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Derivative Instruments, Hedging Activities and Fair Value Measurements | 12 Months Ended
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Dec. 31, 2013
Derivative Instruments, Hedging Activities and Fair Value Measurements [Abstract] |
Derivative Instruments, Hedging Activities and Fair Value Measurements | Note 6. Derivative Instruments, Hedging Activities and Fair Value Measurements In the normal course of our business operations, we are exposed to certain risks, including changes in interest rates and commodity prices. In order to manage risks associated with assets, liabilities and certain anticipated future transactions, we use derivative instruments such as futures, forward contracts, swaps, options and other instruments with similar characteristics. Substantially all of our derivatives are used for non-trading activities. We are required to recognize derivative instruments at fair value as either assets or liabilities on our Consolidated Balance Sheets unless such instruments meet certain normal purchase/normal sale criteria. While all derivatives are required to be reported at fair value on the balance sheet, changes in fair value of derivative instruments are reported in different ways, depending on the nature and effectiveness of the hedging activities to which they relate. After meeting specified conditions, a qualified derivative may be designated as a total or partial hedge of:
| § | Changes in the fair value of a recognized asset or liability, or an unrecognized firm commitment – In a fair value hedge, gains and losses for both the derivative instrument and the hedged item are recognized in income during the period of change.
| § | Variable cash flows of a forecasted transaction – In a cash flow hedge, the effective portion of the hedge is reported in other comprehensive income (loss) and is reclassified into earnings when the forecasted transaction affects earnings.
An effective hedge relationship is one in which the change in fair value of a derivative instrument can be expected to offset 80% to 125% of the changes in fair value of a hedged item at inception and throughout the life of the hedging relationship. The effective portion of a hedge relationship is the amount by which the derivative instrument exactly offsets the change in fair value of the hedged item during the reporting period. Conversely, ineffectiveness represents the change in the fair value of the derivative instrument that does not exactly offset the change in the fair value of the hedged item. Any ineffectiveness associated with a hedge relationship is recognized in earnings immediately. Ineffectiveness can be caused by, among other things, changes in the timing of forecasted transactions or a mismatch of terms between the derivative instrument and the hedged item. A contract designated as a cash flow hedge of an anticipated transaction that is not probable of occurring is immediately recognized in earnings. Certain of our derivative instruments do not qualify for hedge accounting treatment; therefore, they are accounted for using mark-to-market accounting. Interest Rate Hedging Activities We may utilize interest rate swaps, forward starting swaps and similar derivative instruments to manage our exposure to changes in interest rates charged on borrowings under certain consolidated debt agreements. This strategy is a component in controlling our overall cost of capital associated with such borrowings. Interest rate swaps exchange the stated interest rate paid on a notional amount of existing debt for the fixed or floating interest rate stipulated in the derivative instrument. Forward starting swaps hedge the expected underlying benchmark interest rates related to future issuances of debt. The following table summarizes our portfolio of interest rate swaps at December 31, 2013:
Hedged Transaction | Number and Type of Derivatives Outstanding |  | Notional Amount |  | Period of Hedge | Rate Swap | Accounting Treatment
Senior Notes AA | 10 fixed-to-floating swaps |  | $ | 750.0 |  | 1/2011 to 2/2016 | 3.2% to 1.2% | Fair value hedge
Undesignated swaps | 6 floating-to-fixed swaps |  | $ | 600.0 |  | 5/2010 to 7/2014 | 0.2% to 2.0% | Mark-to-market
During 2012, we settled 11 fixed-to-floating interest rate swaps having an aggregate notional amount of $800.0 million, resulting in gains totaling $37.7 million. As fair value hedges, the unamortized portion of these gains are a component of long-term debt (see Note 11) and are being amortized to earnings (as a decrease in interest expense) using the effective interest method over the forecasted hedged period of approximately three years. In connection with the issuance of Senior Notes II and HH in March 2013 (see Note 11), we settled 16 forward starting swaps having an aggregate notional amount of $1.0 billion, that were outstanding at December 31, 2012, which resulted in cash losses totaling $168.8 million. These losses are a component of accumulated other comprehensive loss and are being amortized to earnings (as an increase in interest expense) over the forecasted hedge period of ten years using the effective interest method. In connection with the issuance of senior notes during 2012, we settled 17 forward starting swaps having an aggregate notional amount of $850.0 million, resulting in cash losses totaling $185.5 million. These losses are reflected in accumulated other comprehensive loss and are being amortized to earnings (as an increase in interest expense) over the forecasted hedge period of ten years using the effective interest method. In connection with the issuance of senior notes during 2011, we settled three forward starting swaps and two treasury locks having notional amounts of $250.0 million and $1.23 billion, respectively. The settlement of the three forward starting swaps resulted in cash losses totaling $5.8 million. As cash flow hedges, these losses are reflected in accumulated other comprehensive loss and are being amortized to earnings (as an increase in interest expense) over the forecasted hedge period of ten years using the effective interest method. The settlement of the two treasury locks resulted in cash losses totaling $17.4 million, which are being amortized to earnings (as an increase in interest expense) over the weighted-average forecasted hedge period of 25 years using the effective interest method. Commodity Hedging Activities The prices of natural gas, NGLs, crude oil, refined products and petrochemical 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, basis swaps and option contracts. The following table summarizes our portfolio of commodity derivative instruments outstanding at December 31, 2013 (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 (Bcf) |  |  | 7.0 |  |  |  | n/a |  | Cash flow hedge
Forecasted sales of NGLs (MMBbls) |  |  | 1.1 |  |  |  | n/a |  | Cash flow hedge
Octane enhancement: |  |  |  |  |  |  |  |  |
Forecasted purchases of NGLs (MMBbls) |  |  | 0.4 |  |  |  | n/a |  | Cash flow hedge
Forecasted sales of octane enhancement products (MMBbls) |  |  | 3.1 |  |  |  | 0.1 |  | Cash flow hedge
Natural gas marketing: |  |  |  |  |  |  |  |  |
Forecasted sales of natural gas (Bcf) |  |  | 2.6 |  |  |  | n/a |  | Cash flow hedge
Natural gas storage inventory management activities (Bcf) |  |  | 8.2 |  |  |  | n/a |  | Fair value hedge
NGL marketing: |  |  |  |  |  |  |  |  |
Forecasted purchases of NGLs and related hydrocarbon products (MMBbls) |  |  | 5.9 |  |  |  | n/a |  | Cash flow hedge
Forecasted sales of NGLs and related hydrocarbon products (MMBbls) |  |  | 5.4 |  |  |  | n/a |  | Cash flow hedge
Refined products marketing: |  |  |  |  |  |  |  |  |
Forecasted purchases of refined products (MMBbls) |  |  | 0.6 |  |  |  | n/a |  | Cash flow hedge
Forecasted sales of refined products (MMBbls) |  |  | 1.6 |  |  |  | n/a |  | Cash flow hedge
Refined products inventory management activities (MMBbls) |  |  | 0.1 |  |  |  | n/a |  | Fair value hedge
Crude oil marketing: |  |  |  |  |  |  |  |  |
Forecasted purchases of crude oil (MMBbls) |  |  | 4.0 |  |  |  | n/a |  | Cash flow hedge
Forecasted sales of crude oil (MMBbls) |  |  | 5.8 |  |  |  | n/a |  | Cash flow hedge
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Natural gas risk management activities (Bcf) (3,4) |  |  | 94.7 |  |  |  | 19.7 |  | Mark-to-market
Refined products risk management activities (MMBbls) (4) |  |  | 0.8 |  |  |  | n/a |  | Mark-to-market
Crude oil risk management activities (MMBbls) (4) |  |  | 14.4 |  |  |  | n/a |  | 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 2015, May 2014 and October 2016, respectively.
(3) | Current volumes include 27.5 Bcf of physical derivative instruments that are predominantly priced at a marked-based index plus a premium or minus a discount related to location differences.
(4) | Reflects the use of derivative instruments to manage risks associated with transportation, processing and storage assets.
At December 31, 2013, 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 the fair value of commodity products held in inventory, (iii) hedging natural gas processing margins, and (iv) hedging octane enhancement margins. The following information summarizes these hedging strategies:
| § | The objective of our anticipated future commodity purchases and sales hedging program is to hedge the margins of certain transportation, storage and blending activities by locking in purchases and sales prices through the use of forward contracts and derivative instruments.
| § | The objective of our inventory hedging program is to hedge the fair value of commodity products currently held in inventory by locking in the sales price of the inventory through the use of forward contracts and derivative instruments.
| § | The objective of our natural gas processing hedging program is to hedge an amount of gross margin associated with these activities. We achieve this objective by executing forward fixed-price sales of a portion of our expected equity NGL production using forward contracts and commodity derivative instruments. For certain natural gas processing contracts, the hedging of expected equity NGL production also involves the purchase of natural gas for plant thermal reduction, which is hedged by executing forward fixed-price purchases using forward contracts and derivative instruments.
| § | The objective of our octane enhancement hedging program is to hedge an amount of gross margin associated with these activities. We achieve this objective by executing forward fixed-price sales of a portion of our expected octane enhancement product volumes and forward fixed-price purchases of NGL feedstocks using forward contracts and derivative instruments.
Certain basis swaps, basis spread options and other derivative instruments not designated as hedging instruments are used to manage market risks associated with anticipated purchases and sales of commodity products. There is some uncertainty involved in the timing of these transactions often due to the development of more favorable profit opportunities or when spreads are insufficient to cover variable costs thus reducing the likelihood that the transactions will occur during the periods originally forecasted. In accordance with derivatives accounting guidance, these instruments do not qualify for hedge accounting even though they are effective at managing the risk exposures of the underlying assets. Due to volatility in commodity prices, any non-cash, mark-to-market earnings variability cannot be predicted. Tabular Presentation of Fair Value Amounts, and Gains and Losses on Derivative Instruments and Related Hedged Items The following table provides a balance sheet overview of our derivative assets and liabilities at the dates indicated:
| Asset Derivatives |  | Liability Derivatives |
| December 31, 2013 |  | December 31, 2012 |  | December 31, 2013 |  | December 31, 2012 |
| 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 | Other current assets |  | $ | 20.2 |  | Other current assets |  | $ | 19.6 |  | Other current liabilities |  | $ | -- |  | Other current liabilities |  | $ | 175.4 |
Interest rate derivatives | Other assets |  |  | 12.4 |  | Other assets |  |  | 25.6 |  | Other liabilities |  |  | -- |  | Other liabilities |  |  | -- |
Total interest rate derivatives |  |  |  | 32.6 |  |  |  |  | 45.2 |  |  |  |  | -- |  |  |  |  | 175.4 |
Commodity derivatives | Other current assets |  |  | 30.9 |  | Other current assets |  |  | 45.3 |  | Other current liabilities |  |  | 46.5 |  | Other current liabilities |  |  | 35.4 |
Commodity derivatives | Other assets |  |  | -- |  | Other assets |  |  | -- |  | Other liabilities |  |  | 0.3 |  | Other liabilities |  |  | 0.5 |
Total commodity derivatives |  |  |  | 30.9 |  |  |  |  | 45.3 |  |  |  |  | 46.8 |  |  |  |  | 35.9 |
Total derivatives designated as hedging instruments |  |  | $ | 63.5 |  |  |  | $ | 90.5 |  |  |  | $ | 46.8 |  |  |  | $ | 211.3 |
Derivatives not designated as hedging instruments |
Interest rate derivatives | Other current assets |  | $ | -- |  | Other current assets |  | $ | -- |  | Other current liabilities |  | $ | 7.8 |  | Other current liabilities |  | $ | 12.2 |
Interest rate derivatives | Other assets |  |  | -- |  | Other assets |  |  | -- |  | Other liabilities |  |  | -- |  | Other liabilities |  |  | 5.0 |
Total interest rate derivatives |  |  |  | -- |  |  |  |  | -- |  |  |  |  | 7.8 |  |  |  |  | 17.2 |
Commodity derivatives | Other current assets |  |  | 7.6 |  | Other current assets |  |  | 15.7 |  | Other current liabilities |  |  | 5.5 |  | Other current liabilities |  |  | 8.9 |
Commodity derivatives | Other assets |  |  | 2.8 |  | Other assets |  |  | 0.6 |  | Other liabilities |  |  | 2.8 |  | Other liabilities |  |  | 0.7 |
Total commodity derivatives |  |  |  | 10.4 |  |  |  |  | 16.3 |  |  |  |  | 8.3 |  |  |  |  | 9.6 |
Total derivatives not designated as hedging instruments |  |  | $ | 10.4 |  |  |  | $ | 16.3 |  |  |  | $ | 16.1 |  |  |  | $ | 26.8 |
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 |
| (i) |  | (ii) |  | (iii) = (i) – (ii) |  | (iv) |  | (v) = (iii) + (iv) |
As of December 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | $ | 41.3 |  |  | $ | -- |  |  | $ | 41.3 |  |  | $ | (41.0 | ) |  | $ | -- |  |  | $ | 0.3 |
As of December 31, 2012: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | $ | 61.6 |  |  | $ | -- |  |  | $ | 61.6 |  |  | $ | (38.7 | ) |  | $ | (15.2 | ) |  | $ | 7.7 |
| 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 Paid |
| (i) |  | (ii) |  | (iii) = (i) – (ii) |  | (iv) |  | (v) = (iii) + (iv) |
As of December 31, 2013: |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | $ | 55.1 |  |  | $ | -- |  |  | $ | 55.1 |  |  | $ | (41.0 | ) |  | $ | ( 9.3 | ) |  | $ | 4.8 |
As of December 31, 2012: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | $ | 45.5 |  |  | $ | -- |  |  | $ | 45.5 |  |  | $ | (38.7 | ) |  | $ | (4.3 | ) |  | $ | 2.5 |
Derivative assets and liabilities recorded on our Consolidated Balance Sheets are presented on a gross-basis and determined at the individual transaction level. This presentation method is applied regardless of whether the respective exchange clearing agreements, counterparty contracts or master netting agreements contain netting language often referred to as "rights of offset." Although derivative amounts are presented on a gross-basis, having rights of offset enable the settlement of a net as opposed to gross receivable or payable amount under a counterparty default or liquidation scenario. Cash is paid and received as collateral under certain agreements, particularly for those associated with exchange transactions. For any cash collateral payments or receipts, corresponding assets or liabilities are recorded to reflect the variation margin deposits or receipts with exchange clearing brokers and customers. These balances are also presented on a gross-basis on our Consolidated Balance Sheets. The tabular presentation above provides a means for comparing the gross amount of derivative assets and liabilities, excluding associated accounts payable and receivable, to the net amount that would likely be receivable or payable under a default scenario based on the existence of rights of offset in the respective derivative agreements. Any cash collateral paid or received is reflected in this table, but only to the extent that it represents variation margins. Any amounts associated with derivative prepayments or initial margins that are not influenced by the derivative asset or liability amounts or those that are determined solely on their volumetric notional amounts are excluded from this table. The following tables present the effect of our derivative instruments designated as fair value hedges on our Statements of Consolidated Operations for the periods indicated:
Derivatives in Fair Value Hedging Relationships |  | Location |  | Gain (Loss) Recognized in Income on Derivative |
|  |  |  | For the Year Ended December 31, |
|  |  |  | 2013 |  | 2012 |  | 2011 |
Interest rate derivatives |  | Interest expense |  |  | $ | (13.1 | ) |  | $ | 2.7 |  |  | $ | 24.7 |
Commodity derivatives |  | Revenue |  |  |  | (0.1 | ) |  |  | (6.4 | ) |  |  | 17.1 |
Total |  |  |  |  | $ | (13.2 | ) |  | $ | (3.7 | ) |  | $ | 41.8 |
Derivatives in Fair Value Hedging Relationships |  | Location |  | Gain (Loss) Recognized in Income on Hedged Item |
|  |  |  | For the Year Ended December 31, |
|  |  |  | 2013 |  | 2012 |  | 2011 |
Interest rate derivatives |  | Interest expense |  |  | $ | 12.8 |  |  | $ | (2.9 | ) |  | $ | (24.5 | )
Commodity derivatives |  | Revenue |  |  |  | (5.7 | ) |  |  | 19.1 |  |  |  | (14.9 | )
Total |  |  |  |  | $ | 7.1 |  |  | $ | 16.2 |  |  | $ | (39.4 | )
With respect to our derivative instruments designated as fair value hedges, amounts attributable to ineffectiveness and those excluded from the assessment of hedge effectiveness were not material to our consolidated financial statements during the years ended December 31, 2013, 2012 or 2011. The following tables present the effect of our derivative instruments designated as cash flow hedges on our Statements of Consolidated Operations and 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 (Effective Portion) |
| For the Year Ended December 31, |
| 2013 |  | 2012 |  | 2011 |
Interest rate derivatives (1) |  | $ | 6.6 |  |  | $ | (70.2 | ) |  | $ | (333.2 | )
Commodity derivatives – Revenue (2) (3) |  |  | (47.9 | ) |  |  | 31.0 |  |  |  | (192.3 | )
Commodity derivatives – Operating costs and expenses (3) |  |  | 1.0 |  |  |  | (13.7 | ) |  |  | (29.6 | )
Total |  | $ | (40.3 | ) |  | $ | (52.9 | ) |  | $ | (555.1 | )
(1) | The increase in other comprehensive loss in 2011 and 2012 was primarily due to the impact of decreases in forward London Interbank Offered Rates ("LIBOR") on our forward starting interest rate swap portfolio.
(2) | The increase in other comprehensive loss in 2011 was primarily due to the impact of rising commodity prices on our cash flow hedges associated with physical future deliveries of NGLs, crude oil and refined products.
(3) | The fair value of these derivative instruments would be reclassified to their respective locations on the Statement of Consolidated Operations upon settlement of the underlying derivative transactions, as appropriate.
Derivatives in Cash Flow Hedging Relationships |  | Location |  | Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) to Income (Effective Portion) |
|  |  |  | For the Year Ended December 31, |
|  |  |  | 2013 |  | 2012 |  | 2011 |
Interest rate derivatives |  | Interest expense |  |  | $ | (29.2 | ) |  | $ | (16.2 | ) |  | $ | (6.3 | )
Commodity derivatives |  | Revenue |  |  |  | (22.4 | ) |  |  | 10.1 |  |  |  | (218.4 | )
Commodity derivatives |  | Operating costs and expenses |  |  |  | 0.3 |  |  |  | (24.3 | ) |  |  | (13.9 | )
Total |  |  |  |  | $ | (51.3 | ) |  | $ | (30.4 | ) |  | $ | (238.6 | )
Derivatives in Cash Flow Hedging Relationships |  | Location |  | Gain (Loss) Recognized in Income on Derivative (Ineffective Portion) |
|  |  |  | For the Year Ended December 31, |
|  |  |  | 2013 |  | 2012 |  | 2011 |
Commodity derivatives |  | Revenue |  |  | $ | 0.2 |  |  | $ | -- |  |  | $ | 0.2 |
Commodity derivatives |  | Operating costs and expenses |  |  |  | -- |  |  |  | 0.3 |  |  |  | (0.3 | )
Total |  |  |  |  | $ | 0.2 |  |  | $ | 0.3 |  |  | $ | (0.1 | )
Over the next twelve months, we expect to reclassify $32.4 million of losses attributable to interest rate derivative instruments from accumulated other comprehensive loss to earnings as an increase in interest expense. Likewise, we expect to reclassify $14.3 million of losses attributable to commodity derivative instruments from accumulated other comprehensive loss to earnings, $15.3 million as a decrease in revenue and $1.0 million as a decrease in operating costs and expenses. The following table presents the effect of our derivative instruments not designated as hedging instruments on our Statements of Consolidated Operations for the periods indicated:
Derivatives Not Designated as Hedging Instruments |  | Location |  | Gain (Loss) Recognized in Income on Derivative |
|  |  |  | For the Year Ended December 31, |
|  |  |  | 2013 |  | 2012 |  | 2011 |
Interest rate derivatives |  | Interest expense |  |  | $ | (0.7 | ) |  | $ | (5.6 | ) |  | $ | (18.5 | )
Commodity derivatives |  | Revenue |  |  |  | 7.3 |  |  |  | 22.7 |  |  |  | 39.9 |
Commodity derivatives |  | Operating costs and expense |  |  |  | -- |  |  |  | (2.8 | ) |  |  | (3.7 | )
Foreign currency derivatives |  | Other expense |  |  |  | -- |  |  |  | -- |  |  |  | (0.5 | )
Total |  |  |  |  | $ | 6.6 |  |  | $ | 14.3 |  |  | $ | 17.2 |
Fair Value Measurements Our fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk, in the principal market of the asset or liability at a specified measurement date. Recognized valuation techniques employ inputs such as contractual prices, quoted market prices or rates, operating costs, discount factors and business growth rates. These inputs may be either readily observable, corroborated by market data or generally unobservable. In developing our estimates of fair value, we endeavor to utilize the best information available and apply market-based data to the highest extent possible. Accordingly, we utilize valuation techniques (such as the market approach) that maximize the use of observable inputs and minimize the use of unobservable inputs. A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate such fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy. The characteristics of fair value amounts classified within each level of the hierarchy are described as follows:
| § | Level 1 fair values are based on quoted prices, which are available in active markets for identical assets or liabilities as of the measurement date. Active markets are defined as those in which transactions for identical assets or liabilities occur with sufficient frequency so as to provide pricing information on an ongoing basis (e.g., the New York Mercantile Exchange). Our Level 1 fair values consist of financial assets and liabilities such as exchange-traded commodity derivative instruments.
| § | Level 2 fair values are based on pricing inputs other than quoted prices in active markets (as reflected in Level 1 fair values) and are either directly or indirectly observable as of the measurement date. Level 2 fair values include instruments that are valued using financial models or other appropriate valuation methodologies. Such financial models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, the time value of money, volatility factors, current market and contractual prices for the underlying instruments and other relevant economic measures. Substantially all of these assumptions (i) are observable in the marketplace throughout the full term of the instrument; (ii) can be derived from observable data; or (iii) are validated by inputs other than quoted prices (e.g., interest rate and yield curves at commonly quoted intervals). Our Level 2 fair values primarily consist of commodity derivative instruments such as forwards, swaps and other instruments transacted on an exchange or over-the-counter and interest rate derivative instruments. The fair values of these derivative instruments are based on observable price quotes for similar products and locations. The fair value of our interest rate derivatives are determined using financial models that incorporate the implied forward LIBOR yield curve for the same period as the future interest rate swap settlements.
| § | Level 3 fair values are based on unobservable inputs. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect management's ideas about the assumptions that market participants would use in pricing an asset or liability (including assumptions about risk). Unobservable inputs are based on the best information available to us in the circumstances, which might include our internally developed data. Level 3 inputs are typically used in connection with internally developed valuation methodologies where we make our best estimate of an instrument's fair value. Our Level 3 fair values primarily consist of ethane, propane, normal butane and natural gasoline-based contracts with terms greater than one year and certain options used to hedge natural gas storage inventory and transportation capacities. In addition, we often rely on price quotes from reputable brokers who publish price quotes on certain products and compare these prices to other reputable brokers for the same products in the same markets whenever possible. These prices, when combined with data from our commodity derivative instruments, are used in our models to determine the fair value of such instruments.
Transfers within the fair value hierarchy routinely occur for certain term contracts as prices and other inputs used for the valuation of future delivery periods become more observable with the passage of time. Other transfers are made periodically in response to changing market conditions that affect liquidity, price observability and other inputs used in determining valuations. We deem any such transfers to have occurred at the end of the quarter in which they transpired. There were no transfers between Level 1 and 2 for the years ended December 31, 2013 and 2012, respectively. See below for information related to transfers out of Level 3. Recurring Fair Value Measurements The following table sets forth, by level within the fair value hierarchy, the carrying values of our financial assets and liabilities at the dates indicated. These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of such inputs requires judgment.
| 2013 Fair Value Measurements Using |  |  |
| Quoted Prices |  |  |  |  |  |  |
| in Active |  | Significant |  |  |  |  |
| Markets for |  | Other |  | Significant |  | Carrying |
| Identical Assets |  | Observable |  | Unobservable |  | Value |
| and Liabilities |  | Inputs |  | Inputs |  | at December 31, |
| (Level 1) |  | (Level 2) |  | (Level 3) |  | 2013 |
Financial assets: |  |  |  |  |  |  |  |
Interest rate derivatives |  | $ | -- |  |  | $ | 32.6 |  |  | $ | -- |  |  | $ | 32.6 |
Commodity derivatives |  |  | 17.2 |  |  |  | 20.2 |  |  |  | 3.9 |  |  |  | 41.3 |
Total |  | $ | 17.2 |  |  | $ | 52.8 |  |  | $ | 3.9 |  |  | $ | 73.9 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate derivatives |  | $ | -- |  |  | $ | 7.8 |  |  | $ | -- |  |  | $ | 7.8 |
Commodity derivatives |  |  | 30.8 |  |  |  | 23.6 |  |  |  | 0.7 |  |  |  | 55.1 |
Total |  | $ | 30.8 |  |  | $ | 31.4 |  |  | $ | 0.7 |  |  | $ | 62.9 |
| 2012 Fair Value Measurements Using |  |  |
| Quoted Prices |  |  |  |  |  |  |
| in Active |  | Significant |  |  |  |  |
| Markets for |  | Other |  | Significant |  | Carrying |
| Identical Assets |  | Observable |  | Unobservable |  | Value |
| and Liabilities |  | Inputs |  | Inputs |  | at December 31, |
| (Level 1) |  | (Level 2) |  | (Level 3) |  | 2012 |
Financial assets: |  |  |  |  |  |  |  |
Interest rate derivatives |  | $ | -- |  |  | $ | 45.2 |  |  | $ | -- |  |  | $ | 45.2 |
Commodity derivatives |  |  | 11.4 |  |  |  | 47.8 |  |  |  | 2.4 |  |  |  | 61.6 |
Total |  | $ | 11.4 |  |  | $ | 93.0 |  |  | $ | 2.4 |  |  | $ | 106.8 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate derivatives |  | $ | -- |  |  | $ | 192.6 |  |  | $ | -- |  |  | $ | 192.6 |
Commodity derivatives |  |  | 13.1 |  |  |  | 28.5 |  |  |  | 3.9 |  |  |  | 45.5 |
Total |  | $ | 13.1 |  |  | $ | 221.1 |  |  | $ | 3.9 |  |  | $ | 238.1 |
The following table sets forth a reconciliation of changes in the overall fair values of our recurring Level 3 financial assets and liabilities for the periods indicated:
|  |  | For the Year Ended December 31, |
| Location |  | 2013 |  |  | 2012 |
Financial asset (liability) balance, net, January 1 |  |  | $ | (1.5 | ) |  | $ | 0.4 |
Total gains (losses) included in: |  |  |  |  |  |  |  |  |
Net income (1) | Revenue |  |  | 2.8 |  |  |  | (2.9 | )
Other comprehensive income (loss) | Commodity derivative instruments – changes in fair value of cash flow hedges |  |  | (0.9 | ) |  |  | 10.1 |
Settlements |  |  |  | 1.6 |  |  |  | 0.8 |
Transfers out of Level 3 (2) |  |  |  | 1.2 |  |  |  | (9.9 | )
Financial asset (liability) balance, net, December 31 |  |  | $ | 3.2 |  |  | $ | (1.5 | )
(1) | There were $4.4 million and $1.9 million of unrealized gains included in these amounts for the years ended December 31, 2013 and 2012, respectively.
(2) | Transfers out of Level 3 into Level 2 were due to shorter remaining transaction maturities falling inside of the Level 2 range at December 31, 2013 and 2012, respectively.
The following tables provide quantitative information about our recurring Level 3 fair value measurements at the dates indicated:
| Fair Value At December 31, 2013 |  |  |  |
| Financial Assets |  | Financial Liabilities |  | Valuation Techniques | Unobservable Input | Range
Commodity derivatives: |  |  |  |  |  |  |
Crude oil |  | $ | 3.9 |  |  | $ | 0.7 |  | Discounted cash flow | Forward commodity prices | $89.55-$98.54/barrel
| Fair Value At December 31, 2012 |  |  |  |
| Financial Assets |  | Financial Liabilities |  | Valuation Techniques | Unobservable Input | Range
Commodity derivatives: |  |  |  |  |  |  |
Crude oil |  | $ | 2.4 |  |  | $ | 3.9 |  | Discounted cash flow | Forward commodity prices | $75.62-$92.28/barrel
We believe forward commodity prices are the most significant unobservable inputs in determining our Level 3 recurring fair value measurements at December 31, 2013. In general, changes in the price of the underlying commodity increases or decreases the fair value of a commodity derivative depending on whether the derivative was purchased or sold. We generally expect changes in the fair value of our derivative instruments to be offset by corresponding changes in the fair value of our hedged exposures. We have a risk management policy that covers our Level 3 commodity derivatives. Governance and oversight of risk management activities for these commodities are provided by our CEO with guidance and support from a risk management committee ("RMC") that meets quarterly (or on a more frequent basis, if needed). Members of executive management attend the RMC meetings, which are chaired by the head of our commodities risk control group. This group is responsible for preparing and distributing daily reports and risk analysis to members of the RMC and other appropriate members of management. These reports include mark-to-market valuations with the one-day and month-to-date changes in fair values. This group also develops and validates the forward commodity price curves used to estimate the fair values of our Level 3 commodity derivatives. These forward curves incorporate published indexes, market quotes and other observable inputs to the extent available. Nonrecurring Fair Value Measurements The following table summarizes our non-cash impairment charges by segment during each of the periods indicated:
|  | For the Year Ended December 31, |
|  | 2013 |  |  | 2012 |  |  | 2011 |
NGL Pipelines & Services |  | $ | 30.6 |  |  | $ | 16.3 |  |  | $ | 11.3 |
Onshore Natural Gas Pipelines & Services |  |  | -- |  |  |  | 29.2 |  |  |  | 10.4 |
Onshore Crude Oil Pipelines & Services |  |  | 30.1 |  |  |  | 10.6 |  |  |  | -- |
Offshore Pipelines & Services |  |  | 18.0 |  |  |  | 4.0 |  |  |  | 5.5 |
Petrochemical & Refined Products Services |  |  | 18.7 |  |  |  | 3.3 |  |  |  | 0.6 |
Total |  | $ | 97.4 |  |  | $ | 63.4 |  |  | $ | 27.8 |
Non-cash impairment charges for 2013 include $4.8 million related to our investment in two offshore natural gas gathering systems owned by Neptune (see Note 9). This charge is a component of equity in income of unconsolidated affiliates on our Statements of Consolidated Operations. The remainder of the non-cash impairment charges for 2013, or $92.6 million, primarily relate to the abandonment of fixed assets classified as property, plant and equipment. These latter charges are a component of operating costs and expenses on our Statements of Consolidated Operations. The following table summarizes our non-recurring fair value measurements for the year ended December 31, 2013:
|  |  | December 31, 2013 Fair Value Measurements Using |  |  |
|  |  | Quoted Prices |  |  |  |  |  |  |
|  |  | in Active |  | Significant |  |  |  |  |
| Carrying |  | Markets for |  | Other |  | Significant |  | Total |
| Value at |  | Identical |  | Observable |  | Unobservable |  | Non-Cash |
| December 31, |  | Assets |  | Inputs |  | Inputs |  | Impairment |
| 2013 |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | Loss |
Impairment of long-lived assets disposed of other than by sale (1) |  | $ | -- |  |  | $ | -- |  |  | $ | -- |  |  | $ | -- |  |  | $ | 79.4 |
Impairment of long-lived assets held and used |  |  | 44.6 |  |  |  | -- |  |  |  | -- |  |  |  | 44.6 |  |  |  | 9.0 |
Impairment of long-lived assets to be disposed of by sale |  |  | 0.6 |  |  |  | -- |  |  |  | -- |  |  |  | 0.6 |  |  |  | 9.0 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 97.4 |
(1) | Our non-cash asset impairment charges for the year ended December 31, 2013 primarily represent the abandonment of crude oil and natural gas pipeline segments in Texas, Oklahoma and the Gulf of Mexico, certain refined products terminal assets in Texas, an NGL storage cavern in Arizona and an NGL fractionator and storage caverns in Ohio.
During the year ended December 31, 2012, we recorded $63.4 million of non-cash asset impairment charges primarily due to the abandonment of assets classified as property, plant and equipment. The following table summarizes our non-recurring fair value measurements for the year ended December 31, 2012:
|  |  | December 31, 2012 Fair Value Measurements Using |  |  |
|  |  | Quoted Prices |  |  |  |  |  |  |
|  |  | in Active |  | Significant |  |  |  |  |
| Carrying |  | Markets for |  | Other |  | Significant |  | Total |
| Value at |  | Identical |  | Observable |  | Unobservable |  | Non-Cash |
| December 31, |  | Assets |  | Inputs |  | Inputs |  | Impairment |
| 2012 |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | Loss |
Impairment of long-lived assets disposed of other than by sale (1) |  | $ | 0.8 |  |  | $ | -- |  |  | $ | -- |  |  | $ | 0.8 |  |  | $ | 56.5 |
Impairment of long-lived assets held and used |  |  | 2.2 |  |  |  | -- |  |  |  | -- |  |  |  | 2.2 |  |  |  | 2.6 |
Impairment of long-lived assets to be disposed of by sale |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | -- |  |  |  | 4.3 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 63.4 |
(1) | Our non-cash asset impairment charges for the year ended December 31, 2012 primarily represent the abandonment of crude oil and natural gas pipeline segments in Texas and the Gulf of Mexico.
As presented in the preceding tables, our estimated fair values were based on management's expectation of the market values for such assets based on their knowledge and experience in the industry (a Level 3 type measure involving significant unobservable inputs). In many cases, there are no active markets (Level 1) or other similar recent transactions (Level 2) to compare to. Our assumptions used in such analyses are based on the nonfinancial assets' highest and best use, which includes estimated probabilities where multiple cash flow outcomes are possible. When probability weights are used, they are generally obtained from business management personnel having oversight responsibilities for the assets being tested. Key commercial assumptions (e.g., anticipated operating margins, throughput or processing volume growth rates, timing of cash flows, etc.) that represent Level 3 unobservable inputs and test results are reviewed and certified by members of senior management. Other Fair Value Information The carrying amounts of cash and cash equivalents (including restricted cash balances), accounts receivable, commercial paper notes and accounts payable approximate their fair values based on their short-term nature. The estimated total fair value of our fixed-rate debt obligations was $18.4 billion and $18.42 billion at December 31, 2013 and 2012, respectively. The aggregate carrying value of these debt obligations was $17.36 billion and $16.18 billion at December 31, 2013 and 2012, respectively. These values are based on quoted market prices for such debt or debt of similar terms and maturities (Level 2), our credit standing and the credit standing of our counterparties. Changes in market rates of interest affect the fair value of our fixed-rate debt. The carrying values of our variable-rate long-term debt obligations approximate their fair values since the associated interest rates are market-based. We do not have any long-term investments in debt or equity securities recorded at fair value.

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