income recognition. When available, quoted market prices or prices obtained through external sources are used
to determine a contract’s fair value. For contracts with a delivery location or duration for which quoted market
prices are not available, fair value is determined based on pricing models developed primarily from historical
and expected relationship with quoted market prices.
Values are adjusted to reflect the credit risk inherent in the transaction as well as the potential impact of
liquidating open positions in an orderly manner over a reasonable time period under current conditions.
Changes in market prices and management estimates directly affect the estimated fair value of these contracts.
Accordingly, it is reasonably possible that such estimates may change in the near term.
The fair value of our interest rate swaps and commodity non-trading derivatives is expected to be realized
in future periods, as detailed in the following table. The amount of cash ultimately realized for these contracts
will differ from the amounts shown in the following table due to factors such as market volatility, counterparty
default and other unforeseen events that could impact the amount and/or realization of these values.
Fair Value of Contracts as of December 31, 2011
Sources of Fair Value
Total
Maturity in
2012
Maturity in
2013-2014
Maturity in
2015-2016
Maturity in
2017 and
Thereafter
(Millions)
Prices supported by quoted market prices and other
external sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(62.3) $(37.7) $(28.3) $3.7
$—
Prices based on models or other valuation
techniques . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.1 $ 0.4 $ 0.7
$ —
$—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(61.2) $(37.3) $(27.6) $3.7
$—
The “prices supported by quoted market prices and other external sources” category includes our interest
rate swaps, our New York Mercantile Exchange, or NYMEX, positions in natural gas, NGLs and crude oil. In
addition, this category includes our forward positions in natural gas for which our forward price curves are
obtained from SunGard Kiodex and then validated through an internal process which includes the use of
independent broker quotes. This category also includes our forward positions in NGLs at points for which
over-the-counter, or OTC, broker quotes for similar assets or liabilities are available for the full term of the
instrument. This category also includes “strip” transactions whose pricing inputs are directly or indirectly
observable from external sources and then modeled to daily or monthly prices as appropriate.
The “prices based on models and other valuation methods” category includes the value of transactions for
which inputs to the fair value of the instrument are unobservable in the marketplace and are considered
significant to the overall fair value of the instrument. The fair value of these instruments may be based upon an
internally developed price curve, which was constructed as a result of the long dated nature of the transaction or
the illiquidity of the market point.
101