Fair Value

9 Months Ended

Sep. 30, 2011

7. Fair Value

The Codification emphasizes that fair value is a market-based measurement that should be determined based on assumptions (inputs) that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable, and valuation techniques used to measure fair value should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Accordingly, the Codification establishes a hierarchal disclosure framework that ranks the quality and reliability of information used to determine fair values. The hierarchy is associated with the level of pricing observability utilized in measuring fair value and defines three levels of inputs to the fair value measurement process-quoted prices are the most reliable valuation inputs, whereas model values that include inputs based on unobservable data are the least reliable. Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety.

The three broad levels of inputs defined by the fair value hierarchy are as follows:

Level 1 Inputs-quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;

Level 2 Inputs-inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and

Level 3 Inputs-unobservable inputs for the asset or liability. These unobservable inputs reflect the entity's own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity's own data).

Fair Value of Derivative Contracts

The following two tables summarize the fair value measurements of our (i) energy commodity derivative contracts; and (ii) interest rate swap agreements as of September 30, 2011 and December 31, 2010, based on the three levels established by the Codification (in millions). The fair value measurements in the tables below do not include cash margin deposits made by us or our counterparties, which would be reported within "Restricted deposits" and "Accrued other liabilities," respectively, in our accompanying consolidated balance sheets.

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	Asset fair value measurements using
	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of September 30, 2011
Energy commodity derivative contracts(a)	$	262.1	$	25.3	$	172.2	$	64.6
Interest rate swap agreements	$	576.5	$	-	$	576.5	$	-

As of December 31, 2010
Energy commodity derivative contracts(a)	$	67.1	$	-	$	23.5	$	43.6
Interest rate swap agreements	$	217.6	$	-	$	217.6	$	-

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	Liability fair value measurements using
	Total			Quoted prices in active markets for identical liabilities (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)
As of September 30, 2011
Energy commodity derivative contracts(a)	$	(93.3	)	$	(12.6	)	$	(60.7	)	$	(20.0	)
Interest rate swap agreements	$	-		$	-		$	-		$	-

As of December 31, 2010
Energy commodity derivative contracts(a)	$	(384.5	)	$	-		$	(359.7	)	$	(24.8	)
Interest rate swap agreements	$	(69.2	)	$	-		$	(69.2	)	$	-

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(a)	Level 1 consists primarily of NYMEX natural gas futures. Level 2 consists primarily of OTC West Texas Intermediate swaps and OTC natural gas swaps that are settled on NYMEX. Level 3 consists primarily of natural gas basis swaps and West Texas Intermediate options.

The table below provides a summary of changes in the fair value of our Level 3 energy commodity derivative contracts for each of the three and nine months ended September 30, 2011 and 2010 (in millions):

Significant unobservable inputs (Level 3)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2011			2010			2011			2010
Derivatives-net asset (liability)
Beginning of Period	$	6.7		$	46.6		$	18.8		$	13.0
Transfers into Level 3		-			-			-			-
Transfers out of Level 3		-			-			-			-
Total gains or (losses):
Included in earnings		2.6			(7.5	)		5.4			3.6
Included in other comprehensive income		37.0			(3.9	)		21.5			11.7
Purchases		-			-			4.6			-
Issuances		-			-			-			-
Sales		-			-			-			-
Settlements		(1.7	)		(0.6	)		(5.7	)		6.3
End of Period	$	44.6		$	34.6		$	44.6		$	34.6

The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets held at the reporting date	$	3.2		$	(5.8	)	$	4.4		$	1.3

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Fair Value of Financial Instruments

Fair value as used in the disclosure of financial instruments represents the amount at which an instrument could be exchanged in a current transaction between willing parties. As of each reporting date, the estimated fair value of our outstanding publicly-traded debt is based upon quoted market prices, if available, and for all other debt, fair value is based upon prevailing interest rates currently available to us. In addition, we adjust (discount) the fair value measurement of our long-term debt for the effect of credit risk.

The estimated fair value of our outstanding debt balance as of September 30, 2011 and December 31, 2010 (both short-term and long-term, but excluding the value of interest rate swaps) is disclosed below (in millions):

	September 30, 2011				December 31, 2010
	Carrying Value		Estimated Fair value		Carrying Value		Estimated fair value
Total debt	$	12,506.6	$	13,873.0	$	11,539.8	$	12,443.4

- Definition

This element represents the disclosure related to the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods.

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