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Derivative Instruments, Hedging Activities and Fair Value Measurements | 12 Months Ended
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Dec. 31, 2019
Derivative Instruments, Hedging Activities and Fair Value Measurements [Abstract] |
Derivative Instruments, Hedging Activities and Fair Value Measurements | Note 14. 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. Interest Rate Hedging Activities We may utilize interest rate swaps, forward-starting swaps, options to enter into forward-starting swaps (“swaptions”), and similar derivative instruments to manage our exposure to changes in interest rates charged on borrowings under certain consolidated debt agreements. This strategy may be used in controlling our overall cost of capital associated with such borrowings. Swaptions In 2019 and 2018, we sold options to be put into forward-starting swaps, or swaptions, if the market rate of interest fell below the strike rate of the option upon expiration of the derivative instrument. The premiums we realized upon sale of the swaptions are reflected as a $23.1 million and $29.4 million reduction in interest expense for the year ended December 31, 2019 and 2018, respectively. Due to declining interest rates, the counterparties to swaptions we sold in July 2019 exercised their right to put us into ten forward-starting swaps on September 30, 2019 having an aggregate notional value of $1.0 billion. Since the swaptions were not designated as hedging instruments and were subject to mark-to-market accounting, we incurred an unrealized, mark-to-market loss at inception of the forward-starting swaps totaling $94.9 million that is reflected as an increase in interest expense for the year ended December 31, 2019. The ten forward-starting swaps resulting from the swaption exercise on September 30, 2019 were designated as hedging instruments and are subject to cash flow hedge accounting. Forward-Starting Swaps Forward-starting swaps hedge the risk of an increase in underlying benchmark interest rates during the period of time between the inception date of the swap agreement and the future date of a debt issuance. Under the terms of the forward-starting swaps, we pay to the counterparties (at the expected settlement dates of the instruments) amounts based on a fixed interest rate applied to a notional amount and receive from the counterparties an amount equal to a variable interest rate (based on LIBOR or an equivalent index rate) on the same notional amount. The following table summarizes our portfolio of 30-year forward-starting swaps at December 31, 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 exercise of swaptions.
In total, the notional amount of forward-starting swaps outstanding at December 31, 2019 was $1.15 billion. The weighted-average fixed interest rate of these derivative instruments is 2.16%. As a result of market conditions, we terminated an aggregate $275 million notional amount of forward-starting swaps in 2017, which resulted in cash proceeds totaling $30.6 million. As cash flow hedges, gains on these derivative instruments are reflected as a component of accumulated other comprehensive income and are being amortized to earnings (as a decrease in interest expense) over the 30-year life of the associated debt through February 2048. Likewise, in 2018, we terminated an aggregate $275 million notional amount of forward-starting swaps (cash flow hedges), which resulted in cash proceeds totaling $22.1 million that are being amortized to earnings (as a decrease in interest expense) over a 30-year period through February 2049. Commodity Hedging Activities 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 December 31, 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 objective of our anticipated future commodity purchases and sales hedging program is to hedge the margins of certain transportation, storage, blending and operational activities by locking in purchase and sale prices through the use of derivative instruments and related contracts.
• | The objective of our natural gas processing hedging program is to hedge an amount of earnings associated with these activities. We achieve this objective by executing fixed-price sales for a portion of our expected equity NGL production using derivative instruments and related contracts. For certain natural gas processing contracts, the hedging of expected equity NGL production also involves the purchase of natural gas for shrinkage, which is hedged using derivative instruments and related contracts.
• | 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 derivative instruments and related contracts.
The following table summarizes our portfolio of commodity derivative instruments outstanding at December 31, 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 (Bcf) |  | 3.9 |  |  | n/a |  | Cash flow hedge
Forecasted sales of NGLs (MMBbls) |  | 0.8 |  |  | n/a |  | Cash flow hedge
Octane enhancement: |  |  |  |  |  |  |
Forecasted purchase of NGLs (MMBbls) |  | 0.6 |  |  | n/a |  | Cash flow hedge
Forecasted sales of octane enhancement products (MMBbls) |  | 11.2 |  |  | 0.1 |  | Cash flow hedge
Natural gas marketing: |  |  |  |  |  |  |
Forecasted purchases of natural gas (Bcf) |  | 1.1 |  |  | n/a |  | Cash flow hedge
Natural gas storage inventory management activities (Bcf) |  | 3.0 |  |  | n/a |  | Fair value hedge
NGL marketing: |  |  |  |  |  |  |
Forecasted purchases of NGLs and related hydrocarbon products (MMBbls) |  | 103.5 |  |  | n/a |  | Cash flow hedge
Forecasted sales of NGLs and related hydrocarbon products (MMBbls) |  | 128.1 |  |  | n/a |  | Cash flow hedge
NGLs inventory management activities (MMBbls) |  | 0.5 |  |  | n/a |  | Fair value hedge
Refined products marketing: |  |  |  |  |  |  |
Forecasted purchases of refined products (MMBbls) |  | 0.2 |  |  | n/a |  | Cash flow hedge
Forecasted sales of refined products (MMBbls) |  | 0.2 |  |  | n/a |  | Cash flow hedge
Crude oil marketing: |  |  |  |  |  |  |
Forecasted purchases of crude oil (MMBbls) |  | 15.3 |  |  | n/a |  | Cash flow hedge
Forecasted sales of crude oil (MMBbls) |  | 19.9 |  |  | n/a |  | Cash flow hedge
Propylene marketing: |  |  |  |  |  |  |
Forecasted sales of NGLs for propylene marketing activities (MMBbls) |  | 0.5 |  |  | n/a |  | Cash flow hedge
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Natural gas risk management activities (Bcf) (3) |  | 52.3 |  |  | 0.2 |  | Mark-to-market
NGL risk management activities (MMBbls) (3) |  | 6.5 |  |  | n/a |  | Mark-to-market
Refined products risk management activities (MMBbls) (3) |  | 9.4 |  |  | n/a |  | Mark-to-market
Crude oil risk management activities (MMBbls) (3) |  | 27.3 |  |  | 11.0 |  | 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, April 2020 and December 2022, respectively.
(3) | Reflects the use of derivative instruments to manage risks associated with transportation, processing and storage assets.
The carrying amount of our inventories subject to fair value hedges was $31.7 million and $50.2 million at December 31, 2019 and 2018, respectively. 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, 2019 |  | December 31, 2018 |  | December 31, 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 | $ | 6.7 |  | Current liabilities | $ | –
Interest rate derivatives | Other assets |  | – |  | Other assets |  | – |  | Other liabilities |  | 6.8 |  | Other liabilities |  | –
Total interest rate derivatives |  |  | – |  |  |  | – |  |  |  | 13.5 |  |  |  | –
Commodity derivatives | Current assets |  | 116.5 |  | Current assets |  | 138.5 |  | Current liabilities |  | 107.1 |  | Current liabilities |  | 115.0
Commodity derivatives | Other assets |  | – |  | Other assets |  | 5.6 |  | Other liabilities |  | – |  | Other liabilities |  | 11.1
Total commodity derivatives |  |  | 116.5 |  |  |  | 144.1 |  |  |  | 107.1 |  |  |  | 126.1
Total derivatives designated as hedging instruments |  | $ | 116.5 |  |  | $ | 144.1 |  |  | $ | 120.6 |  |  | $ | 126.1
Derivatives not designated as hedging instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives | Current assets |  | 10.7 |  | Current assets |  | 15.9 |  | Current liabilities |  | 8.6 |  | Current liabilities |  | 33.2
Commodity derivatives | Other assets |  | 0.6 |  | Other assets |  | 1.9 |  | Other liabilities |  | 0.5 |  | Other liabilities |  | 3.1
Total commodity derivatives |  |  | 11.3 |  |  |  | 17.8 |  |  |  | 9.1 |  |  |  | 36.3
Total derivatives not designated as hedging instruments |  | $ | 11.3 |  |  | $ | 17.8 |  |  | $ | 9.1 |  |  | $ | 36.3
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 Not Offset in the Balance Sheet |  |  |
| Gross Amounts of Recognized Assets |  | Gross Amounts Offset in the Balance Sheet |  | Amounts of Assets Presented in the Balance Sheet |  | Financial Instruments |  | Cash Collateral Paid |  | Cash Collateral Received |  | Amounts That Would Have Been Presented On Net Basis |
| (i) |  | (ii) |  | (iii) = (i) – (ii) |  | (iv) |  | (v) = (iii) + (iv) |
As of December 31, 2019: |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | $ | 127.8 |  |  | $ | – |  |  | $ | 127.8 |  |  | $ | (115.3 | ) |  | $ | (11.0 | ) |  | $ | – |  |  | $ | 1.5 |
As of December 31, 2018: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | $ | 161.9 |  |  |  | – |  |  | $ | 161.9 |  |  | $ | (158.6 | ) |  | $ | – |  |  | $ | – |  |  | $ | 3.3 |
| Offsetting of Financial Liabilities and Derivative Liabilities |
|  |  |  |  |  |  | Gross Amounts Not Offset in the Balance Sheet |  |  |
| Gross Amounts of Recognized Liabilities |  | Gross Amounts Offset in the Balance Sheet |  | Amounts of Liabilities Presented in the Balance Sheet |  | Financial Instruments |  | Cash Collateral Paid |  | Amounts That Would Have Been Presented On Net Basis |
| (i) |  | (ii) |  | (iii) = (i) – (ii) |  | (iv) |  | (v) = (iii) + (iv) |
As of December 31, 2019: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate derivatives |  | $ | 13.5 |  |  | $ | – |  |  | $ | 13.5 |  |  | $ | – |  |  | $ | – |  |  | $ | 13.5 |
Commodity derivatives |  |  | 116.2 |  |  |  | – |  |  |  | 116.2 |  |  |  | (115.3 | ) |  |  | – |  |  |  | 0.9 |
As of December 31, 2018: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Commodity derivatives |  | $ | 162.4 |  |  | $ | – |  |  | $ | 162.4 |  |  | $ | (158.6 | ) |  | $ | (2.3 | ) |  | $ | 1.5 |
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 these tables, 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 these tables. The following tables present the effect of our derivative instruments designated as fair value hedges on our Statements of Consolidated Operations for the years indicated:
Derivatives in Fair Value Hedging Relationships | Location |  | Gain (Loss) Recognized in Income on Derivative |
|  |  | For the Year Ended December 31, |
|  |  | 2019 |  |  | 2018 |  |  | 2017 |
Interest rate derivatives | Interest expense |  | $ | – |  |  | $ | 1.3 |  |  | $ | (0.2 | )
Commodity derivatives | Revenue |  |  | 2.2 |  |  |  | 9.9 |  |  |  | 1.1 |
Total |  |  | $ | 2.2 |  |  | $ | 11.2 |  |  | $ | 0.9 |
Derivatives in Fair Value Hedging Relationships | Location |  | Gain (Loss) Recognized in Income on Hedged Item |
|  |  | For the Year Ended December 31, |
|  |  | 2019 |  |  | 2018 |  |  | 2017 |
Interest rate derivatives | Interest expense |  | $ | – |  |  | $ | (1.4 | ) |  | $ | 0.4 |
Commodity derivatives | Revenue |  |  | 6.9 |  |  |  | (6.9 | ) |  |  | 27.4 |
Total |  |  | $ | 6.9 |  |  | $ | (8.3 | ) |  | $ | 27.8 |
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 years indicated:
Derivatives in Cash Flow Hedging Relationships | Change in Value Recognized in Other Comprehensive Income (Loss) On Derivative |
| For the Year Ended December 31, |
| 2019 |  | 2018 |  | 2017 |
Interest rate derivatives |  | $ | 81.4 |  |  | $ | 22.2 |  |  | $ | (5.7 | )
Commodity derivatives – Revenue (1) |  |  | 55.8 |  |  |  | 293.0 |  |  |  | (33.7 | )
Commodity derivatives – Operating costs and expenses (1) |  |  | (11.7 | ) |  |  | 0.2 |  |  |  | (4.8 | )
Total |  | $ | 125.5 |  |  | $ | 315.4 |  |  | $ | (44.2 | )
(1) | The fair value of these derivative instruments will 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 |
|  |  | For the Year Ended December 31, |
|  |  | 2019 |  |  | 2018 |  |  | 2017 |
Interest rate derivatives | Interest expense |  | $ | (37.3 | ) |  | $ | (38.1 | ) |  | $ | (40.4 | )
Commodity derivatives | Revenue |  |  | 152.4 |  |  |  | 131.7 |  |  |  | (111.6 | )
Commodity derivatives | Operating costs and expenses |  |  | (10.7 | ) |  |  | (1.3 | ) |  |  | (0.6 | )
Total |  |  | $ | 104.4 |  |  | $ | 92.3 |  |  | $ | (152.6 | )
Over the next twelve months, we expect to reclassify $39.7 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 $55.7 million of gains attributable to commodity derivative instruments from accumulated other comprehensive income to earnings, $55.4 million as an increase in revenue and $0.3 million as a decrease to 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 years indicated:
Derivatives Not Designated as Hedging Instruments | Location |  | Gain (Loss) Recognized in Income on Derivative |
|  |  | For the Year Ended December 31, |
|  |  | 2019 |  |  | 2018 |  |  | 2017 |
Interest rate derivatives | Interest expense |  | $ | (94.9 | ) |  | $ | – |  |  | $ | – |
Commodity derivatives | Revenue |  |  | 102.2 |  |  |  | (462.9 | ) |  |  | (42.7 | )
Commodity derivatives | Operating costs and expenses |  |  | (12.4 | ) |  |  | 8.2 |  |  |  | 0.1 |
Total |  |  | $ | (5.1 | ) |  | $ | (454.7 | ) |  | $ | (42.6 | )
The $5.1 million loss recognized for the year ended December 31, 2019 (as noted in the preceding table) from derivatives not designated as hedging instruments consists of (i) $24.2 million of realized gains and $65.6 million of net unrealized mark-to-market gains attributable to commodity derivatives and (ii) $94.9 million of unrealized mark-to-market losses attributable to interest rate derivatives. In total and inclusive of both fair value hedges and derivatives not designated as hedging instruments, unrealized mark-to-market gains (losses) included in gross operating margin and interest expense for the years indicated:
|  | For the Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Mark-to-market gains (losses) in gross operating margin: |  |  |  |  |  |  |  |  |
NGL Pipelines & Services |  | $ | (5.5 | ) |  | $ | 18.0 |  |  | $ | (11.2 | )
Crude Oil Pipelines & Services |  |  | 80.6 |  |  |  | (44.1 | ) |  |  | (4.8 | )
Natural Gas Pipelines & Services |  |  | (0.2 | ) |  |  | 6.7 |  |  |  | (9.4 | )
Petrochemical & Refined Products Services |  |  | (7.2 | ) |  |  | 1.7 |  |  |  | 2.4 |
Total mark-to-market impact on gross operating margin |  |  | 67.7 |  |  |  | (17.7 | ) |  |  | (23.0 | )
Mark-to-market gains (losses) in interest expense |  |  | (94.9 | ) |  |  | (0.1 | ) |  |  | 0.2 |
Total |  | $ | (27.2 | ) |  | $ | (17.8 | ) |  | $ | (22.8 | )
Fair Value Measurements The following tables set forth, by level within the Level 1, 2 and 3 fair value hierarchy (see Note 2), 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. 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 December 31, 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 |  | $ | 53.4 |  |  | $ | 343.7 |  |  | $ | 0.1 |  |  | $ | 397.2 |
Impact of CME Rule 814 change |  |  | (47.0 | ) |  |  | (222.4 | ) |  |  | – |  |  |  | (269.4 | )
Total commodity derivatives |  |  | 6.4 |  |  |  | 121.3 |  |  |  | 0.1 |  |  |  | 127.8 |
Total |  | $ | 6.4 |  |  | $ | 121.3 |  |  | $ | 0.1 |  |  | $ | 127.8 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Liquidity Option (see Note 17) |  | $ | – |  |  | $ | – |  |  | $ | 509.6 |  |  | $ | 509.6 |
Interest rate derivatives |  |  | – |  |  |  | 13.5 |  |  |  | – |  |  |  | 13.5 |
Commodity derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Value before application of CME Rule 814 |  |  | 88.1 |  |  |  | 273.6 |  |  |  | 0.3 |  |  |  | 362.0 |
Impact of CME Rule 814 change |  |  | (81.9 | ) |  |  | (163.9 | ) |  |  | – |  |  |  | (245.8 | )
Total commodity derivatives |  |  | 6.2 |  |  |  | 109.7 |  |  |  | 0.3 |  |  |  | 116.2 |
Total |  | $ | 6.2 |  |  | $ | 123.2 |  |  | $ | 509.9 |  |  | $ | 639.3 |
In the aggregate, the fair value of our commodity hedging portfolios at December 31, 2019 was a net derivative asset of $35.2 million prior to the impact of CME Rule 814.
|  | 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 change |  |  | (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 (see Note 17) |  | $ | – |  |  | $ | – |  |  | $ | 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 change |  |  | (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 |
The following tables provide quantitative information regarding our recurring Level 3 fair value measurements for commodity derivatives at the dates indicated:
|  | Fair Value At December 31, 2019 |  |  |  |
|  | Financial Assets |  |  | Financial Liabilities |  | Valuation Techniques | Unobservable Input | Range
Commodity derivatives – Crude oil |  | $ | 0.1 |  |  | $ | 0.3 |  | Discounted cash flow | Forward commodity prices | $61.05-$62.14/barrel
Total |  | $ | 0.1 |  |  | $ | 0.3 |  |  |  |
|  | Fair Value At December 31, 2018 |  |  |  |
|  | Financial Assets |  |  | Financial Liabilities |  | Valuation Techniques | Unobservable Input | Range
Commodity derivatives – Crude oil |  | $ | 0.9 |  |  | $ | 0.8 |  | Discounted cash flow | Forward commodity prices | $37.59-$51.99/barrel
Commodity derivatives – Ethane |  |  | 0.4 |  |  |  | 0.6 |  | Discounted cash flow | Forward commodity prices | $0.28-$0.31/gallon
Commodity derivatives – Propane |  |  | – |  |  |  | 1.0 |  | Discounted cash flow | Forward commodity prices | $0.61-$0.66/gallon
Commodity derivatives – Normal butane |  |  | – |  |  |  | 0.7 |  | Discounted cash flow | Forward commodity prices | $0.66-$0.72/gallon
Commodity derivatives – Natural gasoline |  |  | – |  |  |  | 4.1 |  | Discounted cash flow | Forward commodity prices | $0.99-$1.01/gallon
Total |  | $ | 1.3 |  |  | $ | 7.2 |  |  |  |
With respect to commodity derivatives, we believe forward commodity prices are the most significant unobservable inputs in determining our Level 3 recurring fair value measurements at December 31, 2019. 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. The recurring fair value measurement pertaining to the Liquidity Option is based on a number of Level 3 inputs. See Note 17 for a discussion of this liability. 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 years indicated:
test |  |  | For the Year Ended December 31, |
test | Location |  | 2019 |  |  | 2018 |
Financial asset (liability) balance, net, January 1 |  |  | $ | (395.9 | ) |  | $ | (332.7 | )
Total gains (losses) included in: |  |  |  |  |  |  |  |  |
Net income (1) | Revenue |  |  | 3.7 |  |  |  | 0.7 |
Net income | Other expense, net – Liquidity Option |  |  | (119.6 | ) |  |  | (56.1 | )
Other comprehensive income (loss) | Commodity derivative instruments – changes in fair value of cash flow hedges |  |  | (2.1 | ) |  |  | (3.2 | )
Settlements (1) | Revenue |  |  | (3.5 | ) |  |  | (1.9 | )
Transfers out of Level 3 (2) |  |  |  | 7.6 |  |  |  | (2.7 | )
Financial liability balance, net, December 31 (2) |  |  | $ | (509.8 | ) |  | $ | (395.9 | )
(1) | There were $0.2 million of unrealized gains and $1.2 million of unrealized losses included in these amounts for the years ended December 31, 2019 and 2018, 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, 2019 and 2018.
Nonrecurring Fair Value Measurements Long-lived assets, which consist of intangible assets with finite useful lives and property, plant and equipment, are reviewed for impairment (i.e., subject to nonrecurring fair value measurements) when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Long-lived assets with carrying values that are not expected to be recovered through future cash flows are written-down to their estimated fair values. Similarly, we evaluate our equity method investments for impairment when there are events or changes in circumstances that indicate there is a potential loss in value of the investment attributable to an other than temporary decline. In the event we determine that the value of an investment is not recoverable due to an other than temporary decline, we record a non-cash impairment charge to adjust the carrying value of the investment to its estimated fair value. As presented in the following 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 highest and best use of the asset and include estimated probabilities where multiple cash flow outcomes are possible. When probability weights are used, the weights 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. The following table presents categories of long-lived assets that were subject to non-recurring fair value measurements during the year ended December 31, 2019:
|  |  | Fair Value Measurements at the End of the Reporting Period Using |  |  |
| Carrying Value at December 31, 2019 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total Non-Cash Impairment Loss |
Long-lived assets disposed of other than by sale |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | 50.6 |
Long-lived assets held and used |  |  | 0.3 |  |  |  | – |  |  |  | – |  |  |  | 0.3 |  |  |  | 0.5 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 51.1 |
As presented on our Statement of Consolidated Cash Flows, total non-cash asset impairment and related charges for the year ended December 31, 2019 were $132.8 million, which consisted of $76.4 million for the impairment of our investment in Centennial (see Note 5), $51.1 million of impairment charges attributable to long-lived assets and $5.3 million of impairment charges attributable to the write-down of surplus materials classified as current assets. The impairment charges attributable to long-lived assets were primarily due to the planned abandonment of certain terminal and natural gas processing plants in Texas. The following table presents categories of long-lived assets, primarily property, plant and equipment, that were subject to non-recurring fair value measurements during the year ended December 31, 2018:
|  |  | Fair Value Measurements at the End of the Reporting Period Using |  |  |
| Carrying Value at December 31, 2018 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total Non-Cash Impairment Loss |
Long-lived assets disposed of other than by sale |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | 43.7 |
Long-lived assets held and used |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | 3.1 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 46.8 |
Total non-cash asset impairment and related charges during 2018 were $50.5 million, which consisted of $46.8 million of impairment charges attributable to long-lived assets and $3.7 million of impairment charges attributable to the write-down of surplus materials classified as current assets. The impairment charges attributable to long-lived assets were primarily due to the planned abandonment of certain terminal and natural gas processing plants in Texas. The following table presents categories of long-lived assets, primarily property, plant and equipment, that were subject to non-recurring fair value measurements during the year ended December 31, 2017:
|  |  |  |  | Fair Value Measurements at the End of the Reporting Period Using |  |  |  |
|  | Carrying Value at December 31, 2017 |  |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total Non-Cash Impairment Loss |
Long-lived assets disposed of other than by sale |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | – |  |  | $ | 16.7 |
Long-lived assets held and used |  |  | 1.5 |  |  |  | – |  |  |  | – |  |  |  | 1.5 |  |  |  | 15.4 |
Long-lived assets held for sale |  |  | 2.5 |  |  |  | – |  |  |  | – |  |  |  | 2.5 |  |  |  | 2.5 |
Long-lived assets disposed of by sale |  |  | – |  |  |  | – |  |  |  | – |  |  |  | – |  |  |  | 3.2 |
Total |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 37.8 |
Total non-cash asset impairment and related charges during 2017 were $49.8 million, which consisted of $37.8 million of impairment charges attributable to long-lived assets and $12.0 million of impairment charges attributable to the write-down of surplus materials classified as current assets. The impairment charges attributable to long-lived assets were primarily due to the write-down of certain natural gas pipeline laterals and other pipelines in Texas and for the planned abandonment of certain storage and pipeline assets in Texas. 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 $30.37 billion and $25.97 billion at December 31, 2019 and 2018, respectively. The aggregate carrying value of these debt obligations was $27.15 billion and $26.15 billion at December 31, 2019 and 2018, respectively. These values are primarily based on quoted market prices for such debt or debt of similar terms and maturities (Level 2) and our credit standing. 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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