2.2.0.25falsefalse0206 - Disclosure - Financial Instruments, Derivatives and Guaranteestruefalsefalse1falsefalseUSDfalsefalse1/1/2011 - 3/31/2011
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USD ($) / shares
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<!-- Begin Block Tagged Note 6 - wpz:FinancialInstrumentsDerivativesAndGuaranteesTextBlock-->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b>Note 6. Financial Instruments, Derivatives, and Guarantees</b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt"><b><i>Financial Instruments</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">   <i>Fair-value methods</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We use the following methods and assumptions in estimating our fair-value disclosures for
financial instruments:
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <u><i>Cash and cash equivalents</i></u><i>: </i>The carrying amounts reported in the Consolidated Balance
Sheet approximate fair value due to the short-term maturity of these instruments.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <u><i>ARO Trust investments</i></u><i>: </i>Pursuant to its 2008 rate case settlement, Transco deposits a
portion of its collected rates into an external trust (ARO Trust) that is specifically designated
to fund future asset retirement obligations. The ARO Trust invests in a portfolio of mutual funds
that are reported at fair value in <i>regulatory assets, deferred charges and other </i>in the
Consolidated Balance Sheet and are classified as available-for-sale. However, both realized and
unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <u><i>Long-term debt</i></u><i>: </i>The fair value of our publicly traded long-term debt is determined
using indicative period-end traded bond market prices. At both March 31, 2011 and December 31,
2010, approximately 100 percent of our long-term debt was publicly traded.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     <u><i>Energy derivatives</i></u><i>: </i>Energy derivatives include forwards and swaps. These are carried
at fair value in <i>other current assets </i>and <i>other accrued liabilities </i>in the Consolidated Balance
Sheet. See Note 5 for a discussion of the valuation of our energy derivatives.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">   <i>Carrying amounts and fair values of our financial instruments</i>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="5%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>March 31, 2011</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="7" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Carrying</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"><b>Carrying</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Amount</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Amount</b></td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="3" style="border-bottom: 1px solid #000000"><b>Fair Value</b></td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="15"><b>(Millions)</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td align="center">
<div style="margin-left:15px; text-indent:-15px"><b>Asset (Liability)</b>
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">232</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">232</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">187</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">187</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">ARO Trust investments
</div></td>
<td> </td>
<td align="right">$</td>
<td align="right">38</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">38</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">40</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">40</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Long-term debt, including current portion
</div></td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(6,824</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(7,272</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(6,823</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(7,283</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Energy commodity cash flow hedges
</div></td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(2</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="right">$</td>
<td align="right">(2</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="right">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Energy Commodity Derivatives</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">   <i>Risk management activities</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We are exposed to market risk from changes in energy commodity prices within our operations.
We may utilize derivatives to manage our exposure to the variability in expected future cash flows
from forecasted purchases of natural gas and forecasted sales of NGLs attributable to commodity
price risk. Certain of these derivatives utilized for risk management purposes have been designated
as cash flow hedges, while other derivatives have not been designated as cash flow hedges or do not
qualify for hedge accounting despite hedging our future cash flows on an economic basis.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We sell NGL volumes received as compensation for certain processing services at different
locations throughout the United States. We also buy natural gas to satisfy the required fuel and
shrink needed to generate NGLs. To reduce exposure to a decrease in revenues from fluctuations in
NGL market prices or increases in costs and operating expenses from fluctuations in natural gas
market prices, we may enter into NGL or natural gas swap agreements, financial or physical forward
contracts, and financial option contracts to mitigate the price risk on forecasted sales of NGLs
and purchases of natural gas. Those designated as cash flow hedges are expected to be highly
effective in offsetting cash flows attributable to the hedged risk during the term of the hedge.
However, ineffectiveness may be recognized primarily as a result of locational differences between
the hedging derivative and the hedged item.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<div style="font-family: 'Times New Roman',Times,serif">
<div align="left" style="font-size: 10pt; margin-top: 0pt">
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">   <i>Volumes</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     Our energy commodity derivatives are comprised of both contracts to purchase commodities (long
positions) and contracts to sell commodities (short positions). Derivative transactions are
categorized into two types:
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Central hub risk<i>: </i>Financial derivative exposures to Henry Hub for natural gas and Mont
Belvieu for NGLs;</td>
</tr>
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="2%" style="background: transparent"> </td>
<td width="3%" nowrap="nowrap" align="left"><b>•</b></td>
<td width="1%"> </td>
<td>Basis risk<i>: </i>Financial derivative exposures to the difference in value between the
central hub and another specific delivery point.</td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table depicts the notional quantities of the net long (short) positions in our
commodity derivatives portfolio as of March 31, 2011. Natural gas is presented in millions of
British Thermal Units (MMBtu) and NGLs are presented in gallons.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="18%"> </td>
<td width="5%"> </td>
<td width="23%"> </td>
<td width="5%"> </td>
<td width="9%"> </td>
<td width="5%"> </td>
<td width="17%"> </td>
<td width="5%"> </td>
<td width="13%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Unit of</b></td>
<td> </td>
<td nowrap="nowrap" align="center"><b>Central Hub</b></td>
<td> </td>
<td nowrap="nowrap" align="center"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td nowrap="nowrap" align="left" colspan="3" style="border-bottom: 1px solid #000000"><b>Derivative Notional Volumes</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Measurement</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Risk</b></td>
<td> </td>
<td nowrap="nowrap" align="center" style="border-bottom: 1px solid #000000"><b>Basis Risk</b></td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td colspan="3" align="left"><b>Designated as Hedging Instruments</b></td>
<td> </td>
<td align="center" valign="top"> </td>
<td> </td>
<td align="center" valign="top"> </td>
<td> </td>
<td align="center" valign="top"> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Midstream
</div></td>
<td> </td>
<td align="left" valign="top">Risk Management</td>
<td> </td>
<td align="center" valign="top">MMBtu</td>
<td> </td>
<td align="center" valign="top">8,250,000</td>
<td> </td>
<td align="center" valign="top">7,562,500</td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Midstream
</div></td>
<td> </td>
<td align="left" valign="top">Risk Management</td>
<td> </td>
<td align="center" valign="top">Gallons</td>
<td> </td>
<td align="center" valign="top">(2,280,000)</td>
<td> </td>
<td align="center" valign="top"> </td>
</tr>
<tr valign="bottom">
<td colspan="3" align="left"><b>Not Designated as Hedging Instruments</b></td>
<td> </td>
<td align="center" valign="top"> </td>
<td> </td>
<td align="center" valign="top"> </td>
<td> </td>
<td align="center" valign="top"> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Midstream
</div></td>
<td> </td>
<td align="left" valign="top">Risk Management</td>
<td> </td>
<td align="center" valign="top">Gallons</td>
<td> </td>
<td align="center" valign="top">(50,000)</td>
<td> </td>
<td align="center" valign="top"> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div style="margin-top: 6pt">
<table width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt; text-align: left">
<tr valign="top" style="font-size: 10pt; color: #000000; background: transparent">
<td width="1%" nowrap="nowrap" align="left"> </td>
<td width="1%"> </td>
<td>   <i>Fair values and gains (losses)</i></td>
</tr>
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table presents the fair value of energy commodity derivatives. Our derivatives
are included in <i>other current assets </i>and <i>other accrued liabilities </i>in our Consolidated Balance
Sheet. Derivatives are classified as current or noncurrent based on the contractual timing of
expected future net cash flows of individual contracts. The expected future net cash flows for
derivatives classified as current are expected to occur by December
2011.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="52%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>March 31,</b> <b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>December 31, 2010</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Assets</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Liabilities</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Assets</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Liabilities</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(Millions)</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(Millions)</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Designated as hedging instruments
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Not designated as hedging instruments
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Total derivatives
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">3</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">5</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
<!-- End Table Body -->
</table>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The following table presents gains and losses for our energy commodity derivatives designated
as cash flow hedges, as recognized in AOCI, <i>revenues, or costs and operating expenses.</i>
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="64%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
<td width="5%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6" style="border-bottom: 1px solid #000000"><b>Three months ended March 31,</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2011</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>2010</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Classification</b></td>
<td> </td>
</tr>
<tr style="font-size: 8pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="6"><b>(Millions)</b></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
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<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Net gain (loss) recognized in other comprehensive
income (loss) (effective portion)
</div></td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(2</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(6</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">AOCI</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Net gain (loss) reclassified from accumulated other
comprehensive income (loss) into income
(effective portion)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left">$</td>
<td align="right">(2</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td colspan="3" nowrap="nowrap" align="center">Revenues or Costs and Operating Expenses</td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Gain (loss) recognized in income (ineffective portion)
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td colspan="3" align="center">Revenues or Costs and Operating Expenses</td>
</tr>
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</table>
</div>
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<div align="left" style="font-size: 10pt; margin-top: 0pt">
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     There were no gains or losses recognized in income as a result of excluding amounts from the
assessment of hedge effectiveness or as a result of reclassifications to earnings following the
discontinuance of any cash flow hedges. As of March 31, 2011, we have hedged portions of future
cash flows associated with anticipated NGL sales and natural gas purchases through 2011. Based on
recorded values at March 31, 2011, net losses to be reclassified into earnings by December 31,
2011, are $2 million. These recorded values are based on market prices of the commodities as of
March 31, 2011. Due to the volatile nature of commodity prices and changes in the creditworthiness
of counterparties, actual gains or losses realized by December 31, 2011, will likely differ from
these values. These gains or losses will offset net losses or gains that will be realized in
earnings from previous unfavorable or favorable market movements associated with underlying hedged
transactions.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We recognized losses of less than $1 million in <i>revenues </i>for both the three months ended March
31, 2011 and 2010 on our energy commodity derivatives not designated as hedging instruments.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The cash flow impact of our derivative activities is presented in the Consolidated Statement
of Cash Flows as <i>changes in other assets and deferred charges </i>and <i>changes in accrued liabilities</i>.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt">   <i>Credit-risk-related features</i>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     The majority of our financial swap contracts are with our affiliate, Williams Gas Marketing,
Inc., and the derivative contracts not designated as cash flow hedging instruments are primarily
NGL swaps. These agreements do not contain any provisions that require us to post collateral
related to net liability positions.
</div>
<div align="left" style="font-size: 10pt; margin-top: 12pt"><b><i>Guarantees</i></b>
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     We are required by our revolving credit agreement to indemnify lenders for any taxes required
to be withheld from payments due to the lenders and for any 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.
</div>
<div align="left" style="font-size: 10pt; margin-top: 6pt">     At March 31, 2011, we do not expect these guarantees to have a material impact on our future
liquidity or financial position. However, if we are required to perform on these guarantees in the
future, it may have a material adverse effect on our results of operations.
</div>
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