filings.toolsItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
COMMODITY PRICE RISK
We are exposed to market risks related to the volatility in the price of crude oil, refined petroleum products (primarily gasoline and distillate), renewable diesel, grain (primarily corn), renewable diesel feedstocks, and natural gas used in our operations. To reduce the impact of price volatility on our results of operations and cash flows, we use commodity derivative instruments, including futures and options to manage the volatility of:
| • | inventories and firm commitments to purchase inventories generally for amounts by which our current year inventory levels (determined on a LIFO basis) differ from our previous year-end LIFO inventory levels; and |
| • | forecasted feedstock and refined petroleum product purchases, refined petroleum product sales, renewable diesel sales, or natural gas purchases to lock in the price of those forecasted transactions at existing market prices that we deem favorable. |
Our positions in commodity derivative instruments are monitored and managed on a daily basis by our risk control group to ensure compliance with our stated risk management policy that has been approved by our board of directors.
The following sensitivity analysis includes all of our derivative instruments entered into for purposes other than trading with which we have market risk (in millions):
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Gain (loss) in fair value resulting from: | |||||||
| 10% increase in underlying commodity prices | $ | (39 | ) | $ | 2 | ||
| 10% decrease in underlying commodity prices | 38 | (6 | ) |
See Note 20 of Notes to Consolidated Financial Statements for notional volumes associated with these derivative contracts as of December 31, 2019.
COMPLIANCE PROGRAM PRICE RISK
We are exposed to market risk related to the volatility in the price of credits needed to comply with various governmental and regulatory environmental compliance programs. To manage this risk, we enter into contracts to purchase these credits when prices are deemed favorable. Some of these contracts are derivative instruments; however, we elect the normal purchase exception and do not record these contracts at their fair values. As of December 31, 2019 and 2018, the amount of gain or loss in the fair value of derivative instruments that would have resulted from a 10 percent increase or decrease in the underlying price of the contracts was not material. See Note 20 of Notes to Consolidated Financial Statements for a discussion about these compliance programs.
INTEREST RATE RISK
The following table provides information about our debt instruments (dollars in millions), the fair values of which are sensitive to changes in interest rates. Principal cash flows and related weighted-average interest rates by expected maturity dates are presented.
| December 31, 2019 | |||||||||||||||||||||||||||||||
| Expected Maturity Dates | |||||||||||||||||||||||||||||||
| 2020 (a) | 2021 | 2022 | 2023 | 2024 | There- after | Total (b) | Fair Value | ||||||||||||||||||||||||
| Fixed rate | $ | — | $ | 11 | $ | — | $ | — | $ | — | $ | 8,474 | $ | 8,485 | $ | 10,099 | |||||||||||||||
| Average interest rate | — | % | 5.0 | % | — | % | — | % | — | % | 5.2 | % | 5.2 | % | |||||||||||||||||
| Floating rate (c) | $ | 453 | $ | 6 | $ | 6 | $ | 19 | $ | — | $ | — | $ | 484 | $ | 484 | |||||||||||||||
| Average interest rate | 5.0 | % | 4.5 | % | 4.5 | % | 4.5 | % | — | % | — | % | 5.0 | % |
| December 31, 2018 | |||||||||||||||||||||||||||||||
| Expected Maturity Dates | |||||||||||||||||||||||||||||||
| 2019 (a) | 2020 | 2021 | 2022 | 2023 | There- after | Total (b) | Fair Value | ||||||||||||||||||||||||
| Fixed rate | $ | — | $ | 850 | $ | 10 | $ | — | $ | — | $ | 7,474 | $ | 8,334 | $ | 8,737 | |||||||||||||||
| Average interest rate | — | % | 6.1 | % | 5.0 | % | — | % | — | % | 5.4 | % | 5.5 | % | |||||||||||||||||
| Floating rate (c) | $ | 214 | $ | 5 | $ | 5 | $ | 5 | $ | 20 | $ | — | $ | 249 | $ | 249 | |||||||||||||||
| Average interest rate | 4.6 | % | 4.7 | % | 4.7 | % | 4.7 | % | 4.7 | % | — | % | 4.6 | % |
| (a) | As of December 31, 2019 and 2018, our floating rate debt due in 2020 and 2019 includes $348 million and $109 million, respectively, associated with borrowings under the IEnova Revolver for the construction of terminals in Mexico by Central Mexico Terminals. The IEnova Revolver is only available to the operations of Central Mexico Terminals, and its creditors do not have recourse against us. |
| (b) | Excludes unamortized discounts and debt issuance costs. |
| (c) | As of December 31, 2019 and 2018, we had an interest rate swap associated with $36 million and $40 million, respectively, of our floating rate debt resulting in an effective interest rate of 3.85 percent as of each of those reporting dates. The fair value of the swap was immaterial for all periods presented. |
FOREIGN CURRENCY RISK
As of December 31, 2019, we had foreign currency contracts to purchase $739 million of U.S. dollars and $2.3 billion of U.S. dollar equivalent Canadian dollars. Our market risk was minimal on these contracts, as all of them matured on or before February 15, 2020.
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