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Fair Value Measurements and Guarantees
3 Months Ended
Mar. 31, 2015
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Note 11 – Fair Value Measurements and Guarantees
The following table presents, by level within the fair value hierarchy, certain of our financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, commercial paper, and accounts payable approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.
 
 
 
 
 
Fair Value Measurements Using
 
Carrying
Amount
 
Fair
Value
 
Quoted
Prices In
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
(Millions)
Assets (liabilities) at March 31, 2015:
 
 
 
 
 
 
 
 
 
Measured on a recurring basis:
 
 
 
 
 
 
 
 
 
ARO Trust investments
$
60

 
$
60

 
$
60

 
$

 
$

Energy derivatives assets not designated as hedging instruments
2

 
2

 

 

 
2

Energy derivatives liabilities not designated as hedging instruments
(2
)
 
(2
)
 

 

 
(2
)
Additional disclosures:
 
 
 
 
 
 
 
 
 
Notes receivable and other
13

 
16

 
1

 
3

 
12

Long-term debt, including current portion (1)
(22,487
)
 
(23,003
)
 

 
(23,003
)
 

Guarantee
(30
)
 
(25
)
 

 
(25
)
 

Assets (liabilities) at December 31, 2014:
 
 
 
 
 
 
 
 
 
Measured on a recurring basis:
 
 
 
 
 
 
 
 
 
ARO Trust investments
$
48

 
$
48

 
$
48

 
$

 
$

Energy derivatives assets not designated as hedging instruments
3

 
3

 
1

 

 
2

Energy derivatives liabilities not designated as hedging instruments
(2
)
 
(2
)
 

 

 
(2
)
Additional disclosures:
 
 
 
 
 
 
 
 
 
Notes receivable and other
30

 
57

 

 
4

 
53

Long-term debt, including current portion (1)
(20,887
)
 
(21,131
)
 

 
(21,131
)
 

Guarantee
(31
)
 
(27
)
 

 
(27
)
 

___________________________________
(1) Excludes capital leases
Fair Value Methods
We use the following methods and assumptions in estimating the fair value of our financial instruments:
Assets and liabilities measured at fair value on a recurring basis
ARO Trust investments: Transco deposits a portion of its collected rates, pursuant to its rate case settlement, into an external trust (ARO Trust) that is specifically designated to fund future asset retirement obligations (ARO). The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market, is classified as available-for-sale, and is reported in Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.
Energy derivatives: Energy derivatives include commodity based exchange-traded contracts and over-the-counter (OTC) contracts, which consist of physical forwards, futures, and swaps that are measured at fair value on a recurring basis. The fair value amounts are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements. Further, the amounts do not include cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions. Energy derivatives assets are reported in Other current assets and deferred charges and Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Energy derivatives liabilities are reported in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheet.
Reclassifications of fair value between Level 1, Level 2, and Level 3 of the fair value hierarchy, if applicable, are made at the end of each quarter. No transfers between Level 1 and Level 2 occurred during the three months ended March 31, 2015 or 2014.
Additional fair value disclosures
Notes receivable and other:  Notes receivable and other consists of various notes, including a receivable related to the sale of certain former Venezuela assets. The disclosed fair value of this receivable is determined by an income approach. We calculated the net present value of a probability-weighted set of cash flows utilizing assumptions based on contractual terms, historical payment patterns by the counterparty, future probabilities of default, our likelihood of using arbitration if the counterparty does not perform, and discount rates. We determined the fair value of the receivable to be $12 million at March 31, 2015. The carrying value of this receivable is $8 million at March 31, 2015. The current and noncurrent portions of our receivables are reported in Accounts and notes receivable, net and Regulatory assets, deferred charges, and other, respectively, in the Consolidated Balance Sheet.
Long-term debt: The disclosed fair value of our long-term debt is determined by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments.
Guarantee: The guarantee represented in the table consists of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042.
To estimate the disclosed fair value of the guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. This guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet.
Guarantees
We are required by our revolving credit agreements to indemnify lenders for certain taxes required to be withheld from payments due to the lenders and for certain tax payments made by the lenders. The maximum potential amount of future payments under these indemnifications is based on the related borrowings and such future payments cannot currently be determined. These indemnifications generally continue indefinitely unless limited by the underlying tax regulations and have no carrying value. We have never been called upon to perform under these indemnifications and have no current expectation of a future claim.
Regarding our previously described guarantee of Wiltel’s lease performance, the maximum potential exposure is approximately $34 million at March 31, 2015. Our exposure declines systematically throughout the remaining term of WilTel’s obligation.
We have provided guarantees in the event of nonpayment by our previously owned subsidiary, WPX Energy, Inc. (WPX), on certain contracts, primarily a natural gas purchase contract extending through 2023. We estimate the maximum undiscounted potential future payment obligation under these remaining guarantees is approximately $39 million at March 31, 2015. Our recorded liability for these guarantees, which considers our estimate of the fair value of the guarantees, is insignificant.