Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Stockholders and the Board of Directors of

The Williams Companies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of The Williams Companies, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), changes in equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and the financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, based on our audits and the report of other auditors, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We did not audit the 2020 financial statements of Gulfstream Natural Gas System, L.L.C. (Gulfstream), a limited liability corporation in which the Company has a 50 percent interest. In the consolidated financial statements, the Company’s investment in Gulfstream was $204 million as of December 31, 2020, and the Company’s equity earnings in the net income of Gulfstream were $77 million in 2020. Those financial statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Gulfstream for 2020, is based solely on the report of other auditors.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 27, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.


Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
									Pension and Other Postretirement Benefit Obligations
Description of the Matter									At December 31, 2022, the Company’s aggregate pension and other postretirement benefit obligations were $1,092 million and were exceeded by the fair value of pension and other postretirement plan assets of $1,370 million, resulting in overfunded pension and other postretirement benefit obligations of $278 million. As explained in Note 7 to the consolidated financial statements, the Company utilized key assumptions to determine the pension and other postretirement benefit obligations. Auditing the pension and other postretirement benefit obligations is complex and required the involvement of specialists due to the judgmental nature of the actuarial assumptions (e.g., discount rates and cash balance interest crediting rate) used in the measurement process. These assumptions have a significant effect on the projected benefit obligations.
How We Addressed the Matter in Our Audit									We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls relating to the measurement and valuation of the pension and other postretirement benefit obligations, including controls over management’s review of the pension and other postretirement obligations, the significant actuarial assumptions, and the data inputs. To test the pension and other postretirement benefit obligations, our audit procedures included, among others, evaluating the methodologies used, the significant actuarial assumptions discussed above, and the underlying data used by the Company. We compared the actuarial assumptions used by management to historical trends and evaluated the changes in the funded status from prior year. In addition, we involved our actuarial specialists to assist with our procedures. For example, we evaluated management’s methodology for determining the discount rates that reflect the maturity and duration of the benefit payments and are used to measure the pension and other postretirement benefit obligations. As part of this assessment, we independently developed a range of yield curves, we compared the projected cash flows to prior year, and compared the current year benefits paid to the prior year projected cash flows. To test the cash balance interest crediting rate, we independently calculated a range of rates and compared them to the rate used by management. We also tested the completeness and accuracy of the underlying data, including the participant data.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1962.

Tulsa, Oklahoma

February 27, 2023

Report of Independent Registered Public Accounting Firm

To the Management Committee and Members of Gulfstream Natural Gas System, L.L.C.:

Opinion on the Financial Statements

We have audited the statements of earnings, comprehensive income, changes in members’ equity and cash flows of Gulfstream Natural Gas System, L.L.C. (the “Company”) for the year ended December 31, 2020, including the related notes (collectively referred to as the “financial statements”) (not presented herein). In our opinion, the financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of these financial statements in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Houston, Texas

February 27, 2023

We have served as the Company’s auditor since 2018.

The Williams Companies, Inc.

Consolidated Statement of Income


		Year Ended December 31,
		2022		2021		2020
	(Millions, except per-share amounts)
Revenues:
Service revenues		$	6,536	$	6,001	$	5,924
Service revenues – commodity consideration		260		238		129
Product sales		4,556		4,536		1,671
Net gain (loss) on commodity derivatives		(387)		(148)		(5)
Total revenues		10,965		10,627		7,719
Costs and expenses:
Product costs		3,369		3,931		1,545
Net processing commodity expenses		88		101		68
Operating and maintenance expenses		1,817		1,548		1,326
Depreciation and amortization expenses		2,009		1,842		1,721
Selling, general, and administrative expenses		636		558		466
Impairment of certain assets (Note 15)		—		2		182
Impairment of goodwill (Note 15)		—		—		187

Other (income) expense – net		28		14		22
Total costs and expenses		7,947		7,996		5,517
Operating income (loss)		3,018		2,631		2,202
Equity earnings (losses) (Note 8)		637		608		328
Impairment of equity-method investments (Note 15)		—		—		(1,046)
Other investing income (loss) – net		16		7		8
Interest incurred		(1,167)		(1,190)		(1,192)
Interest capitalized		20		11		20
Other income (expense) – net		18		6		(43)
Income (loss) before income taxes		2,542		2,073		277
Less: Provision (benefit) for income taxes		425		511		79


Net income (loss)		2,117		1,562		198
Less: Net income (loss) attributable to noncontrolling interests		68		45		(13)
Net income (loss) attributable to The Williams Companies, Inc.		2,049		1,517		211
Less: Preferred stock dividends		3		3		3
Net income (loss) available to common stockholders		$	2,046	$	1,514	$	208




Basic earnings (loss) per common share:


Net income (loss) available to common stockholders		$	1.68	$	1.25	$	.17
Weighted-average shares (thousands)		1,218,362		1,215,221		1,213,631
Diluted earnings (loss) per common share:


Net income (loss) available to common stockholders		$	1.67	$	1.24	$	.17
Weighted-average shares (thousands)		1,222,672		1,218,215		1,215,165

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Comprehensive Income (Loss)


	Year Ended December 31,
	2022		2021		2020
	(Millions)
Net income (loss)	$	2,117	$	1,562	$	198
Other comprehensive income (loss):
Designated cash flow hedging activities:
Net unrealized gain (loss) from derivative instruments, net of taxes of $1, $14, and $— in 2022, 2021, and 2020, respectively	(3)		(40)		(2)
Reclassifications into earnings of net derivative instruments (gain) loss, net of taxes of $—, ($14), and $— in 2022, 2021, and 2020, respectively	—		41		1



Pension and other postretirement benefits:


Net actuarial gain (loss) arising during the year, net of taxes of $1, ($18), and ($27) in 2022, 2021, and 2020, respectively	1		51		81
Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit), net of taxes of ($4), ($4), and ($7) in 2022, 2021, and 2020, respectively	11		11		23



Other comprehensive income (loss)	9		63		103
Comprehensive income (loss)	2,126		1,625		301
Less: Comprehensive income (loss) attributable to noncontrolling interests	68		45		(13)
Comprehensive income (loss) attributable to The Williams Companies, Inc.	$	2,058	$	1,580	$	314

See accompanying notes.

The Williams Companies, Inc.

Consolidated Balance Sheet


	December 31,
	2022		2021
	(Millions, except per-share amounts)
ASSETS
Current assets:
Cash and cash equivalents	$	152	$	1,680
Trade accounts and other receivables	2,729		1,986
Allowance for doubtful accounts	(6)		(8)
Trade accounts and other receivables – net	2,723		1,978
Inventories	320		379
Derivative assets	323		301
Other current assets and deferred charges	279		211
Total current assets	3,797		4,549

Investments	5,065		5,127
Property, plant, and equipment – net	30,889		29,258
Intangible assets – net of accumulated amortization	7,363		7,402
Regulatory assets, deferred charges, and other	1,319		1,276
Total assets	$	48,433	$	47,612

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	2,327	$	1,746
Derivative liabilities	316		166
Accrued and other current liabilities	1,270		1,035
Commercial paper	350		—
Long-term debt due within one year	627		2,025
Total current liabilities	4,890		4,972

Long-term debt	21,927		21,650
Deferred income tax liabilities	2,887		2,453
Regulatory liabilities, deferred income, and other	4,684		4,436
Contingent liabilities and commitments (Note 17)

Equity:
Stockholders’ equity:
Preferred stock ($1 par value; 30 million shares authorized at December 31, 2022 and December 31, 2021; 35,000 shares issued at December 31, 2022 and December 31, 2021)	35		35
Common stock ($1 par value; 1,470 million shares authorized at December 31, 2022 and December 31, 2021; 1,253 million shares issued at December 31, 2022 and 1,250 million shares issued at December 31, 2021)	1,253		1,250
Capital in excess of par value	24,542		24,449
Retained deficit	(13,271)		(13,237)
Accumulated other comprehensive income (loss)	(24)		(33)
Treasury stock, at cost (35 million shares of common stock)	(1,050)		(1,041)
Total stockholders’ equity	11,485		11,423
Noncontrolling interests in consolidated subsidiaries	2,560		2,678
Total equity	14,045		14,101
Total liabilities and equity	$	48,433	$	47,612

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Changes in Equity


	The Williams Companies, Inc. Stockholders
	Preferred Stock		Common Stock		Capital in Excess of Par Value		Retained Deficit		AOCI*		Treasury Stock		Total Stockholders’ Equity		Noncontrolling Interests		Total Equity
	(Millions)
Balance at December 31, 2019	$	35	$	1,247	$	24,323	$	(11,002)	$	(199)	$	(1,041)	$	13,363	$	3,001	$	16,364

Net income (loss)	—		—		—		211		—		—		211		(13)		198
Other comprehensive income (loss)	—		—		—		—		103		—		103		—		103



Cash dividends – common stock ($1.60 per share)	—		—		—		(1,941)		—		—		(1,941)		—		(1,941)
Dividends and distributions to noncontrolling interests	—		—		—		—		—		—		—		(185)		(185)
Stock-based compensation and related common stock issuances, net of tax	—		1		50		—		—		—		51		—		51


Contributions from noncontrolling interests	—		—		—		—		—		—		—		7		7

Other	—		—		(2)		(16)		—		—		(18)		4		(14)
Net increase (decrease) in equity	—		1		48		(1,746)		103		—		(1,594)		(187)		(1,781)
Balance at December 31, 2020	35		1,248		24,371		(12,748)		(96)		(1,041)		11,769		2,814		14,583
Net income (loss)	—		—		—		1,517		—		—		1,517		45		1,562
Other comprehensive income (loss)	—		—		—		—		63		—		63		—		63
Cash dividends – common stock ($1.64 per share)	—		—		—		(1,992)		—		—		(1,992)		—		(1,992)
Dividends and distributions to noncontrolling interests	—		—		—		—		—		—		—		(187)		(187)
Stock-based compensation and related common stock issuances, net of tax	—		2		78		—		—		—		80		—		80
Purchase of partial interest in consolidated subsidiary (Note 8)	—		—		—		—		—		—		—		(3)		(3)
Contributions from noncontrolling interests	—		—		—		—		—		—		—		9		9
Other	—		—		—		(14)		—		—		(14)		—		(14)
Net increase (decrease) in equity	—		2		78		(489)		63		—		(346)		(136)		(482)
Balance at December 31, 2021	35		1,250		24,449		(13,237)		(33)		(1,041)		11,423		2,678		14,101
Net income (loss)	—		—		—		2,049		—		—		2,049		68		2,117
Other comprehensive income (loss)	—		—		—		—		9		—		9		—		9
Cash dividends – common stock ($1.70 per share)	—		—		—		(2,071)		—		—		(2,071)		—		(2,071)
Dividends and distributions to noncontrolling interests	—		—		—		—		—		—		—		(204)		(204)
Stock-based compensation and related common stock issuances, net of tax	—		3		93		—		—		—		96		—		96


Contributions from noncontrolling interests	—		—		—		—		—		—		—		18		18
Purchase of treasury stock	—		—		—		—		—		(9)		(9)		—		(9)

Other	—		—		—		(12)		—		—		(12)		—		(12)
Net increase (decrease) in equity	—		3		93		(34)		9		(9)		62		(118)		(56)
Balance at December 31, 2022	$	35	$	1,253	$	24,542	$	(13,271)	$	(24)	$	(1,050)	$	11,485	$	2,560	$	14,045

*Accumulated Other Comprehensive Income (Loss)

See accompanying notes.

The Williams Companies, Inc.

Consolidated Statement of Cash Flows


	Year Ended December 31,
	2022		2021		2020
	(Millions)
OPERATING ACTIVITIES:
Net income (loss)	$	2,117	$	1,562	$	198
Adjustments to reconcile to net cash provided (used) by operating activities:
Depreciation and amortization	2,009		1,842		1,721
Provision (benefit) for deferred income taxes	431		509		108
Equity (earnings) losses	(637)		(608)		(328)
Distributions from equity-method investees (Note 8)	865		757		653




Impairment of goodwill (Note 15)	—		—		187
Impairment of equity-method investments (Note 15)	—		—		1,046
Impairment of certain assets (Note 15)	—		2		182
Net unrealized (gain) loss from derivative instruments	249		109		—
Inventory write-downs	161		15		17
Amortization of stock-based awards	73		81		52


Cash provided (used) by changes in current assets and liabilities:
Accounts receivable	(733)		(545)		(2)
Inventories	(110)		(139)		(28)
Other current assets and deferred charges	(33)		(63)		11
Accounts payable	410		643		(7)
Accrued and other current liabilities	209		58		(309)
Changes in current and noncurrent derivative assets and liabilities	94		(277)		(4)
Other, including changes in noncurrent assets and liabilities	(216)		(1)		(1)
Net cash provided (used) by operating activities	4,889		3,945		3,496
FINANCING ACTIVITIES:
Proceeds from (payments of) commercial paper – net	345		—		—
Proceeds from long-term debt	1,755		2,155		3,899
Payments of long-term debt	(2,876)		(894)		(3,841)
Proceeds from issuance of common stock	54		9		9

Common dividends paid	(2,071)		(1,992)		(1,941)
Dividends and distributions paid to noncontrolling interests	(204)		(187)		(185)
Contributions from noncontrolling interests	18		9		7

Payments for debt issuance costs	(17)		(26)		(20)


Other – net	(46)		(16)		(13)
Net cash provided (used) by financing activities	(3,042)		(942)		(2,085)
INVESTING ACTIVITIES:
Property, plant, and equipment:
Capital expenditures (1)	(2,253)		(1,239)		(1,239)
Dispositions – net	(30)		(8)		(36)
Contributions in aid of construction	12		52		37

Purchases of businesses, net of cash acquired (Note 3)	(933)		(151)		—

Purchases of and contributions to equity-method investments (Note 8)	(166)		(115)		(325)

Other – net	(5)		(4)		5
Net cash provided (used) by investing activities	(3,375)		(1,465)		(1,558)
Increase (decrease) in cash and cash equivalents	(1,528)		1,538		(147)
Cash and cash equivalents at beginning of year	1,680		142		289
Cash and cash equivalents at end of year	$	152	$	1,680	$	142
_________
(1) Increases to property, plant, and equipment	$	(2,394)	$	(1,305)	$	(1,160)
Changes in related accounts payable and accrued liabilities	141		66		(79)
Capital expenditures	$	(2,253)	$	(1,239)	$	(1,239)

See accompanying notes.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements

Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies

General

Unless the context clearly indicates otherwise, references in this report to “Williams,” “we,” “our,” “us,” or like terms refer to The Williams Companies, Inc. and its subsidiaries. Unless the context clearly indicates otherwise, references to “Williams,” “we,” “our,” and “us” include the operations in which we own interests accounted for as equity-method investments that are not consolidated in our financial statements. When we refer to our equity investees by name, we are referring exclusively to their businesses and operations.

Share Repurchase Program

In September 2021, our Board of Directors authorized a share repurchase program with a maximum dollar limit of $1.5 billion. Repurchases may be made from time to time in the open market, by block purchases, in privately negotiated transactions, or in such other manner as determined by our management. Our management will also determine the timing and amount of any repurchases based on market conditions and other factors. The share repurchase program does not obligate us to acquire any particular amount of common stock, and it may be suspended or discontinued at any time. This share repurchase program does not have an expiration date. There were $9 million and no repurchases under the program in 2022 and 2021, respectively.

Description of Business

We are a Delaware corporation whose common stock is listed and traded on the New York Stock Exchange. Our operations are located in the United States and are presented within the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, West, and Gas & NGL Marketing Services, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. All remaining business activities, including our upstream operations, as well as corporate activities are included in Other.

Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline LLC (Northwest Pipeline), and their related natural gas storage facilities, as well as natural gas gathering and processing and crude oil production handling and transportation assets in the Gulf Coast region, including a 51 percent interest in Gulfstar One LLC (Gulfstar One) (a consolidated variable interest entity, or VIE), a 50 percent equity-method investment in Gulfstream Natural Gas System, L.L.C. (Gulfstream), and a 60 percent equity-method investment in Discovery Producer Services LLC (Discovery). Transmission & Gulf of Mexico also includes natural gas storage facilities and pipelines providing services in north Texas.

Northeast G&P is comprised of our midstream gathering, processing, and fractionation businesses in the Marcellus Shale region primarily in Pennsylvania and New York, and the Utica Shale region of eastern Ohio, as well as a 65 percent interest in Ohio Valley Midstream LLC (Northeast JV) (a consolidated VIE) which operates in West Virginia, Ohio, and Pennsylvania, a 66 percent interest in Cardinal Gas Services, L.L.C. (Cardinal) (a consolidated VIE) which operates in Ohio, a 69 percent equity-method investment in Laurel Mountain Midstream, LLC (Laurel Mountain), a 50 percent equity-method investment in Blue Racer Midstream LLC (Blue Racer), and Appalachia Midstream Services, LLC, a wholly owned subsidiary that owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in the Marcellus Shale region (Appalachia Midstream Investments).

West is comprised of our gas gathering, processing, and treating operations in the Rocky Mountain region of Colorado and Wyoming, the Barnett Shale region of north-central Texas, the Eagle Ford Shale region of south Texas, the Haynesville Shale region of east Texas and northwest Louisiana, and the Mid-Continent region which includes the Anadarko and Permian basins. This segment also includes our NGL storage facilities, an undivided 50


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in Overland Pass Pipeline Company LLC (OPPL), a 50 percent equity-method investment in Rocky Mountain Midstream Holdings LLC (RMM), a 20 percent equity-method investment in Targa Train 7 LLC (Targa Train 7) (a nonconsolidated VIE), and a 15 percent equity-method investment in Brazos Permian II, LLC (Brazos Permian II) (a nonconsolidated VIE).

Gas & NGL Marketing Services is comprised of our NGL and natural gas marketing and trading operations, which includes risk management and transactions related to the storage and transportation of natural gas and natural gas liquids (NGLs) on strategically positioned assets.

Basis of Presentation

Discontinued operations

Unless indicated otherwise, the information in the Notes to Consolidated Financial Statements relates to our continuing operations.

Significant risks and uncertainties

We believe that the carrying value of certain of our property, plant, and equipment and intangible assets, notably certain acquired assets accounted for as business combinations between 2012 and 2014, may be in excess of current fair value. However, the carrying value of these assets, in our judgment, continues to be recoverable. It is reasonably possible that future strategic decisions, including transactions such as monetizing assets or contributing assets to new ventures with third parties, as well as unfavorable changes in expected producer activities, could impact our assumptions and ultimately result in impairments of these assets. Such transactions or developments may also indicate that certain of our equity-method investments have experienced other-than-temporary declines in value, which could result in impairment.

Summary of Significant Accounting Policies

Principles of consolidation

The consolidated financial statements include the accounts of all entities that we control and our proportionate interest in the accounts of certain ventures in which we own an undivided interest. Our judgment is required to evaluate whether we control an entity. Key areas of that evaluation include:

Determining whether an entity is a VIE (see Note 2 – Variable Interest Entities);
Determining whether we are the primary beneficiary of a VIE, including evaluating which activities of the VIE most significantly impact its economic performance and the degree of power that we and our related parties have over those activities through our variable interests;
Identifying events that require reconsideration of whether an entity is a VIE and continuously evaluating whether we are a VIE’s primary beneficiary;
Evaluating whether other owners in entities that are not VIEs are able to effectively participate in significant decisions that would be expected to be made in the ordinary course of business such that we do not have the power to control such entities.

We apply the equity method of accounting to investments over which we exercise significant influence but do not control. Distributions received from equity-method investees are presented in our Consolidated Statement of Cash Flows according to the nature of the distributions approach, which classifies distributions received from equity-method investees as either returns on investment (cash inflows from operating activities) or returns of


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

investment (cash inflows from investing activities) based on the nature of the activities of the equity-method investee that generated the distribution.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Significant estimates and assumptions include:

Impairment assessments of investments, property, plant, and equipment, and intangible assets;
Litigation-related contingencies;
Environmental remediation obligations;
Depreciation and/or amortization of long-lived assets, which are comprised of property, plant, and equipment, and intangible assets;
Depreciation and/or amortization of equity-method investment basis differences;
Asset retirement obligations (AROs);
Measurement of fair value of derivatives;
Pension and postretirement valuation variables;
Measurement of regulatory liabilities;
Measurement of deferred income tax assets and liabilities, including assumptions related to the realization of deferred income tax assets;
Revenue recognition, including estimates utilized in recognition of deferred revenue;
Purchase price accounting.

These estimates are discussed further throughout these notes.

Regulatory accounting

Transco and Northwest Pipeline are regulated by the Federal Energy Regulatory Commission (FERC), and their rates are established by the FERC. Therefore, we have determined that it is appropriate under Accounting Standards Codification (ASC) Topic 980, “Regulated Operations,” (ASC 980) that certain costs that would otherwise be charged to expense should be deferred as regulatory assets, based on the expected recovery from customers in future rates. Likewise, certain actual or anticipated credits that would otherwise reduce expense should be deferred as regulatory liabilities, based on the expected return to customers in future rates. Management’s expected recovery of deferred costs and return of deferred credits generally results from specific decisions by regulators granting such ratemaking treatment. We record certain incurred costs and obligations as regulatory assets or liabilities if, based on regulatory orders or other available evidence, it is probable that the costs or obligations will be included in amounts allowable for recovery or refunded in future rates. Accounting for these operations that are regulated can differ from the accounting requirements for nonregulated operations. For example, for regulated operations, allowance for funds used during construction (AFUDC) represents the estimated cost of debt and equity funds applicable to utility plant in the process of construction and is capitalized as a cost of property, plant, and equipment because it constitutes an actual cost of construction under established regulatory practices; nonregulated operations are only allowed to capitalize the cost of debt funds related to construction activities, while a component for equity is prohibited. The


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Notes to Consolidated Financial Statements – (Continued)

components of our regulatory assets and liabilities relate to the effects of deferred taxes on equity funds used during construction, AROs, shipper imbalance activity, fuel and power cost differentials, depreciation, negative salvage, pension and other postretirement benefits, customer tax refunds, and rate allowances for deferred income taxes at a historically higher federal income tax rate.

Our current and noncurrent regulatory asset and liability balances at December 31, 2022 and 2021 are as follows:


	December 31,
	2022		2021
	(Millions)
Current assets reported within Other current assets and deferred charges	$	138	$	111
Noncurrent assets reported within Regulatory assets, deferred charges, and other	459		415
Total regulated assets	$	597	$	526

Current liabilities reported within Accrued and other current liabilities	$	201	$	56
Noncurrent liabilities reported within Regulatory liabilities, deferred income, and other	1,233		1,324
Total regulated liabilities	$	1,434	$	1,380

Revenue recognition

Customers in our gas pipeline businesses are comprised of public utilities, municipalities, gas marketers and producers, intrastate pipelines, direct industrial users, and electrical power generators. Customers in our midstream businesses are comprised of oil and natural gas producer counterparties. Customers for our product sales are comprised of public utilities, gas marketers, and direct industrial users.

Service revenue contracts from our gas pipeline and midstream businesses contain a series of distinct services, with the majority of our contracts having a single performance obligation that is satisfied over time as the customer simultaneously receives and consumes the benefits provided by our performance. Most of our product sales contracts have a single performance obligation with revenue recognized at a point in time when the products have been sold and delivered to the customer.

Certain customers reimburse us for costs we incur associated with construction of property, plant, and equipment utilized in our operations. For our rate-regulated gas pipeline businesses that apply ASC 980, we follow FERC guidelines with respect to reimbursement of construction costs. FERC tariffs only allow for cost reimbursement and are non-negotiable in nature; thus, in our judgment, the construction activities do not represent an ongoing major and central operation of our gas pipeline businesses and are not within the scope of ASC Topic 606, “Revenue from Contracts with Customers”. Accordingly, cost reimbursements are treated as a reduction to the cost of the constructed asset, which are referred to as Contributions in aid of construction in our Consolidated Statement of Cash Flows. For our midstream businesses, reimbursement and service contracts with customers are viewed together as providing the same commercial objective, as we have the ability to negotiate the mix of consideration between reimbursements and amounts billed over time. Accordingly, we generally recognize reimbursements of construction costs from customers on a gross basis as a contract liability separate from the associated costs included within property, plant, and equipment. The contract liability is recognized into service revenues as the underlying performance obligations are satisfied.

Service Revenues

Gas pipeline businesses: Revenues from our regulated interstate natural gas pipeline businesses, which are subject to regulation by certain state and federal authorities, including the FERC, include both firm and interruptible transportation and storage contracts. Firm transportation and storage agreements provide for a daily or monthly reservation charge based on the pipeline or storage capacity reserved, and a commodity charge


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Notes to Consolidated Financial Statements – (Continued)

based on the volume of natural gas delivered/stored, each at rates specified in our FERC tariffs or based on negotiated contractual rates, with contract terms that are generally long-term in nature. Most of our long-term contracts contain an evergreen provision, which allows the contracts to be extended for periods primarily up to one year in length an indefinite number of times following the specified contract term and until terminated generally by either us or the customer. Interruptible transportation and storage agreements provide for a volumetric charge based on actual commodity transportation or storage utilized in the period in which those services are provided, and the contracts are generally limited to one-month periods or less. Our performance obligations related to our interstate natural gas pipeline businesses include the following:

*•*Firm transportation or storage under firm transportation and storage contracts—an integrated package of services typically constituting a single performance obligation, which includes standing ready to provide such services and receiving, transporting or storing (as applicable), and redelivering commodities;

*•*Interruptible transportation or storage under interruptible transportation and storage contracts—an integrated package of services typically constituting a single performance obligation once scheduled, which includes receiving, transporting or storing (as applicable), and redelivering commodities.

In situations where, in our judgment, we consider the integrated package of services as a single performance obligation, which represents a majority of our interstate natural gas pipeline contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to stand ready (with regard to firm transportation and storage contracts), receive, transport or store, and redeliver natural gas to the customer; therefore, revenue is recognized over time upon satisfaction of our daily stand ready performance obligation.

We recognize revenues for reservation charges over the performance obligation period, which is the contract term, regardless of the volume of natural gas that is transported or stored. Revenues for commodity charges from both firm and interruptible transportation services and storage services are recognized when natural gas is delivered at the agreed upon delivery point or when natural gas is injected or withdrawn from the storage facility because they specifically relate to our efforts to provide these distinct services. Generally, reservation charges and commodity charges in our interstate natural gas pipeline businesses are recognized as revenue in the same period they are invoiced to our customers. As a result of the ratemaking process, certain amounts collected by us may be subject to refund upon the issuance of final orders by the FERC in pending rate proceedings. We use judgment to record estimates of rate refund liabilities considering our and other third-party regulatory proceedings, advice of counsel, and other risks.

Midstream businesses: Revenues from our non-regulated gathering, processing, transportation, and storage midstream businesses include contracts for natural gas gathering, processing, treating, compression, transportation, and other related services with contract terms that are generally long-term in nature and may extend up to the production life of the associated reservoir. Additionally, our midstream businesses generate revenues from fees charged for storing customers’ natural gas and NGLs, generally under prepaid contracted storage capacity contracts. In situations where, in our judgment, we provide an integrated package of services combined into a single performance obligation, which represents a majority of this class of contracts with customers, we do not consider there to be multiple performance obligations because the nature of the overall promise in the contract is to provide gathering, processing, transportation, storage, and related services resulting in the delivery, or redelivery in the context of storage services, of pipeline-quality natural gas and NGLs to the customer. As such, revenue is recognized at the daily completion of the integrated package of services as the integrated package represents a single performance obligation. Additionally, certain contracts in our midstream businesses contain fixed or upfront payment terms that result in the deferral of revenues until such services have been performed or such capacity has been made available.

We also earn revenues from offshore crude oil and natural gas gathering and transportation and offshore production handling. These services represent an integrated package of services and are considered a single distinct performance obligation for which we recognize revenues as the services are provided to the customer.


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Notes to Consolidated Financial Statements – (Continued)

We generally earn a contractually stated fee per unit for the volume of product transported, gathered, processed, or stored. The rate is generally fixed; however, certain contracts contain variable rates that are subject to change based on commodity prices, levels of throughput, or an annual adjustment based on a formulaic cost of service calculation. In addition, we have contracts with contractually stated fees that decline over the contract term, such as declines based on the passage of time periods or achievement of cumulative throughput amounts. For all of our contracts, we allocate the transaction price to each performance obligation based on the judgmentally determined relative standalone selling price. The excess of consideration received over revenue recognized results in the deferral of those amounts until future periods based on a units of production or straight-line methodology as these methods appropriately match the consumption of services provided to the customer. The units of production methodology requires the use of production estimates that are uncertain and the use of judgment when developing estimates of future production volumes, thus impacting the rate of revenue recognition. Production estimates are monitored as circumstances and events warrant. Certain of our gas gathering and processing agreements have minimum volume commitments (MVC). If a customer under such an agreement fails to meet its MVC for a specified period (thus not exercising all the contractual rights to gathering and processing services within the specified period, herein referred to as “breakage”), it is obligated to pay a contractually determined fee based upon the shortfall between the actual gathered or processed volumes and the MVC for the period contained in the contract. When we conclude, based on management’s judgment, it is probable that the customer will not exercise all or a portion of its remaining rights, we recognize revenue associated with such breakage amount in proportion to the pattern of exercised rights within the respective MVC period.

Under keep-whole and percent-of-liquids processing contracts, we receive commodity consideration in the form of NGLs and take title to the NGLs at the tailgate of the plant. We recognize such commodity consideration as service revenue based on the market value of the NGLs retained at the time the processing is provided. The current market value, as opposed to the market value at the contract inception date, is used due to a combination of factors, including the fact that the volume, mix, and market price of NGL consideration to be received is unknown at the time of contract execution and is not specified in our contracts with customers. Additionally, product sales revenue (discussed below) is recognized upon the sale of the NGLs to a third party based on the sales price at the time of sale. As a result, revenue is recognized in our Consolidated Statement of Income both at the time the processing service is provided in Service revenues – commodity consideration and at the time the NGLs retained as part of the processing service are sold in Product sales. The recognition of revenue related to commodity consideration has the impact of increasing the book value of NGL inventory, resulting in higher cost of goods sold at the time of sale.

Product Sales

In the course of providing transportation services to customers of our gas pipeline businesses and gathering and processing services to customers of our midstream businesses, we may receive different quantities of natural gas from customers than the quantities delivered on behalf of those customers. The resulting imbalances are primarily settled through the purchase or sale of natural gas with each customer under terms provided for in our FERC tariffs or gathering and processing agreements, respectively. Revenue is recognized from the sale of natural gas upon settlement of imbalances.

In certain instances, we purchase NGLs, crude oil, and natural gas from our oil and natural gas producer customers which we remarket. In addition, we retain NGLs as consideration in certain processing arrangements, as discussed above in the Service Revenues - Midstream businesses section. We also market natural gas and NGLs from the production at our upstream properties. We recognize revenue from the sale of these commodities when the products have been sold and delivered. Our product sales contracts are primarily short-term contracts based on prevailing market rates at the time of the transaction.

We purchase natural gas for storage when the current market price paid to buy and transport natural gas plus the cost to store and finance the natural gas is less than an estimated, forward market price that can be received in the future, resulting in positive net product sales. Commodity-based exchange-traded futures


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Notes to Consolidated Financial Statements – (Continued)

contracts and over-the-counter (OTC) contracts are used to sell natural gas at that future price to substantially protect the natural gas revenues that will ultimately be realized when the stored natural gas is sold. Additionally, we enter into transactions to secure transportation capacity between delivery points in order to serve our customers and various markets.

The physical purchase, transportation, storage, and sale of natural gas are accounted for on a weighted-average cost or accrual basis, as appropriate, unlike the fair value basis utilized for the derivatives used to mitigate the natural gas price risk associated with the storage and transportation portfolio. Monthly demand charges are incurred for the contracted storage and transportation capacity and payments associated with asset management agreements, and these demand charges and payments are recognized in our Consolidated Statement of Income in the period they are incurred.

As we are acting as an agent for our natural gas marketing customers and engage in energy trading activities, our natural gas marketing revenues are presented net of the related costs of those activities. Prior to the 2022 integration of our legacy gas marketing operations with the acquired Sequent Acquisition operations (see Note 3 – Acquisitions), our legacy gas marketing operations were reported on a gross basis.

Contract Assets

Our contract assets primarily consist of revenue recognized under contracts containing MVC features whereby management has concluded it is probable there will be a short-fall payment at the end of the current MVC period, which typically follows the calendar year, and that a significant reversal of revenue recognized currently for the future MVC payment will not occur. As a result, our contract assets related to our future MVC payments are generally expected to be collected within the next 12 months and are included within Other current assets and deferred charges in our Consolidated Balance Sheet until such time as the MVC short-fall payments are invoiced to the customer.

Contract Liabilities

Our contract liabilities consist of advance payments primarily from midstream business customers which include construction reimbursements, prepayments, and other billings and transactions for which future services are to be provided under the contract. These amounts are deferred until recognized in revenue when the associated performance obligation has been satisfied, which is primarily based on a units of production methodology over the remaining contractual service periods, and are classified as current or noncurrent according to when such amounts are expected to be recognized. Current and noncurrent contract liabilities are included within Accrued and other current liabilities and Regulatory liabilities, deferred income, and other, respectively, in our Consolidated Balance Sheet.

Contracts requiring advance payments and the recognition of contract liabilities are evaluated to determine whether the advance payments provide us with a significant financing benefit. This determination is based on the combined effect of the expected length of time between when we transfer the promised good or service to the customer, when the customer pays for those goods or services, and the prevailing interest rates. We have assessed our contracts for significant financing components and determined, in our judgment, that one group of contracts entered into in contemplation of one another for certain capital reimbursements contains a significant financing component. As a result, we recognize noncash interest expense based on the effective interest method and revenue (noncash) is recognized when the underlying asset is placed into service utilizing a units of production or straight-line methodology over the life of the corresponding customer contract.

Derivative instruments and hedging activities

We are exposed to commodity price risk. We utilize derivatives to manage a portion of our commodity price risk. These instruments consist primarily of swaps, futures, and forward contracts involving short- and long-term purchases and sales of energy commodities. We purchase natural gas for storage when the current market price paid


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Notes to Consolidated Financial Statements – (Continued)

to buy and transport natural gas plus the cost to store and finance the natural gas is less than an estimated, forward market price that can be received in the future. Additionally, we enter into transactions to secure transportation capacity between delivery points in order to serve our customers and various markets. Commodity-based exchange-traded futures contracts and OTC contracts are used to capture the price differential or spread between the locations served by the capacity in order to substantially protect the natural gas revenues that will ultimately be realized when the physical flow of natural gas between receipt and delivery points occurs. Some commodity-related derivative contracts require physical delivery as opposed to financial settlement, and this type of derivative is both common and prevalent within the natural gas marketing operations. These contracts generally meet the definition of derivatives and are typically not designated as hedges for accounting purposes. When a commodity-related derivative contract is settled physically, any cumulative unrealized gain or loss is reversed, and the contract price is recognized in the respective line item in our Consolidated Statement of Income representing the actual price of the underlying goods being delivered.

Unrealized gains and losses on physically settled commodity-related derivative contracts for commodity sales transactions are recognized in Net gain (loss) on commodity derivatives in our Consolidated Statement of Income. Realized and unrealized gains and losses on non-designated commodity-related derivative contracts for commodity sales transactions that are financially settled are reported in Net gain (loss) on commodity derivatives in our Consolidated Statement of Income. Net gains and losses on derivatives for shrink gas purchases for processing plants are reported in Net processing commodity expenses in our Consolidated Statement of Income.

We experience significant earnings volatility from the fair value accounting required for the derivatives used to hedge a portion of the economic value of the underlying transportation and storage portfolio as well as upstream related production. However, the unrealized fair value measurement gains and losses are generally offset by valuation changes in the economic value of the underlying production or transportation and storage contracts, which is not recognized until the underlying transaction occurs. (See Note 16 – Derivatives.)

We report the fair value of derivatives, except those for which the normal purchases and normal sales exception has been elected, in Derivative assets; Regulatory assets, deferred charges, and other; Derivative liabilities; or Regulatory liabilities, deferred income, and other in our Consolidated Balance Sheet. These amounts are presented on a net basis and reflect the netting of asset and liability positions permitted under the terms of master netting arrangements and cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions. We determine the current and noncurrent classification based on the timing of expected future cash flows of individual trades.

The accounting for the changes in fair value of a commodity derivative can be summarized as follows:


Derivative Treatment						Accounting Method
Normal purchases and normal sales exception						Accrual accounting
Designated in a qualifying hedging relationship						Hedge accounting
All other derivatives						Mark-to-market accounting

We may elect the normal purchases and normal sales exception for certain short- and long-term purchases and sales of physical energy commodities. Under accrual accounting, any change in the fair value of these derivatives is not reflected in our Consolidated Balance Sheet after the initial election of the exception.

We may also designate a hedging relationship for certain commodity derivatives. For a derivative to qualify for designation in a hedging relationship, it must meet specific criteria and we must maintain appropriate documentation. We establish hedging relationships pursuant to our risk management policies. We evaluate the hedging relationships at the inception of the hedge and on an ongoing basis to determine whether the hedging relationship is, and is expected to remain, highly effective in achieving offsetting changes in fair value or cash flows attributable to the underlying risk being hedged. We also regularly assess whether the hedged forecasted transaction is probable of occurring. If a derivative ceases to be or is no longer expected to be highly effective, or if we believe


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

the likelihood of occurrence of the hedged forecasted transaction is no longer probable, hedge accounting is discontinued prospectively, and future changes in the fair value of the derivative are recognized currently in Net gain (loss) on commodity derivatives in our Consolidated Statement of Income.

For commodity derivatives designated as a cash flow hedge, the change in fair value of the derivative is reported in Accumulated other comprehensive income (loss) (AOCI) in our Consolidated Balance Sheet and reclassified into earnings in the period in which the hedged item affects earnings. Gains or losses deferred in AOCI associated with terminated derivatives, derivatives that cease to be highly effective hedges, derivatives for which the forecasted transaction is reasonably possible but no longer probable of occurring, and cash flow hedges that have been otherwise discontinued remain in AOCI until the hedged item affects earnings. If it becomes probable that the forecasted transaction designated as the hedged item in a cash flow hedge will not occur, any gain or loss deferred in AOCI is recognized in Net gain (loss) on commodity derivatives in our Consolidated Statement of Income at that time. The change in likelihood of a forecasted transaction is a judgmental decision that includes qualitative assessments made by us. As of December 31, 2022 and 2021, we are not applying hedge accounting to any commodity derivative instruments.

Interest capitalized

We capitalize interest during construction on major projects with construction periods of at least 3 months and a total project cost in excess of $1 million. Interest is capitalized on borrowed funds and, where regulation by the FERC exists, on internally generated funds (equity AFUDC). The latter is included in Other income (expense) – net below Operating income (loss) in our Consolidated Statement of Income. The rates used by regulated companies are calculated in accordance with FERC rules. Rates used by nonregulated companies are based on our average interest rate on debt.

Income taxes

We include the operations of our domestic corporate subsidiaries and income from our subsidiary partnerships in our consolidated federal income tax return and also file tax returns in various foreign and state jurisdictions as required. Deferred income taxes are computed using the liability method and are provided on all temporary differences between the financial basis and the tax basis of our assets and liabilities. Our judgment and income tax assumptions are used to determine the levels, if any, of valuation allowances associated with deferred tax assets.

Earnings (loss) per common share

Basic earnings (loss) per common share in our Consolidated Statement of Income is based on the sum of the weighted-average number of common shares outstanding and vested restricted stock units. Diluted earnings (loss) per common share in our Consolidated Statement of Income primarily includes any dilutive effect of nonvested restricted stock units and stock options. Diluted earnings (loss) per common share is calculated using the treasury-stock method.

Cash and cash equivalents

Cash and cash equivalents in our Consolidated Balance Sheet consist of highly liquid investments with original maturities of three months or less when acquired.

Accounts receivable

Accounts receivable are carried on a gross basis, with no discounting, less an allowance for doubtful accounts. We estimate the allowance for doubtful accounts, considering current expected credit losses using a forward-looking “expected loss” model, the financial condition of our customers, and the age of past due accounts. The majority of our trade receivable balances are due within 30 days. We monitor the credit quality of our counterparties through review of collection trends, credit ratings, and other analyses, such as bankruptcy monitoring. Financial assets from our natural gas transmission and storage business, gathering, processing and transportation business, marketing


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Notes to Consolidated Financial Statements – (Continued)

business, and upstream operations are segregated into separate pools for evaluation due to different counterparty risks inherent in each business. Changes in counterparty risk factors could lead to reassessment of the composition of our financial assets as separate pools or the need for additional pools. We calculate our allowance for credit losses incorporating an aging method. In estimating our expected credit losses, we utilize historical loss rates over many years, which include periods of both high and low commodity prices. Commodity prices could have a significant impact on a portion of our gathering and processing and upstream counterparties’ financial health and ability to satisfy current obligations. Our expected credit loss estimate considers both internal and external forward-looking commodity price expectations, as well as counterparty credit ratings, and factors impacting their near-term liquidity. In addition, our expected credit loss estimate considers potential contractual, physical, and commercial protections and outcomes in the case of a counterparty bankruptcy. The physical location and nature of our services help to mitigate collectability concerns of our gathering and processing producer customers. Our gathering lines in many cases are physically connected to the customers’ wellheads and pads, and there may not be alternative gathering lines nearby. The construction of gathering systems is capital intensive and it would be costly for others to replicate, especially considering the depletion to date of the associated reserves. As a result, we play a critical role in getting customers’ production from the wellhead to a marketable condition and location. This tends to reduce collectability risk as our services enable producers to generate operating cash flows. Commodity price movements generally do not impact the majority of our natural gas transmission businesses customers’ financial condition.

We also provide marketing and risk management services to retail and wholesale gas marketers, utility companies, upstream producers, and industrial customers. These counterparties utilize netting agreements that enable us to net receivables and payables by counterparty upon settlement. We also net across product lines and against cash collateral received to collateralize receivable positions, provided the netting and cash collateral agreements include such provisions. While the amounts due from, or owed to, our counterparties are settled net, they are recorded on a gross basis in our Consolidated Balance Sheet as accounts receivable and accounts payable.

We do not offer extended payment terms and typically receive payment within one month. We consider receivables past due if full payment is not received by the contractual due date. Interest income related to past due accounts receivable is generally recognized at the time full payment is received or collectability is assured. Past due accounts are generally written off against the allowance for doubtful accounts only after all collection attempts have been exhausted. We do not have a material amount of significantly aged receivables at December 31, 2022 and 2021.

Inventories

Inventories in our Consolidated Balance Sheet primarily consist of natural gas in underground storage, NGLs, and materials and supplies and primarily are stated at the lower of cost or net realizable value. The cost of inventories is primarily determined using the average-cost method. Any lower of cost or net realizable value adjustments are included in Product sales (for natural gas marketing inventory as these sales are presented net of the related costs) or in Product costs for NGL inventory.

Property, plant, and equipment

Property, plant, and equipment is initially recorded at cost. We base the carrying value of these assets on estimates, assumptions, and judgments relative to capitalized costs, useful lives, and salvage values.

As regulated entities, Northwest Pipeline and Transco provide for depreciation using the straight-line method at FERC-prescribed rates. Depreciation for nonregulated entities is provided primarily on the straight-line method over estimated useful lives, except for certain offshore facilities that apply an accelerated depreciation method.

We follow the successful efforts method of accounting for our undivided interest in upstream properties. Our oil and gas producing property costs are depreciated using a units of production method.

Gains or losses from the ordinary sale or retirement of property, plant, and equipment for regulated pipelines are credited or charged to accumulated depreciation. Gains or losses from the ordinary sale or retirement of property,


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

plant, and equipment for nonregulated assets are primarily recorded in Other (income) expense – net included in Operating income (loss) in our Consolidated Statement of Income.

Ordinary maintenance and repair costs are generally expensed as incurred. Costs of major renewals and replacements are capitalized as property, plant, and equipment.

We record a liability and increase the basis in the underlying asset for the present value of each expected future ARO at the time the liability is initially incurred, typically when the asset is acquired or constructed. For our upstream properties, the ARO is recorded based on our working interest in the underlying properties. As regulated entities, Northwest Pipeline and Transco offset the depreciation of the underlying asset that is attributable to capitalized ARO cost to a regulatory asset as we expect to recover these amounts in future rates. We measure changes in the liability due to passage of time by applying an interest rate to the liability balance. This amount is recognized as an increase in the carrying amount of the liability and as a corresponding accretion expense included in Operating and maintenance expenses in our Consolidated Statement of Income, except for regulated entities, for which the increase in the liability results in a corresponding increase to a regulatory asset. The regulatory asset is amortized commensurate with our collection of those costs in rates.

Measurements of AROs include, as a component of future expected costs, an estimate of the price that a third party would demand, and could expect to receive, for bearing the uncertainties inherent in the obligations, sometimes referred to as a market-risk premium.

Intangible assets

Our intangible assets included within Intangible assets – net of accumulated amortization in our Consolidated Balance Sheet are primarily related to gas gathering, processing, and fractionation customer relationships. Our intangible assets are generally amortized on a straight-line basis over the period in which these assets contribute to our cash flows. We evaluate these assets for changes in the expected remaining useful lives and would reflect any changes prospectively through amortization over the revised remaining useful life.

Impairment of property, plant, and equipment, intangible assets, and investments

We evaluate our property, plant, and equipment and intangible assets for impairment when, in our judgment, events or circumstances, including probable abandonment, indicate that the carrying value of such assets may not be recoverable. When an indicator of impairment has occurred, we compare our estimate of undiscounted future cash flows attributable to the assets to the carrying value of the assets to determine whether an impairment has occurred and we may apply a probability-weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes, including selling the assets in the near term or holding them for their remaining estimated useful life. If an impairment of the carrying value has occurred, we determine the amount of the impairment to be recognized in our consolidated financial statements by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. This evaluation is performed at the lowest level for which separately identifiable cash flows exist.

For assets identified to be disposed of in the future and considered held for sale, we compare the carrying value to the estimated fair value less the cost to sell to determine if recognition of an impairment is required. Until the assets are disposed of, the estimated fair value, which includes estimated cash flows from operations until the assumed date of sale, is recalculated when related events or circumstances change.

We evaluate our investments for impairment when, in our judgment, events or circumstances indicate that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, we compare our estimate of fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and we consider the decline in value to be other-than-temporary, the excess of the carrying value over the fair value is recognized in our consolidated financial statements as an impairment charge.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Judgment and assumptions are inherent in our estimate of undiscounted future cash flows and an asset’s or investment’s fair value. Additionally, judgment is used to determine the probability of sale with respect to assets considered for disposal.

Equity-method investment basis differences

Differences between the carrying value of our equity-method investments and our underlying equity in the net assets of investees are accounted for as if the investees were consolidated subsidiaries. Equity earnings (losses) in our Consolidated Statement of Income includes our allocable share of net income (loss) of investees adjusted for any depreciation and amortization, as applicable, associated with basis differences.

Leases

We recognize a lease liability with an offsetting right-of-use asset in our Consolidated Balance Sheet for operating leases based on the present value of the future lease payments. We have elected to combine lease and nonlease components for all classes of leased assets in our calculation of the lease liability and the offsetting right-of-use asset.

Our lease agreements require both fixed and variable periodic payments, with initial terms typically ranging from one year to 20 years. Payment provisions in certain of our lease agreements contain escalation factors which may be based on stated rates or a change in a published index at a future time. The amount by which a lease escalates based on the change in a published index, which is not known at lease commencement, is considered a variable payment and is not included in the present value of the future lease payments, which only includes those that are stated or can be calculated based on the lease agreement at lease commencement. In addition to the noncancellable periods, many of our lease agreements provide for one or more extensions of the lease agreement for periods ranging from one year in length to an indefinite number of times following the specified contract term. Other lease agreements provide for extension terms that allow us to utilize the identified leased asset for an indefinite period of time so long as the asset continues to be utilized in our operations. In consideration of these renewal features, we assess the term of the lease agreements, which includes using judgment in the determination of which renewal periods and termination provisions, when at our sole election, will be reasonably certain of being exercised. Periods after the initial term or extension terms that allow for either party to the lease to cancel the lease are not considered in the assessment of the lease term. Additionally, we have elected to exclude leases with an original term of one year or less, including renewal periods, from the calculation of the lease liability and the offsetting right-of-use asset.

We use judgment in determining the discount rate upon which the present value of the future lease payments is determined. This rate is based on a collateralized interest rate corresponding to the term of the lease agreement using company, industry, and market information available.

When permitted under our lease agreements, we may sublease certain unused office space for fixed periods that could extend up to the length of the original lease agreement.

Pension and other postretirement benefits

The funded status of each of the pension and other postretirement benefit plans is recognized separately in our Consolidated Balance Sheet as either an asset or liability. The plans’ benefit obligations and net periodic benefit costs (credits) are actuarially determined and impacted by various assumptions and estimates.

The discount rates are determined separately for each of our pension and other postretirement benefit plans based on an approach specific to our plans. The year-end discount rates are determined considering a yield curve comprised of high-quality corporate bonds and the timing of the expected benefit cash flows of each plan.

The expected long-term rates of return on plan assets are determined by combining a review of the historical returns within the portfolio, the investment strategy included in the plans’ investment policy statement, and capital


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

market projections for the asset classes in which the portfolio is invested, as well as the weighting of each asset class.

Unrecognized actuarial gains and losses are deferred and recorded in AOCI or, for Transco and Northwest Pipeline, as a regulatory asset or liability, until amortized as a component of net periodic benefit cost (credit). The unrecognized net actuarial losses deferred in AOCI at December 31, 2022 and 2021 were $18 million and $30 million, respectively. Unrecognized actuarial gains and losses in excess of 10 percent of the greater of the benefit obligation or the market-related value of plan assets are amortized over the participants’ average remaining future years of service, which is approximately 10 years for our pension plans and approximately 5 years for our other postretirement benefit plan.

The expected return on plan assets component of net periodic benefit cost (credit) is calculated using the market-related value of plan assets. For our pension plans, the market-related value of plan assets is equal to the fair value of plan assets adjusted to reflect the amortization of gains or losses associated with the difference between the expected and actual return on plan assets over a 5-year period. Additionally, the market-related value of assets may be no more than 110 percent or less than 90 percent of the fair value of plan assets at the beginning of the year. The market-related value of plan assets for our other postretirement benefit plan is equal to the unadjusted fair value of plan assets at the beginning of the year.

Contingent liabilities

We record liabilities for estimated loss contingencies, including environmental matters, when we assess that a loss is probable, and the amount of the loss can be reasonably estimated. These liabilities are calculated based upon our assumptions and estimates with respect to the likelihood or amount of loss and upon advice of legal counsel, engineers, or other third parties regarding the probable outcomes of the matters. These calculations are made without consideration of any potential recovery from third parties. We recognize insurance recoveries or reimbursements from others when realizable. Revisions to these liabilities are generally reflected in income when new or different facts or information become known or circumstances change that affect the previous assumptions or estimates.

Treasury stock

Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as Treasury stock, at cost in our Consolidated Balance Sheet. Gains and losses on the subsequent reissuance of shares are credited or charged to Capital in excess of par value in our Consolidated Balance Sheet using the average-cost method.

Cash flows from revolving credit facility and commercial paper program

Proceeds and payments related to borrowings under our revolving credit facility are reflected in the financing activities in our Consolidated Statement of Cash Flows on a gross basis. Proceeds and payments related to borrowings under our commercial paper program are reflected in the financing activities in our Consolidated Statement of Cash Flows on a net basis, as the outstanding notes generally have maturity dates less than three months from the date of issuance. (See Note 12 – Debt and Banking Arrangements.)

Note 2 – Variable Interest Entities

Consolidated VIEs

As of December 31, 2022, we consolidate the following VIEs:

Northeast JV

We own a 65 percent interest in the Northeast JV, a subsidiary that is a VIE due to certain of our voting rights being disproportionate to our obligation to absorb losses and substantially all of the Northeast JV’s activities being


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

performed on our behalf. We are the primary beneficiary because we have the power to direct the activities that most significantly impact the Northeast JV’s economic performance. The Northeast JV provides midstream services for producers in the Marcellus Shale and Utica Shale regions. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.

Gulfstar One

We own a 51 percent interest in Gulfstar One, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and associated pipelines that provide production handling and gathering services in the eastern deepwater Gulf of Mexico. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Gulfstar One’s economic performance.

Cardinal

We own a 66 percent interest in Cardinal, a subsidiary that provides gathering services for the Utica Shale region and is a VIE due to certain risks shared with customers. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Cardinal’s economic performance. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner.

The following table presents amounts included in the Consolidated Balance Sheet that are only for the use or obligation of our consolidated VIEs:


	December 31,
	2022		2021
	(Millions)
Assets (liabilities):
Cash and cash equivalents	$	49	$	78
Trade accounts and other receivables – net	136		132
Inventories	4		3
Other current assets and deferred charges	7		7
Property, plant, and equipment – net	5,154		5,295
Intangible assets – net of accumulated amortization	2,158		2,267
Regulatory assets, deferred charges, and other	29		20
Accounts payable	(76)		(61)
Accrued and other current liabilities	(34)		(29)

Regulatory liabilities, deferred income, and other	(275)		(287)

Nonconsolidated VIEs

Targa Train 7

We own a 20 percent interest in Targa Train 7, which provides fractionation services at Mont Belvieu, Texas, and is a VIE due primarily to our limited participating rights as the minority equity holder. At December 31, 2022, the carrying value of our investment in Targa Train 7 was $46 million. Our maximum exposure to loss is limited to the carrying value of our investment.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Brazos Permian II

We own a 15 percent interest in Brazos Permian II, which provides gathering and processing services in the Delaware basin and is a VIE due primarily to our limited participating rights as the minority equity holder. At December 31, 2022, the carrying value of our investment in Brazos Permian II was $16 million. Our maximum exposure to loss is limited to the carrying value of our investment.

Note 3 – Acquisitions

Trace Acquisition

On April 29, 2022, we closed on the acquisition of 100 percent of Gemini Arklatex, LLC through which we acquired the Haynesville Shale region gas gathering and related assets of Trace Midstream (Trace) for $972 million of cash funded with cash on hand and proceeds from issuance of commercial paper (Trace Acquisition). The purpose of the Trace Acquisition was to expand our footprint into the east Texas area of the Haynesville Shale region, increasing in-basin scale in one of the largest growth basins in the country.

During the period from the acquisition date of April 29, 2022 to December 31, 2022, the operations acquired in the Trace Acquisition contributed Revenues of $148 million and Modified EBITDA (as defined in Note 18 – Segment Disclosures) of $73 million.

Acquisition-related costs for the Trace Acquisition for the period from the acquisition date of April 29, 2022 to December 31, 2022 of $8 million are reported within our West segment and included in Selling, general, and administrative expenses in our Consolidated Statement of Income.

We accounted for the Trace Acquisition as a business combination, which requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their acquisition date fair values. The valuation techniques used consisted of the income approach (excess earnings method) for valuation of intangible assets and depreciated replacement costs for property, plant, and equipment.

The following table presents the allocation of the acquisition date fair value of the major classes of the assets acquired, which are presented in the West segment, and liabilities assumed at April 29, 2022. The fair value of accounts receivable acquired equals contractual amounts receivable.


	(Millions)
Cash and cash equivalents	$	39
Trade accounts and other receivables – net	18
Property, plant, and equipment – net	448
Intangible assets – net of accumulated amortization	472
Other noncurrent assets	20
Total assets acquired	$	997

Accounts payable	$	12
Accrued and other current liabilities	5
Other noncurrent liabilities	8
Total liabilities assumed	$	25

Net assets acquired	$	972

Intangible assets

Intangible assets recognized in the Trace Acquisition are related to contractual customer relationships from gas gathering agreements with our customers. The basis for determining the value of these intangible assets is estimated future net cash flows to be derived from acquired contractual customer relationships discounted using a risk-adjusted


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

discount rate. These intangible assets are being amortized on a straight-line basis over an initial period of 20 years which represents the term over which the contractual customer relationships are expected to contribute to our cash flows. Approximately 2 percent of the expected future revenues from these contractual customer relationships are impacted by our ability and intent to renew or renegotiate existing customer contracts. We expense costs incurred to renew or extend the terms of our gas gathering contracts with customers. Based on the estimated future revenues during the current contract periods (as estimated at the time of the acquisition), the weighted-average period prior to the next renewal or extension of the existing contractual customer relationships is approximately 19 years. See Note 10 – Intangible Assets.

Sequent Acquisition

On July 1, 2021, we closed on the acquisition of 100 percent of Sequent Energy Management, L.P. and Sequent Energy Canada, Corp (Sequent Acquisition). Total consideration for this acquisition was $159 million, which included $109 million related to working capital.

Operations acquired in the Sequent Acquisition focus on risk management and the marketing, trading, storage, and transportation of natural gas for a diverse set of natural gas and electric utilities, municipalities, power generators, and producers, as well as moving gas to markets through transportation and storage agreements on strategically positioned assets, including our Transco system. The purpose of the Sequent Acquisition was to expand our natural gas marketing activities as well as optimize our pipeline and storage capabilities with expansions into new markets to reach incremental gas-fired power generation, liquified natural gas exports, and future renewable natural gas and other emerging opportunities.

During the period from the acquisition date of July 1, 2021 to December 31, 2021, results for the operations acquired in the Sequent Acquisition included net Product sales of $(43) million (including $80 million of purchases from affiliates), Net gain (loss) on commodity derivatives of $(43) million, and unfavorable Modified EBITDA of $112 million. Both the Revenues and Modified EBITDA amounts reflect a net unrealized loss on commodity derivatives in Net gain (loss) on commodity derivatives of $(109) million for the period.

Acquisition-related costs for the Sequent Acquisition for the period from the acquisition date of July 1, 2021 to December 31, 2021 of $5 million are reported within our Gas & NGL Marketing Services segment and were included in Selling, general, and administrative expenses in our Consolidated Statement of Income for the year ended December 31, 2021.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

We accounted for the Sequent Acquisition as a business combination. The following table presents the allocation of the acquisition date fair value of the major classes of the assets acquired, which are presented in the Gas & NGL Marketing Services segment, and liabilities assumed at July 1, 2021. The fair value of accounts receivable acquired equals contractual amounts receivable. The fair value of the intangible assets was measured using an income approach. The fair value of the inventory acquired was based on the market price of the natural gas in underground storage at the acquisition date. See Note 15 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk for the valuation techniques used to measure fair value of derivative assets and liabilities.


	(Millions)
Cash and cash equivalents	$	8
Trade accounts and other receivables – net	498
Inventories	121
Derivative assets	57
Other current assets and deferred charges	4
Property, plant, and equipment – net	5
Intangible assets – net of accumulated amortization	306
Other noncurrent assets	3
Commodity derivatives included in other noncurrent assets	49
Total assets acquired	$	1,051

Accounts payable	$	514
Derivative liabilities	116
Accrued and other current liabilities	46
Other noncurrent liabilities	1
Commodity derivatives included in other noncurrent liabilities	215
Total liabilities assumed	$	892

Net assets acquired	$	159

Accounts receivable and accounts payable

The operations acquired in the Sequent Acquisition provide services to retail and wholesale gas marketers, utility companies, upstream producers, and industrial customers. See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies for our policy regarding netting receivables and payables.

Intangible assets

Intangible assets are primarily related to transportation and storage capacity contracts. The basis for determining the value of these intangible assets was estimated future net cash flows to be derived from acquired transportation and storage capacity contracts that provide future economic benefits due to their market location, discounted using an industry weighted-average cost of capital. This intangible asset is being amortized based on the expected benefit period over which the underlying contracts are expected to contribute to our cash flows ranging from 1 year to 8 years. As a result, we expect a significant portion of the amortization to be recognized within the first few years of this range. See Note 10 – Intangible Assets.

Commodity derivatives

We are exposed to commodity price risk. To manage this volatility, we use various contracts in our marketing and trading activities that generally meet the definition of derivatives. We enter into commodity-related derivatives to economically hedge exposures to natural gas and retain exposure to price changes that can, in a volatile energy market, be material and can adversely affect our results of operations; see Note 1 – General, Description of


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Business, Basis of Presentation, and Summary of Significant Accounting Policies for our accounting policy for derivatives.

Supplemental Pro Forma

The following pro forma Revenues and Net income (loss) attributable to The Williams Companies, Inc. in 2022, 2021, and 2020, are presented as if the Trace Acquisition had been completed on January 1, 2021, and the Sequent Acquisition had been completed on January 1, 2020. These pro forma amounts are not necessarily indicative of what the actual results would have been if the Trace Acquisition and Sequent Acquisition had in fact occurred on the dates or for the periods indicated, nor do they purport to project Revenues or Net income (loss) attributable to The Williams Companies, Inc. for any future periods or as of any date. These amounts do not give effect to any potential cost savings, operating synergies, or revenue enhancements to result from the transaction or the potential costs to achieve these cost savings, operating synergies, and revenue enhancements.


	Year Ended December 31, 2022
	As Reported		Pro Forma Trace (1)				Pro Forma Combined
	(Millions)
Revenues	$	10,965	$	45			$	11,010
Net income (loss) attributable to The Williams Companies, Inc.	2,049		18				2,067

	Year Ended December 31, 2021
	As Reported		Pro Forma Trace		Pro Forma Sequent (2)		Pro Forma Combined
	(Millions)
Revenues	$	10,627	$	118	$	188	$	10,933
Net income (loss) attributable to The Williams Companies, Inc.	1,517		42		4		1,563

	Year Ended December 31, 2020
	As Reported				Pro Forma Sequent		Pro Forma Combined
	(Millions)
Revenues	$	7,719			$	74	$	7,793
Net income (loss) attributable to The Williams Companies, Inc.	211				(13)		198

(1)Excludes results from operations acquired in the Trace Acquisition for the period beginning on the acquisition date of April 29, 2022, as these results are included in the amounts as reported.

(2)Excludes results from operations acquired in the Sequent Acquisition for the period beginning on the acquisition date of July 1, 2021, as these results are included in the amounts as reported.

NorTex Asset Purchase

On August 31, 2022, we purchased a group of assets in north Texas, primarily natural gas storage facilities and pipelines, from NorTex Midstream Holdings, LLC (NorTex Asset Purchase) for approximately $424 million. These assets are included in the Transmission & Gulf of Mexico segment.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 4 – Related Party Transactions

Transactions with Equity-Method Investees

We have expenses associated with our equity-method investees of $1.346 billion, $948 million, and $348 million for 2022, 2021, and 2020, respectively in our Consolidated Statement of Income. Substantially all of these expenses are included in Product costs. We also have revenue from our equity-method investees of $76 million, $46 million, and $26 million for 2022, 2021, and 2020, respectively. In addition, we have $17 million and $9 million included in Accounts receivable and $87 million and $89 million included in Accounts payable in our Consolidated Balance Sheet with our equity-method investees at December 31, 2022 and 2021, respectively.

We have operating agreements with certain equity-method investees. These operating agreements typically provide for reimbursement or payment to us for certain direct operational payroll and employee benefit costs, materials, supplies, and other charges and also for management services. The total charges to equity-method investees for these fees are $65 million, $70 million, and $79 million for 2022, 2021, and 2020, respectively.

Board of Directors

Two members of our Board of Directors are also executive officers at certain of our counterparties. We recorded $180 million in Product sales and $86 million in Product costs in our Consolidated Statement of Income from these companies for the purchase and sale of natural gas for 2022.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 5 – Revenue Recognition

Revenue by Category

The following table presents our revenue disaggregated by major service line:


	Transco		Northwest Pipeline		Gulf of Mexico Midstream and Storage		Northeast Midstream		West Midstream		Gas & NGL Marketing Services		Other		Eliminations		Total
	(Millions)
2022
Revenues from contracts with customers:
Service revenues:
Regulated interstate natural gas transportation and storage	$	2,696	$	443	$	—	$	—	$	—	$	—	$	—	$	(72)	$	3,067
Gathering, processing, transportation, fractionation, and storage:
Monetary consideration	—		—		365		1,395		1,476		—		—		(164)		3,072
Commodity consideration	—		—		64		14		182		—		—		—		260
Other	10		—		27		233		54		3		—		(19)		308
Total service revenues	2,706		443		456		1,642		1,712		3		—		(255)		6,707
Product sales	179		—		251		134		841		10,768		706		(1,813)		11,066
Total revenues from contracts with customers	2,885		443		707		1,776		2,553		10,771		706		(2,068)		17,773
Other revenues (1)	24		4		10		26		8		7,929		(55)		(11)		7,935
Other adjustments (2)	—		—		—		—		—		(15,467)		—		724		(14,743)
Total revenues	$	2,909	$	447	$	717	$	1,802	$	2,561	$	3,233	$	651	$	(1,355)	$	10,965

2021
Revenues from contracts with customers:
Service revenues:
Regulated interstate natural gas transportation and storage	$	2,547	$	441	$	—	$	—	$	—	$	—	$	—	$	(33)	$	2,955
Gathering, processing, transportation, fractionation, and storage:
Monetary consideration	—		—		344		1,308		1,184		—		—		(130)		2,706
Commodity consideration	—		—		52		7		179		—		—		—		238
Other	10		—		22		195		52		3		1		(19)		264
Total service revenues	2,557		441		418		1,510		1,415		3		1		(182)		6,163
Product sales	88		—		269		99		643		6,404		333		(1,215)		6,621
Total revenues from contracts with customers	2,645		441		687		1,609		2,058		6,407		334		(1,397)		12,784
Other revenues (1)	10		3		8		25		(32)		2,632		11		(13)		2,644
Other adjustments (2)	—		—		—		—		—		(4,828)		—		27		(4,801)
Total revenues	$	2,655	$	444	$	695	$	1,634	$	2,026	$	4,211	$	345	$	(1,383)	$	10,627


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)


	Transco		Northwest Pipeline		Gulf of Mexico Midstream and Storage		Northeast Midstream		West Midstream		Gas & NGL Marketing Services		Other		Eliminations		Total
	(Millions)
2020
Revenues from contracts with customers:
Service revenues:
Regulated interstate natural gas transportation and storage	$	2,404	$	449	$	—	$	—	$	—	$	—	$	—	$	(7)	$	2,846
Gathering, processing, transportation, fractionation, and storage:
Monetary consideration	—		—		348		1,279		1,226		—		—		(97)		2,756
Commodity consideration	—		—		21		7		101		—		—		—		129
Other	10		—		27		164		35		32		1		(16)		253
Total service revenues	2,414		449		396		1,450		1,362		32		1		(120)		5,984
Product sales	80		—		114		57		152		1,602		—		(336)		1,669
Total revenues from contracts with customers	2,494		449		510		1,507		1,514		1,634		1		(456)		7,653
Other revenues (1)	10		—		9		22		9		(3)		33		(14)		66
Total revenues	$	2,504	$	449	$	519	$	1,529	$	1,523	$	1,631	$	34	$	(470)	$	7,719

(1)Revenues not derived from contracts with customers primarily consist of physical product sales related to derivative contracts, realized and unrealized gains and losses associated with our derivative contracts, which are reported in Net gain (loss) on commodity derivatives in the Consolidated Statement of Income, management fees that we receive for certain services we provide to operated equity-method investments, and leasing revenues associated with our headquarters building.

(2)Other adjustments reflect certain costs of Gas & NGL Marketing Services’ risk management activities. As we are acting as agent for natural gas marketing customers or engage in energy trading activities, the resulting revenues are presented net of the related costs of those activities in the Consolidated Statement of Income (see Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies).

Contract Assets

The following table presents a reconciliation of our contract assets:


	Year Ended December 31,
	2022		2021
	(Millions)
Balance at beginning of year	$	22	$	12
Revenue recognized in excess of amounts invoiced	208		184
Minimum volume commitments invoiced	(201)		(174)
Balance at end of year	$	29	$	22


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Contract Liabilities

The following table presents a reconciliation of our contract liabilities:


	Year Ended December 31,
	2022		2021
	(Millions)
Balance at beginning of year	$	1,126	$	1,209
Payments received and deferred	180		116
Significant financing component	9		10

Contract liability acquired	2		1
Recognized in revenue	(274)		(210)
Balance at end of year	$	1,043	$	1,126

Remaining Performance Obligations

Remaining performance obligations primarily include reservation charges on contracted capacity for our gas pipeline firm transportation contracts with customers, storage capacity contracts, long-term contracts containing minimum volume commitments associated with our midstream businesses, and fixed payments associated with offshore production handling. For our interstate natural gas pipeline businesses, remaining performance obligations reflect the rates for such services in our current FERC tariffs for the life of the related contracts; however, these rates may change based on future tariffs approved by the FERC and the amount and timing of these changes are not currently known.

Our remaining performance obligations exclude variable consideration, including contracts with variable consideration for which we have elected the practical expedient for consideration recognized in revenue as billed. Certain of our contracts contain evergreen and other renewal provisions for periods beyond the initial term of the contract. The remaining performance obligation amounts as of December 31, 2022, do not consider potential future performance obligations for which the renewal has not been exercised and exclude contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service. Consideration received prior to December 31, 2022, that will be recognized in future periods is also excluded from our remaining performance obligations and is instead reflected in contract liabilities.

The following table presents the amount of the contract liabilities balance expected to be recognized as revenue when performance obligations are satisfied and the transaction price allocated to the remaining performance obligations under certain contracts as of December 31, 2022.


	Contract Liabilities		Remaining Performance Obligations
	(Millions)
2023 (one year)	$	142	$	3,643
2024 (one year)	122		3,388
2025 (one year)	117		3,149
2026 (one year)	112		2,520
2027 (one year)	101		2,415
Thereafter	449		14,675
Total	$	1,043	$	29,790


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 6 – Provision (Benefit) for Income Taxes

The Provision (benefit) for income taxes includes:


	Year Ended December 31,
	2022		2021		2020
	(Millions)
Current:
Federal	$	(25)	$	(1)	$	(29)
State	19		3		—

	(6)		2		(29)
Deferred:
Federal	424		421		98
State	7		88		10

	431		509		108
Provision (benefit) for income taxes	$	425	$	511	$	79

Reconciliations from the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes are as follows:


	Year Ended December 31,
	2022		2021		2020
	(Millions)
Provision (benefit) at statutory rate	$	534	$	435	$	58
Increases (decreases) in taxes resulting from:
State income taxes (net of federal benefit)	113		71		6
State deferred income tax rate change	(92)		—		—
Federal valuation allowance	(70)		3		1
Federal settlements	(45)		—		—
Impact of nontaxable noncontrolling interests	(14)		(9)		3
Other – net	(1)		11		11
Provision (benefit) for income taxes	$	425	$	511	$	79

Income (loss) before income taxes includes less than $1 million of foreign income in 2022, and $2 million and $1 million of foreign loss in 2021 and 2020, respectively.

The State deferred income tax rate change benefit of $92 million is related to a decrease in our estimate of the deferred state income tax rate (net of federal effect) driven primarily by the enacted decline in the Pennsylvania state income tax rate over the next several years.

During the course of audits of our business by domestic and foreign tax authorities, we frequently face challenges regarding the amount of taxes due. These challenges include questions regarding the timing and amount of deductions and the allocation of income among various tax jurisdictions. In evaluating the liability associated with our various filing positions, we apply the two-step process of recognition and measurement. In association with this liability, we record an estimate of related interest and tax exposure as a component of our tax provision. The impact of this accrual is included within Other – net in our reconciliation of the Provision (benefit) at statutory rate to recorded Provision (benefit) for income taxes.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Significant components of Deferred income tax liabilities are as follows:


	December 31,
	2022		2021
	(Millions)
Gross deferred income tax liabilities:
Property, plant and equipment	$	3,171	$	2,777
Investments	1,784		1,669
Other	138		154
Total gross deferred income tax liabilities	5,093		4,600
Gross deferred income tax assets:
Accrued liabilities	1,108		872
Foreign tax credits	91		140
Federal loss carryovers	730		879
State losses and credits	356		421
Other	121		132
Total gross deferred income tax assets	2,406		2,444
Less valuation allowance	200		297
Net deferred income tax assets	2,206		2,147
Deferred income tax liabilities	$	2,887	$	2,453

The valuation allowance at December 31, 2022 and 2021 serves to reduce the available deferred income tax assets to an amount that will, more likely than not, be realized. We considered all available positive and negative evidence, which incorporates available tax planning strategies, and management’s estimate of future reversals of existing taxable temporary differences, and have determined that a portion of our deferred income tax assets related to the Foreign tax credits and State losses and credits may not be realized. In 2022, we released $70 million of valuation allowance upon determining we expect to utilize additional foreign tax credits prior to expiration between 2024 and 2025. The amounts presented in the table above are, with respect to state items, before any federal benefit. The change from prior year for the State losses and credits reflects increases in losses and credits generated in the current and prior years less losses and/or credits utilized in the current year. We have loss and credit carryovers in multiple state taxing jurisdictions. These attributes generally expire between 2023 and 2041 with some carryovers having indefinite carryforward periods.

Federal loss carryovers at the end of 2022 include deferred tax assets on net operating loss carryovers of $705 million with no expiration date. Deferred tax assets on charitable contributions of $25 million are expected to be utilized by us prior to expiring between 2023 and 2027.

Cash payments for income taxes (net of refunds) were $13 million in 2022. Cash refunds for income taxes (net of payments) were $45 million and $40 million in 2021 and 2020, respectively.

During the second quarter of 2022, we finalized settlements for 2011 through 2014 on certain contested matters with the Internal Revenue Service (IRS) that resulted in a 2022 year-to-date tax benefit of approximately $45 million. In 2022, we received cash refunds related to these settlements totaling $7 million.

We recognize related interest and penalties as a component of Provision (benefit) for income taxes. Total interest and penalties recognized as part of income tax provision were benefits of $3 million in 2022 and $1 million in each of 2021 and 2020. There are no interest or penalties relating to uncertain tax positions accrued as of December 31, 2022 and $4 million of interest was accrued as of December 31, 2021.

Consolidated U.S. Federal income tax returns are open to IRS examination for years after 2017. As of December 31, 2022, examination of 2018 is currently in process, with the statute extended to September 30, 2023. We do not expect material changes in our financial position resulting from this examination. The statute of limitations for most states expires one year after expiration of the IRS statute.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 7 – Employee Benefit Plans

Pension Plans

We have noncontributory defined benefit pension plans for eligible employees hired prior to January 1, 2019. Eligible employees earn compensation credits based on a cash balance formula. As of January 1, 2020, certain active employees are no longer eligible to receive compensation credits.

Other Postretirement Benefits

We provide subsidized retiree medical benefits to a closed group of participants as well as retiree life insurance benefits to eligible participants. Medical benefits for Medicare eligible participants are paid through contributions to health reimbursement accounts. Benefits for all other participants are provided through a self-insured medical plan, which includes participant contributions and contains other cost-sharing features such as deductibles, co-payments, and co-insurance.

Defined Contribution Plan

We have a defined contribution plan for the benefit of substantially all employees. Plan participants may contribute a portion of their compensation on a pre-tax or after-tax basis. Generally, we match employee contributions up to 6 percent of eligible compensation. Additionally, eligible active employees that do not receive compensation credits under the defined benefit pension plan are eligible for an additional annual fixed-percentage contribution made by us to the defined contribution plan. Our contributions charged to expense were $53 million in 2022, $45 million in 2021, and $42 million in 2020.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Funded Status

The following table presents the changes in benefit obligations and plan assets for pension benefits and other postretirement benefits for the years indicated:


	Pension Benefits				Other Postretirement Benefits
	2022		2021		2022		2021
	(Millions)
Change in benefit obligation:
Benefit obligation at beginning of year	$	1,133	$	1,183	$	200	$	220
Service cost	28		30		1		1
Interest cost	31		28		6		5
Plan participants’ contributions	—		—		2		2
Benefits paid	(78)		(83)		(12)		(14)
Net actuarial loss (gain) (1)	(162)		(21)		(45)		(14)
Settlements	(12)		(4)		—		—
Net increase (decrease) in benefit obligation	(193)		(50)		(48)		(20)
Benefit obligation at end of year	940		1,133		152		200
Change in plan assets:
Fair value of plan assets at beginning of year	1,336		1,357		287		278
Actual return on plan assets	(132)		62		(27)		16
Employer contributions	3		4		3		5
Plan participants’ contributions	—		—		2		2
Benefits paid	(78)		(83)		(12)		(14)
Settlements	(12)		(4)		—		—
Net increase (decrease) in fair value of plan assets	(219)		(21)		(34)		9
Fair value of plan assets at end of year	1,117		1,336		253		287
Funded status — overfunded (underfunded)	$	177	$	203	$	101	$	87
Amounts recognized in the Consolidated Balance Sheet:
Noncurrent assets	$	201	$	229	$	105	$	91
Current liabilities	(2)		(3)		(4)		(4)
Noncurrent liabilities	(22)		(23)		—		—
Funded status — overfunded (underfunded)	$	177	$	203	$	101	$	87

Accumulated benefit obligation	$	930	$	1,118

(1) 2022 amounts are due primarily to the following factors: Pension benefits - discount rate assumptions, partially offset by change in interest crediting rate assumption; Other Postretirement Benefits - discount rate assumption. 2021 amounts are due primarily to the following factors: Pension Benefits - discount rate assumptions, partially offset by experience-related items; Other Postretirement Benefits - discount rate assumption and experience-related items.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The following table summarizes information for pension plans with obligations in excess of plan assets at December 31.


	2022		2021
	(Millions)
Projected benefit obligation	$	24	$	26
Accumulated benefit obligation	22		22
Fair value of plan assets	—		—

Pre-tax amounts recognized in Accumulated other comprehensive income (loss) at December 31 are as follows:


	Pension Benefits				Other Postretirement Benefits
	2022		2021		2022		2021
	(Millions)
Net actuarial gain (loss)	$	(45)	$	(46)	$	18	$	4

Additionally, as of December 31, 2022 and 2021, we have $130 million and $150 million, respectively, of pension and other postretirement plan amounts included in regulatory liabilities associated with our gas pipeline companies.

Net Periodic Benefit Cost (Credit)

Net periodic benefit cost (credit) for the years ended December 31 consist of the following:


	Pension Benefits						Other Postretirement Benefits
	2022		2021		2020		2022		2021		2020
	(Millions)
Components of net periodic benefit cost (credit):
Service cost	$	28	$	30	$	31	$	1	$	1	$	1
Interest cost	31		28		36		6		5		7
Expected return on plan assets	(44)		(43)		(53)		(10)		(10)		(11)
Amortization of net actuarial loss	12		14		21		—		—		—
Net actuarial loss from settlements	3		1		9		—		—		—
Reclassification to regulatory liability	—		—		—		1		2		2
Net periodic benefit cost (credit) (1)	$	30	$	30	$	44	$	(2)	$	(2)	$	(1)

(1) Components other than Service cost are included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Income*.*


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Items Recognized in Other Comprehensive Income (Loss)

Other changes in plan assets and benefit obligations recognized in Other comprehensive income (loss) before taxes for the years ended December 31 consist of the following:


	Pension Benefits						Other Postretirement Benefits
	2022		2021		2020		2022		2021		2020
	(Millions)
Net actuarial gain (loss) arising during the year	$	(14)	$	40	$	112	$	14	$	29	$	(4)
Amortization of net actuarial loss	12		14		21		—		—		—
Net actuarial loss from settlements	3		1		9		—		—		—
Total recognized in Other comprehensive income (loss)	$	1	$	55	$	142	$	14	$	29	$	(4)

Key Assumptions

The weighted-average assumptions utilized to determine benefit obligations and Net periodic benefit cost (credit) as of December 31 are as follows:


	Pension Benefits						Other Postretirement Benefits
	2022		2021		2020		2022		2021		2020
Benefit obligations:
Discount rate	5.16	%	2.82	%	2.45	%	5.20	%	2.93	%	2.59	%
Rate of compensation increase	3.58		3.67		3.76		N/A		N/A		N/A
Cash balance interest crediting rate	3.50		3.00		3.00		N/A		N/A		N/A
Net periodic benefit cost (credit):
Discount rate	2.84	%	2.45	%	3.08	%	2.93	%	2.59	%	3.27	%
Expected long-term rate of return on plan assets	3.81		3.69		4.67		3.67		3.61		4.39
Rate of compensation increase	3.67		3.76		3.68		N/A		N/A		N/A
Cash balance interest crediting rate	3.00		3.00		3.50		N/A		N/A		N/A

We use mortality tables issued by the Society of Actuaries to measure the benefit obligations.

The assumed health care cost trend rate for 2023 is 6.8 percent. This rate decreases to 4.5 percent by 2032.

Plan Assets

The plans’ investment objectives include a framework to manage the volatility of the plans’ funded status and minimize future cash contributions. The plans follow a policy of diversifying the investments across various asset classes, strategies, and investment managers.

The investment policy for the pension plans includes target asset allocation percentages as well as permitted and prohibited investments designed to mitigate risks associated with investing. The December 31, 2022, target asset allocation was 25 percent equity securities and 75 percent fixed income securities, including investments in equity and fixed income mutual funds, commingled investment funds, and separate accounts.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The fair values of our pension and other postretirement benefits plan assets by asset class at December 31 are as follows:


	2022
	Pension Benefits						Other Postretirement Benefits
	Level 1 (1)		Level 2 (2)		Total		Level 1 (1)		Level 2 (2)		Total
	(Millions)
Cash management funds	$	45	$	—	$	45	$	105	$	—	$	105
Government debt securities	58		18		76		8		3		11
Corporate debt securities	—		284		284		—		39		39
Other	1		4		5		—		—		—
	$	104	$	306	410		$	113	$	42	155
Commingled investment funds (3):
Equities					273						38
Fixed income					434						60
Total assets at fair value					$	1,117					$	253


	2021
	Pension Benefits						Other Postretirement Benefits
	Level 1 (1)		Level 2 (2)		Total		Level 1 (1)		Level 2 (2)		Total
	(Millions)
Cash management funds	$	37	$	—	$	37	$	14	$	—	$	14
Equity securities	42		19		61		39		10		49
Government debt securities	99		28		127		13		4		17
Corporate debt securities	—		350		350		—		47		47
Mutual fund - Municipal bonds	—		—		—		59		—		59
Other	(3)		2		(1)		(1)		—		(1)
	$	175	$	399	574		$	124	$	61	185
Commingled investment funds (3):
Equities					288						39
Fixed income					474						63
Total assets at fair value					$	1,336					$	287

(1) Level 1 includes assets with fair values based on quoted prices in active markets for identical assets. Cash management funds, equity securities traded on U.S. exchanges, U.S. Treasury securities, and mutual funds are included in this level.

(2) Level 2 includes assets with fair values determined by using significant other observable inputs. This level includes equity securities traded on active foreign exchanges and fixed income securities, other than U.S. Treasury securities, that are valued primarily using pricing models which incorporate observable inputs such as benchmark yields, reported trades, broker/dealer quotes, and issuer spreads.

(3) The commingled investment funds are measured at fair value using net asset value per share. Certain standard withdrawal restrictions generally apply, which may include redemption notification period restrictions ranging from 1 day to 15 days.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Plan Benefit Payments and Employer Contributions

Following are the expected benefit payments, which reflect the same assumptions previously discussed and future service as appropriate.


	Pension Benefits		Other Postretirement Benefits
	(Millions)
2023	$	84	$	13
2024	83		13
2025	84		12
2026	81		12
2027	80		11
2028-2032	389		52

In 2023, we expect to contribute approximately $1 million to our pension plans and approximately $4 million to our other postretirement benefit plan.

Note 8 – Investing Activities

Investments


	Ownership Interest at December 31, 2022		December 31,
		2022			2021
			(Millions)
Equity method:
Appalachia Midstream Investments	(1)		$	2,975		$	3,056
RMM	50%		395			401
OPPL	50%		386			388
Blue Racer	50%		383			377
Discovery	60%		345			328
Gulfstream	50%		220			215
Laurel Mountain	69%		205			226
Other	Various		139			130
			5,048			5,121
Other			17			6
			$	5,065		$	5,127

(1)Includes equity-method investments in multiple gathering systems in the Marcellus Shale region with an approximate average 66 percent interest.

Basis differential

The carrying value of our Appalachia Midstream Investments exceeds our portion of the underlying net assets by approximately $1.1 billion and $1.2 billion at December 31, 2022 and 2021, respectively. These differences were assigned at the acquisition date to property, plant, and equipment and customer relationship intangible assets. Certain of our other equity-method investments have a carrying value less than our portion of the underlying equity in the net assets primarily due to other than temporary impairments that we have recognized but that were not required to be recognized in the investees’ financial statements. These differences total approximately $1.1 billion and $1.2 billion at December 31, 2022 and 2021, respectively, and were assigned to property, plant, and equipment and customer relationship intangible assets. Differences in the carrying value of our equity-method investments and


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

our portion of the equity in the underlying net assets are generally amortized over the remaining useful lives of the associated underlying assets and included in Equity earnings (losses) within our Consolidated Statement of Income.

Purchases of and contributions to equity-method investments

We generally fund our portion of significant expansion or development projects of these investees through additional capital contributions. These transactions increased the carrying value of our investments and included:


	Year Ended December 31,
	2022		2021		2020
	(Millions)
Appalachia Midstream Investments	$	83	$	84	$	116
Discovery	41		—		—
Cardinal Pipeline Company, LLC	16		—		—
Gulfstream	14		26		3
Blue Racer (1)	—		3		157




Other	12		2		49
	$	166	$	115	$	325

(1)See following discussion in the section Acquisition of additional interests in BRMH below.

Acquisition of additional interests in BRMH

As of December 31, 2019, we effectively owned a 29 percent indirect interest in Blue Racer through our 58 percent interest in Blue Racer Midstream Holdings, LLC (BRMH), whose primary asset is a 50 percent interest in Blue Racer. In November 2020, we paid $157 million, net of cash acquired, to acquire an additional 41 percent ownership interest in BRMH before acquiring the remaining interest of BRMH in September 2021. As such, we control and consolidate BRMH, reporting the 50 percent interest in Blue Racer as an equity-method investment. Since substantially all of the fair value of the BRMH assets acquired is concentrated in a single asset, the investment in Blue Racer, and we previously held a noncontrolling interest in BRMH, we recorded the November 2020 and September 2021 additional purchases of interests as asset acquisitions. Prior to November 2021 BRMH was named Caiman Energy II, LLC and was accounted for as an equity-method investment.

Dividends and distributions

The organizational documents of entities in which we have an equity-method investment generally require distribution of available cash to members on at least a quarterly basis. These transactions reduced the carrying value of our investments and included:


	Year Ended December 31,
	2022		2021		2020
	(Millions)
Appalachia Midstream Investments	$	415	$	433	$	357
Laurel Mountain	112		33		31
Gulfstream	89		90		93
RMM	52		45		39
Blue Racer (1)	49		47		47
Discovery	49		44		21
OPPL	34		26		50

Other	65		39		15
	$	865	$	757	$	653

*(1)*See previous discussion in the section Acquisition of additional interests in BRMH above.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Equity Earnings (Losses)

Equity earnings (losses) in 2020 includes a $78 million loss associated with the first-quarter full impairment of goodwill recognized by our investee RMM, which was allocated entirely to our member interest per the terms of the membership agreement. Also included in 2020 are losses of $11 million, $26 million, and $10 million for our share of asset impairments at Laurel Mountain, Appalachia Midstream Investments, and Blue Racer, respectively.

Impairments of Equity-Method Investments

See Note 15 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk for information regarding impairments of our equity-method investments of $1,046 million for 2020.

Summarized Financial Position and Results of Operations of All Equity-Method Investments


	December 31,
	2022		2021
	(Millions)
Assets (liabilities):
Current assets	$	964	$	743
Noncurrent assets	12,701		13,211
Current liabilities	(632)		(435)
Noncurrent liabilities	(3,789)		(3,774)


	Year Ended December 31,
	2022		2021		2020
	(Millions)
Gross revenue	$	5,520	$	4,688	$	2,625
Operating income	1,268		1,191		508
Net income	1,102		1,006		459

Note 9 – Property, Plant, and Equipment

The following table presents nonregulated and regulated Property, plant, and equipment – net as presented on the Consolidated Balance Sheet for the years ended:


	Estimated Useful Life (1) (Years)		Depreciation Rates (1) (%)	December 31,
2022		2021
				(Millions)
Nonregulated:
Natural gas gathering and processing facilities	5 - 40			$	19,163	$	18,203
Construction in progress	Not applicable			997		331
Oil and gas properties	Units of production			874		572
Other	0 - 45			2,998		2,649
Regulated:
Natural gas transmission facilities			1.25 - 7.13	19,521		19,201
Construction in progress	Not applicable		Not applicable	708		475
Other	5 - 45		0.00 - 33.33	2,796		2,753
Total property, plant, and equipment, at cost				47,057		44,184
Accumulated depreciation and amortization				(16,168)		(14,926)
Property, plant, and equipment — net				$	30,889	$	29,258

(1) Estimated useful life and depreciation rates are presented as of December 31, 2022. Depreciation rates and estimated useful lives for regulated assets are prescribed by the FERC.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Depreciation and amortization expense for Property, plant, and equipment – net was $1.498 billion, $1.496 billion, and $1.393 billion in 2022, 2021, and 2020, respectively.

Regulated Property, plant, and equipment – net includes approximately $428 million and $468 million at December 31, 2022 and 2021, respectively, related to amounts in excess of the original cost of the regulated facilities within our gas pipeline businesses as a result of our prior acquisitions. This amount is being amortized over 40 years using the straight-line amortization method. Current FERC policy does not permit recovery through rates for amounts in excess of original cost of construction.

Asset Retirement Obligations

Our accrued obligations primarily relate to offshore platforms and pipelines, oil and gas properties, gas transmission pipelines and facilities, underground storage caverns, gas processing, fractionation, and compression facilities, and gas gathering well connections and pipelines. At the end of the useful life of each respective asset, we are legally obligated to dismantle offshore platforms and appropriately abandon offshore pipelines, to remove certain components of gas transmission facilities from the ground, to restore land and remove surface equipment at gas processing, fractionation, and compression facilities, to cap certain gathering pipelines at the wellhead connection and remove any related surface equipment, to plug storage caverns and remove any related surface equipment, and to plug producing wells and remove any related surface equipment.

The following table presents the significant changes to our ARO, of which $1.827 billion and $1.590 billion are included in Regulatory liabilities, deferred income, and other with the remaining current portion in Accrued and other current liabilities at December 31, 2022 and 2021, respectively.


	Year Ended December 31,
	2022		2021
	(Millions)
Balance at beginning of year	$	1,665	$	1,222
Liabilities incurred (1)	77		336
Liabilities settled	(22)		(25)
Accretion	85		73
Revisions (2)	109		59
Balance at end of year	$	1,914	$	1,665

(1)Includes $307 million of ARO in 2021 related to acquired upstream properties.

(2)Several factors are considered in the annual review process, including inflation rates, current estimates for removal cost, market risk premiums, discount rates, and the estimated remaining useful life of the assets. The 2022 revisions reflect changes in removal cost estimates and increases in inflation rates, partially offset by increases in discount rates. The 2021 revisions reflect changes in removal cost estimates, increases in the estimated remaining useful life of certain assets, and increases in inflation rates.

The funds Transco collects through a portion of its rates to fund its ARO are deposited into an external trust account dedicated to funding its ARO (ARO Trust). (See Note 15 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk.) Under its current rate settlement, Transco’s annual funding obligation is approximately $16 million, with installments to be deposited monthly.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 10 – Intangible Assets

The gross carrying amount and accumulated amortization of intangible assets, included in Intangible assets – net of accumulated amortization in the Consolidated Balance Sheet, at December 31 are as follows:


	2022				2021
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
	(Millions)
Customer relationships	$	10,065	$	(2,801)	$	9,593	$	(2,448)
Transportation and storage capacity contracts	267		(172)		267		(14)
Other intangible assets	6		(2)		6		(2)
	$	10,338	$	(2,975)	$	9,866	$	(2,464)

Customer Relationships

Customer relationships primarily relate to gas gathering, processing, and fractionation contractual customer relationships recognized in acquisitions. Contractual customer relationships are being amortized on a straight-line basis over a period of 30 years for most acquisitions, which represents a portion of the term over which the contractual customer relationships are expected to contribute to our cash flows.

We expense costs incurred to renew or extend the terms of our gas gathering, processing, and fractionation contracts with customers. Although a significant portion of the expected future cash flows associated with these contractual customer relationships are dependent on our ability to renew or extend the arrangements beyond the initial contract periods, these expected future cash flows are significantly influenced by the scope and pace of our producer customers’ drilling programs. Once producer customers’ wells are connected to our gathering infrastructure, their likelihood of switching to another provider before the wells are abandoned is reduced due to the significant capital investment required.

The amortization expense related to customer relationships was $353 million, $332 million, and $328 million in 2022, 2021, and 2020, respectively. The estimated amortization expense for each of the next five succeeding fiscal years is approximately $357 million.

Transportation and Storage Capacity Contracts

Certain transportation and storage capacity contracts were recognized as intangible assets as part of the Sequent Acquisition. (See Note 3 – Acquisitions.) The amortization expense related to transportation and storage capacity contracts was $158 million in 2022 and $14 million in 2021. The estimated amortization expense for each of the next five succeeding fiscal years is $51 million, $21 million, $10 million, $7 million, and $4 million.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 11 – Accrued and Other Current Liabilities


	December 31,
	2022		2021
	(Millions)
Interest on debt	$	274	$	277
Employee costs	218		214
Regulatory liabilities (Note 1)	201		56
Contract liabilities	141		134
Asset retirement obligations (Note 9)	87		75
Operating lease liabilities (Note 13)	25		23


Other, including accrued loss contingencies	324		256
	$	1,270	$	1,035


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 12 – Debt and Banking Arrangements

Long-Term Debt


	December 31,
	2022		2021
	(Millions)
Transco:
7.08% Debentures due 2026	$	8	$	8
7.25% Debentures due 2026	200		200
7.85% Notes due 2026	1,000		1,000
4% Notes due 2028	400		400
3.25% Notes due 2030	700		700
5.4% Notes due 2041	375		375
4.45% Notes due 2042	400		400
4.6% Notes due 2048	600		600
3.95% Notes due 2050	500		500
Other financing obligation — Atlantic Sunrise	809		830
Other financing obligation — Leidy South	77		72
Other financing obligation — Dalton	252		254
Northwest Pipeline:
7.125% Debentures due 2025	85		85
4% Notes due 2027	500		500
Williams:
3.35% Notes due 2022	—		750
3.6% Notes due 2022	—		1,250
3.7% Notes due 2023	—		850
4.5% Notes due 2023	600		600
4.3% Notes due 2024	1,000		1,000
4.55% Notes due 2024	1,250		1,250
3.9% Notes due 2025	750		750
4% Notes due 2025	750		750
3.75% Notes due 2027	1,450		1,450
3.5% Notes due 2030	1,000		1,000
2.6% Notes due 2031	1,500		1,500
7.5% Debentures due 2031	339		339
7.75% Notes due 2031	252		252
8.75% Notes due 2032	445		445
4.65% Notes due 2032	1,000		—
6.3% Notes due 2040	1,250		1,250
5.8% Notes due 2043	400		400
5.4% Notes due 2044	500		500
5.75% Notes due 2044	650		650
4.9% Notes due 2045	500		500
5.1% Notes due 2045	1,000		1,000
4.85% Notes due 2048	800		800
3.5% Notes due 2051	650		650
5.3% Notes due 2052	750		—
Various — 7.7% to 8.72% Notes due 2022 to 2027	2		2

Unamortized debt issuance costs	(135)		(131)
Net unamortized debt premium (discount)	(55)		(56)
Total long-term debt, including current portion	22,554		23,675
Long-term debt due within one year	(627)		(2,025)
Long-term debt	$	21,927	$	21,650


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Certain of our debt agreements contain covenants that restrict or limit, among other things, our ability to create liens supporting indebtedness, sell assets, and incur additional debt. Default of these agreements could also restrict our ability to make certain distributions or repurchase equity.

The following table presents aggregate minimum maturities of long-term debt and other financing obligations, excluding net unamortized debt premium (discount) and debt issuance costs, for each of the next five years:


	December 31, 2022
	(Millions)
2023	$	629
2024	2,281
2025	1,619
2026	1,245
2027	1,993

Issuances and retirements

On October 17, 2022, we early retired $850 million of 3.7 percent senior unsecured notes due January 15, 2023.

On August 8, 2022, we issued $1.0 billion of 4.65 percent senior unsecured notes due August 15, 2032, and $750 million of 5.30 percent senior unsecured notes due August 15, 2052.

On May 16, 2022, we early retired $750 million of 3.35 percent senior unsecured notes due August 15, 2022.

On January 18, 2022, we early retired $1.25 billion of 3.6 percent senior unsecured notes due March 15, 2022.

On October 8, 2021, we completed a public offering of $600 million of 2.6 percent senior unsecured notes due 2031. The new 2031 notes are an additional issuance of the $900 million of 2.6 percent senior unsecured notes due 2031 issued on March 2, 2021, and will trade interchangeably with such notes. Also, on October 8, 2021, we completed a public offering of $650 million of 3.5 percent senior unsecured notes due 2051.

We retired $371 million of 7.875 percent senior unsecured notes that matured on September 1, 2021.

On August 16, 2021, we early retired $500 million of 4.0 percent senior unsecured notes due November 15, 2021.

On August 17, 2020, we early retired $600 million of 4.125 percent senior unsecured notes due November 15, 2020.

On May 14, 2020, we completed a public offering of $1 billion of 3.5 percent senior unsecured notes due 2030.

On May 8, 2020, Transco issued $700 million of 3.25 percent senior unsecured notes due 2030 and $500 million of 3.95 percent senior unsecured notes due 2050 to investors in a private debt placement. In the fourth quarter of 2020, Transco filed a registration statement and completed an exchange of these notes for substantially identical new notes that are registered under the Securities Act of 1933, as amended.

We retired $1.5 billion of 5.25 percent senior unsecured notes that matured on March 15, 2020.

We retired $14 million of 8.75 percent senior unsecured notes that matured on January 15, 2020.

Other financing obligations

During the construction of the Atlantic Sunrise, Leidy South, and Dalton projects, Transco received funding from co-owners for their proportionate share of construction costs. Amounts received were recorded within


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

noncurrent liabilities and the costs associated with construction were capitalized in the Consolidated Balance Sheet. Upon placing these projects into service Transco began utilizing the co-owners’ undivided interest in the assets, including the associated pipeline capacity, and reclassified the funding previously received from its co-owners from noncurrent liabilities to debt. The obligations, which mature in 2038, 2041, and 2052, respectively, require monthly interest and principal payments and bear interest rates of approximately 9 percent, 13 percent, and 9 percent, respectively.

Credit Facility


	December 31, 2022
	Stated Capacity		Outstanding
	(Millions)
Long-term credit facility (1)	$	3,750	$	—
Letters of credit under certain bilateral bank agreements			30

(1) In managing our available liquidity, we do not expect a maximum outstanding amount in excess of the capacity of our credit facility inclusive of any outstanding amounts under our commercial paper program.

Revolving credit facility

In October 2021, we along with Transco and Northwest Pipeline, the lenders named therein, and an administrative agent entered into an amended and restated credit agreement (Credit Agreement) that reduced aggregate commitments available from $4.5 billion to $3.75 billion, with up to an additional $500 million increase in aggregate commitments available under certain circumstances. The Credit Agreement was effective on October 8, 2021. The maturity date of the credit facility is October 8, 2026. However, the co-borrowers may request up to two extensions of the maturity date each for an additional one-year period to allow a maturity date as late as October 8, 2028, under certain circumstances. The Credit Agreement allows for swing line loans up to an aggregate of $200 million, subject to available capacity under the credit facility, and letters of credit commitments of $500 million. Transco and Northwest Pipeline are each able to borrow up to $500 million under this credit facility to the extent not otherwise utilized by the other co-borrowers.

The Credit Agreement contains the following terms and conditions:

Various covenants may limit, among other things, a borrower’s and its material subsidiaries’ ability to grant certain liens supporting indebtedness, merge or consolidate, sell all or substantially all of its assets in certain circumstances, make certain distributions during an event of default, and each borrower and each borrower’s respective material subsidiaries’ ability to enter into certain restrictive agreements.
If an event of default with respect to a borrower occurs under the credit facility, the lenders will be able to terminate the commitments for the respective borrowers and accelerate the maturity of the loans of the defaulting borrower under the credit facility and exercise other rights and remedies.
Other than swing line loans, each time funds are borrowed, the applicable borrower may choose from two methods of calculating interest: a fluctuating base rate equal to an alternative base rate as defined in the Credit Agreement plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate (LIBOR) plus an applicable margin. We are required to pay a commitment fee based on the unused portion of the credit facility. The applicable margin is determined by reference to a pricing schedule based on the applicable borrower’s senior unsecured long-term debt ratings and the commitment fee is determined by reference to a pricing schedule based on Williams’ senior unsecured long-term debt ratings. The Credit Agreement also includes customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Significant financial covenants under the Credit Agreement require the ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization), each as defined in the Credit Agreement, to be no greater than 5.0 to 1.0, except that for any fiscal quarter in which the funding of the purchase price for an acquisition (whether effectuated as one or a series of related transactions) with an aggregate purchase price of $25 million or more has been effected, and the following two fiscal quarters (in each case subject to certain limitations), the ratio of debt to EBITDA is to be no greater than 5.5 to 1.

The ratio of debt to capitalization (defined as net worth plus debt), each as defined in the Credit Agreement, must be no greater than 65 percent for each of Transco and Northwest Pipeline.

At December 31, 2022, we are in compliance with these covenants.

Commercial Paper Program

In 2018, we entered into a $4 billion commercial paper program that has been reduced to $3.5 billion in connection with the October 2021 Credit Agreement. The maturities of the commercial paper notes vary but may not exceed 397 days from the date of issuance. The commercial paper notes are sold under customary terms in the commercial paper market and are issued at a discount from par, or, alternatively, are sold at par and bear varying interest rates on a fixed or floating basis. The net proceeds of issuances of the commercial paper notes are expected to be used to fund planned capital expenditures and for other general corporate purposes. At December 31, 2022, $350 million of commercial paper was outstanding at a weighted-average interest rate of 4.8 percent. We had no commercial paper outstanding at December 31, 2021.

Cash Payments for Interest (Net of Amounts Capitalized)

Cash payments for interest (net of amounts capitalized) were $1.117 billion in 2022, $1.137 billion in 2021, and $1.149 billion in 2020.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 13 – Leases

We are a lessee through noncancellable lease agreements for property and equipment consisting primarily of buildings, land, vehicles, and equipment used in both our operations and administrative functions.


	Year Ended December 31,
	2022		2021		2020
	(Millions)
Lease Cost:
Operating lease cost	$	34	$	35	$	37

Variable lease cost	26		15		19
Sublease income	—		(1)		(1)
Total lease cost	$	60	$	49	$	55
Cash paid for operating lease liabilities	$	33	$	35	$	30


	December 31,
	2022		2021
	(Millions)
Other Information:
Right-of-use asset (included in Regulatory assets, deferred charges, and other)	$	162	$	159
Operating lease liabilities:
Current (included in Accrued and other current liabilities)	$	25	$	23
Noncurrent (included in Regulatory liabilities, deferred income, and other)	$	148	$	141
Weighted-average remaining lease term – operating leases (years)	13		13
Weighted-average discount rate – operating leases	4.62%		4.56%

At December 31, 2022, the following table represents our operating lease maturities, including renewal provisions that we have assessed as being reasonably certain of exercise, for each of the years ended December 31:


	(Millions)
2023	$	31
2024	26
2025	20
2026	20
2027	19
Thereafter	122
Total future lease payments	238
Less: Amount representing interest	65
Total obligations under operating leases	$	173

We are the lessor to certain lease agreements for office space in our headquarters building, which are insignificant to our financial statements.

Note 14 – Equity-Based Compensation

Williams’ Plan Information

The Williams Companies, Inc. 2007 Incentive Plan (the Plan) provides common-stock-based awards to both employees and nonmanagement directors. To date, 50 million new shares have been authorized for making awards under the Plan, including 10 million shares added on April 28, 2020. The Plan permits the granting of various types of awards including, but not limited to, restricted stock units and stock options. At December 31, 2022, 25 million


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

shares of our common stock were reserved for issuance pursuant to existing and future stock awards, of which 15 million shares were available for future grants.

Additionally, up to 5.2 million new shares of our common stock have been authorized to date to be available for sale under our Employee Stock Purchase Plan (ESPP), including 1.6 million shares added on April 28, 2020. Employees purchased 242 thousand shares at a weighted-average price of $24.57 per share during 2022. Approximately 1.2 million shares were available for purchase under the ESPP at December 31, 2022.

We recognize compensation expense on employee stock-based awards on a straight-line basis; forfeitures are recognized when they occur. Operating and maintenance expenses and Selling, general, and administrative expenses in our Consolidated Statement of Income include equity-based compensation expense in 2022, 2021, and 2020 of $73 million, $81 million, and $52 million, respectively. Income tax benefit recognized related to the stock-based compensation expense in 2022, 2021, and 2020 was $18 million, $20 million, and $13 million, respectively. Measured but unrecognized stock-based compensation expense at December 31, 2022, was $63 million, all of which related to restricted stock units. These amounts are expected to be recognized over a weighted-average period of 1.7 years.

Nonvested Restricted Stock Units

At December 31, 2022 and 2021, we had restricted stock units outstanding, including performance-based shares, of 6.9 million shares and 7.3 million shares, respectively, with a weighted-average fair value of $23.63 and $22.35, respectively. Restricted stock units generally vest after three years. Performance-based grants may vest at a range from zero percent to 200 percent of the original shares granted based on performance against a target. At December 31, 2022, there were 2.6 million performance-based shares outstanding.

Stock Options

There were no stock options granted in 2022, 2021, or 2020. At December 31, 2022, we had 2.8 million stock options that were both outstanding and exercisable, with a weighted-average exercise price of $34.32. The weighted-average remaining contractual life for stock options that were both outstanding and exercisable at December 31, 2022, was 2.8 years. Cash received for the exercise of stock options in 2022 was $49 million, and the related income tax benefit recognized in 2022 was $2 million.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 15 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk

The following table presents, by level within the fair value hierarchy, certain of our significant financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, and commercial paper approximate fair value because of the short-term nature of these instruments. Therefore, these assets and liabilities are not presented in the following table.


					Fair Value Measurements Using
	Carrying Amount		Fair Value		Quoted Prices In Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(Millions)
Assets (liabilities) at December 31, 2022:
Measured on a recurring basis:
ARO Trust investments	$	230	$	230	$	230	$	—	$	—
Commodity derivative assets (1)	166		166		20		132		14
Commodity derivative liabilities (1)	(810)		(810)		(22)		(718)		(70)
Other financial assets (liabilities) - net	(5)		(5)		—		(5)		—
Additional disclosures:


Long-term debt, including current portion	(22,554)		(21,569)		—		(21,569)		—
Guarantees	(38)		(25)		—		(9)		(16)

Assets (liabilities) at December 31, 2021:
Measured on a recurring basis:
ARO Trust investments	$	260	$	260	$	260	$	—	$	—
Commodity derivative assets (2)	84		84		2		81		1
Commodity derivative liabilities (2)	(488)		(488)		(69)		(403)		(16)
Other financial assets (liabilities) - net	(7)		(7)		—		(7)		—
Additional disclosures:

Long-term debt, including current portion	(23,675)		(27,768)		—		(27,768)		—
Guarantees	(39)		(26)		—		(10)		(16)

(1)Net commodity derivative assets and liabilities exclude $202 million of net cash collateral in Level 1.

(2)Net commodity derivative assets and liabilities exclude $296 million of net cash collateral in Level 1.

Fair Value Methods

We use the following methods and assumptions in estimating the fair value of our financial instruments:

Assets measured at fair value on a recurring basis

ARO Trust investments*:* Transco deposits a portion of its collected rates, pursuant to its rate case settlement, into an external trust that is specifically designated to fund future ARO’s. The ARO Trust invests in a portfolio of actively traded mutual funds that are measured at fair value on a recurring basis based on quoted prices in an active market and is reported in Regulatory assets, deferred charges, and other in our Consolidated Balance Sheet. Both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Commodity derivatives*:* Commodity derivatives include exchange-traded contracts and OTC contracts, which consist of physical forwards, futures, and swaps that are measured at fair value on a recurring basis. We also have other derivatives related to asset management agreements and other contracts that require physical delivery. Derivatives classified as Level 1 are valued using New York Mercantile Exchange (NYMEX) futures prices. Derivatives classified as Level 2 are valued using basis transactions that represent the cost to transport natural gas from a NYMEX delivery point to the contract delivery point. These transactions are based on quotes obtained either through electronic trading platforms or directly from brokers. Derivatives classified as Level 3 are valued using a combination of observable and unobservable inputs. The fair value amounts are presented on a net basis and reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements and cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions. Commodity derivative assets are reported in Derivative assets and Regulatory assets, deferred charges, and other in our Consolidated Balance Sheet. Commodity derivative liabilities are reported in Derivative liabilities and Regulatory liabilities, deferred income, and other in our Consolidated Balance Sheet. Changes in the fair value of our derivative assets and liabilities are recorded in Net gain (loss) on commodity derivatives and Net processing commodity expenses in our Consolidated Statement of Income. See Note 16 – Derivatives for additional information on our derivatives.

The following table presents a reconciliation of changes in fair value of our net commodity derivatives classified as Level 3 in the fair value hierarchy.


	Year Ended December 31,
	2022		2021
	(Millions)
Balance at beginning of period	$	(15)	$	(2)
Gains (losses) included in our Consolidated Statement of Income	(31)		(62)

Purchases, issuances, and settlements	(5)		13
Acquired derivatives (Note 3)	—		24
Transfers into Level 3	(24)		—
Transfers out of Level 3	19		12
Balance at end of period	$	(56)	$	(15)

A substantial portion of the carrying value of our Level 3 derivatives at December 31, 2022, relates to a long-term physical natural gas purchase contract associated with an ongoing pipeline expansion project. The valuation of this contract reflects the extrapolation of forward natural gas prices for periods beyond observable price curves, which is considered a significant unobservable input.

Additional fair value disclosures

Long-term debt, including current portion*:* The disclosed fair value of our long-term debt is determined primarily by a market approach using broker quoted indicative period-end bond prices. The quoted prices are based on observable transactions in less active markets for our debt or similar instruments. The fair values of the financing obligations associated with our Dalton, Leidy South, and Atlantic Sunrise projects, which are included within long-term debt, were determined using an income approach (see Note 12 – Debt and Banking Arrangements).

Guarantees*:* Guarantees primarily consist of a guarantee we have provided in the event of nonpayment by our previously owned communications subsidiary, Williams Communications Group (WilTel), on a lease performance obligation that extends through 2042. Guarantees also include an indemnification related to a disposed operation.

To estimate the fair value of the WilTel guarantee, an estimated default rate is applied to the sum of the future contractual lease payments using an income approach. The estimated default rate is determined by obtaining the average cumulative issuer-weighted corporate default rate based on the credit rating of WilTel’s current owner and the term of the underlying obligation. The default rate is published by Moody’s Investors Service. The carrying


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

value of the WilTel guarantee is reported in Accrued and other current liabilities in our Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $24 million at December 31, 2022. Our exposure declines systematically through the remaining term of WilTel’s obligation.

The fair value of the guarantee associated with the indemnification related to a disposed operation was estimated using an income approach that considered probability-weighted scenarios of potential levels of future performance. The terms of the indemnification do not limit the maximum potential future payments associated with the guarantee. The carrying value of this guarantee is reported in Regulatory liabilities, deferred income, and other in our Consolidated Balance Sheet.

We are required by our revolving credit agreement to indemnify lenders for certain taxes required to be withheld from payments due to the lenders and for certain tax payments made by the lenders. The maximum potential amount of future payments under these indemnifications is based on the related borrowings and such future payments cannot currently be determined. These indemnifications generally continue indefinitely unless limited by the underlying tax regulations and have no carrying value. We have never been called upon to perform under these indemnifications and have no current expectation of a future claim.

Nonrecurring fair value measurements

During the first quarter of 2020, we observed a significant decline in the publicly traded price of our common stock on the New York Stock Exchange, which declined 40 percent during the quarter, including a 26 percent decline in the month of March. These changes were generally attributed to macroeconomic and geopolitical conditions, including significant declines in crude oil prices driven by both surplus supply and a decrease in demand caused by the coronavirus pandemic. As a result of these conditions, we performed an interim assessment of the goodwill associated with our Northeast G&P reporting unit as of March 31, 2020.

The assessment considered the total fair value of the businesses within the Northeast G&P reporting unit, which was determined using income and market approaches. We utilized internally developed industry weighted-average discount rates and estimates of valuation multiples of comparable publicly traded gathering and processing companies. In assessing the fair value as of the March 31, 2020, measurement date, we were required to consider recent publicly available indications of value, which included lower observed publicly traded EBITDA market multiples as compared with recent history and significantly higher industry weighted-average discount rates. The fair value of the reporting unit was further reconciled to our estimated total enterprise value as of March 31, 2020, which considered observable valuation multiples of comparable publicly traded companies applied to each distinct business including the Northeast G&P reporting unit. This assessment indicated that the estimated fair value of the Northeast G&P reporting unit was below its carrying value, including goodwill. As a result of this Level 3 measurement, we recognized a full impairment charge of $187 million as of March 31, 2020, in Impairment of goodwill in our Consolidated Statement of Income. Our partner’s $65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in our Consolidated Statement of Income.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The following table presents impairments of assets and equity-method investments associated with certain nonrecurring fair value measurements within Level 3 of the fair value hierarchy, except as specifically noted.


					Impairments
					Year Ended December 31,
	Segment	Date of Measurement	Fair Value		2022		2021		2020
			(Millions)
Impairment of certain assets:
Certain capitalized project costs (1)	Transmission & Gulf of Mexico	June 30, 2021	$	1			$	2
Certain capitalized project costs (1)	Transmission & Gulf of Mexico	December 31, 2020	42						$	170
Certain gathering assets (2)	Northeast G&P	December 31, 2020	5						12



Impairment of certain assets					$	—	$	2	$	182

Impairment of equity-method investments:
RMM (3)	West	December 31, 2020	$	421					$	108
RMM (4)	West	March 31, 2020	557						243
Brazos Permian II (4)	West	March 31, 2020	—						193
BRMH (5)	Northeast G&P	March 31, 2020	191						229
Appalachia Midstream Investments (5)	Northeast G&P	March 31, 2020	2,700						127
Aux Sable (5)	Northeast G&P	March 31, 2020	7						39
Laurel Mountain (5)	Northeast G&P	March 31, 2020	236						10
Discovery (5)	Transmission & Gulf of Mexico	March 31, 2020	367						97

Impairment of equity-method investments					$	—	$	—	$	1,046

(1)Relates to capitalized project development costs for the Northeast Supply Enhancement project. Approvals required for the project from the New York State Department of Environmental Conservation and the New Jersey Department of Environmental Protection have been denied and we have not refiled at this time. Beginning in May 2020, we discontinued capitalization of costs related to this project. Considering that the customer precedent agreements and FERC certificate for the project remain in effect, we had previously concluded that the probability of completing the project was sufficient to not require impairment. However, developments in the political and regulatory environments caused us to slightly lower that assessed probability such that the capitalized project costs required impairment. The estimated fair value of the materials within the capitalized project costs at December 31, 2020 considered other internal uses and salvage values for the Property, plant, and equipment – net. The remaining capitalized costs were determined to have no fair value. The estimated fair value of certain capitalized project costs at June 30, 2021, was determined by a market approach, which incorporated an indication of interest by a third-party.

(2)Relates to a gathering system in the Marcellus Shale region, that was sold in 2021. The estimated fair value of the Property, plant, and equipment – net and Intangible assets – net of accumulated amortization was determined using a market approach, which incorporated an indication of interest by a third party. These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

(3)During the fourth quarter of 2020, RMM renegotiated service contracts with a significant customer in connection with the customer’s Chapter 11 bankruptcy proceedings. The renegotiated contracts result in lower service rates and lower projected future cash flows. As a result, we evaluated this investment for other-than-temporary impairment. The fair value was measured using an income approach. We utilized a discount rate of 18 percent in our analysis.

(4)Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The fair value was measured using an income approach. Both investees operate in primarily oil-driven basins where significant expected reductions in producer activities led to reduced estimates of expected future cash flows. Our fair value estimates also reflected discount rates of approximately 17 percent for these investments. We also considered any debt held at the investee level, and its impact to fair value. The industry weighted-average discount rates utilized were significantly influenced by the market declines previously discussed.

(5)Following the previously described declining market conditions during the first quarter of 2020, we evaluated these investments for other-than-temporary impairment. The impairments within our Northeast G&P segment are primarily associated with operations in wet-gas areas where producer drilling activities are influenced by NGL prices which historically trend with crude oil prices. The fair values of our investments in BRMH and Aux Sable Liquid Products LP (Aux Sable) were estimated using a market approach, reflecting valuation multiples ranging from 5.0x to 6.2x EBITDA (weighted-average 6.0x). The fair values of the other investments, including gathering systems that are part of Appalachia Midstream Investments, were estimated using an income approach, with discount rates ranging from 9.7 percent to 13.5 percent (weighted-average 12.6 percent). We also considered any debt held at the investee level, and its impact to fair value. The assumed valuation multiples and industry weighted-average discount rates utilized were both significantly influenced by the market declines previously discussed.

Concentration of Credit Risk

Accounts receivable

The following table summarizes concentration of receivables, net of allowances:


	December 31,
	2022		2021
	(Millions)
NGLs, natural gas, and related products and services	$	505	$	486
Regulated interstate natural gas transportation and storage	311		274
Marketing of natural gas and NGLs	858		609
Upstream activities	97		82
Accounts Receivable related to revenues from contracts with customers	1,771		1,451
Receivables from derivatives	889		462
Other accounts receivable	63		65
Trade accounts and other receivables - net	$	2,723	$	1,978

Customers include producers, distribution companies, industrial users, gas marketers, and pipelines primarily located in the continental United States. As a general policy, collateral is not required for receivables with the exception of the marketing receivables discussed below. Customers’ financial condition and credit worthiness are evaluated regularly and, based upon this evaluation, we may obtain collateral to support receivables.

We use established credit policies to determine and monitor the creditworthiness of gas marketing and trading counterparties, including requirements to post collateral or other credit security, as well as the quality of pledged collateral. Collateral or credit security is most often in the form of cash or letters of credit from an investment-grade


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

financial institution, but may also include U.S. government securities. We also utilize netting agreements whenever possible to mitigate exposure to gas marketing and trading counterparty credit risk. When more than one derivative transaction with the same counterparty is outstanding and a legally enforceable netting agreement exists with that counterparty, the “net” mark-to-market exposure represents a reasonable measure of our credit risk with that counterparty.

Note 16 – Derivatives

Commodity-Related Derivatives

We are exposed to commodity price risk. To manage this volatility, we use various contracts in our marketing and trading activities that generally meet the definition of derivatives. Derivative positions are monitored using techniques including, but not limited to, value at risk. Derivative instruments are recognized at fair value in our Consolidated Balance Sheet as either assets or liabilities and are presented on a net basis by counterparty, net of margin deposits. See Note 15 – Fair Value Measurements, Guarantees, and Concentration of Credit Risk for additional fair value information. In our Consolidated Statement of Cash Flows, any cash impacts of settled commodity-related derivatives are recorded as operating activities.

We enter into commodity-related derivatives to economically hedge exposures to natural gas, NGLs, and crude oil and retain exposure to price changes that can, in a volatile energy market, be material and can adversely affect our results of operations.

At December 31, 2022, the notional volume of the net long (short) positions for our commodity-related derivative contracts were as follows:


	Commodity	Unit of Measure	Net Long (Short) Position







Index Risk	Natural Gas	MMBtu	745,415,032
Central Hub Risk - Henry Hub	Natural Gas	MMBtu	(46,154,200)
Basis Risk	Natural Gas	MMBtu	(50,737,802)
Central Hub Risk - Mont Belvieu	Natural Gas Liquids	Barrels	35,548
Basis Risk	Natural Gas Liquids	Barrels	(3,880,364)
Central Hub Risk - WTI	Crude Oil	Barrels	(123,250)

Derivative Financial Statement Presentation

The fair value of commodity-related derivatives, which are not designated as hedging instruments for accounting purposes, was reflected as follows:


	December 31, 2022				December 31, 2021
Derivative Category	Assets		(Liabilities)		Assets		(Liabilities)
	(Millions)





Current	$	1,099	$	(1,278)	$	619	$	(760)
Noncurrent	269		(734)		166		(429)
Total derivatives	$	1,368	$	(2,012)	$	785	$	(1,189)


Counterparty and collateral netting offset	(1,034)		1,236		(476)		772
Amounts recognized in our Consolidated Balance Sheet	$	334	$	(776)	$	309	$	(417)


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The pre-tax effects of commodity-related derivative instruments in Net gain (loss) on commodity derivatives reflected within Total revenues and Net processing commodity expenses in our Consolidated Statement of Income were as follows:


	Gain (Loss)
	Year Ended December 31,
	2022		2021		2020
	(Millions)
Realized commodity-related derivatives designated as hedging instruments	$	—	$	(55)	$	(2)
Realized commodity-related derivatives not designated as hedging instruments	(91)		16		(3)
Unrealized commodity-related derivatives not designated as hedging instruments	(296)		(109)		—
Net gain (loss) on commodity derivatives	$	(387)	$	(148)	$	(5)

Realized commodity-related derivatives not designated as hedging instruments in Net processing commodity expenses	$	16	$	2	$	1
Unrealized commodity-related derivatives not designated as hedging instruments in Net processing commodity expenses	$	47	$	—	$	—

Contingent Features

Generally, collateral may be provided by a parent guaranty, letter of credit, or cash. If collateral is required, fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral are offset against fair value amounts recognized for derivatives executed with the same counterparty.

We have specific trade and credit contracts that contain minimum credit rating requirements. These credit rating requirements typically give counterparties the right to suspend or terminate credit if our credit ratings are downgraded to non-investment grade status. Under such circumstances, we would need to post collateral to continue transacting business with these counterparties. At December 31, 2022, the contractually required collateral in the event of a credit rating downgrade to non-investment grade status was $13 million.

We maintain accounts with brokers or the clearing houses of certain exchanges to facilitate financial derivative transactions. Based on the value of the positions in these accounts and the associated margin requirements, we may be required to deposit cash into these accounts. At December 31, 2022, and 2021, net cash collateral held on deposit in broker margin accounts was $202 million and $296 million, respectively.

Note 17 – Contingent Liabilities and Commitments

Alaska Refinery Contamination Litigation

We are involved in litigation arising from our ownership and operation of the North Pole Refinery in North Pole, Alaska, from 1980 until 2004, through our wholly owned subsidiaries Williams Alaska Petroleum Inc. (WAPI) and MAPCO Inc. We sold the refinery to Flint Hills Resources Alaska, LLC (FHRA), a subsidiary of Koch Industries, Inc., in 2004. The litigation involves three cases, with filing dates ranging from 2010 to 2014. The actions primarily arise from sulfolane contamination allegedly emanating from the refinery. A putative class action lawsuit was filed by James West in 2010 naming us, WAPI, and FHRA as defendants. We and FHRA filed claims against each other seeking, among other things, contractual indemnification alleging that the other party caused the sulfolane contamination. In 2011, we and FHRA settled the claim with James West. Certain claims by FHRA against us were resolved by the Alaska Supreme Court in our favor. FHRA’s claims against us for contractual indemnification and statutory claims for damages related to off-site sulfolane were remanded to the Alaska Superior


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Court. The State of Alaska filed its action in March 2014, seeking damages. The City of North Pole (North Pole) filed its lawsuit in November 2014, seeking past and future damages, as well as punitive damages. Both we and WAPI asserted counterclaims against the State of Alaska and North Pole, and cross-claims against FHRA. FHRA has also filed cross-claims against us.

The underlying factual basis and claims in the cases are similar and may duplicate exposure. As such, in February 2017, the three cases were consolidated into one action in state court containing the remaining claims from the James West case and those of the State of Alaska and North Pole. The State of Alaska later announced the discovery of additional contaminants per- and polyfluoralkyl (PFOS and PFOA) offsite of the refinery, and the court permitted the State of Alaska to amend its complaint to add a claim for offsite PFOS/PFOA contamination. The court subsequently remanded the offsite PFOS/PFOA claims to the Alaska Department of Environmental Conservation for investigation and stayed the claims pending their potential resolution at the administrative agency. Several trial dates encompassing all three cases have been scheduled and stricken. In the summer of 2019, the court deconsolidated the cases for purposes of trial. A bench trial on all claims except North Pole’s claims began in October 2019.

In January 2020, the Alaska Superior Court issued its Memorandum of Decision finding in favor of the State of Alaska and FHRA, with the total incurred and potential future damages estimated to be $86 million. The court found that FHRA is not entitled to contractual indemnification from us because FHRA contributed to the sulfolane contamination. On March 23, 2020, the court entered final judgment in the case. Filing deadlines were stayed until May 1, 2020. However, on April 21, 2020, we filed a Notice of Appeal. We also filed post-judgment motions including a Motion for New Trial and a Motion to Alter or Amend the Judgment. These post-trial motions were resolved with the court’s denial of the last motion on June 11, 2020. Our Statement of Points on Appeal was filed on July 13, 2020. On June 22, 2020, the court stayed the North Pole’s case pending resolution of the appeal in the State of Alaska and FHRA case. On December 23, 2020, we filed our opening brief on appeal. Oral argument was held on December 15, 2021. We have recorded an accrued liability in the amount of our estimate of the probable loss. It is reasonably possible that we may not be successful on appeal and could ultimately pay up to the amount of judgment.

Royalty Matters

Certain of our customers, including Chesapeake Energy Corporation (Chesapeake), have been named in various lawsuits alleging underpayment of royalties and claiming, among other things, violations of anti-trust laws and the Racketeer Influenced and Corrupt Organizations Act. We have also been named as a defendant in certain of these cases filed in Pennsylvania based on allegations that we improperly participated with Chesapeake in causing the alleged royalty underpayments. We believe that the claims asserted are subject to indemnity obligations owed to us by Chesapeake. Chesapeake has reached a settlement to resolve substantially all Pennsylvania royalty cases pending, which settlement applies to both Chesapeake and us. The settlement does not require any contribution from us. On August 23, 2021, the court approved the settlement, but two objectors filed an appeal with the United States Court of Appeals for the Fifth Circuit.

Litigation Against Energy Transfer and Related Parties

On April 6, 2016, we filed suit in Delaware Chancery Court against Energy Transfer Equity, L.P. (Energy Transfer) and LE GP, LLC (the general partner for Energy Transfer) alleging willful and material breaches of the Agreement and Plan of Merger (ETE Merger Agreement) with Energy Transfer resulting from the private offering by Energy Transfer on March 8, 2016, of Series A Convertible Preferred Units (Special Offering) to certain Energy Transfer insiders and other accredited investors. The suit seeks, among other things, an injunction ordering the defendants to unwind the Special Offering and to specifically perform their obligations under the ETE Merger Agreement. On April 19, 2016, we filed an amended complaint seeking the same relief. On May 3, 2016, Energy Transfer and LE GP, LLC filed an answer and counterclaims.

On May 13, 2016, we filed a separate complaint in Delaware Chancery Court against Energy Transfer, LE GP, LLC and the other Energy Transfer affiliates that are parties to the ETE Merger Agreement, alleging material


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

breaches of the ETE Merger Agreement for failing to cooperate and use necessary efforts to obtain a tax opinion required under the ETE Merger Agreement (Tax Opinion) and for otherwise failing to use necessary efforts to consummate the merger under the ETE Merger Agreement wherein we would be merged with and into the newly formed Energy Transfer Corp LP (ETC) (ETC Merger). The suit sought, among other things, a declaratory judgment and injunction preventing Energy Transfer from terminating or otherwise avoiding its obligations under the ETE Merger Agreement due to any failure to obtain the Tax Opinion.

The Court of Chancery coordinated the Special Offering and Tax Opinion suits. On May 20, 2016, the Energy Transfer defendants filed amended affirmative defenses and verified counterclaims in the Special Offering and Tax Opinion suits, alleging certain breaches of the ETE Merger Agreement by us and seeking, among other things, a declaration that we were not entitled to specific performance, that Energy Transfer could terminate the ETC Merger, and that Energy Transfer is entitled to a $1.48 billion termination fee. On June 24, 2016, following a two-day trial, the court issued a Memorandum Opinion and Order denying our requested relief in the Tax Opinion suit. The court did not rule on the substance of our claims related to the Special Offering or on the substance of Energy Transfer’s counterclaims. On June 27, 2016, we filed an appeal of the court’s decision with the Supreme Court of Delaware, seeking reversal and remand to pursue damages. On March 23, 2017, the Supreme Court of Delaware affirmed the Court of Chancery’s ruling. On March 30, 2017, we filed a motion for reargument with the Supreme Court of Delaware, which was denied on April 5, 2017.

On September 16, 2016, we filed an amended complaint with the Court of Chancery seeking damages for breaches of the ETE Merger Agreement by defendants. On September 23, 2016, Energy Transfer filed a second amended and supplemental affirmative defenses and verified counterclaim with the Court of Chancery seeking, among other things, payment of the $1.48 billion termination fee due to our alleged breaches of the ETE Merger Agreement. On December 1, 2017, the court granted our motion to dismiss certain of Energy Transfer’s counterclaims, including its claim seeking payment of the $1.48 billion termination fee. On December 8, 2017, Energy Transfer filed a motion for reargument, which the Court of Chancery denied on April 16, 2018. Trial was held May 10 through May 17, 2021. On December 29, 2021, the court entered judgment in our favor in the amount of $410 million, plus interest at the contractual rate, and our reasonable attorneys’ fees and expenses. On September 21, 2022, the court entered a final order and judgment awarding us the termination fee, attorney’s fees, expenses, and interest in the amount of $602 million plus additional interest starting September 17, 2022. Energy Transfer has appealed to the Delaware Supreme Court.

Environmental Matters

We are a participant in certain environmental activities in various stages including assessment studies, cleanup operations, and/or remedial processes at certain sites, some of which we currently do not own. We are monitoring these sites in a coordinated effort with other potentially responsible parties, the U.S. Environmental Protection Agency (EPA), or other governmental authorities. We are jointly and severally liable along with unrelated third parties in some of these activities and solely responsible in others. Certain of our subsidiaries have been identified as potentially responsible parties at various Superfund and state waste disposal sites. In addition, these subsidiaries have incurred, or are alleged to have incurred, various other hazardous materials removal or remediation obligations under environmental laws. As of December 31, 2022, we have accrued liabilities totaling $40 million for these matters, as discussed below. Estimates of the most likely costs of cleanup are generally based on completed assessment studies, preliminary results of studies, or our experience with other similar cleanup operations. At December 31, 2022, certain assessment studies were still in process for which the ultimate outcome may yield different estimates of most likely costs. Therefore, the actual costs incurred will depend on the final amount, type, and extent of contamination discovered at these sites, the final cleanup standards mandated by the EPA or other governmental authorities, and other factors.

The EPA and various state regulatory agencies routinely propose and promulgate new rules and issue updated guidance to existing rules. These rulemakings include, but are not limited to, rules for reciprocating internal combustion engine and combustion turbine maximum achievable control technology, reviews and updates to the National Ambient Air Quality Standards, and rules for new and existing source performance standards for volatile


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

organic compound and methane. We continuously monitor these regulatory changes and how they may impact our operations. Implementation of new or modified regulations may result in impacts to our operations and increase the cost of additions to Property, plant, and equipment – net in our Consolidated Balance Sheet for both new and existing facilities in affected areas; however, due to regulatory uncertainty on final rule content and applicability timeframes, we are unable to reasonably estimate the cost of these regulatory impacts at this time.

Continuing operations

Our interstate gas pipelines are involved in remediation and monitoring activities related to certain facilities and locations for polychlorinated biphenyls, mercury, and other hazardous substances. These activities have involved the EPA and various state environmental authorities, resulting in our identification as a potentially responsible party at various Superfund waste sites. At December 31, 2022, we have accrued liabilities of $13 million for these costs and expect to recover approximately $4 million through rates.

We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At December 31, 2022, we have accrued liabilities totaling $10 million for these costs.

Former operations

We have potential obligations in connection with assets and businesses we no longer operate. These potential obligations include remediation activities at the direction of federal and state environmental authorities and the indemnification of the purchasers of certain of these assets and businesses for environmental and other liabilities existing at the time the sale was consummated. Our responsibilities relate to the operations of the assets and businesses described below.

Former agricultural fertilizer and chemical operations and former retail petroleum and refining operations;
Former petroleum products and natural gas pipelines;
Former petroleum refining facilities;
Former exploration and production and mining operations;
Former electricity and natural gas marketing and trading operations.

At December 31, 2022, we have accrued environmental liabilities of $17 million related to these matters.

Other Divestiture Indemnifications

Pursuant to various purchase and sale agreements relating to divested businesses and assets, we have indemnified certain purchasers against liabilities that they may incur with respect to the businesses and assets acquired from us. The indemnities provided to the purchasers are customary in sale transactions and are contingent upon the purchasers incurring liabilities that are not otherwise recoverable from third parties. The indemnities generally relate to breach of warranties, tax, historic litigation, personal injury, property damage, environmental matters, right of way, and other representations that we have provided.

At December 31, 2022, other than as previously disclosed, we are not aware of any material claims against us involving the above-described indemnities; thus, we do not expect any of the indemnities provided pursuant to the sales agreements to have a material impact on our future financial position. Any claim for indemnity brought against us in the future may have a material adverse effect on our results of operations in the period in which the claim is made.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

In addition to the foregoing, various other proceedings are pending against us that are incidental to our operations, none of which are expected to be material to our expected future annual results of operations, liquidity, and financial position.

Summary

We have disclosed our estimated range of reasonably possible losses for certain matters above, as well as all significant matters for which we are unable to reasonably estimate a range of possible loss. We estimate that for all other matters for which we are able to reasonably estimate a range of loss, our aggregate reasonably possible losses beyond amounts accrued are immaterial to our expected future annual results of operations, liquidity, and financial position. These calculations have been made without consideration of any potential recovery from third parties.

Commitments

Commitments for construction and acquisition of property, plant, and equipment are approximately $439 million at December 31, 2022.

Commitments for Gas & NGL Marketing Services pipeline transportation capacity and storage capacity are approximately $546 million at December 31, 2022.

Note 18 – Segment Disclosures

Our reportable segments are Transmission & Gulf of Mexico, Northeast G&P, West, and Gas & NGL Marketing Services. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies.)

Performance Measurement

We evaluate segment operating performance based upon Modified EBITDA. This measure represents the basis of our internal financial reporting and is the primary performance measure used by our chief operating decision maker in measuring performance and allocating resources among our reportable segments. Intersegment Service revenues primarily represent transportation services provided to our marketing business and gathering services provided to our oil and gas properties. Intersegment Product sales primarily represent the sale of natural gas and NGLs from our natural gas processing plants and our oil and gas properties to our marketing business.

We define Modified EBITDA as follows:

Net income (loss) before:

◦Provision (benefit) for income taxes;

◦Interest incurred, net of interest capitalized;

◦Equity earnings (losses);

◦Impairment of equity-method investments;

◦Other investing income (loss) – net;

◦Impairment of goodwill;

◦Depreciation and amortization expenses;

◦Accretion expense associated with asset retirement obligations for nonregulated operations.

This measure is further adjusted to include our proportionate share (based on ownership interest) of Modified EBITDA from our equity-method investments calculated consistently with the definition described above.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The following table reflects the reconciliation of Modified EBITDA to Net income (loss) as reported in our Consolidated Statement of Income:


	Year Ended December 31,
	2022		2021		2020
	(Millions)
Modified EBITDA by segment:
Transmission & Gulf of Mexico	$	2,674	$	2,621	$	2,379
Northeast G&P	1,796		1,712		1,489
West	1,211		961		947
Gas & NGL Marketing Services (1)	(40)		22		51
Other	434		178		(15)
	6,075		5,494		4,851
Accretion expense associated with asset retirement obligations for nonregulated operations	(51)		(45)		(35)

Depreciation and amortization expenses	(2,009)		(1,842)		(1,721)
Impairment of goodwill	—		—		(187)
Equity earnings (losses)	637		608		328
Impairment of equity-method investments	—		—		(1,046)
Other investing income (loss) – net	16		7		8
Proportional Modified EBITDA of equity-method investments	(979)		(970)		(749)
Interest expense	(1,147)		(1,179)		(1,172)
(Provision) benefit for income taxes	(425)		(511)		(79)

Net income (loss)	$	2,117	$	1,562	$	198

(1) Modified EBITDA for 2022, 2021, and 2020, includes charges of $161 million, $15 million, and $17 million respectively, associated with lower of cost or net realizable value adjustments to our inventory. These charges are reflected in Product Sales or Product costs in our Consolidated Statement of Income (see Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies**)**. Net unrealized commodity-related derivatives gains of $47 million in 2022 and $0 in 2021 and 2020 are reflected in Net processing commodity expenses.


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

The following table reflects the reconciliation of Segment revenues to Total revenues as reported in the Consolidated Statement of Income and Other financial information:


	Transmission & Gulf of Mexico		Northeast G&P		West		Gas & NGL Marketing Services (1)		Other		Eliminations		Total
	(Millions)
2022
Segment revenues:
Service revenues
External	$	3,461	$	1,613	$	1,443	$	3	$	16	$	—	$	6,536
Internal	118		41		99		—		8		(266)		—
Total service revenues	3,579		1,654		1,542		3		24		(266)		6,536
Total service revenues – commodity consideration	64		14		182		—		—		—		260
Product sales
External	228		28		145		4,052		103		—		4,556
Internal	176		106		696		(518)		603		(1,063)		—
Total product sales	404		134		841		3,534		706		(1,063)		4,556
Net gain (loss) on commodity derivatives
Realized	—		—		(4)		17		(104)		—		(91)
Unrealized	—		—		—		(321)		25		—		(296)
Total net gain (loss) on commodity derivatives (2)	—		—		(4)		(304)		(79)		—		(387)
Total revenues	$	4,047	$	1,802	$	2,561	$	3,233	$	651	$	(1,329)	$	10,965

Other financial information:
Additions to long-lived assets	$	1,420	$	261	$	1,507	$	4	$	406	$	—	$	3,598
Proportional Modified EBITDA of equity-method investments	193		654		132		—		—		—		979

2021
Segment revenues:
Service revenues
External	$	3,310	$	1,490	$	1,178	$	3	$	20	$	—	$	6,001
Internal	75		38		70		—		12		(195)		—
Total service revenues	3,385		1,528		1,248		3		32		(195)		6,001
Total service revenues – commodity consideration	52		7		179		—		—		—		238
Product sales
External	231		13		60		4,094		138		—		4,536
Internal	118		86		583		198		195		(1,180)		—
Total product sales	349		99		643		4,292		333		(1,180)		4,536
Net gain (loss) on commodity derivatives
Realized	—		—		(44)		25		(20)		—		(39)
Unrealized	—		—		—		(109)		—		—		(109)
Total net gain (loss) on commodity derivatives (2)	—		—		(44)		(84)		(20)		—		(148)
Total revenues	$	3,786	$	1,634	$	2,026	$	4,211	$	345	$	(1,375)	$	10,627

Other financial information:
Additions to long-lived assets	$	861	$	164	$	209	$	1	$	620	$	—	$	1,855
Proportional Modified EBITDA of equity-method investments	183		682		105		—		—		—		970


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)


	Transmission & Gulf of Mexico		Northeast G&P		West		Gas & NGL Marketing Services (1)		Other		Eliminations		Total
	(Millions)
2020
Segment revenues:
Service revenues
External	$	3,207	$	1,416	$	1,248	$	32	$	21	$	—	$	5,924
Internal	50		49		24		—		13		(136)		—
Total service revenues	3,257		1,465		1,272		32		34		(136)		5,924
Total service revenues – commodity consideration	21		7		101		—		—		—		129
Product sales
External	144		16		20		1,491		—		—		1,671
Internal	47		41		132		111		—		(331)		—
Total product sales	191		57		152		1,602		—		(331)		1,671
Net gain (loss) on commodity derivatives
Realized	—		—		(2)		(3)		—		—		(5)
Unrealized	—		—		—		—		—		—		—
Total net gain (loss) on commodity derivatives (2)	—		—		(2)		(3)		—		—		(5)
Total revenues	$	3,469	$	1,529	$	1,523	$	1,631	$	34	$	(467)	$	7,719

Other financial information:
Additions to long-lived assets	$	706	$	137	$	318	$	—	$	122	$	—	$	1,283
Proportional Modified EBITDA of equity-method investments	166		473		110		—		—		—		749

(1) See Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies.

(2) We record transactions that qualify as derivatives at fair value with changes in fair value recognized in earnings in the period of change and characterized as unrealized gains or losses. Gains and losses on derivatives held for energy trading purposes are presented on a net basis in revenue.

Segment assets include Investments, Property, plant, and equipment – net, and Intangible assets – net of accumulated amortization. The following table reflects segment assets and equity-method investments by reportable segments:


	Segment Assets				Equity-Method Investments
	December 31, 2022		December 31, 2021		December 31, 2022		December 31, 2021
	(Millions)
Transmission & Gulf of Mexico	$	17,795	$	17,142	$	629	$	602
Northeast G&P	13,539		13,861		3,566		3,681
West	10,710		9,698		843		838
Gas & NGL Marketing Services	130		294		—		—
Other	1,143		792		10		—
Total	43,317		41,787		$	5,048	$	5,121
Total current assets	3,797		4,549
Regulatory assets, deferred charges, and other	1,319		1,276
Total assets	$	48,433	$	47,612


The Williams Companies, Inc.
Notes to Consolidated Financial Statements – (Continued)

Note 19 – Subsequent Events

Quarterly Dividends to Common Stockholders

On January 31, 2023, our board of directors approved a regular quarterly dividend to common stockholders of $0.4475 per share payable on March 27, 2023.

MountainWest Acquisition

On February 14, 2023, we closed on the acquisition of 100 percent of MountainWest Pipelines Holding Company (MountainWest) which includes FERC-regulated interstate natural gas pipeline systems and natural gas storage capacity (MountainWest Acquisition), for $1.08 billion of cash funded with available sources of short-term liquidity and assumption of $430 million outstanding principal amount of long-term debt, subject to working capital and post-closing adjustments. The MountainWest Acquisition expands our existing transmission and storage infrastructure footprint into major markets in Utah, Wyoming, and Colorado. Due to the timing, the initial purchase price accounting for the transaction was not yet complete at the time of filing.

The Williams Companies, Inc.

Schedule II — Valuation and Qualifying Accounts


			Additions
	Beginning Balance		Charged (Credited) To Costs and Expenses		Other		Deductions		Ending Balance
	(Millions)
2022
Deferred tax asset valuation allowance (1)	$	297	$	(97)	$	—	$	—	$	200
2021
Deferred tax asset valuation allowance (1)	325		(28)		—		—		297
2020
Deferred tax asset valuation allowance (1)	319		6		—		—		325

(1) Deducted from related assets.

Previous: Item 7A. Quantitative and Qualitative Disclosures About Market Risk · Next: Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure