a gross basis (i.e., not netted).

Derivative transactions cleared on exchanges other than the CME (e.g., the Intercontinental Exchange or ICE) continue to be reported on a gross basis.

Tabular Presentation of Fair Value Amounts, and Gains and Losses on

Derivative Instruments and Related Hedged Items

The following table provides a balance sheet overview of our derivative assets and liabilities at the dates indicated:

	Asset Derivatives						Liability Derivatives
	June 30, 2017			December 31, 2016			June 30, 2017			December 31, 2016
	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	Current assets	$	31.7	Current assets	$	0.3	Current liabilities	$	1.6	Current liabilities	$	0.2
Interest rate derivatives	Other assets		--	Other assets		36.2	Other liabilities		--	Other liabilities		0.9
Total interest rate derivatives			31.7			36.5			1.6			1.1
Commodity derivatives	Current assets		35.2	Current assets		499.2	Current liabilities		37.0	Current liabilities		662.0
Commodity derivatives	Other assets		0.1	Other assets		--	Other liabilities		--	Other liabilities		--
Total commodity derivatives			35.3			499.2			37.0			662.0
Total derivatives designated as hedging instruments		$	67.0		$	535.7		$	38.6		$	663.1

Derivatives not designated as hedging instruments
Commodity derivatives	Current assets	$	3.1	Current assets	$	41.9	Current liabilities	$	10.3	Current liabilities	$	75.6
Commodity derivatives	Other assets		2.5	Other assets		0.3	Other liabilities		1.6	Other liabilities		1.8
Total commodity derivatives		$	5.6		$	42.2		$	11.9		$	77.4

Certain of our commodity derivative instruments are subject to master netting arrangements or similar agreements. The following tables present our derivative instruments subject to such arrangements at the dates indicated:

	Offsetting of Financial Assets and Derivative Assets
	Gross Amounts of Recognized Assets			Gross Amounts Offset in the Balance Sheet			Amounts of Assets Presented in the Balance Sheet			Gross Amounts Not Offset in the Balance Sheet								Amounts That Would Have Been Presented On Net Basis
	Gross Amounts of Recognized Assets			Gross Amounts Offset in the Balance Sheet			Amounts of Assets Presented in the Balance Sheet			Financial Instruments				Cash Collateral Received		Cash Collateral Paid		Amounts That Would Have Been Presented On Net Basis
	(i)			(ii)			(iii) = (i) – (ii)			(iv)								(v) = (iii) + (iv)
As of June 30, 2017:
Interest rate derivatives		$	31.7		$	--		$	31.7		$	(0.5	)	$	--	$	--		$	31.2
Commodity derivatives			40.9			--			40.9			(40.2	)		--		--			0.7
As of December 31, 2016:
Interest rate derivatives		$	36.5		$	--		$	36.5		$	(0.2	)	$	--	$	--		$	36.3
Commodity derivatives			541.4			--			541.4			(526.8	)		--		--			14.6

	Offsetting of Financial Liabilities and Derivative Liabilities
	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Balance Sheet			Amounts of Liabilities Presented in the Balance Sheet			Gross Amounts Not Offset in the Balance Sheet									Amounts That Would Have Been Presented On Net Basis
	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Balance Sheet			Amounts of Liabilities Presented in the Balance Sheet			Financial Instruments				Cash Collateral Received		Cash Collateral Paid			Amounts That Would Have Been Presented On Net Basis
	(i)			(ii)			(iii) = (i) – (ii)			(iv)									(v) = (iii) + (iv)
As of June 30, 2017:
Interest rate derivatives		$	1.6		$	--		$	1.6		$	(0.5	)	$	--	$	--			$	1.1
Commodity derivatives			48.9			--			48.9			(40.2	)		--		(7.7	)			1.0
As of December 31, 2016:
Interest rate derivatives		$	1.1		$	--		$	1.1		$	(0.2	)	$	--	$	--			$	0.9
Commodity derivatives			739.4			--			739.4			(526.8	)		--		(212.4	)			0.2

Derivative assets and liabilities recorded on our Unaudited Condensed Consolidated Balance Sheets are presented on a gross-basis and determined at the individual transaction level. The tabular presentation above provides a means for comparing the gross amount of derivative assets and liabilities, excluding associated accounts payable and receivable, to the net amount that would likely be receivable or payable under a default scenario based on the existence of rights of offset in the respective derivative agreements. Any cash collateral paid or received is reflected in these tables, but only to the extent that it represents variation margins. Any amounts associated with derivative prepayments or initial margins that are not influenced by the derivative asset or liability amounts or those that are determined solely on their volumetric notional amounts are excluded from these tables.

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 indicated:

Derivatives in Fair Value Hedging Relationships	Location	Gain (Loss) Recognized in Income on Derivative
		For the Three Months Ended June 30,					For the Six Months Ended June 30,
		2017		2016			2017			2016
Interest rate derivatives	Interest expense	$	0.4	$	1.2		$	(0.5	)	$	7.3
Commodity derivatives	Revenue		18.8		(63.0	)		37.6			(82.0	)
Total		$	19.2	$	(61.8	)	$	37.1		$	(74.7	)

Derivatives in Fair Value Hedging Relationships	Location	Gain (Loss) Recognized in Income on Hedged Item
		For the Three Months Ended June 30,						For the Six Months Ended June 30,
		2017			2016			2017			2016
Interest rate derivatives	Interest expense	$	(0.3	)	$	(1.3	)	$	0.6		$	(7.5	)
Commodity derivatives	Revenue		(16.3	)		51.0			(28.7	)		79.0
Total		$	(16.6	)	$	49.7		$	(28.1	)	$	71.5

For the six months ended June 30, 2017, the net gain of $8.9 million recognized in income from our commodity derivatives designated as fair value hedges includes $0.8 million of net losses attributable to hedge ineffectiveness. The remaining $9.7 million of net gain recognized during the six months ended June 30, 2017 was primarily related to prompt-to-forward month price differentials that were excluded from the assessment of hedge effectiveness. Net gains or losses due to ineffectiveness and from those amounts excluded from the assessment of hedge effectiveness were immaterial for all other periods presented.

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 indicated:

Derivatives in Cash Flow Hedging Relationships	Change in Value Recognized in Other Comprehensive Income (Loss) on Derivative (Effective Portion)
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Interest rate derivatives	$	(6.9	)	$	(9.4	)	$	(4.5	)	$	(9.4	)
Commodity derivatives – Revenue (1)		31.4			(80.5	)		179.0			(77.2	)
Commodity derivatives – Operating costs and expenses (1)		(1.0	)		6.8			(3.8	)		2.3
Total	$	23.5		$	(83.1	)	$	170.7		$	(84.3	)

(1)The fair value of these derivative instruments will be reclassified to their respective locations on the Unaudited Condensed Statement of Consolidated Operations upon settlement of the underlying derivative transactions, as appropriate.

Derivatives in Cash Flow Hedging Relationships	Location	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Income (Effective Portion)
		For the Three Months Ended June 30,						For the Six Months Ended June 30,
		2017			2016			2017			2016
Interest rate derivatives	Interest expense	$	(10.0	)	$	(9.2	)	$	(19.6	)	$	(18.4	)
Commodity derivatives	Revenue		46.0			(34.2	)		38.5			24.6
Commodity derivatives	Operating costs and expenses		--			(1.2	)		0.4			(2.8	)
Total		$	36.0		$	(44.6	)	$	19.3		$	3.4

Derivatives in Cash Flow Hedging Relationships	Location	Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
		For the Three Months Ended June 30,					For the Six Months Ended June 30,
		2017			2016		2017			2016
Commodity derivatives	Operating costs and expenses	$	(0.1	)	$	--	$	(1.1	)	$	--
Total		$	(0.1	)	$	--	$	(1.1	)	$	--

Over the next twelve months, we expect to reclassify $41.3 million of losses attributable to interest rate derivative instruments from accumulated other comprehensive loss to earnings as an increase in interest expense. Likewise, we expect to reclassify $52.4 million of net gains attributable to commodity derivative instruments from accumulated other comprehensive income to earnings, $52.6 million as an increase in revenue and $0.2 million as an increase in operating costs and expenses.

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 indicated:

Derivatives Not Designated as Hedging Instruments	Location	Gain (Loss) Recognized in Income on Derivative
		For the Three Months Ended June 30,						For the Six Months Ended June 30,
		2017			2016			2017		2016
Commodity derivatives	Revenue	$	18.7		$	(45.3	)	$	34.4	$	(46.6	)
Commodity derivatives	Operating costs and expenses		(0.8	)		(0.1	)		3.7		--
Total		$	17.9		$	(45.4	)	$	38.1	$	(46.6	)

Fair Value Measurements

The following tables set forth, by level within the Level 1, 2 and 3 fair value hierarchy, the carrying values of our financial assets and liabilities at the dates indicated. These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of such inputs requires judgment.

The values for commodity derivatives at June 30, 2017 are presented before and after the application of CME Rule 814, which deems that financial instruments cleared by the CME are settled daily in connection with variation margin payments. As a result of this new exchange rule, CME-related derivatives are considered to have no fair value at the balance sheet date for financial reporting purposes; however, the derivatives remain outstanding and subject to future commodity price fluctuations until they are settled in accordance with their contractual terms.

	June 30, 2017 Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
Financial assets:
Interest rate derivatives	$	--		$	31.7		$	--	$	31.7
Commodity derivatives:
Value before application of CME Rule 814		29.5			147.9			0.5		177.9
Impact of CME Rule 814 change		(29.5	)		(107.5	)		--		(137.0	)
Total commodity derivatives		--			40.4			0.5		40.9
Total financial assets	$	--		$	72.1		$	0.5	$	72.6

Financial liabilities:
Liquidity Option Agreement	$	--		$	--		$	293.7	$	293.7
Interest rate derivatives		--			1.6			--		1.6
Commodity derivatives:
Value before application of CME Rule 814		9.8			134.2			0.3		144.3
Impact of CME Rule 814 change		(9.8	)		(85.6	)		--		(95.4	)
Total commodity derivatives		--			48.6			0.3		48.9
Total financial liabilities	$	--		$	50.2		$	294.0	$	344.2

	December 31, 2016 Fair Value Measurements Using
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Financial assets:
Interest rate derivatives	$	--	$	36.5	$	--	$	36.5
Commodity derivatives		84.5		455.2		1.7		541.4
Total financial assets	$	84.5	$	491.7	$	1.7	$	577.9

Financial liabilities:
Liquidity Option Agreement	$	--	$	--	$	269.6	$	269.6
Interest rate derivatives		--		1.1		--		1.1
Commodity derivatives		136.8		602.3		0.3		739.4
Total financial liabilities	$	136.8	$	603.4	$	269.9	$	1,010.1

Our Level 3 financial liabilities at June 30, 2017 and December 31, 2016 primarily reflect the fair value assigned to the Liquidity Option Agreement (see Note 14) at each measurement date. The carrying value of the Liquidity Option Agreement (a long-term liability) was $293.7 million and $269.6 million at June 30, 2017 and December 31, 2016, respectively.

The following table sets forth a reconciliation of changes in the fair values of our recurring Level 3 financial assets and liabilities on a combined basis for the periods indicated:

		For the Six Months Ended June 30,
	Location	2017			2016
Financial liability balance, net, January 1		$	(268.2	)	$	(246.7	)
Total gains (losses) included in:
Net income (1)	Revenue		0.7			0.7
Net income	Other expense, net		(5.5	)		2.2
Other comprehensive income (loss)	Commodity derivative instruments – changes in fair value of cash flow hedges		--			1.5
Settlements	Revenue		(1.4	)		(0.1	)
Transfers out of Level 3			--			0.1
Financial liability balance, net, March 31			(274.4	)		(242.3	)
Total gains (losses) included in:
Net income (1)	Revenue		0.1			--
Net income	Other expense, net		(18.6	)		(23.3	)
Other comprehensive income (loss)	Commodity derivative instruments – changes in fair value of cash flow hedges		0.1			2.0
Settlements	Revenue		(0.7	)		(0.1	)
Transfers out of Level 3			--			--
Financial liability balance, net, June 30		$	(293.5	)	$	(263.7	)

(1)There were unrealized losses of $0.7 million and $1.3 million included in these amounts for the three and six months ended June 30, 2017, respectively. There were unrealized losses of $0.1 million and unrealized gains of $0.5 million included in these amounts for the three and six months ended June 30, 2016, respectively.

The following table provides quantitative information regarding our recurring Level 3 fair value measurements for commodity derivatives at June 30, 2017:

	Fair Value
	Financial Assets		Financial Liabilities		Valuation Techniques	Unobservable Input	Range
Commodity derivatives – Crude oil	$	0.3	$	0.2	Discounted cash flow	Forward commodity prices	$44.84-$47.60/barrel
Commodity derivatives – Ethane		0.2		0.1	Discounted cash flow	Forward commodity prices	$0.26-$0.32/gallon
Total	$	0.5	$	0.3

With respect to commodity derivatives, we believe forward commodity prices are the most significant unobservable inputs in determining our Level 3 recurring fair value measurements at June 30, 2017. In general, changes in the price of the underlying commodity increases or decreases the fair value of a commodity derivative depending on whether the derivative was purchased or sold. We generally expect changes in the fair value of our derivative instruments to be offset by corresponding changes in the fair value of our hedged exposures.

Nonrecurring Fair Value Measurements

The following table summarizes our non-cash asset impairment charges for long-lived assets by segment during each of the periods indicated:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
NGL Pipelines & Services	$	2.8	$	2.1	$	3.0	$	2.4
Crude Oil Pipelines & Services		0.6		0.7		0.6		0.9
Natural Gas Pipelines & Services		9.7		9.7		9.9		9.7
Petrochemical & Refined Products Services		--		0.9		--		1.0
Total	$	13.1	$	13.4	$	13.5	$	14.0

Impairment charges are primarily a component of “Operating costs and expenses” on our Unaudited Condensed Statements of Consolidated Operations.

The following table presents categories of long-lived assets that were subject to non-recurring fair value measurements during the six months ended June 30, 2017:

			Fair Value Measurements at the End of the Reporting Period Using
	Carrying Value at June 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Non-Cash Impairment Loss
Long-lived assets disposed of other than by sale	$	--	$	--	$	--	$	--	$	0.9
Long-lived assets held and used		1.4		--		--		1.4		3.1
Long-lived assets held for sale		1.2		--		--		1.2		9.5
Total									$	13.5

Total asset impairment and related charges during the six months ended June 30, 2017 were $25.2 million, which consisted of $13.5 million of impairment charges attributable to long-lived assets and $11.7 million of impairment charges attributable to the write-down of spare parts classified as current assets.

The following table presents categories of long-lived assets that were subject to non-recurring fair value measurements during the six months ended June 30, 2016:

				Fair Value Measurements at the End of the Reporting Period Using
	Carrying Value at June 30, 2016			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total Non-Cash Impairment Loss
Long-lived assets disposed of other than by sale		$	--		$	--		$	--		$	--		$	4.5
Long-lived assets held for sale			1.5			--			1.5			--			9.5
Total														$	14.0

Total asset impairment and related charges during the six months ended June 30, 2016 were $22.3 million, which consisted of $14.0 million of impairment charges attributable to long-lived assets, $1.2 million of impairment charges attributable to the write-down of spare parts classified as current assets and $7.1 million of related charges for equipment destroyed by fire at our Pascagoula gas plant.

Other Fair Value Information

The carrying amounts of cash and cash equivalents (including restricted cash balances), accounts receivable, commercial paper notes and accounts payable approximate their fair values based on their short-term nature. The estimated total fair value of our fixed-rate debt obligations was $22.25 billion and $21.95 billion at June 30, 2017 and December 31, 2016, respectively. The aggregate carrying value of these debt obligations was $20.58 billion and $20.85 billion at June 30, 2017 and December 31, 2016, respectively. These values are based on quoted market prices for such debt or debt of similar terms and maturities (Level 2), our credit standing and the credit standing of our counterparties. Changes in market rates of interest affect the fair value of our fixed-rate debt. The amounts reported for fixed-rate debt obligations exclude those amounts hedged using fixed-to-floating interest rate swaps. See “Interest Rate Hedging Activities” within this Note 12 for additional information. The carrying values of our variable-rate long-term debt obligations approximate their fair values since the associated interest rates are market-based. We do not have any long-term investments in debt or equity securities recorded at fair value.