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Fair Value Measurements and Guarantees
 3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements and Guarantees [Text Block]
Note 12 – 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, margin deposits, 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, 2019:
 
 
 
 
 
 
 
 
 
 
Measured on a recurring basis:
 
 
 
 
 
 
 
 
 
 
ARO Trust investments
 
$
173

 
$
173

 
$
173

 
$
—

 
$
—

Energy derivatives assets not designated as hedging instruments
 
2

 
2

 
2

 
—

 
—

Energy derivatives liabilities not designated as hedging instruments
 
(9
)
 
(9
)
 
(6
)
 
—

 
(3
)
Additional disclosures:
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
 
(22,264
)
 
(24,449
)
 
—

 
(24,449
)
 
—

Guarantees
 
(42
)
 
(29
)
 
—

 
(13
)
 
(16
)
 
 
 
 
 
 
 
 
 
 
 
Assets (liabilities) at December 31, 2018:
 
 
 
 
 
 
 
 
 
 
Measured on a recurring basis:
 
 
 
 
 
 
 
 
 
 
ARO Trust investments
 
$
150

 
$
150

 
$
150

 
$
—

 
$
—

Energy derivatives assets not designated as hedging instruments
 
3

 
3

 
3

 
—

 
—

Energy derivatives liabilities not designated as hedging instruments
 
(7
)
 
(7
)
 
(4
)
 
—

 
(3
)
Additional disclosures:
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion
 
(22,414
)
 
(23,330
)
 
—

 
(23,330
)
 
—

Guarantees
 
(43
)
 
(30
)
 
—

 
(14
)
 
(16
)

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 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 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 Regulatory liabilities, deferred income, and other 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, 2019 or 2018.
Additional fair value disclosures
Long-term debt, including current portion: The disclosed fair value of our long-term debt is determined primarily 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. The fair values of the financing obligations associated with our Dalton lateral and Atlantic Sunrise projects, which are included within long-term debt, were determined using an income approach.
Guarantees: Guarantees primarily consist 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. Guarantees also include an indemnification related to a disposed operation.
To estimate the fair value of the WilTel 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. The carrying value of the WilTel guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $29 million at March 31, 2019. Our exposure declines systematically through the remaining term of WilTel’s obligation.
The fair value of the guarantee associated with the indemnification related to a disposed operation was estimated using an income approach that considered probability-weighted scenarios of potential levels of future performance. The terms of the indemnification do not limit the maximum potential future payments associated with the guarantee. The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.
We are required by our revolving credit agreement 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.
Nonrecurring fair value measurements
The following table presents impairments of assets and equity-method investments associated with certain nonrecurring fair value measurements within Level 3 of the fair value hierarchy.
 
 
 
 
 
 
 
 
 
Impairments
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
Classification
 
Segment
 
Date of Measurement
 
Fair Value
 
2019
 
2018
 
 
 
 
 
 
 
(Millions)
Impairment of assets (1)
Property, plant, and equipment – net
 
West
 
March 31, 2019
 
$
—

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity-method investments (2)
Investments
 
Northeast G&P
 
March 17, 2019
 
$
1,209

 
$
74

 
 
_______________
(1)
Reflects impairment of assets that are no longer in use for which the fair value was determined to be lower than the carrying value. This impairment is reported in Other (income) expense – net within Costs and expenses in the Consolidated Statement of Income.

(2)
Relates to Northeast G&P’s equity-method investment in UEOM. The estimated fair value was determined by a market approach based on the transaction price for the purchase of the remaining interest in UEOM as finalized just prior to the signing and closing of the acquisition in March 2019 (see Note 2 – Acquisitions). This impairment is reported in Impairment of equity-method investments in the Consolidated Statement of Income.