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; (ii) interest rate swap agreements; and (iii) cross-currency swap agreements, based on the three levels established by the Codification (in millions). The tables also identify the impact of derivative contracts which we have elected to present on our accompanying consolidated balance sheets on a gross basis that are eligible for netting under master netting agreements.



	Balance sheet asset fair value measurements by level
	Level 1		Level 2		Level 3		Gross amount		Contracts available for netting			Cash collateral held(b)			Net amount
As of December 31, 2017
Energy commodity derivative contracts(a)	$	17	$	70	$	—	$	87	$	(42	)	$	(12	)	$	33
Interest rate swap agreements	$	—	$	205	$	—	$	205	$	(15	)	$	—		$	190
Cross-currency swap agreements	$	—	$	166	$	—	$	166	$	(6	)	$	—		$	160
As of December 31, 2016
Energy commodity derivative contracts(a)	$	6	$	168	$	—	$	174	$	(43	)	$	—		$	131
Interest rate swap agreements	$	—	$	300	$	—	$	300	$	(18	)	$	—		$	282



	Balance sheet liability fair value measurements by level
	Level 1			Level 2			Level 3		Gross amount			Contracts available for netting		Collateral posted(b)		Net amount
As of December 31, 2017
Energy commodity derivative contracts(a)	$	(3	)	$	(98	)	$	—	$	(101	)	$	42	$	—	$	(59	)
Interest rate swap agreements	$	—		$	(65	)	$	—	$	(65	)	$	15	$	—	$	(50	)
Cross-currency swap agreements	$	—		$	(6	)	$	—	$	(6	)	$	6	$	—	$	—
As of December 31, 2016
Energy commodity derivative contracts(a)	$	(29	)	$	(82	)	$	—	$	(111	)	$	43	$	37	$	(31	)
Interest rate swap agreements	$	—		$	(57	)	$	—	$	(57	)	$	18	$	—	$	(39	)
Cross-currency swap agreements	$	—		$	(31	)	$	—	$	(31	)	$	—	$	—	$	(31	)

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(a)	Level 1 consists primarily of NYMEX natural gas futures. Level 2 consists primarily of OTC WTI swaps and NGL swaps.


(b)	Any cash collateral paid or received is reflected in this table, but only to the extent that it represents variation margins. Any amount 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 table below provides a summary of changes in the fair value of our Level 3 energy commodity derivative contracts (in millions):

Significant unobservable inputs (Level 3)

	Year Ended December 31,
	2017		2016
Derivatives-net asset (liability)
Beginning of period	$	—	$	(15	)
Total gains or (losses) included in earnings	—		(9		)
Settlements	—		24
End of period	$	—	$	—
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	$	—	$	—

During 2016, our Level 3 derivative asset and liability activity consisted primarily of power derivative contracts (which expired in April 2016), where a significant portion of fair value is calculated from underlying market data that is not readily observable. 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, and management would not expect materially different valuation results were we to use different input amounts within reasonable ranges.

Fair Value of Financial Instruments

The carrying value and estimated fair value of our outstanding debt balances is disclosed below (in millions):



	December 31, 2017				December 31, 2016
	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Total debt	$	37,843	$	40,050	$	40,050	$	41,015

We used Level 2 input values to measure the estimated fair value of our outstanding debt balance as of both December 31, 2017 and 2016.