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FAIR VALUE MEASUREMENTS (Notes) | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Determining Fair Value - For our fair value measurements, we utilize market prices, third-party pricing services, present value methods and standard option valuation models to determine the price we would receive from the sale of an asset or the transfer of a liability in an orderly transaction at the measurement date. We measure the fair value of a group of financial assets and liabilities consistent with how a market participant would price the net risk exposure at the measurement date. Many of the contracts in our derivative portfolio are executed in liquid markets where price transparency exists. Our financial commodity derivatives are generally settled through a NYMEX or ICE clearing broker account with daily margin requirements. We validate our valuation inputs with third-party information and settlement prices from other sources, where available. We compute the fair value of our derivative portfolio by discounting the projected future cash flows from our derivative assets and liabilities to present value using interest-rate yields to calculate present-value discount factors derived from the implied forward LIBOR yield curve. The fair value of our forward-starting interest-rate swaps is determined using financial models that incorporate the implied forward LIBOR yield curve for the same period as the future interest-rate swap settlements. We consider current market data in evaluating counterparties’, as well as our own, nonperformance risk, net of collateral, by using counterparty-specific bond yields. Although we use our best estimates to determine the fair value of the derivative contracts we have executed, the ultimate market prices realized could differ materially from our estimates. Fair Value Hierarchy - At each balance sheet date, we utilize a fair value hierarchy to classify fair value amounts recognized or disclosed in our financial statements based on the observability of inputs used to estimate such fair value. The levels of the hierarchy are described below: •Level 1 - fair value measurements are based on unadjusted quoted prices for identical securities in active markets. These balances are composed predominantly of exchange-traded derivative contracts for natural gas and crude oil. •Level 2 - fair value measurements are based on significant observable pricing inputs, including quoted prices for similar assets and liabilities in active markets and inputs from third-party pricing services supported with corroborative evidence. These balances are composed of over-the-counter interest-rate derivatives. •Level 3 - fair value measurements are based on inputs that may include one or more unobservable inputs, including internally developed commodity price curves that incorporate market data from broker quotes and third-party pricing services. These balances are composed predominantly of exchange-cleared and over-the-counter derivatives to hedge NGL price risk and natural gas basis risk between various transaction locations and the NYMEX Henry Hub. Our commodity derivatives are generally valued using forward quotes provided by third-party pricing services that are validated with other market data. We believe any measurement uncertainty at September 30, 2021, is immaterial as our Level 3 fair value measurements are based on unadjusted pricing information from broker quotes and third-party pricing services. We do not believe that our Level 3 fair value estimates have a material impact on our results of operations, as our derivatives are primarily accounted for as hedges. Determining the appropriate classification of our fair value measurements within the fair value hierarchy requires management’s judgment regarding the degree to which market data is observable or corroborated by observable market data. We categorize derivatives for which fair value is determined using multiple inputs within a single level, based on the lowest level input that is significant to the fair value measurement in its entirety. Recurring Fair Value Measurements - The following tables set forth our recurring fair value measurements for the periods indicated:
| September 30, 2021
| Level 1 |  | Level 2 |  | Level 3 |  | Total - Gross |  | Netting (a) |  | Total - Net
| (Thousands of dollars)
Derivative assets |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  |  |  |  |  |  |  |  |  |
Financial contracts | $ | 78,930 |  |  | $ | — |  |  | $ | 430,855 |  |  | $ | 509,785 |  |  | $ | (509,785) |  |  | $ | — |
Total derivative assets | $ | 78,930 |  |  | $ | — |  |  | $ | 430,855 |  |  | $ | 509,785 |  |  | $ | (509,785) |  |  | $ | — |
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  |  |  |  |  |  |  |  |  |
Financial contracts | $ | (201,124) |  |  | $ | — |  |  | $ | (598,063) |  |  | $ | (799,187) |  |  | $ | 799,187 |  |  | $ | — |
Interest-rate contracts | — |  |  | (145,591) |  |  | — |  |  | (145,591) |  |  | — |  |  | (145,591) |
Total derivative liabilities | $ | (201,124) |  |  | $ | (145,591) |  |  | $ | (598,063) |  |  | $ | (944,778) |  |  | $ | 799,187 |  |  | $ | (145,591) |
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At September 30, 2021, we held no cash and posted $319.2 million of cash with various counterparties, including $289.4 million of cash collateral that is offsetting derivative net liability positions under master-netting arrangements in the table above. The remaining $29.8 million of cash collateral in excess of derivative net liability positions is included in other current assets in our Consolidated Balance Sheet.
| December 31, 2020
| Level 1 |  | Level 2 |  | Level 3 |  | Total - Gross |  | Netting (a) |  | Total - Net
| (Thousands of dollars)
Derivative assets |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  |  |  |  |  |  |  |  |  |
Financial contracts | $ | 6,697 |  |  | $ | — |  |  | $ | 103,801 |  |  | $ | 110,498 |  |  | $ | (110,498) |  |  | $ | — |
Total derivative assets | $ | 6,697 |  |  | $ | — |  |  | $ | 103,801 |  |  | $ | 110,498 |  |  | $ | (110,498) |  |  | $ | — |
Derivative liabilities |  |  |  |  |  |  |  |  |  |  |
Commodity contracts |  |  |  |  |  |  |  |  |  |  |
Financial contracts | $ | (10,489) |  |  | $ | — |  |  | $ | (135,122) |  |  | $ | (145,611) |  |  | $ | 145,611 |  |  | $ | — |
Interest-rate contracts | — |  |  | (203,407) |  |  | — |  |  | (203,407) |  |  | — |  |  | (203,407) |
Total derivative liabilities | $ | (10,489) |  |  | $ | (203,407) |  |  | $ | (135,122) |  |  | $ | (349,018) |  |  | $ | 145,611 |  |  | $ | (203,407) |
(a) - Derivative assets and liabilities are presented in our Consolidated Balance Sheet on a net basis. We net derivative assets and liabilities when a legally enforceable master-netting arrangement exists between the counterparty to a derivative contract and us. At December 31, 2020, we held no cash and posted $63.1 million of cash with various counterparties, including $35.1 million of cash collateral that is offsetting derivative net liability positions under master-netting arrangements in the table above. The remaining $28.0 million of cash collateral in excess of derivative net liability positions is included in other current assets in our Consolidated Balance Sheet. The following table sets forth a reconciliation of our Level 3 fair value measurements for the periods indicated:
| Three Months Ended |  | Nine Months Ended
| September 30, |  | September 30,
Derivative Assets (Liabilities) | 2021 |  | 2020 |  | 2021 |  | 2020
| (Thousands of dollars)
Net assets (liabilities) at beginning of period | $ | (121,750) |  |  | $ | 5,583 |  |  | $ | (31,321) |  |  | $ | 30,772 |
Total changes in fair value: |  |  |  |  |  |  |
Settlements included in net income (a) | 46,797 |  |  | (6,194) |  |  | 28,028 |  |  | (29,471) |
New Level 3 derivatives included in other comprehensive loss (b) | (23,151) |  |  | (2,033) |  |  | (129,805) |  |  | (5,140) |
Unrealized change included in other comprehensive loss (b) | (69,104) |  |  | (2,700) |  |  | (34,110) |  |  | (1,505) |
Net liabilities at end of period | $ | (167,208) |  |  | $ | (5,344) |  |  | $ | (167,208) |  |  | $ | (5,344) |
(a) - Included in commodity sales revenues/cost of sales and fuel in our Consolidated Statements of Income. (b) - Included in change in fair value of derivatives in our Consolidated Statements of Comprehensive Income. During the three and nine months ended September 30, 2021 and 2020, there were no transfers in or out of Level 3 of the fair value hierarchy. Other Financial Instruments - The approximate fair value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value due to the short-term nature of these items. Our cash and cash equivalents are composed of bank and money market accounts and are classified as Level 1. Our short-term borrowings are classified as Level 2 since the estimated fair value of the short-term borrowings can be determined using information available in the commercial paper market. The estimated fair value of our consolidated long-term debt, including current maturities, was $16.5 billion and $16.3 billion at September 30, 2021, and December 31, 2020, respectively. The book value of our consolidated long-term debt, including current maturities, was $14.2 billion at September 30, 2021, and December 31, 2020. The estimated fair value of the aggregate long-term debt outstanding was determined using quoted market prices for similar issues with similar terms and maturities. The estimated fair value of our consolidated long-term debt is classified as Level 2.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=123874694&loc=d3e19207-110258 + Details
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