DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

9 Months Ended

Sep. 30, 2013

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Commodity Derivative Instruments Outstanding

The following table summarizes our commodity derivative instruments outstanding at September 30, 2013 (amounts in thousands of gallons):

	Volume (1)		Accounting
Derivative Purpose	Current	Long-Term	Treatment
Derivatives NOT designated as hedging instruments:
Physical fixed price derivative contracts	34,531	604	Mark-to-market
Physical index derivative contracts	85,082	—	Mark-to-market
Futures contracts for refined petroleum products	46,458	588	Mark-to-market
Derivatives designated as hedging instruments:
Futures contracts for refined petroleum products	76,524	—	Fair Value Hedge

(1) Volume represents absolute value of net notional volume position.

Fair Value of Each Classification of Derivative Instruments

The following table sets forth the fair value of each classification of derivative instruments and the locations of the derivative instruments on our condensed consolidated balance sheets at the dates indicated (in thousands):

	September 30, 2013
	Derivatives			Derivatives			Gross			Netting
	NOT Designated			Designated			Derivative			Balance
	as Hedging			as Hedging			Carrying			Sheet
	Instruments			Instruments			Value			Adjustment (1)			Net Total
Physical fixed price derivative contracts	$	2,433		$	—		$	2,433		$	(17	)	$	2,416
Physical index derivative contracts	81			—			81			—			81
Futures contracts for refined products	99,231			2,493			101,724			(93,954		)	7,770
Total current derivative assets	101,745			2,493			104,238			(93,971		)	10,267
Physical fixed price derivative contracts	66			—			66			—			66
Total non-current derivative assets	66			—			66			—			66
Physical fixed price derivative contracts	(1,891		)	—			(1,891		)	17			(1,874		)
Physical index derivative contracts	(273		)	—			(273		)	—			(273		)
Futures contracts for refined products	(93,403		)	(551		)	(93,954		)	93,954			—
Total current derivative liabilities	(95,567		)	(551		)	(96,118		)	93,971			(2,147		)
Futures contracts for refined products	(17		)	—			(17		)	—			(17		)
Interest rate derivatives	—			(35,317		)	(35,317		)	—			(35,317		)
Total non-current derivative liabilities	(17		)	(35,317		)	(35,334		)	—			(35,334		)
Net derivative assets (liabilities)	$	6,227		$	(33,375	)	$	(27,148	)	$	—		$	(27,148	)

(1) Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists. Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.

	December 31, 2012
	Derivatives			Derivatives			Gross			Netting
	NOT Designated			Designated			Derivative			Balance
	as Hedging			as Hedging			Carrying			Sheet
	Instruments			Instruments			Value			Adjustment (1)			Net Total
Physical fixed price derivative contracts	$	1,489		$	—		$	1,489		$	(335	)	$	1,154
Physical index derivative contracts	724			—			724			(159		)	565
Futures contracts for refined products	10,359			435			10,794			(10,794		)	—
Total current derivative assets	12,572			435			13,007			(11,288		)	1,719
Physical fixed price derivative contracts	(2,377		)	—			(2,377		)	335			(2,042		)
Physical index derivative contracts	(705		)	—			(705		)	159			(546		)
Futures contracts for refined products	(15,268		)	(3,096		)	(18,364		)	10,794			(7,570		)
Interest rate derivatives	—			(72,831		)	(72,831		)	—			(72,831		)
Total current derivative liabilities	(18,350		)	(75,927		)	(94,277		)	11,288			(82,989		)
Interest rate derivatives	—			(57,805		)	(57,805		)	—			(57,805		)
Total non-current derivative liabilities	—			(57,805		)	(57,805		)	—			(57,805		)
Net derivative liabilities	$	(5,778	)	$	(133,297	)	$	(139,075	)	$	—		$	(139,075	)

(1) Amounts represent the netting of physical fixed and index contracts’ assets and liabilities when a legal right of offset exists.  Futures contracts are subject to settlement through margin requirements and are additionally presented on a net basis.

Gains and Losses on Derivative Instruments Recognized in Income

The gains and losses on our derivative instruments recognized in income were as follows for the periods indicated (in thousands):

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
	Location	2013			2012			2013			2012
Derivatives NOT designated as hedging instruments:
Physical fixed price derivative contracts	Product sales	$	(6,851	)	$	(9,153	)	$	(3,475	)	$	(6,255	)
Physical index derivative contracts	Product sales	(13		)	678			1,096			1,038
Physical fixed price derivative contracts	Cost of product sales and natural gas storage services	4,736			813			4,291			210
Physical index derivative contracts	Cost of product sales and natural gas storage services	(113		)	(1,014		)	(657		)	(1,053		)
Futures contracts for refined products	Cost of product sales and natural gas storage services	(1,190		)	1,304			4,607			6,635
Derivatives designated as fair value hedging instruments:
Futures contracts for refined products	Cost of product sales and natural gas storage services	(1,689		)	(19,062		)	7,246			(33,697		)
Physical inventory - hedged items	Cost of product sales and natural gas storage services	2,114			21,307			(7,326		)	32,464
Ineffectiveness excluding the time value component on fair value hedging instruments:
Fair value hedge ineffectiveness (excluding time value)	Cost of product sales and natural gas storage services	2,902			(249		)	(725		)	(809		)
Time value excluded from hedge assessment	Cost of product sales and natural gas storage services	(2,477		)	2,494			645			(423		)
Net gain (loss) in income		$	425		$	2,245		$	(80	)	$	(1,232	)

Losses reclassified from accumulated other comprehensive income

The losses reclassified from AOCI to income and the change in value recognized in OCI on our derivatives were as follows for the periods indicated (in thousands):

		Loss Reclassified from AOCI to Income for the
		Three Months Ended						Nine Months Ended
		September 30,						September 30,
	Location	2013			2012			2013			2012
Derivatives designated as cash flow hedging instruments:
Interest rate contracts	Interest and debt expense	$	(1,778	)	$	(229	)	$	(3,099	)	$	(688	)

Gains and Losses Reclassified from AOCI to Income and Change in Value Recognized in (OCI) on Derivatives

	Gain (Loss) Recognized in OCI on Derivatives for the
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013		2012
Derivatives designated as cash flow hedging instruments:
Interest rate contracts	$	(80	)	$	(6,396	)	$	32,446	$	(29,471	)