Fair Value Measurements

3 Months Ended

Mar. 31, 2017

FAIR VALUE MEASURES

Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value and carrying amount of our consolidated debt obligations as of March 31, 2017 was $33.09 billion and $32.04 billion, respectively. As of December 31, 2016, the aggregate fair value and carrying amount of our consolidated debt obligations was $33.85 billion and $32.93 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.

We have commodity derivatives, interest rate derivatives and embedded derivatives in the Preferred Units that are accounted for as assets and liabilities at fair value in our consolidated balance sheets. We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of marketable securities and commodity derivatives transacted through a clearing broker with a published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. We consider OTC commodity derivatives entered into directly with third parties as a Level 2 valuation since the values of these derivatives are quoted on an exchange for similar transactions. Additionally, we consider our options transacted through our clearing broker as having Level 2 inputs due to the level of activity of these contracts on the exchange in which they trade. We consider the valuation of our interest rate derivatives as Level 2 as the primary input, the LIBOR curve, is based on quotes from an active exchange of Eurodollar futures for the same period as the future interest swap settlements. Level 3 inputs are unobservable. Derivatives related to the embedded derivatives in our preferred units at December 31, 2016 were valued using a binomial lattice model. The market inputs utilized in the model included credit spread, probabilities of the occurrence of certain events, common unit price, dividend yield, and expected value, and are considered Level 3. During the three months ended March 31, 2017, no transfers were made between any levels within the fair value hierarchy.

The following tables summarize the gross fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 based on inputs used to derive their fair values:



				Fair Value Measurements at March 31, 2017
	Fair Value Total			Level 1			Level 2			Level 3
Assets:
Commodity derivatives:
Natural Gas:
Basis Swaps IFERC/NYMEX	$	7		$	7		$	—		$	—
Fixed Swaps/Futures	30			30			—			—
Forward Physical Swaps	4			—			4			—
Power:
Futures	7			—			7			—
Options – Calls	1			1			—			—
Natural Gas Liquids – Forwards/Swaps	91			91			—			—
Crude – Futures	12			12			—			—
Total commodity derivatives	152			141			11			—
Total assets	$	152		$	141		$	11		$	—
Liabilities:
Interest rate derivatives	$	(188	)	$	—		$	(188	)	$	—
Commodity derivatives:
Natural Gas:
Basis Swaps IFERC/NYMEX	(10		)	(10		)	—			—
Swing Swaps IFERC	(1		)	—			(1		)	—
Fixed Swaps/Futures	(42		)	(42		)	—			—
Power:
Forwards	(8		)	—			(8		)	—
Natural Gas Liquids – Forwards/Swaps	(88		)	(88		)	—			—
Refined Products – Futures	(3		)	(3		)	—			—
Crude – Futures	(9		)	(9		)	—			—
Total commodity derivatives	(161		)	(152		)	(9		)	—
Total liabilities	$	(349	)	$	(152	)	$	(197	)	$	—



				Fair Value Measurements at December 31, 2016
	Fair Value Total			Level 1			Level 2			Level 3
Assets:
Commodity derivatives:
Natural Gas:
Basis Swaps IFERC/NYMEX	$	14		$	14		$	—		$	—
Swing Swaps IFERC	2			—			2			—
Fixed Swaps/Futures	96			96			—			—
Forward Physical Swaps	1			—			1			—
Power:
Forwards	4			—			4			—
Futures	1			1			—			—
Options – Calls	1			1			—			—
Natural Gas Liquids – Forwards/Swaps	233			233			—			—
Refined Products – Futures	1			1			—			—
Crude – Futures	9			9			—			—
Total commodity derivatives	362			355			7			—
Total assets	$	362		$	355		$	7		$	—
Liabilities:
Interest rate derivatives	$	(193	)	$	—		$	(193	)	$	—
Embedded derivatives in the ETP Preferred Units	(1		)	—			—			(1		)
Commodity derivatives:
Natural Gas:
Basis Swaps IFERC/NYMEX	(11		)	(11		)	—			—
Swing Swaps IFERC	(3		)	—			(3		)	—
Fixed Swaps/Futures	(149		)	(149		)	—			—
Power:
Forwards	(5		)	—			(5		)	—
Futures	(1		)	(1		)	—			—
Natural Gas Liquids – Forwards/Swaps	(273		)	(273		)	—			—
Refined Products – Futures	(17		)	(17		)	—			—
Crude – Futures	(13		)	(13		)	—			—
Total commodity derivatives	(472		)	(464		)	(8		)	—
Total liabilities	$	(666	)	$	(464	)	$	(201	)	$	(1	)

- 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 + Details

Energy Transfer, LP 10-Q