v2.4.0.6

Risk Management | 3 Months Ended
--- | ---
Mar. 31, 2013
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Risk Management | Risk Management Certain of our business activities expose us to risks associated with unfavorable changes in the market price of natural gas, natural gas liquids and crude oil. We also have exposure to interest rate risk as a result of the issuance of our debt obligations. Pursuant to our management’s approved risk management policy, we use derivative contracts to hedge or reduce our exposure to certain of these risks. As part of the El Paso acquisition (see Note 2), we acquired long-term natural gas and power forward and swap contracts. We have entered into offsetting positions that eliminate the price risks associated with our power contracts and substantially offset the fixed price exposure related to our natural gas supply contracts. None of these derivatives are designated as accounting hedges. Energy Commodity Price Risk Management As of March 31, 2013, KMI and KMP had entered into the following outstanding commodity forward contracts to hedge their forecast energy commodity purchases and sales:
| Net open position long/(short)
Derivatives designated as hedging contracts |  |  |
Crude oil fixed price | (21.4 | ) |  | million barrels
Natural gas fixed price | (33.9 | ) |  | billion cubic feet
Natural gas basis | (34.4 | ) |  | billion cubic feet
Derivatives not designated as hedging contracts |  |  |  |
Crude oil fixed price | (0.1 | ) |  | million barrels
Crude oil basis | (3.6 | ) |  | million barrels
Natural gas fixed price | (2.0 | ) |  | billion cubic feet
Natural gas basis | 13.1 |  |  | billion cubic feet
As of March 31, 2013, the maximum length of time over which we have hedged our exposure to the variability in future cash flows associated with energy commodity price risk is through December 2016. Interest Rate Risk Management As of both March 31, 2013 and December 31, 2012, KMI and KMP each had combined notional principal amounts of $725 million and $5,525 million, respectively, of fixed-to-variable interest rate swap agreements, effectively converting the interest expense associated with certain series of senior notes from fixed rates to variable rates based on an interest rate of London InterBank Offered Rate (LIBOR) plus a spread. All of KMI’s and KMP’s swap agreements have termination dates that correspond to the maturity dates of the related series of senior notes and, as of March 31, 2013, the maximum length of time over which we have hedged a portion of our exposure to the variability in the value of this debt due to interest rate risk is through March 15, 2035. Fair Value of Derivative Contracts The fair values of our current and non-current asset and liability derivative contracts are each reported separately as “Fair value of derivative contracts” in the respective sections of our accompanying consolidated balance sheets. The following table summarizes the fair values of our derivative contracts included on our accompanying consolidated balance sheets as of March 31, 2013 and December 31, 2012 (in millions):
Fair Value of Derivative Contracts
|  |  |  | Asset derivatives |  | Liability derivatives
|  |  |  | March 31, |  | December 31, |  | March 31, |  | December 31,
|  |  |  | 2013 |  | 2012 |  | 2013 |  | 2012
|  | Balance sheet location |  | Fair value |  | Fair Value |  | Fair value |  | Fair Value
Derivatives designated as hedging contracts |  |  |  |  |  |  |  |  |  |
Natural gas and crude derivative contracts |  | Current-Fair value of derivative contracts |  | $ | 19 |  |  | $ | 42 |  |  | $ | (45 | ) |  | $ | (18 | )
|  | Non-current-Fair value of derivative contracts |  | 37 |  |  | 40 |  |  | (8 | ) |  | (11 | )
Subtotal |  |  |  | 56 |  |  | 82 |  |  | (53 | ) |  | (29 | )
Interest rate swap agreements - Fair value hedges |  | Current-Fair value of derivative contracts |  | 7 |  |  | 9 |  |  | — |  |  | — |
|  | Non-current-Fair value of derivative contracts |  | 572 |  |  | 656 |  |  | (3 | ) |  | (1 | )
Subtotal |  |  |  | 579 |  |  | 665 |  |  | (3 | ) |  | (1 | )
Total |  |  |  | 635 |  |  | 747 |  |  | (56 | ) |  | (30 | )
Derivatives not designated as hedging contracts |  |  |  |  |  |  |  |  |  |  |  |
Natural gas and crude derivative contracts |  | Current-Fair value of derivative contracts |  | 7 |  |  | 4 |  |  | (4 | ) |  | (3 | )
|  | Non-current-Fair value of derivative contracts |  | — |  |  | — |  |  | — |  |  | (1 | )
Subtotal |  |  |  | 7 |  |  | 4 |  |  | (4 | ) |  | (4 | )
Power derivative contracts |  | Current-Fair value of derivative contracts |  | 6 |  |  | 8 |  |  | (55 | ) |  | (59 | )
|  | Non-current-Fair value of derivative contracts |  | 9 |  |  | 13 |  |  | (105 | ) |  | (120 | )
Subtotal |  |  |  | 15 |  |  | 21 |  |  | (160 | ) |  | (179 | )
Total |  |  |  | 22 |  |  | 25 |  |  | (164 | ) |  | (183 | )
Total derivatives(a) |  |  |  | $ | 657 |  |  | $ | 772 |  |  | $ | (220 | ) |  | $ | (213 | )
_______
(a) | As of March 31, 2013 and December 31, 2012, we presented the fair value of our derivative contracts on a gross basis on our accompanying consolidated balance sheets. If we had elected to net derivative contracts subject to master netting agreements as of March 31, 2013 and December 31, 2012, the impact would have reduced our derivative assets and liabilities by $33 million and $38 million, respectively. As of March 31, 2013 and December 31, 2012, KMP had cash margin deposits associated with its derivative contracts posted with counterparties of $21 million and $5 million, respectively, that would have additionally reduced our derivative liabilities.
Debt Fair Value Adjustments The offsetting entry to adjust the carrying value of the debt securities whose fair value was being hedged is included within “Debt fair value adjustments” on our accompanying consolidated balance sheets. Our “Debt fair value adjustments” also include amounts associated with the offsetting entry for hedged debt, all unamortized debt discount/premium amounts, purchase accounting on our debt balances, and any unamortized portion of proceeds received from the early termination of interest rate swap agreements. These fair value adjustments to our debt balances included (i) $1,431 million and $1,470 million at March 31, 2013 and December 31, 2012, respectively, associated with fair value adjustments to our debt previously recorded in purchase accounting; (ii) $576 million and $664 million at March 31, 2013 and December 31, 2012, respectively, associated with the offsetting entry for hedged debt; (iii) $478 million and $490 million at March 31, 2013 and December 31, 2012, respectively, associated with unamortized premium from the termination of interest rate swap agreements; and offset by (iv) $36 million and $33 million at March 31, 2013 and December 31, 2012, respectively, associated with unamortized debt discount amounts. As of March 31, 2013, the weighted-average amortization period of the unamortized premium from the termination of the interest rate swaps was approximately 18 years. Effect of Derivative Contracts on the Income Statement The following three tables summarize the impact of our derivative contracts on our accompanying consolidated statements of income for each of the three months ended March 31, 2013 and 2012 (in millions):
Derivatives in fair value hedging relationships |  | Location of gain/(loss) recognized in income on derivatives |  | Amount of gain/(loss) recognized in income on derivatives and related hedged item(a)
|  |  |  | Three Months Ended March 31,
|  |  |  | 2013 |  | 2012
Interest rate swap agreements |  | Interest expense |  | $ | (88 | ) |  | $ | (115 | )
Total |  |  |  | $ | (88 | ) |  | $ | (115 | )
Fixed rate debt |  | Interest expense |  | $ | 88 |  |  | $ | 115 |
Total |  |  |  | $ | 88 |  |  | $ | 115 |
_______
(a) | Amounts reflect the change in the fair value of interest rate swap agreements and the change in the fair value of the associated fixed rate debt which exactly offset each other as a result of no hedge ineffectiveness.
Derivatives in cash flow hedging relationships |  | Amount of gain/(loss) recognized in OCI on derivative(effective portion)(a) |  | Location of gain/(loss) reclassified from Accumulated OCI into income (effective portion) |  | Amount of gain/(loss) reclassified from Accumulated OCI into income (effective portion)(b) |  | Location of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing) |  | Amount of gain/(loss) recognized in income on derivative (ineffective portion and amount excluded from effectiveness testing)
|  | Three Months Ended March 31, |  |  |  | Three Months Ended March 31, |  |  |  | Three Months Ended March 31,
|  | 2013 |  | 2012 |  |  |  | 2013 |  | 2012 |  |  |  | 2013 |  | 2012
Energy commodity derivative contracts |  | $ | (32 | ) |  | $ | (86 | ) |  | Revenues-Natural gas sales |  | $ | — |  |  | $ | — |  |  | Revenues-Natural gas sales |  | $ | — |  |  | $ | — |
|  |  |  |  |  | Revenues-Product sales and other |  | 5 |  |  | (21 | ) |  | Revenues-Product sales and other |  | (3 | ) |  | (3 | )
|  |  |  |  |  | Gas purchases and other costs of sales |  | — |  |  | (2 | ) |  | Gas purchases and other costs of sales |  | — |  |  | — |
Interest rate swap agreements |  | 1 |  |  | — |  |  | Interest expense |  | 1 |  |  | — |  |  | Interest Expense |  | — |  |  | — |
Total |  | $ | (31 | ) |  | $ | (86 | ) |  | Total |  | $ | 6 |  |  | $ | (23 | ) |  | Total |  | $ | (3 | ) |  | $ | (3 | )
_______
(a) | We expect to reclassify an approximate $12 million loss associated with derivatives and included in our accumulated other comprehensive loss and noncontrolling interest balances as of March 31, 2013 into earnings during the next twelve months (when the associated forecasted transactions are also expected to occur), however, actual amounts reclassified into earnings could vary materially as a result of changes in market prices.
(b) | No material amounts were reclassified into earnings as a result of the discontinuance of cash flow hedges because it was probable that the original forecast transactions would no longer occur by the end of the originally specified time period or within an additional two-month period of time thereafter, but rather, the amounts reclassified were the result of the hedged forecast transactions actually affecting earnings (i.e., when the forecast sales and purchases actually occurred).
Derivatives not designated as hedging contracts |  | Location of gain/(loss) recognized in income on derivatives |  | Amount of gain/(loss) recognized in income on derivatives
|  |  |  | Three Months Ended March 31,
|  |  |  | 2013 |  | 2012
Natural gas derivative contracts |  | Revenues-Natural gas sales |  | $ | 1 |  |  | $ | — |
Crude oil derivative contracts |  | Revenues-Product sales and other |  | 4 |  |  | — |
Power derivative contracts |  | Revenues-Product sales and other |  | (2 | ) |  | — |
Total |  |  |  | $ | 3 |  |  | $ | — |
Credit Risks We and our subsidiary, KMP, have counterparty credit risk as a result of our use of financial derivative contracts. Our counterparties consist primarily of financial institutions, major energy companies, natural gas and electric utilities, and local distribution companies. This concentration of counterparties may impact our overall exposure to credit risk, either positively or negatively, in that the counterparties may be similarly affected by changes in economic, regulatory or other conditions. We maintain credit policies with regard to our counterparties that we believe minimize our overall credit risk. These policies include (i) an evaluation of potential counterparties’ financial condition (including credit ratings); (ii) collateral requirements under certain circumstances; and (iii) the use of standardized agreements which allow for netting of positive and negative exposure associated with a single counterparty. Based on our policies, exposure, credit and other reserves, our management does not anticipate a material adverse effect on our financial position, results of operations, or cash flows as a result of counterparty performance. Our over-the-counter swaps and options are entered into with counterparties outside central trading organizations such as futures, options or stock exchanges. These contracts are with a number of parties, all of which have investment grade credit ratings. While we enter into derivative transactions principally with investment grade counterparties and actively monitor their ratings, it is nevertheless possible that from time to time losses will result from counterparty credit risk in the future. The maximum potential exposure to credit losses on derivative contracts as of March 31, 2013 was as follows (in millions):
| Asset position
Interest rate swap agreements | $ | 579 |
Energy commodity derivative contracts | 78 |
Gross exposure | 657 |
Netting agreement impact | (33 | )
Cash collateral held | — |
Net exposure | $ | 624 |
In conjunction with the purchase of exchange-traded derivative contracts or when the market value of our derivative contracts with specific counterparties exceeds established limits, we are required to provide collateral to our counterparties, which may include posting letters of credit or placing cash in margin accounts. As of both March 31, 2013 and December 31, 2012, KMP had no outstanding letters of credit supporting its hedging of energy commodity price risks associated with the sale of natural gas, natural gas liquids and crude oil. As of March 31, 2013 and December 31, 2012, KMP had cash margin deposits associated with its energy commodity contract positions and over-the-counter swap partners totaling $21 million and $5 million, respectively, and we reported this amount within “Other current assets” in our accompanying consolidated balance sheets. As of both March 31, 2013 and December 31, 2012, KMI had $300 million of outstanding letters of credit supporting its commodity price risks associated with the sale of natural gas and power. As of both March 31, 2013 and December 31, 2012, KMI had no margin deposits outstanding with counterparties associated with its energy commodity contract positions and over-the-counter swap agreements. KMP and KMI also have agreements with certain counterparties to their derivative contracts that contain provisions requiring the posting of additional collateral upon a decrease in their credit rating. As of March 31, 2013, we estimate that if KMP’s credit rating was downgraded one notch, KMP would be required to post no additional collateral to its counterparties. If KMP was downgraded two notches (that is, below investment grade), KMP would be required to post $13 million of incremental collateral. As of March 31, 2013, we estimate that if KMI’s credit rating was downgraded one or two notches, KMI would be required to post no additional collateral to its counterparties. Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income Changes in the components of our “Accumulated other comprehensive income” for the three months ended March 31, 2013 are summarized as follows (in millions):
| Net unrealized gains/(losses) on cash flow hedge derivatives |  | Foreign currency translation adjustments |  | Pension and other postretirement liability adjs. |  | Total Accumulated other comprehensive income/(loss)
Balance as of December 31, 2012 | $ | 7 |  |  | $ | 51 |  |  | $ | (177 | ) |  | $ | (119 | )
Other comprehensive income before reclassifications | (16 | ) |  | (17 | ) |  | (1 | ) |  | (34 | )
Amounts reclassified from accumulated other comprehensive income | (4 | ) |  | — |  |  | — |  |  | (4 | )
Net current-period other comprehensive income | (20 | ) |  | (17 | ) |  | (1 | ) |  | (38 | )
Balance as of March 31, 2013 | $ | (13 | ) |  | $ | 34 |  |  | $ | (178 | ) |  | $ | (157 | )

X
- Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for the entity's entire derivative instruments and hedging activities. Describes an entity's risk management strategies, derivatives in hedging activities and non-hedging derivative instruments, the assets, obligations, liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80784-113994 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4C -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624171-113959 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4E -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624181-113959 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4K -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708775-113959 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579245-113959 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(n)) -URI http://asc.fasb.org/extlink&oid=6881521&loc=d3e23780-122690 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41641-113959 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5579240-113959 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 45 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6441202&loc=d3e80720-113993 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41638-113959 Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41635-113959 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7476318&loc=d3e41620-113959 Reference 14: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4D -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624177-113959 Reference 15: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 25 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6886632&loc=d3e76258-113986 Reference 16: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4H -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624258-113959 Reference 17: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4J -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5708773-113959 Reference 18: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 1B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5580258-113959 Reference 19: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4B -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5624163-113959 Reference 20: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 45 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 21: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 10 -Section 50 -Paragraph 4A -URI http://asc.fasb.org/extlink&oid=7476318&loc=SL5618551-113959 Reference 22: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 30 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=7668309&loc=d3e80748-113994 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration