filings.toolsItem 7A. Quantitative and Qualitative Disclosures About Market Risk
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
Our current interest rate risk exposure is related primarily to our debt portfolio. Our debt portfolio is primarily comprised of fixed rate debt, which mitigates the impact of fluctuations in interest rates. Any borrowings under the credit facilities and any issuances under WPZ’s commercial paper program could be at a variable interest rate and could expose us to the risk of increasing interest rates. The maturity of our long-term debt portfolio is partially influenced by the expected lives of our operating assets. (See Note 14 – Debt, Banking Arrangements, and Leases of Notes to Consolidated Financial Statements.)
The tables below provide information by maturity date about our interest rate risk-sensitive instruments as of December 31, 2016 and 2015. Long-term debt in the tables represents principal cash flows, net of (discount) premium and debt issuance costs, and weighted-average interest rates by expected maturity dates. The fair value of our publicly traded long-term debt is valued using indicative year-end traded bond market prices. Private debt is valued based on market rates and the prices of similar securities with similar terms and credit ratings.
| 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter (1) | Total | Fair Value December 31, 2016 | |||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
| Long-term debt, including current portion: | ||||||||||||||||||||||||
| Fixed rate | $ | 785 | $ | 500 | $ | 32 | $ | 2,121 | $ | 871 | $ | 17,475 | $ | 21,784 | $ | 22,465 | ||||||||
| Interest rate | 5.2 | % | 5.2 | % | 5.2 | % | 5.2 | % | 5.2 | % | 5.6 | % | ||||||||||||
| Variable rate | $ | — | $ | 850 | $ | — | $ | 775 | $ | — | $ | — | $ | 1,625 | $ | 1,625 | ||||||||
| Interest rate (3) | ||||||||||||||||||||||||
| Commercial paper: | ||||||||||||||||||||||||
| Variable rate | $ | 93 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 93 | $ | 93 | ||||||||
| Interest rate (4) | ||||||||||||||||||||||||
| 2016 | 2017 | 2018 | 2019 | 2020 | Thereafter (1) | Total | Fair Value December 31, 2015 | |||||||||||||||||
| (Millions) | ||||||||||||||||||||||||
| Long-term debt, including current portion: (2) | ||||||||||||||||||||||||
| Fixed rate | $ | 375 | (*) | $ | 785 | $ | 500 | $ | 32 | $ | 2,121 | $ | 17,364 | $ | 21,177 | $ | 16,796 | |||||||
| Interest rate | 5.1 | % | 5.1 | % | 5.0 | % | 5.0 | % | 5.0 | % | 5.5 | % | ||||||||||||
| Variable rate | $ | — | $ | — | $ | 850 | $ | — | $ | 1,960 | $ | — | $ | 2,810 | $ | 2,810 | ||||||||
| Interest rate (5) | ||||||||||||||||||||||||
| Commercial paper: | ||||||||||||||||||||||||
| Variable rate | $ | 499 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 499 | $ | 499 | ||||||||
| Interest rate (4) | ||||||||||||||||||||||||
| _____________ | ||||||||||||||||||||||||
| (*) $200 million presented as long-term debt at December 31, 2015, due to WPZ’s intent and ability to refinance. |
| (1) | Includes unamortized discount / premium and debt issuance costs. |
| (2) | Excludes capital leases. |
| (3) | The weighted-average interest rates for WPZ’s $850 million term loan, and our $775 million credit facility borrowing at December 31, 2016 were 2.50 percent and 2.51 percent, respectively. |
| (4) | The weighted-average interest rate was 1.06 percent and 0.92 percent at December 31, 2016 and 2015, respectively. |
| (5) | The weighted-average interest rates for WPZ’s $1.3 billion credit facility borrowing, WPZ’s $850 million term loan, and our $650 million credit facility borrowing at December 31, 2015 were 1.63 percent, 1.85 percent, and 2.32 percent, respectively. |
Commodity Price Risk
We are exposed to the impact of fluctuations in the market price of NGLs, olefins, and natural gas, as well as other market factors, such as market volatility and energy commodity price correlations. We are exposed to these risks in connection with our owned energy-related assets, our long-term energy-related contracts, and limited proprietary trading activities. Our management of the risks associated with these market fluctuations includes maintaining sufficient liquidity, as well as using various derivatives and nonderivative energy-related contracts. The fair value of derivative contracts is subject to many factors, including changes in energy commodity market prices, the liquidity and volatility of the markets in which the contracts are transacted, and changes in interest rates. At December 31, 2016 and 2015, our derivative activity was not material. (See Note 17 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk of Notes to Consolidated Financial Statements.)
Foreign Currency Risk
In September 2016, we disposed of our Canadian operations, which comprised substantially all of our foreign operations. (See Note 3 – Divestiture of Notes to Consolidated Financial Statements.)
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