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Derivative Assets And Liabilities | 12 Months Ended
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Dec. 31, 2016
General Discussion of Derivative Instruments and Hedging Activities [Abstract] |
Derivative Assets And Liabilities | DERIVATIVE ASSETS AND LIABILITIES: Commodity Price Risk We are exposed to market risks related to the volatility of commodity prices. To manage the impact of volatility from these prices, we utilize various exchange-traded and OTC commodity financial instrument contracts. These contracts consist primarily of futures, swaps and options and are recorded at fair value in our consolidated balance sheets. We use futures and basis swaps, designated as fair value hedges, to hedge our natural gas inventory stored in our Bammel storage facility. At hedge inception, we lock in a margin by purchasing gas in the spot market or off peak season and entering into a financial contract. Changes in the spreads between the forward natural gas prices and the physical inventory spot price result in unrealized gains or losses until the underlying physical gas is withdrawn and the related designated derivatives are settled. Once the gas is withdrawn and the designated derivatives are settled, the previously unrealized gains or losses associated with these positions are realized. We use futures, swaps and options to hedge the sales price of natural gas we retain for fees in our intrastate transportation and storage operations and operational gas sales on our interstate transportation and storage operations. These contracts are not designated as hedges for accounting purposes. We use NGL and crude derivative swap contracts to hedge forecasted sales of NGL and condensate equity volumes we retain for fees in our midstream operations whereby our subsidiaries generally gather and process natural gas on behalf of producers, sell the resulting residue gas and NGL volumes at market prices and remit to producers an agreed upon percentage of the proceeds based on an index price for the residue gas and NGL. These contracts are not designated as hedges for accounting purposes. We use derivatives in our NGL and refined products transportation and services operations to manage our storage facilities and the purchase and sale of purity NGL. These contracts are not designated as hedges for accounting purposes. Sunoco Logistics utilizes swaps, futures and other derivative instruments to mitigate the risk associated with market movements in the price of refined products and NGLs. These contracts are not designated as hedges for accounting purposes. We use futures and swaps to achieve ratable pricing of crude oil purchases, to convert certain expected refined product sales to fixed or floating prices, to lock in margins for certain refined products and to lock in the price of a portion of natural gas purchases or sales and transportation costs in our retail marketing operations. These contracts are not designated as hedges for accounting purposes. We use financial commodity derivatives to take advantage of market opportunities in our trading activities which complement our transportation and storage operations’ and are netted in cost of products sold in our consolidated statements of operations. We also have trading and marketing activities related to power and natural gas in our all other operations which are also netted in cost of products sold. As a result of our trading activities and the use of derivative financial instruments in our transportation and storage operations, the degree of earnings volatility that can occur may be significant, favorably or unfavorably, from period to period. We attempt to manage this volatility through the use of daily position and profit and loss reports provided to our risk oversight committee, which includes members of senior management, and the limits and authorizations set forth in our commodity risk management policy. The following table details our outstanding commodity-related derivatives:
| December 31, 2016 |  | December 31, 2015
| Notional Volume |  | Maturity |  | Notional Volume |  | Maturity
Mark-to-Market Derivatives |  |  |  |  |  |  |
(Trading) |  |  |  |  |  |  |
Natural Gas (MMBtu): |  |  |  |  |  |  |
Fixed Swaps/Futures | (682,500 | ) |  | 2017 |  | (602,500 | ) |  | 2016 - 2017
Basis Swaps IFERC/NYMEX (1) | 2,242,500 |  |  | 2017 |  | (31,240,000 | ) |  | 2016 - 2017
Power (Megawatt): |  |  |  |  |  |  |
Forwards | 391,880 |  |  | 2017 - 2018 |  | 357,092 |  |  | 2016 - 2017
Futures | 109,564 |  |  | 2017 - 2018 |  | (109,791 | ) |  | 2016
Options — Puts | (50,400 | ) |  | 2017 |  | 260,534 |  |  | 2016
Options — Calls | 186,400 |  |  | 2017 |  | 1,300,647 |  |  | 2016
Crude (Bbls) – Futures | (617,000 | ) |  | 2017 |  | (591,000 | ) |  | 2016 - 2017
(Non-Trading) |  |  |  |  |  |  |
Natural Gas (MMBtu): |  |  |  |  |  |  |
Basis Swaps IFERC/NYMEX | 10,750,000 |  |  | 2017 - 2018 |  | (6,522,500 | ) |  | 2016 - 2017
Swing Swaps IFERC | (5,662,500 | ) |  | 2017 |  | 71,340,000 |  |  | 2016 - 2017
Fixed Swaps/Futures | (52,652,500 | ) |  | 2017 - 2019 |  | (14,380,000 | ) |  | 2016 - 2018
Forward Physical Contracts | (22,492,489 | ) |  | 2017 |  | 21,922,484 |  |  | 2016 - 2017
Natural Gas Liquid (Bbls) – Forwards/Swaps | (5,786,627 | ) |  | 2017 |  | (8,146,800 | ) |  | 2016 - 2018
Refined Products (Bbls) – Futures | (3,144,000 | ) |  | 2017 |  | (1,289,000 | ) |  | 2016 - 2017
Corn (Bushels) – Futures | 1,580,000 |  |  | 2017 |  | 1,185,000 |  |  | 2016
Fair Value Hedging Derivatives |  |  |  |  |  |  |
(Non-Trading) |  |  |  |  |  |  |
Natural Gas (MMBtu): |  |  |  |  |  |  |
Basis Swaps IFERC/NYMEX | (36,370,000 | ) |  | 2017 |  | (37,555,000 | ) |  | 2016
Fixed Swaps/Futures | (36,370,000 | ) |  | 2017 |  | (37,555,000 | ) |  | 2016
Hedged Item — Inventory | 36,370,000 |  |  | 2017 |  | 37,555,000 |  |  | 2016
(1) | Includes aggregate amounts for open positions related to Houston Ship Channel, Waha Hub, NGPL TexOk, West Louisiana Zone and Henry Hub locations.
Interest Rate Risk We are exposed to market risk for changes in interest rates. To maintain a cost effective capital structure, we borrow funds using a mix of fixed rate debt and variable rate debt. We also manage our interest rate exposure by utilizing interest rate swaps to achieve a desired mix of fixed and variable rate debt. We also utilize forward starting interest rate swaps to lock in the rate on a portion of our anticipated debt issuances. The following table summarizes our interest rate swaps outstanding, none of which are designated as hedges for accounting purposes:
|  |  |  |  |  | Notional Amount Outstanding
Entity |  | Term |  | Type(1) |  | December 31, 2016 |  | December 31, 2015
ETP |  | July 2016(2) |  | Forward-starting to pay a fixed rate of 3.80% and receive a floating rate |  | $ | — |  |  | $ | 200 |
ETP |  | July 2017(3) |  | Forward-starting to pay a fixed rate of 3.90% and receive a floating rate |  | 500 |  |  | 300 |
ETP |  | July 2018(3) |  | Forward-starting to pay a fixed rate of 4.00% and receive a floating rate |  | 200 |  |  | 200 |
ETP |  | July 2019(3) |  | Forward-starting to pay a fixed rate of 3.25% and receive a floating rate |  | 200 |  |  | 200 |
ETP |  | December 2018 |  | Pay a floating rate based on a 3-month LIBOR and receive a fixed rate of 1.53% |  | 1,200 |  |  | 1,200 |
ETP |  | March 2019 |  | Pay a floating rate based on a 3-month LIBOR and receive a fixed rate of 1.42% |  | 300 |  |  | 300 |
(1) | Floating rates are based on 3-month LIBOR.
(2) | Represents the effective date. These forward-starting swaps have terms of 10 and 30 years with a mandatory termination date the same as the effective date.
(3) | Represents the effective date. These forward-starting swaps have a term of 30 years with a mandatory termination date the same as the effective date.
Credit Risk Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a loss to the Partnership. Credit policies have been approved and implemented to govern the Partnership’s portfolio of counterparties with the objective of mitigating credit losses. These policies establish guidelines, controls and limits to manage credit risk within approved tolerances by mandating an appropriate evaluation of the financial condition of existing and potential counterparties, monitoring agency credit ratings, and by implementing credit practices that limit exposure according to the risk profiles of the counterparties. Furthermore, the Partnership may, at times, require collateral under certain circumstances to mitigate credit risk as necessary. The Partnership also uses industry standard commercial agreements which allow for the netting of exposures associated with transactions executed under a single commercial agreement. Additionally, we utilize master netting agreements to offset credit exposure across multiple commercial agreements with a single counterparty or affiliated group of counterparties. The Partnership’s counterparties consist of a diverse portfolio of customers across the energy industry, including petrochemical companies, commercial and industrials, oil and gas producers, municipalities, gas and electric utilities, midstream companies, independent power generators and fuel distributors. Our overall exposure may be affected positively or negatively by macroeconomic or regulatory changes that impact our counterparties to one extent or another. Currently, management does not anticipate a material adverse effect in our financial position or results of operations as a consequence of counterparty non-performance. The Partnership has maintenance margin deposits with certain counterparties in the OTC market, primarily independent system operators, and with clearing brokers. Payments on margin deposits are required when the value of a derivative exceeds our pre-established credit limit with the counterparty. Margin deposits are returned to us on or about the settlement date for non-exchange traded derivatives, and we exchange margin calls on a daily basis for exchange traded transactions. Since the margin calls are made daily with the exchange brokers, the fair value of the financial derivative instruments are deemed current and netted in deposits paid to vendors within other current assets in the consolidated balance sheets. For financial instruments, failure of a counterparty to perform on a contract could result in our inability to realize amounts that have been recorded on our consolidated balance sheets and recognized in net income or other comprehensive income. Derivative Summary The following table provides a summary of our derivative assets and liabilities:
| Fair Value of Derivative Instruments
| Asset Derivatives |  | Liability Derivatives
| December 31, 2016 |  | December 31, 2015 |  | December 31, 2016 |  | December 31, 2015
Derivatives designated as hedging instruments: |  |  |  |  |  |  |
Commodity derivatives (margin deposits) | $ | — |  |  | $ | 38 |  |  | $ | (4 | ) |  | $ | (3 | )
| — |  |  | 38 |  |  | (4 | ) |  | (3 | )
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity derivatives (margin deposits) | 338 |  |  | 353 |  |  | (416 | ) |  | (306 | )
Commodity derivatives | 25 |  |  | 63 |  |  | (58 | ) |  | (47 | )
Interest rate derivatives | — |  |  | — |  |  | (193 | ) |  | (171 | )
Embedded derivatives in ETP Preferred Units | — |  |  | — |  |  | (1 | ) |  | (5 | )
| 363 |  |  | 416 |  |  | (668 | ) |  | (529 | )
Total derivatives | $ | 363 |  |  | $ | 454 |  |  | $ | (672 | ) |  | $ | (532 | )
The following table presents the fair value of our recognized derivative assets and liabilities on a gross basis and amounts offset on the consolidated balance sheets that are subject to enforceable master netting arrangements or similar arrangements:
|  |  |  | Asset Derivatives |  | Liability Derivatives
|  | Balance Sheet Location |  | December 31, 2016 |  | December 31, 2015 |  | December 31, 2016 |  | December 31, 2015
Derivatives without offsetting agreements |  | Derivative assets (liabilities) |  | $ | — |  |  | $ | — |  |  | $ | (194 | ) |  | $ | (176 | )
Derivatives in offsetting agreements: |  |  |  |  |  |  |  |
OTC contracts |  | Derivative assets (liabilities) |  | 25 |  |  | 63 |  |  | (58 | ) |  | (47 | )
Broker cleared derivative contracts |  | Other current assets |  | 338 |  |  | 391 |  |  | (420 | ) |  | (309 | )
|  | 363 |  |  | 454 |  |  | (672 | ) |  | (532 | )
Offsetting agreements: |  |  |  |  |  |  |  |
Counterparty netting |  | Derivative assets (liabilities) |  | (4 | ) |  | (17 | ) |  | 4 |  |  | 17 |
Payments on margin deposit |  | Other current assets |  | (338 | ) |  | (309 | ) |  | 338 |  |  | 309 |
Total net derivatives |  | $ | 21 |  |  | $ | 128 |  |  | $ | (330 | ) |  | $ | (206 | )
We disclose the non-exchange traded financial derivative instruments as derivative assets and liabilities on our consolidated balance sheets at fair value with amounts classified as either current or long-term depending on the anticipated settlement date. The following tables summarize the amounts recognized with respect to our derivative financial instruments:
| Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion) |  | Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)
| Years Ended December 31,
| 2016 |  | 2015 |  | 2014
Derivatives in cash flow hedging relationships: |  |  |  |  |  |  |
Commodity derivatives | Cost of products sold |  | $ | — |  |  | $ | — |  |  | $ | (3 | )
Total |  |  | $ | — |  |  | $ | — |  |  | $ | (3 | )
| Location of Gain/(Loss) Recognized in Income on Derivatives |  | Amount of Gain/(Loss) Recognized in Income Representing Hedge Ineffectiveness and Amount Excluded from the Assessment of Effectiveness
| Years Ended December 31,
| 2016 |  | 2015 |  | 2014
Derivatives in fair value hedging relationships (including hedged item): |  |  |  |  |  |  |
Commodity derivatives | Cost of products sold |  | $ | 14 |  |  | $ | 21 |  |  | $ | (8 | )
Total |  |  | $ | 14 |  |  | $ | 21 |  |  | $ | (8 | )
| Location of Gain/(Loss) Recognized in Income on Derivatives |  | Amount of Gain/(Loss) Recognized in Income on Derivatives
|  | Years Ended December 31,
|  | 2016 |  | 2015 |  | 2014
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |
Commodity derivatives – Trading | Cost of products sold |  | $ | (35 | ) |  | $ | (11 | ) |  | $ | (6 | )
Commodity derivatives – Non-trading | Cost of products sold |  | (177 | ) |  | 15 |  |  | 199 |
Interest rate derivatives | Losses on interest rate derivatives |  | (12 | ) |  | (18 | ) |  | (157 | )
Embedded derivatives | Other, net |  | 4 |  |  | 12 |  |  | 3 |
Total |  |  | $ | (220 | ) |  | $ | (2 | ) |  | $ | 39 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: 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 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=64837297&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 2 -URI http://asc.fasb.org/extlink&oid=64837297&loc=d3e41620-113959 Reference 4: 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=64837297&loc=SL5624163-113959 Reference 5: 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=64837297&loc=SL5579240-113959 Reference 6: 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=64837297&loc=SL5624177-113959 Reference 7: 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=35736893&loc=d3e80784-113994 Reference 8: 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=64837297&loc=d3e41641-113959 Reference 9: 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=64837297&loc=SL5579245-113959 Reference 10: 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=64837297&loc=SL5624258-113959 Reference 11: 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=35736893&loc=d3e80748-113994 Reference 12: 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=64837297&loc=SL5708775-113959 Reference 13: 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=64837297&loc=SL5708773-113959 Reference 14: 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=64837297&loc=SL5618551-113959 Reference 15: 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=64837297&loc=SL5580258-113959 Reference 16: 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=64837297&loc=SL5624181-113959 Reference 17: 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 18: 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=64837297&loc=d3e41638-113959 Reference 19: 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=26873400&loc=d3e23780-122690 + Details
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