Derivative Instruments, Hedging Activities and Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Derivative Instruments, Hedging Activities and Fair Value Measurements [Abstract]

Hedging Instruments Under the FASB's Derivative and Hedging Guidance

The following table summarizes our portfolio of 30-year forward-starting swaps at September 30, 2019, all of which are associated with the expected future issuance of senior notes.

Hedged Transaction	Number and Type of Derivatives Outstanding	Notional Amount	Expected Settlement Date	Weighted-Average Fixed Rate Locked	Accounting Treatment
Future long-term debt offering	1 forward-starting swap (1)	$75.0	9/2020	2.39%	Cash flow hedge
Future long-term debt offering	1 forward-starting swap (1)	$75.0	4/2021	2.41%	Cash flow hedge
Future long-term debt offering	5 forward-starting swaps (2)	$500.0	9/2020	2.12%	Cash flow hedge
Future long-term debt offering	5 forward-starting swaps (2)	$500.0	4/2021	2.13%	Cash flow hedge

(1)	These swaps were entered into in May 2019.
(2)	These swaps were entered into in September 2019 as a result of the swaption exercise.

In total, the notional amount of forward-starting swaps outstanding at September 30, 2019 was $1.15 billion.  The weighted-average fixed interest rate of these derivative instruments is 2.16%.

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 September 30, 2019, 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 following table summarizes our portfolio of commodity derivative instruments outstanding at September 30, 2019 (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 (billion cubic feet (“Bcf”))	15.2	n/a	Cash flow hedge
Forecasted sales of NGLs (million barrels (“MMBbls”))	1.8	n/a	Cash flow hedge
Octane enhancement:
Forecasted purchase of NGLs (MMBbls)	1.0	n/a	Cash flow hedge
Forecasted sales of octane enhancement products (MMBbls)	8.1	1.6	Cash flow hedge
Natural gas marketing:
Natural gas storage inventory management activities (Bcf)	3.2	n/a	Fair value hedge
NGL marketing:
Forecasted purchases of NGLs and related hydrocarbon products (MMBbls)	100.0	1.5	Cash flow hedge
Forecasted sales of NGLs and related hydrocarbon products (MMBbls)	121.7	1.2	Cash flow hedge
NGLs inventory management activities (MMBbls)	0.3	n/a	Fair value hedge
Refined products marketing:
Forecasted purchases of refined products (MMBbls)	0.9	n/a	Cash flow hedge
Forecasted sales of refined products (MMBbls)	0.9	n/a	Cash flow hedge
Crude oil marketing:
Forecasted purchases of crude oil (MMBbls)	10.4	n/a	Cash flow hedge
Forecasted sales of crude oil (MMBbls)	13.8	n/a	Cash flow hedge
Propylene marketing:
Forecasted sales of NGLs for propylene marketing activities (MMBbls)	0.3	n/a	Cash flow hedge
Derivatives not designated as hedging instruments:
Natural gas risk management activities (Bcf) (3)	38.2	0.6	Mark-to-market
NGL risk management activities (MMBbls) (3)	2.4	n/a	Mark-to-market
Refined products risk management activities (MMBbls) (3)	7.6	n/a	Mark-to-market
Crude oil risk management activities (MMBbls) (3)	22.2	6.1	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 January 2021, December 2019 and December 2022, respectively.
(3)	Reflects the use of derivative instruments to manage risks associated with transportation, processing and storage assets.

Derivative Assets and Liabilities Balance Sheet

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

	Asset Derivatives						Liability Derivatives
	September 30, 2019			December 31, 2018			September 30, 2019			December 31, 2018
	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	$	–	Current assets	$	–	Current liabilities	$	11.8	Current liabilities	$	–
Interest rate derivatives	Other assets		–	Other assets		–	Other liabilities		11.9	Other liabilities		–
Total interest rate derivatives			–			–			23.7			–
Commodity derivatives	Current assets		149.3	Current assets		138.5	Current liabilities		139.2	Current liabilities		115.0
Commodity derivatives	Other assets		5.6	Other assets		5.6	Other liabilities		6.8	Other liabilities		11.1
Total commodity derivatives			154.9			144.1			146.0			126.1
Total derivatives designated as hedging instruments		$	154.9		$	144.1		$	169.7		$	126.1
Derivatives not designated as hedging instruments
Interest rate derivatives	Current assets	$	–	Current assets	$	–	Current liabilities	$	47.2	Current liabilities	$	–
Interest rate derivatives	Other assets		–	Other assets		–	Other liabilities		47.7	Other liabilities		–
Total interest rate derivatives			–			–			94.9			–
Commodity derivatives	Current assets		16.7	Current assets		15.9	Current liabilities		4.2	Current liabilities		33.2
Commodity derivatives	Other assets		1.0	Other assets		1.9	Other liabilities		0.3	Other liabilities		3.1
Total commodity derivatives			17.7			17.8			4.5			36.3
Total derivatives not designated as hedging instruments		$	17.7		$	17.8		$	99.4		$	36.3

Offsetting Financial Assets

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
										Financial Instruments				Cash Collateral Received			Cash Collateral Paid
	(i)			(ii)			(iii) = (i) – (ii)			(iv)											(v) = (iii) + (iv)
As of September 30, 2019:
Commodity derivatives		$	172.6		$	–		$	172.6		$	(149.0	)		$	–		$	(22.4	)		$	1.2
As of December 31, 2018:
Commodity derivatives		$	161.9		$	–		$	161.9		$	(158.6	)		$	–		$	–			$	3.3

Offsetting Financial Liabilities

	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
										Financial Instruments				Cash Collateral Received		Cash Collateral Paid
	(i)			(ii)			(iii) = (i) – (ii)			(iv)									(v) = (iii) + (iv)
As of September 30, 2019:
Interest rate derivatives		$	118.6		$	–		$	118.6		$	–		$	–	$	–			$	118.6
Commodity derivatives			150.5			–			150.5			(149.0	)		–		0.3				1.8
As of December 31, 2018:
Commodity derivatives		$	162.4		$	–		$	162.4		$	(158.6	)	$	–	$	(2.3	)		$	1.5

Derivative Instruments Effects on Statements of Operations

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 September 30,						For the Nine Months Ended September 30,
		2019			2018			2019			2018
Interest rate derivatives	Interest expense	$	–		$	–		$	–		$	1.3
Commodity derivatives	Revenue		(0.4	)		(1.4	)		(2.0	)		3.2
Total		$	(0.4	)	$	(1.4	)	$	(2.0	)	$	4.5

Derivatives in Fair Value Hedging Relationships	Location	Gain (Loss) Recognized in Income on Hedged Item
		For the Three Months Ended September 30,				For the Nine Months Ended September 30,
		2019		2018		2019		2018
Interest rate derivatives	Interest expense	$	–	$	–	$	–	$	(1.4	)
Commodity derivatives	Revenue		2.4		3.7		8.7		1.9
Total		$	2.4	$	3.7	$	8.7	$	0.5

Derivative Instruments Effects on Statements of Comprehensive Income

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
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Interest rate derivatives	$	(18.6	)	$	6.1		$	(23.8	)	$	20.7
Commodity derivatives – Revenue (1)		73.5			(145.5	)		71.1			(156.7	)
Commodity derivatives – Operating costs and expenses (1)		(1.2	)		(0.3	)		(12.5	)		0.7
Total	$	53.7		$	(139.7	)	$	34.8		$	(135.3	)

(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.

Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income/(Loss) to Income

Derivatives in Cash Flow Hedging Relationships	Location	Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Income
		For the Three Months Ended September 30,						For the Nine Months Ended September 30,
		2019			2018			2019			2018
Interest rate derivatives	Interest expense	$	(9.4	)	$	(9.1	)	$	(27.8	)	$	(29.0	)
Commodity derivatives	Revenue		93.6			53.9			161.4			28.5
Commodity derivatives	Operating costs and expenses		(2.1	)		(0.4	)		(9.4	)		0.3
Total		$	82.1		$	44.4		$	124.2		$	(0.2	)

Gain/(Loss) Recognized in Income on Derivative

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 September 30,						For the Nine Months Ended September 30,
		2019			2018			2019			2018
Interest rate derivatives	Interest expense	$	(94.9	)	$	–		$	(94.9	)	$	–
Commodity derivatives	Revenue		21.8			21.8			96.7			(538.0	)
Commodity derivatives	Operating costs and expenses		(1.6	)		(2.7	)		(6.3	)		(4.2	)
Total		$	(74.7	)	$	19.1		$	(4.5	)	$	(542.2	)

Fair Value Measurements of Financial Assets and Liabilities Measured on a Recurring Basis

The values for commodity derivatives are presented before and after the application of Chicago Mercantile Exchange (“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 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.  Derivative transactions cleared on exchanges other than the CME (e.g., the Intercontinental Exchange or ICE) continue to be reported on a gross basis.

	At September 30, 2019 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:
Commodity derivatives:
Value before application of CME Rule 814	$	54.0		$	365.4		$	14.5		$	433.9
Impact of CME Rule 814		(44.8	)		(206.3	)		(10.2	)		(261.3	)
Total commodity derivatives		9.2			159.1			4.3			172.6
Total	$	9.2		$	159.1		$	4.3		$	172.6
Financial liabilities:
Liquidity Option Agreement (see Note 15)	$	–		$	–		$	513.1		$	513.1
Interest rate derivatives		–			118.6			–			118.6
Commodity derivatives:
Value before application of CME Rule 814		39.8			268.3			47.9			356.0
Impact of CME Rule 814		(31.0	)		(138.5	)		(36.0	)		(205.5	)
Total commodity derivatives		8.8			129.8			11.9			150.5
Total	$	8.8		$	248.4		$	525.0		$	782.2

	At December 31, 2018 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:
Commodity derivatives:
Value before application of CME Rule 814	$	172.3		$	282.4		$	2.2		$	456.9
Impact of CME Rule 814		(134.8	)		(159.3	)		(0.9	)		(295.0	)
Total commodity derivatives		37.5			123.1			1.3			161.9
Total	$	37.5		$	123.1		$	1.3		$	161.9
Financial liabilities:
Liquidity Option Agreement (see Note 15)	$	–		$	–		$	390.0		$	390.0
Commodity derivatives:
Value before application of CME Rule 814		85.5			291.2			21.4			398.1
Impact of CME Rule 814		(48.6	)		(172.9	)		(14.2	)		(235.7	)
Total commodity derivatives		36.9			118.3			7.2			162.4
Total	$	36.9		$	118.3		$	397.2		$	552.4

Fair Value Measurements, Valuation Techniques

	Fair Value
	Financial Assets		Financial Liabilities		Valuation Techniques	Unobservable Input	Range
Commodity derivatives – Crude oil	$	0.5	$	0.2	Discounted cash flow	Forward commodity prices	$54.11-$54.78/barrel
Commodity derivatives – Propane		1.2		3.7	Discounted cash flow	Forward commodity prices	$0.43-$0.49/gallon
Commodity derivatives – Natural gasoline		–		4.3	Discounted cash flow	Forward commodity prices	$0.96-$1.04/gallon
Commodity derivatives – Ethane		1.5		1.3	Discounted cash flow	Forward commodity prices	$0.18-$0.19/gallon
Commodity derivatives – Normal Butane		0.5		2.2	Discounted cash flow	Forward commodity prices	$0.48-$0.56/gallon
Commodity derivatives – Isobutane		0.6		0.2	Discounted cash flow	Forward commodity prices	$0.53-$0.64/gallon
Total	$	4.3	$	11.9

Reconciliation of Changes in the Fair Value of Level 3 Financial Assets and Liabilities

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:

test		For the Nine Months Ended September 30,
test	Location	2019			2018
Financial asset (liability) balance, net, January 1		$	(395.9	)	$	(332.7	)
Total gains (losses) included in:
Net income (1)	Revenue		3.1			(0.5	)
Net income	Other expense, net		(57.8	)		(7.5	)
Other comprehensive income	Commodity derivative instruments – changes in fair value of cash flow hedges		4.0			–
Settlements (1)	Revenue		(0.1	)		(1.2	)
Transfers out of Level 3			(0.2	)		–
Financial asset (liability) balance, net, March 31			(446.9	)		(341.9	)
Total gains (losses) included in:
Net income (1)	Revenue		(0.1	)		1.3
Net income	Other expense, net		(26.6	)		(8.9	)
Other comprehensive income	Commodity derivative instruments – changes in fair value of cash flow hedges		(2.9	)		–
Settlements (1)	Revenue		(3.1	)		0.5
Transfers out of Level 3			–			–
Financial asset (liability) balance, net, June 30			(479.6	)		(349.0	)
Total gains (losses) included in:
Net income (1)	Revenue		0.8			(0.2	)
Net income	Other expense, net		(38.7	)		(18.5	)
Other comprehensive income	Commodity derivative instruments – changes in fair value of cash flow hedges		(3.2	)		2.8
Settlements (1)	Revenue		–			(1.3	)
Transfers out of Level 3			–			–
Financial asset (liability) balance, net, September 30		$	(520.7	)	$	(366.2	)

(1) There were $0.8 million and $0.6 million of unrealized gains included in these amounts for the three and nine months ended September 30, 2019, respectively.  There were unrealized losses of $1.5 million and $1.4 million, respectively, included in these amounts for the three and nine months ended September 30, 2018.