v2.4.0.6
Fair Value
 3 Months Ended
Mar. 31, 2013
Fair Value Disclosures [Abstract]  
Fair Value
Fair Value
 
The fair values of our financial instruments are separated into three broad levels (Levels 1, 2 and 3) based on our assessment of the availability of observable market data and the significance of non-observable data used to determine fair value.  Each fair value measurement must be assigned to a level corresponding to the lowest level input that is significant to the fair value measurement in its entirety.
 
The three broad levels of inputs defined by the fair value hierarchy are as follows:
•
Level 1 Inputs—quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date;
•
Level 2 Inputs—inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.  If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability; and
•
Level 3 Inputs—unobservable inputs for the asset or liability.  These unobservable inputs reflect the entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances (which might include the reporting entity’s own data).
 
Fair Value of Derivative Contracts
 
The following two tables summarize the fair value measurements of our (i) energy commodity derivative contracts and (ii) interest rate swap agreements as of March 31, 2013 and December 31, 2012, based on the three levels established by the Codification.  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 fair value measurements in the tables below do not include cash margin deposits made by us or our counterparties, which are reported within “Other current assets” and “Accrued other current liabilities,” respectively, in our accompanying consolidated balance sheets (in millions). 
 
Asset fair value measurements using
 
Total
 
Quoted prices in active markets for identical
 assets (Level 1)
 
Significant other observable inputs (Level 2)
 
Significant
unobservable
 inputs (Level 3)
As of March 31, 2013
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
78

 
$
2

 
$
57

 
$
19

Interest rate swap agreements
$
579

 
$
—

 
$
579

 
$
—

As of December 31, 2012
 

 
 

 
 

 
 

Energy commodity derivative contracts(a)
$
107

 
$
3

 
$
76

 
$
28

Interest rate swap agreements
$
665

 
$
—

 
$
665

 
$
—


 
Liability fair value measurements using
 
Total
 
Quoted prices in 
active markets
for identical
liabilities
(Level 1)
 
Significant other  observable
inputs (Level 2)
 
Significant
unobservable
 inputs (Level 3)
As of March 31, 2013
 
 
 
 
 
 
 
Energy commodity derivative contracts(a)
$
(217
)
 
$
(17
)
 
$
(39
)
 
$
(161
)
Interest rate swap agreements
$
(3
)
 
$
—

 
$
(3
)
 
$
—

As of December 31, 2012
 

 
 

 
 

 
 

Energy commodity derivative contracts(a)
$
(212
)
 
$
(3
)
 
$
(26
)
 
$
(183
)
Interest rate swap agreements
$
(1
)
 
$
—

 
$
(1
)
 
$
—

_______
(a)
Level 1 consists primarily of the New York Mercantile Exchange (NYMEX) natural gas futures.  Level 2 consists primarily of over-the-counter (OTC) West Texas Intermediate swaps and OTC natural gas swaps that are settled on NYMEX.  Level 3 consists primarily of West Texas Intermediate options, West Texas Intermediate basis swaps and power derivative contracts.

The table below provides a summary of changes in the fair value of our Level 3 energy commodity derivative contracts for each of the three months ended March 31, 2013 and 2012 (in millions):

Significant unobservable inputs (Level 3)
 
 
Three Months Ended
March 31,
 
2013
 
2012
Derivatives-net asset (liability)
 
 
 
Beginning of Period
$
(155
)
 
$
7

Total gains or (losses)
 

 
 

Included in earnings
5

 
2

Included in other comprehensive loss
(1
)
 
(22
)
Purchases
—

 
3

Settlements
9

 
7

End of Period
$
(142
)
 
$
(3
)
The amount of total gains or (losses) for the period included in earnings attributable to the change in unrealized gains or (losses) relating to assets held at the reporting date
$
(1
)
 
$
2



As of March 31, 2013, our Level 3 derivative assets and liabilities consisted primarily of West Texas Intermediate (WTI) options, WTI basis swaps and power-related derivatives, where a significant portion of fair value is calculated from underlying market data that is not readily available. The derived values use industry standard methodologies that may consider the historical relationships among various commodities, modeled market prices, time value, volatility factors and other relevant economic measures. The use of these inputs results in management’s best estimate of fair value. For each of the three months ended March 31, 2013 and 2012, Level 3 activity was not material.


Fair Value of Financial Instruments
 
The estimated fair value of our outstanding debt balance as of March 31, 2013 and December 31, 2012 (both short-term and long-term and including debt fair value adjustments), is disclosed below (in millions):
 
March 31, 2013
 
December 31, 2012
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Total debt
$
34,390

 
$
36,248

 
$
34,401

 
$
36,720


 
We used Level 2 input values to measure the estimated fair value of our outstanding debt balance as of both March 31, 2013 and December 31, 2012.