Derivative Instruments and Hedging Activities

9 Months Ended

Sep. 30, 2013

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:

The Company is exposed to certain risks in its ongoing business operations.  The primary risks managed by using derivative instruments are interest rate risk and commodity price risk.  Interest rate swaps are the principal derivative instruments used by the Company to manage interest rate risk associated with its long-term borrowings, although other interest rate derivative contracts may also be used from time to time.  Natural gas price swaps are the principal derivative instruments used by the Company to manage commodity price risk associated with purchases and/or sales of natural gas, although other commodity derivative contracts may also be used from time to time.  The Company recognizes all derivative instruments as assets or liabilities at fair value in the condensed consolidated balance sheets.

Interest Rate Contracts

The Company may enter into interest rate swaps to manage its exposure to changes in interest payments on long-term debt attributable to movements in market interest rates.

Interest Rate Swaps. The Company has outstanding interest rate swap agreements to hedge floating rate notes with an aggregate notional amount of $475 million, of which $450 million are for ten-year periods and $25 million are for five-year periods.  The Company settled $50 million of five-year swaps during the third quarter of 2013. These interest rate swaps became effective on November 1, 2011.  The Company pays interest on the floating rate notes based on three-month LIBOR plus a credit spread of 3.0175% beginning November 1, 2011.  The interest rate swaps effectively fix the floating rate LIBOR-based portion of the interest payments on the swapped notes to a weighted average fixed rate of 3.63%. Prior to the ETE Merger, these interest rate swaps were accounted for as cash flow hedges, with the effective portion of their settled value recorded in accumulated other comprehensive income and reclassified into interest expense in the same periods during which the related interest payments on long-term debt impacted earnings.  In conjunction with the ETE Merger, the Company discontinued hedge accounting treatment on these interest rate swaps.  Therefore, changes in fair value since then have been recognized in earnings.

The Company also had outstanding pay-fixed interest rate swaps with a total notional amount of $455 million to hedge the LNG Holdings $455 million term loan, which was refinanced in February 2012.  These interest rate swaps were accounted for as cash flow hedges, with the effective portion of changes in their fair value recorded in accumulated other comprehensive income and reclassified intointerest expense in the same periods during which the related interest payments on long-term debt impacted earnings.  These swaps terminated in the first quarter of 2012.

For the predecessor period in 2012 during which hedge accounting treatment was applied, there was no swap ineffectiveness.

Commodity Contracts – Gathering and Processing Segment

The Company primarily entered into natural gas and NGL price swaps and NGL processing spread swaps to manage its exposure to changes in margin on forecasted sales of natural gas and NGL volumes resulting from movements in market commodity prices.

Natural Gas Price Swaps. These natural gas price swaps were accounted for as cash flow hedges, with the effective portion of changes in their fair value recorded in accumulated other comprehensive income and reclassified into operating revenues in the same periods during which the forecasted natural gas sales impact earnings.  These swaps were terminated in connection with the SUGS Contribution on April 30, 2013.

Commodity Contracts – Distribution

Through the MGE division, which was sold in September 2013, the Company historically entered into natural gas commodity financial instruments to manage the exposure to changes in the cost of natural gas passed through to utility customers that resulted from movements in market commodity prices.  The cost of the derivative instruments and settlement of the respective obligations were recovered from utility customers through the purchased natural gas adjustment clause as authorized by the applicable regulatory authority and therefore did not impact earnings.

Summary Financial Statement Information

The following table summarizes the fair value amounts of the Company’s asset and liability derivative instruments and their location reported in the condensed consolidated balance sheets:

	Fair Value
	Asset Derivatives				Liability Derivatives
Balance Sheet Location	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
Cash Flow Hedges:
Commodity contracts — Gathering and Processing:
Natural gas price swaps:
Accounts payable to related companies	$	—	$	—	$	—	$	5
	—		—		—		5
Economic Hedges:
Interest rate contracts:
Derivative instruments — liabilities	—		—		16		18
Deferred credits	—		—		34		59
Commodity contracts — Distribution:
Natural gas price swaps:
Current assets held for sale	—		1		—		—
Non-current assets held for sale	—		1		—		—
Current liabilities held for sale	—		—		—		9
	—		2		50		86
Total	$	—	$	2	$	50	$	91

The Company has master netting arrangements with certain of its counterparties, which permit applicable obligations of the parties to be settled on a net versus gross basis.  If a right of offset exists, the fair value amounts for the derivative instruments are reported in the condensed consolidated balance sheets on a net basis and disclosed herein on a gross basis.

The following tables summarize the location and amount (excluding income tax effects) of derivative instrument gains and losses reported in the Company’s condensed consolidated financial statements:

	Three Months Ended September 30, 2013			Three Months Ended September 30, 2012
Cash Flow Hedges:
Commodity contracts — Gathering and Processing:
Change in fair value — decrease in accumulated other comprehensive income	$	—		$	(5	)
Reclassification of unrealized gain from accumulated other comprehensive income	—			6
Economic Hedges:
Interest rate contracts:
Change in fair value — increase (decrease) in interest expense	1			(5		)
Commodity contracts — Distribution:
Change in fair value — decrease in deferred natural gas purchases	(4		)	(11		)

	Successor						Predecessor
	Nine Months Ended September 30, 2013			Period from Acquisition (March 26, 2012) to September 30, 2012			Period from January 1, 2012 to March 25, 2012
Cash Flow Hedges:
Interest rate contracts:
Change in fair value — increase in accumulated other comprehensive income	$	—		$	—		$	6
Reclassification of unrealized loss from accumulated other comprehensive income — increase of interest expense	—			—			8
Commodity contracts — Gathering and Processing:
Change in fair value — increase (decrease) in accumulated other comprehensive income	(3		)	6			5
Reclassification of unrealized gain from accumulated other comprehensive income	—			12			2
Economic Hedges:
Interest rate contracts:
Change in fair value — increase (decrease) in interest expense	(27		)	15			—
Commodity contracts — Distribution:
Change in fair value — decrease in deferred natural gas purchases	(7		)	(31		)	(2		)