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Risk Management
 3 Months Ended
Mar. 31, 2014
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Risk Management
Risk Management    
Certain of our business activities expose us to risks associated with unfavorable changes in the market price of natural gas, NGL and crude oil. We also have exposure to interest rate risk as a result of the issuance of our debt obligations. Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to certain of these risks.
Energy Commodity Price Risk Management
As of March 31, 2014, we had the following outstanding commodity forward contracts to hedge our forecasted energy commodity purchases and sales:
 
Net open position
long/(short)
Derivatives designated as hedging contracts
 
 
Crude oil fixed price
(24.0)
MMBbl
Natural gas fixed price
(23.0)
Bcf
Natural gas basis
(23.0)
Bcf
Derivatives not designated as hedging contracts
 
 
Crude oil fixed price
(0.7)
MMBbl
Crude oil basis
(0.7)
MMBbl
Natural gas fixed price
(13.1)
Bcf
Natural gas basis
(9.1)
Bcf
NGL fixed price
(1.0)
MMBbl


As of March 31, 2014, the maximum length of time over which we have hedged our exposure to the variability in future cash flows associated with energy commodity price risk is through December 2018.

Interest Rate Risk Management

As of March 31, 2014, we had a combined notional principal amount of $5,175 million of fixed-to-variable interest rate swap agreements, effectively converting the interest expense associated with certain series of our senior notes from fixed rates to variable rates based on an interest rate of LIBOR plus a spread. All of our swap agreements have termination dates that correspond to the maturity dates of the related series of senior notes and, as of March 31, 2014, the maximum length of time over which we have hedged a portion of our exposure to the variability in the value of this debt due to interest rate risk is through March 15, 2035.

As of December 31, 2013, we had a combined notional principal amount of $4,675 million of fixed-to-variable interest rate swap agreements. In February 2014, we entered into four separate fixed-to-variable interest rate swap agreements having a combined notional principal amount of $500 million. These agreements effectively convert a portion of the interest expense associated with our 3.50% senior notes due March 1, 2021, from a fixed rate to a variable rate based on an interest rate of LIBOR plus a spread.

Fair Value of Derivative Contracts
The following table summarizes the fair values of our derivative contracts included on our accompanying consolidated balance sheets as of March 31, 2014 and December 31, 2013 (in millions):
Fair Value of Derivative Contracts
 
 
 
Asset derivatives
 
Liability derivatives
 
 
 
March 31,
2014
 
December 31,
2013
 
March 31,
2014
 
December 31,
2013
 
Balance sheet location
 
Fair value
 
Fair value
 
Fair value
 
Fair value
Derivatives designated as hedging contracts
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts
Other current assets/(Other current liabilities)
 
$
13

 
$
18

 
$
(51
)
 
$
(33
)
 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
22

 
58

 
(13
)
 
(30
)
Subtotal
 
 
35

 
76

 
(64
)
 
(63
)
Interest rate swap agreements
Other current assets/(Other current liabilities)
 
105

 
76

 
—

 
—

 
Deferred charges and other assets/(Other long-term liabilities and deferred credits)
 
151

 
141

 
(94
)
 
(116
)
Subtotal
 
 
256

 
217

 
(94
)
 
(116
)
Total
 
 
291

 
293

 
(158
)
 
(179
)
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging contracts
 
 
 
 
 
 
 
 
 
Energy commodity derivative contracts
Other current assets/(Other current liabilities)
 
6

 
4

 
(9
)
 
(5
)
Total
 
 
6

 
4

 
(9
)
 
(5
)
Total derivatives
 
 
$
297

 
$
297

 
$
(167
)
 
$
(184
)

Debt Fair Value Adjustments

The offsetting entry to adjust the carrying value of the debt securities whose fair value was being hedged is included within “Debt fair value adjustments” on our accompanying consolidated balance sheets. Our “Debt fair value adjustments” also include all unamortized debt discount/premium amounts, purchase accounting on our debt balances, and any unamortized portion of proceeds received from the early termination of interest rate swap agreements. As of March 31, 2014 and December 31, 2013, these fair value adjustments to our debt balances included (i) $629 million and $645 million, respectively, associated with fair value adjustments to our debt previously recorded in purchase accounting; (ii) $162 million and $101 million, respectively, associated with the offsetting entry for hedged debt; (iii) $501 million and $517 million, respectively, associated with unamortized premium from the termination of interest rate swap agreements; and offset by (iv) $57 million and $49 million, respectively, associated with unamortized debt discount amounts. As of March 31, 2014, the weighted-average amortization period of the unamortized premium from the termination of the interest rate swaps was approximately 16 years.

Effect of Derivative Contracts on the Income Statement
The following three tables summarize the impact of our derivative contracts on our accompanying consolidated statements of income for each of the three months ended March 31, 2014 and 2013 (in millions):
Derivatives in fair value hedging
relationships
 
Location of gain/(loss) recognized
in income on derivatives
Amount of gain/(loss) recognized in income
on derivatives and related hedged item(a)
 
 
 
Three Months Ended
March 31,
 
 
 
2014
 
2013
Interest rate swap agreements
 
Interest expense
$
61

 
$
(83
)
Total
 
 
$
61

 
$
(83
)
Fixed rate debt
 
Interest expense
$
(61
)
 
$
83

Total
 
 
$
(61
)
 
$
83

___________
(a)
Amounts reflect the change in the fair value of interest rate swap agreements and the change in the fair value of the associated fixed rate debt, which exactly offset each other as a result of no hedge ineffectiveness.

Derivatives in
cash flow hedging
relationships
 
Amount of gain/(loss)
recognized in OCI on
derivative (effective
portion)(a)
 
Location of
gain/(loss)
reclassified from
Accumulated OCI
into income
(effective portion)
 
Amount of gain/(loss)
reclassified from
Accumulated OCI
into income
(effective portion)(b)
 
Location of
gain/(loss)
recognized in
income on
derivative
(ineffective portion
and amount
excluded from
effectiveness
testing)
 
Amount of gain/(loss)
recognized in income
on derivative
(ineffective portion
and amount
excluded from
effectiveness testing)
 
 
Three Months Ended
March 31,
 
 
 
Three Months Ended
March 31,
 
 
 
Three Months Ended
March 31,
 
 
2014
 
2013
 
 
 
2014
 
2013
 
 
 
2014
 
2013
Energy commodity derivative contracts
 
$
(56
)
 
$
(41
)
 
Revenues-Natural gas sales
 
$
(10
)
 
$
—

 
Revenues-Natural gas sales
 
$
—

 
$
—

 
 
 
 
 
 
Revenues-Product sales and other
 
(9
)
 
7

 
Revenues-Product sales and other
 
(5
)
 
(3
)
 
 
 
 
 
 
Costs of sales
 
1

 
—

 
Costs of sales
 
—

 
—

Total
 
$
(56
)
 
$
(41
)
 
Total
 
$
(18
)
 
$
7

 
Total
 
$
(5
)
 
$
(3
)
____________
(a)
We expect to reclassify an approximate $30 million loss associated with energy commodity price risk management activities and included in our Partners’ Capital as of March 31, 2014 into earnings during the next twelve months (when the associated forecasted sales and purchases are also expected to occur); however, actual amounts reclassified into earnings could vary materially as a result of changes in market prices.
(b)
Amounts reclassified were the result of the hedged forecasted transactions actually affecting earnings (i.e., when the forecasted sales and purchases actually occurred).
Derivatives not designated as accounting hedges
Location of gain/(loss) recognized in income on derivatives
Amount of gain/(loss) recognized in income on derivatives
 
 
Three Months Ended
March 31,
 
 
2014
 
2013
Energy commodity derivative contracts
Revenues-Natural gas sales
$
(7
)
 
$
—

 
Revenues-Product sales and other
(7
)
 
4

 
Costs of sales
10

 
—

 
Other expense (income)
(2
)
 
—

Total
 
$
(6
)
 
$
4


Credit Risks

We have counterparty credit risk as a result of our use of financial derivative contracts. Our counterparties consist primarily of financial institutions, major energy companies and local distribution companies. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions.

We maintain credit policies with regard to our counterparties that we believe minimize our overall credit risk. These policies include (i) an evaluation of potential counterparties’ financial condition; (ii) collateral requirements under certain circumstances; and (iii) the use of standardized agreements which allow for netting of positive and negative exposure associated with a single counterparty. Based on our policies, exposure, credit and other reserves, our management does not anticipate a material adverse effect on our financial position, results of operations, or cash flows as a result of counterparty performance.
Our OTC swaps and options are entered into with counterparties outside central trading organizations such as futures, options or stock exchanges. These contracts are with a number of parties, all of which have investment grade credit ratings. While we enter into derivative transactions with investment grade counterparties and actively monitor their ratings, it is nevertheless possible that from time to time losses will result from counterparty credit risk in the future.
In conjunction with the purchase of exchange-traded derivative contracts or when the market value of our derivative contracts with specific counterparties exceeds established limits, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts. As of both March 31, 2014 and December 31, 2013, we had no outstanding letters of credit supporting our hedging of energy commodity price risks associated with the sale of natural gas, NGL and crude oil.
We also have agreements with certain counterparties to our derivative contracts that contain provisions requiring us to post additional collateral upon a decrease in our credit rating. As of March 31, 2014, we estimate that if our credit rating was downgraded one notch, we would be required to post no additional collateral to our counterparties. If we were downgraded two notches (that is, below investment grade), we would be required to post $25 million of additional collateral.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
Cumulative revenues, expenses, gains and losses that under GAAP are included within our comprehensive income but excluded from our earnings are reported as “Accumulated other comprehensive (loss) income” within “Partners’ Capital” in our consolidated balance sheets. Changes in the components of our “Accumulated other comprehensive (loss) income” for each of the three months ended March 31, 2014 and 2013 are summarized as follows (in millions):
 
Net unrealized
gains/(losses)
on cash flow
hedge derivatives
 
Foreign
currency
translation
adjustments
 
Pension and
other
postretirement
liability adjs.
 
Total
Accumulated other
comprehensive
income/(loss)
Balance as of December 31, 2013
$
24

 
$
(4
)
 
$
13

 
$
33

Other comprehensive (loss) income before reclassifications
(56
)
 
(78
)
 
(2
)
 
(136
)
Amounts reclassified from accumulated other comprehensive income
18

 
—

 
—

 
18

Net current-period other comprehensive (loss) income
(38
)
 
(78
)
 
(2
)
 
(118
)
Balance as of March 31, 2014
$
(14
)
 
$
(82
)
 
$
11

 
$
(85
)

______________

 
Net unrealized
gains/(losses)
on cash flow
hedge derivatives
 
Foreign
currency
translation
adjustments
 
Pension and
other
postretirement
liability adjs.
 
Total
Accumulated other
comprehensive
income/(loss)
Balance as of December 31, 2012
$
66

 
$
132

 
$
(30
)
 
$
168

Other comprehensive (loss) income before reclassifications
(40
)
 
(43
)
 
1

 
(82
)
Amounts reclassified from accumulated other comprehensive income
(7
)
 
—

 
—

 
(7
)
Net current-period other comprehensive (loss) income
(47
)
 
(43
)
 
1

 
(89
)
Balance as of March 31, 2013
$
19

 
$
89

 
$
(29
)
 
$
79