Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – General, Description of Business, and Basis of Presentation
General
Our accompanying interim consolidated financial statements do not include all the notes in our annual financial statements and, therefore, should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2019, in our Annual Report on Form 10-K. The accompanying unaudited financial statements include all normal recurring adjustments and others that, in the opinion of management, are necessary to present fairly our interim financial statements.
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.
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.
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. Effective January 1, 2020, following an organizational realignment, our interstate natural gas pipeline Northwest Pipeline LLC (Northwest Pipeline), which was reported within the West reporting segment throughout 2019, is now managed within the Transmission & Gulf of Mexico reporting segment (previously identified as the Atlantic-Gulf reporting segment). As a result, beginning with the reporting of first quarter 2020, our operations are presented within the following reportable segments: Transmission & Gulf of Mexico, Northeast G&P, and West, consistent with the manner in which our chief operating decision maker evaluates performance and allocates resources. All remaining business activities as well as corporate activities are included in Other. Prior period segment disclosures have been recast for the new segment presentation.
Transmission & Gulf of Mexico is comprised of our interstate natural gas pipelines, Transcontinental Gas Pipe Line Company, LLC (Transco) and Northwest Pipeline, 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), which is a proprietary floating production system, a 50 percent equity-method investment in Gulfstream Natural Gas System, L.L.C., and a 60 percent equity-method investment in Discovery Producer Services LLC (Discovery).
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 58 percent equity-method investment in Caiman Energy II, LLC (Caiman II), and Appalachia Midstream Services, LLC, which owns equity-method investments with an approximate average 66 percent interest in multiple gas gathering systems in the Marcellus Shale (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 northwest Louisiana, and the Mid-Continent region which includes the Anadarko, Arkoma, and Permian basins. This segment also includes our natural gas liquid (NGL) and natural gas marketing business, storage facilities, an undivided 50 percent interest in an NGL fractionator near Conway, Kansas, a 50 percent equity-method investment in Overland Pass Pipeline Company LLC, a 50 percent equity-method investment in Rocky Mountain Midstream Holdings LLC (RMM), and a 15 percent equity-method investment in Brazos Permian II, LLC (Brazos Permian II). West also included our former 50 percent equity-method investment in Jackalope Gas Gathering Services, L.L.C., which was sold in April 2019.
Basis of Presentation
Significant risks and uncertainties
We believe that the carrying value of certain of our property, plant, and equipment and other identifiable 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 based on our evaluation of undiscounted future cash flows. It is reasonably possible that future strategic decisions, including transactions such as monetizing non-core assets or contributing assets to new ventures with third parties, as well as unfavorable changes in expected producer activities, including effects of financial distress caused by recent financial and commodity market declines, 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.
Accounting standards issued and adopted
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13). ASU 2016-13 changed the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans, and other instruments, entities are required to use a forward-looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. We adopted ASU 2016-13 effective January 1, 2020, which primarily applied to our short-term trade receivables. There was no cumulative effect adjustment to retained earnings upon adoption.
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 business and gathering and transportation business 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 utilized historical loss rates over many years, which included periods of both high and low commodity prices. Commodity prices could have a significant impact on a portion of our gathering and processing counterparties’ financial health and ability to satisfy current liabilities. Our expected credit loss estimate considered 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 considered 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 are physically connected to the wellhead and may be located in areas with limited service provider options, making it very costly to replicate by another provider. As such, our gathering assets play a critical role in our customers’ ability to generate operating cash flows. Commodity price movements generally do not impact the majority of our natural gas transmission businesses customers’ financial condition.
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 March 31, 2020.
Note 2 – Acquisitions
UEOM
As of December 31, 2018, we owned a 62 percent interest in Utica East Ohio Midstream LLC (UEOM) which we accounted for as an equity-method investment. On March 18, 2019, we signed and closed the acquisition of the remaining 38 percent interest in UEOM. Total consideration paid, including post-closing adjustments, was $741 million in cash funded through credit facility borrowings and cash on hand, net of $13 million cash acquired. As a result of acquiring this additional interest, we obtained control of and consolidated UEOM.
The acquisition of UEOM was accounted for as a business combination, which requires, among other things, that identifiable assets acquired and liabilities assumed be recognized at their acquisition date fair values. In March 2019, based on the transaction price for our purchase of the remaining interest in UEOM as finalized just prior to the acquisition, we recognized a $74 million noncash impairment loss related to our existing 62 percent interest (see Note 11 – Fair Value Measurements and Guarantees). Thus, there was no gain or loss on remeasuring our existing equity-method investment to fair value due to the impairment recognized just prior to closing the acquisition of the additional interest.
Northeast JV
Concurrent with the UEOM acquisition, we executed an agreement whereby we contributed our consolidated interests in UEOM and our Ohio Valley midstream business to a newly formed partnership. In June 2019, our partner invested approximately $1.33 billion for a 35 percent ownership interest, and we retained 65 percent ownership of, as well as operate and consolidate, the Northeast JV business. The change in ownership due to this transaction increased Noncontrolling interests in consolidated subsidiaries by $567 million, and decreased Capital in excess of par value by $426 million and Deferred income tax liabilities by $141 million in the Consolidated Balance Sheet in 2019.
The goodwill recognized in the UEOM acquisition of $187 million (includes a $1 million adjustment recorded in the first quarter of 2020) was impaired during the first quarter of 2020. Our partner’s $65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations (see Note 11 – Fair Value Measurements and Guarantees).
Note 3 – Revenue Recognition
Revenue by Category
The following table presents our revenue disaggregated by major service line:
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Transco
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Northwest Pipeline
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Gulf of Mexico Midstream
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Northeast
Midstream
|
|
West Midstream
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Other
|
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Eliminations
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Total
|
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(Millions)
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Three Months Ended March 31, 2020
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|
|
|
|
|
|
|
|
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Revenues from contracts with customers:
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|
|
|
|
|
|
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|
|
|
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Service revenues:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated interstate natural gas transportation and storage
|
$
|
604
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|
|
$
|
115
|
|
|
$
|
—
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|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
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|
|
$
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(2
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)
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$
|
717
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Gathering, processing, transportation, fractionation, and storage:
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Monetary consideration
|
—
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—
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|
|
99
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|
|
312
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|
|
299
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|
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—
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|
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(22
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)
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|
688
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Commodity consideration
|
—
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|
|
—
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|
|
5
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|
|
2
|
|
|
21
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|
|
—
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|
|
—
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|
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28
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Other
|
3
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|
|
—
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|
|
6
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|
|
41
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|
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9
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|
|
—
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|
|
(5
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)
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|
54
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Total service revenues
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607
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|
|
115
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|
|
110
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|
|
355
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|
|
329
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|
|
—
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|
|
(29
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)
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|
1,487
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|
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Product Sales:
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|
|
|
|
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|
|
|
|
|
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NGL and natural gas
|
20
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|
|
—
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|
|
32
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|
|
29
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|
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359
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|
|
—
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|
|
(29
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)
|
|
411
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|
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Total revenues from contracts with customers
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627
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|
115
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|
|
142
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|
384
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|
688
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|
|
—
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(58
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)
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|
1,898
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Other revenues (1)
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—
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|
|
—
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|
|
2
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|
|
5
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|
|
3
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|
|
8
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|
|
(3
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)
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|
15
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|
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Total revenues
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$
|
627
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|
|
$
|
115
|
|
|
$
|
144
|
|
|
$
|
389
|
|
|
$
|
691
|
|
|
$
|
8
|
|
|
$
|
(61
|
)
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|
$
|
1,913
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|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
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Three Months Ended March 31, 2019
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Revenues from contracts with customers:
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Service revenues:
|
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|
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|
|
|
|
|
|
|
|
|
|
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|
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Regulated interstate natural gas transportation and storage
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$
|
570
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|
|
$
|
114
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
684
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|
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Gathering, processing, transportation, fractionation, and storage:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Monetary consideration
|
—
|
|
|
—
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|
|
128
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|
|
239
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|
|
344
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|
|
—
|
|
|
(18
|
)
|
|
693
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|
|
Commodity consideration
|
—
|
|
|
—
|
|
|
13
|
|
|
5
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
64
|
|
|
Other
|
—
|
|
|
—
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|
|
4
|
|
|
32
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|
|
11
|
|
|
—
|
|
|
(4
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)
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|
43
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|
|
Total service revenues
|
570
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|
|
114
|
|
|
145
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|
|
276
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|
|
401
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|
|
—
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|
|
(22
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)
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|
1,484
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|
|
Product Sales:
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|
|
|
|
|
|
|
|
|
|
|
|
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NGL and natural gas
|
24
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|
|
—
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|
58
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|
|
47
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|
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479
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|
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—
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|
|
(58
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)
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|
550
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Total revenues from contracts with customers
|
594
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|
|
114
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|
|
203
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|
|
323
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|
|
880
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|
|
—
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(80
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)
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|
2,034
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Other revenues (1)
|
3
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|
|
—
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|
|
4
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|
|
5
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|
|
4
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|
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7
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(3
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)
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20
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Total revenues
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$
|
597
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$
|
114
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$
|
207
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$
|
328
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|
|
$
|
884
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|
$
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7
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|
|
$
|
(83
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)
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$
|
2,054
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______________________________
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(1)
|
Revenues not within the scope of Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers,” consist of leasing revenues associated with our headquarters building and management fees that we receive for certain services we provide to operated equity-method investments, which are reported in Service revenues in our Consolidated Statement of Operations, and amounts associated with our derivative contracts, which are reported in Product sales in our Consolidated Statement of Operations.
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Contract Assets
The following table presents a reconciliation of our contract assets:
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Three Months Ended
March 31,
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2020
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2019
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(Millions)
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Balance at beginning of period
|
$
|
8
|
|
|
$
|
4
|
|
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Revenue recognized in excess of amounts invoiced
|
23
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|
|
19
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|
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Minimum volume commitments invoiced
|
(13
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)
|
|
(1
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)
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Balance at end of period
|
$
|
18
|
|
|
$
|
22
|
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Contract Liabilities
The following table presents a reconciliation of our contract liabilities:
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|
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|
|
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Three Months Ended
March 31,
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2020
|
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2019
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(Millions)
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Balance at beginning of period
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$
|
1,215
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|
|
$
|
1,397
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Payments received and deferred
|
28
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|
33
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|
|
Significant financing component
|
3
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|
|
4
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|
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Recognized in revenue
|
(57
|
)
|
|
(99
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)
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Balance at end of period
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$
|
1,189
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|
|
$
|
1,335
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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 Federal Energy Regulatory Commission (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 March 31, 2020, do not consider potential future performance obligations for which the renewal has not been exercised and excludes contracts with customers for which the underlying facilities have not received FERC authorization to be placed into service. Consideration received prior to March 31, 2020, 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 March 31, 2020.
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Contract Liabilities
|
|
Remaining Performance Obligations
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(Millions)
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2020 (remainder)
|
$
|
110
|
|
|
$
|
2,552
|
|
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2021
|
132
|
|
|
3,293
|
|
|
2022
|
117
|
|
|
3,149
|
|
|
2023
|
107
|
|
|
2,640
|
|
|
2024
|
99
|
|
|
2,350
|
|
|
Thereafter
|
624
|
|
|
18,985
|
|
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Total
|
$
|
1,189
|
|
|
$
|
32,969
|
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Accounts Receivable
The following is a summary of our Trade accounts and other receivables – net:
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|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
(Millions)
|
|
Accounts receivable related to revenues from contracts with customers
|
$
|
791
|
|
|
$
|
890
|
|
|
Other accounts receivable
|
139
|
|
|
106
|
|
|
Total reflected in Trade accounts and other receivables – net
|
$
|
930
|
|
|
$
|
996
|
|
Note 4 – Variable Interest Entities
Consolidated VIEs
As of March 31, 2020, 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 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 which 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 on a proportional basis.
The following table presents amounts included in our Consolidated Balance Sheet that are only for the use or obligation of our consolidated VIEs:
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|
|
|
|
|
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
(Millions)
|
|
Assets (liabilities):
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|
|
|
|
Cash and cash equivalents
|
$
|
100
|
|
|
$
|
102
|
|
|
Trade accounts and other receivables – net
|
170
|
|
|
167
|
|
|
Other current assets and deferred charges
|
3
|
|
|
5
|
|
|
Property, plant, and equipment – net
|
5,685
|
|
|
5,745
|
|
|
Intangible assets – net of accumulated amortization
|
2,454
|
|
|
2,669
|
|
|
Regulatory assets, deferred charges, and other
|
12
|
|
|
13
|
|
|
Accounts payable
|
(44
|
)
|
|
(58
|
)
|
|
Accrued liabilities
|
(54
|
)
|
|
(66
|
)
|
|
Regulatory liabilities, deferred income, and other
|
(285
|
)
|
|
(283
|
)
|
Nonconsolidated VIEs
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. During the first quarter of 2020 we recorded an impairment of our equity-method investment in Brazos Permian II (see Note 11 – Fair Value Measurements and Guarantees). Our exposure to loss is limited to the carrying value of our investment.
Note 5 – Investing Activities
Equity earnings (losses) for the three months ended March 31, 2020, includes $78 million associated with the full impairment of goodwill recognized by our investee RMM, which was allocated entirely to our member interest per the terms of the membership agreement.
Impairment of equity-method investments for the three months ended March 31, 2020, includes $938 million associated with the impairment of equity-method investments (see Note 11 – Fair Value Measurements and Guarantees).
Note 6 – Provision (Benefit) for Income Taxes
The Provision (benefit) for income taxes includes:
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(Millions)
|
|
Current:
|
|
|
|
|
Federal
|
$
|
(28
|
)
|
|
$
|
(6
|
)
|
|
State
|
1
|
|
|
—
|
|
|
|
(27
|
)
|
|
(6
|
)
|
|
Deferred:
|
|
|
|
|
Federal
|
(134
|
)
|
|
61
|
|
|
State
|
(43
|
)
|
|
14
|
|
|
|
(177
|
)
|
|
75
|
|
|
Provision (benefit) for income taxes
|
$
|
(204
|
)
|
|
$
|
69
|
|
The effective income tax rate for the total provision (benefit) for both the three months ended March 31, 2020 and 2019 is greater than the federal statutory rate, primarily due to the effect of state income taxes.
During the next 12 months, we do not expect ultimate resolution of any unrecognized tax benefit associated with domestic or international matters to have a material impact on our unrecognized tax benefit position.
Note 7 – Earnings (Loss) Per Common Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(Dollars in millions, except per-share
amounts; shares in thousands)
|
|
Net income (loss) available to common stockholders
|
$
|
(518
|
)
|
|
$
|
194
|
|
|
Basic weighted-average shares
|
1,213,019
|
|
|
1,211,489
|
|
|
Effect of dilutive securities:
|
|
|
|
|
Nonvested restricted stock units
|
—
|
|
|
1,845
|
|
|
Stock options
|
—
|
|
|
258
|
|
|
Diluted weighted-average shares (1)
|
1,213,019
|
|
|
1,213,592
|
|
|
Earnings (loss) per common share:
|
|
|
|
|
Basic
|
$
|
(.43
|
)
|
|
$
|
.16
|
|
|
Diluted
|
$
|
(.43
|
)
|
|
$
|
.16
|
|
__________
|
|
|
|
(1)
|
For the three months ended March 31, 2020, 1.3 million weighted-average nonvested restricted stock units have been excluded from the computation of diluted earnings (loss) per common share as their inclusion would be antidilutive due to our loss available to common stockholders.
|
Note 8 – Employee Benefit Plans
Net periodic benefit cost (credit) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(Millions)
|
|
Components of net periodic benefit cost (credit):
|
|
|
|
|
Service cost
|
$
|
8
|
|
|
$
|
11
|
|
|
Interest cost
|
10
|
|
|
12
|
|
|
Expected return on plan assets
|
(13
|
)
|
|
(15
|
)
|
|
Amortization of net actuarial loss
|
4
|
|
|
4
|
|
|
Net actuarial loss from settlements
|
6
|
|
|
—
|
|
|
Net periodic benefit cost (credit)
|
$
|
15
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement Benefits
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(Millions)
|
|
Components of net periodic benefit cost (credit):
|
|
|
|
|
Interest cost
|
$
|
2
|
|
|
$
|
2
|
|
|
Expected return on plan assets
|
(3
|
)
|
|
(2
|
)
|
|
Reclassification to regulatory liability
|
1
|
|
|
—
|
|
|
Net periodic benefit cost (credit)
|
$
|
—
|
|
|
$
|
—
|
|
The components of Net periodic benefit cost (credit) other than the Service cost component are included in Other income (expense) – net below Operating income (loss) in the Consolidated Statement of Operations.
During the three months ended March 31, 2020, we contributed $1 million to our other postretirement benefit plans. We presently anticipate making additional contributions of approximately $13 million to our pension plans and approximately $4 million to our other postretirement benefit plans in the remainder of 2020.
Note 9 – Debt and Banking Arrangements
Long-Term Debt
Retirements
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.
Commercial Paper Program
At March 31, 2020, no commercial paper was outstanding under our $4 billion commercial paper program.
Credit Facilities
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
Stated Capacity
|
|
Outstanding
|
|
|
(Millions)
|
|
|
|
|
|
|
Long-term credit facility (1)
|
$
|
4,500
|
|
|
$
|
1,700
|
|
|
Letters of credit under certain bilateral bank agreements
|
|
|
14
|
|
|
|
|
|
(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.
|
Note 10 – Stockholders’ Equity
Stockholder Rights Agreement
On March 19, 2020, our board of directors approved the adoption of a limited duration stockholder rights agreement (Rights Agreement) and declared a distribution of one preferred stock purchase right for each outstanding share of common stock. The Rights Agreement is intended to protect the interests of us and our stockholders by reducing the likelihood of another party gaining control of or significant influence over us without paying an appropriate premium considering recent volatile markets. Each preferred stock purchase right represents the right to purchase, upon certain
terms and conditions, one one-thousandth of a share of Series C Participating Cumulative Preferred Stock, $1.00 par value per share. Each one-thousandth of a share of Series C Participating Cumulative Preferred Stock, if issued, would have rights similar to one share of our common stock. The distribution of preferred stock purchase rights occurred on March 30, 2020, to holders of record as of the close of business on that date. The Rights Agreement expires on March 20, 2021. Please see our Current Report on Form 8-K dated March 20, 2020, for additional details of the Rights Agreement.
AOCI
The following table presents the changes in AOCI by component, net of income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow
Hedges
|
|
Foreign
Currency
Translation
|
|
Pension and
Other Postretirement
Benefits
|
|
Total
|
|
|
(Millions)
|
|
Balance at December 31, 2019
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(196
|
)
|
|
$
|
(199
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
—
|
|
|
(14
|
)
|
|
(14
|
)
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
8
|
|
|
8
|
|
|
Other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
|
Balance at March 31, 2020
|
$
|
(2
|
)
|
|
$
|
(1
|
)
|
|
$
|
(202
|
)
|
|
$
|
(205
|
)
|
Reclassifications out of AOCI are presented in the following table by component for the three months ended March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Component
|
|
Reclassifications
|
|
Classification
|
|
|
|
(Millions)
|
|
|
|
Pension and other postretirement benefits:
|
|
|
|
|
|
Amortization of actuarial (gain) loss and net actuarial loss from settlements included in net periodic benefit cost (credit)
|
|
$
|
10
|
|
|
Other income (expense) – net below Operating income (loss)
|
|
Income tax benefit
|
|
(2
|
)
|
|
Provision (benefit) for income taxes
|
|
Reclassifications during the period
|
|
$
|
8
|
|
|
|
Note 11 – Fair Value Measurements and Guarantees
The following table presents, by level within the fair value hierarchy, certain of our financial assets and liabilities. The carrying values of cash and cash equivalents, accounts receivable, margin deposits, and accounts payable 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 March 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
ARO Trust investments
|
|
$
|
188
|
|
|
$
|
188
|
|
|
$
|
188
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Energy derivative assets designated as hedging instruments
|
|
2
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Energy derivative assets not designated as hedging instruments
|
|
2
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Energy derivative liabilities not designated as hedging instruments
|
|
(5
|
)
|
|
(5
|
)
|
|
(3
|
)
|
|
—
|
|
|
(2
|
)
|
|
Additional disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
|
(22,476
|
)
|
|
(22,531
|
)
|
|
—
|
|
|
(22,531
|
)
|
|
—
|
|
|
Guarantees
|
|
(41
|
)
|
|
(27
|
)
|
|
—
|
|
|
(11
|
)
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets (liabilities) at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
ARO Trust investments
|
|
$
|
201
|
|
|
$
|
201
|
|
|
$
|
201
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Energy derivative assets not designated as hedging instruments
|
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
Energy derivative liabilities not designated as hedging instruments
|
|
(3
|
)
|
|
(3
|
)
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
Additional disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, including current portion
|
|
(22,288
|
)
|
|
(25,319
|
)
|
|
—
|
|
|
(25,319
|
)
|
|
—
|
|
|
Guarantees
|
|
(41
|
)
|
|
(27
|
)
|
|
—
|
|
|
(11
|
)
|
|
(16
|
)
|
Fair Value Methods
We use the following methods and assumptions in estimating the fair value of our financial instruments:
Assets and liabilities 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 (ARO Trust) that is specifically designated to fund future asset retirement obligations (ARO). 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 the Consolidated Balance Sheet. Both realized and unrealized gains and losses are ultimately recorded as regulatory assets or liabilities.
Energy derivatives: Energy derivatives include commodity-based exchange-traded contracts and over-the-counter contracts, which consist of physical forwards, futures, and swaps that are measured at fair value on a recurring basis.
The fair value amounts are presented on a gross basis and do not reflect the netting of asset and liability positions permitted under the terms of our master netting arrangements. Further, the amounts do not include cash held on deposit in margin accounts that we have received or remitted to collateralize certain derivative positions. Energy derivative assets are reported in Other current assets and deferred charges and Regulatory assets, deferred charges, and other in the Consolidated Balance Sheet. Energy derivative liabilities are reported in Accrued liabilities and Regulatory liabilities, deferred income, and other in the Consolidated Balance Sheet.
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 lateral and Atlantic Sunrise projects, which are included within long-term debt, were determined using an income approach.
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 value of the WilTel guarantee is reported in Accrued liabilities in the Consolidated Balance Sheet. The maximum potential undiscounted exposure is approximately $28 million at March 31, 2020. 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 the 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 (NYSE: WMB), which declined 40 percent during the quarter, including a 26 percent decline in the month of March. These changes were generally attributed to recent macroeconomic and geopolitical conditions, including significant declines in crude oil prices driven by both surplus supply and a decrease in demand caused by the novel coronavirus (COVID-19) 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. This goodwill resulted from the March 2019 acquisition of UEOM (see Note 2 – Acquisitions).
The assessment considered the total fair value of the businesses within the Northeast G&P reporting unit, which were 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 (earnings before interest, taxes,
depreciation, and amortization) 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 the Consolidated Statement of Operations. Our partner’s $65 million share of this impairment is reflected within Net income (loss) attributable to noncontrolling interests in the Consolidated Statement of Operations (see Note 2 – Acquisitions).
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
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
Segment
|
|
Date of Measurement
|
|
Fair Value
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
(Millions)
|
|
Impairment of certain assets:
|
|
|
|
|
|
|
|
|
|
|
|
Certain idle gathering assets (1)
|
|
West
|
|
March 31, 2019
|
|
$
|
—
|
|
|
|
|
$
|
12
|
|
|
Impairment of equity-method investments:
|
|
|
|
|
|
|
|
|
|
|
|
RMM (2)
|
|
West
|
|
March 31, 2020
|
|
$
|
557
|
|
|
$
|
243
|
|
|
|
|
Brazos Permian II (2)
|
|
West
|
|
March 31, 2020
|
|
—
|
|
|
193
|
|
|
|
|
Caiman II (3)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
191
|
|
|
229
|
|
|
|
|
Appalachia Midstream Investments (3)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
2,700
|
|
|
127
|
|
|
|
|
Aux Sable (3)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
7
|
|
|
39
|
|
|
|
|
Laurel Mountain (3)
|
|
Northeast G&P
|
|
March 31, 2020
|
|
236
|
|
|
10
|
|
|
|
|
Discovery (3)
|
|
Transmission & Gulf of Mexico
|
|
March 31, 2020
|
|
367
|
|
|
97
|
|
|
|
|
UEOM (4)
|
|
Northeast G&P
|
|
March 17, 2019
|
|
1,210
|
|
|
|
|
$
|
74
|
|
|
Impairment of equity-method investments
|
|
|
|
|
|
|
|
$
|
938
|
|
|
$
|
74
|
|
_______________
|
|
|
|
(1)
|
Reflects impairment of Property, plant, and equipment – net that is no longer in use for which the fair value was determined to be lower than the carrying value. This impairment is reported in Other (income) expense – net within Costs and expenses in the Consolidated Statement of Operations.
|
|
|
|
|
(2)
|
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 recent market declines previously discussed.
|
|
|
|
|
(3)
|
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 Caiman II 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 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 recent market declines previously discussed.
|
|
|
|
(4)
|
The estimated fair value was determined by a market approach based on the transaction price for the purchase of the remaining interest in UEOM as finalized just prior to the signing and closing of the acquisition in March 2019 (see Note 2 – Acquisitions). These inputs resulted in a fair value measurement within Level 2 of the fair value hierarchy.
|
Note 12 – Contingent Liabilities
Reporting of Natural Gas-Related Information to Trade Publications
Direct and indirect purchasers of natural gas in various states filed individual and class actions against us, our former affiliate WPX Energy, Inc. (WPX) and its subsidiaries, and others alleging the manipulation of published gas price indices and seeking unspecified amounts of damages. Such actions were transferred to the Nevada federal district court for consolidation of discovery and pre-trial issues. We have agreed to indemnify WPX and its subsidiaries related to this matter.
In the individual action, filed by Farmland Industries Inc. (Farmland), the court issued an order on May 24, 2016, granting one of our co-defendant’s motion for summary judgment as to Farmland’s claims. On January 5, 2017, the court extended such ruling to us, entering final judgment in our favor. Farmland appealed. On March 27, 2018, the appellate court reversed the district court’s grant of summary judgment, and on April 10, 2018, the defendants filed a petition for rehearing with the appellate court, which was denied on May 9, 2018. The case was remanded to the Nevada federal district court and subsequently has been remanded to its originally filed court, the Kansas federal district court.
In the putative class actions, on March 30, 2017, the court issued an order denying the plaintiffs’ motions for class certification. On June 13, 2017, the United States Court of Appeals for the Ninth Circuit granted the plaintiffs’ petition for permission to appeal the order. On August 6, 2018, the Ninth Circuit reversed the order denying class certification and remanded the case to the Nevada federal district court.
We reached an agreement to settle two of the actions, and on April 22, 2019, the Nevada federal district court preliminarily approved the settlements, which are on behalf of Kansas and Missouri class members. The final fairness hearing on the settlement occurred August 5, 2019, and a final judgment of dismissal with prejudice was entered the same day.
Two putative class actions remain unresolved, and they have been remanded to their originally filed court, the Wisconsin federal district court. Trial is scheduled to begin June 14, 2021.
Because of the uncertainty around the remaining pending unresolved issues, we cannot reasonably estimate a range of potential exposure at this time. However, it is reasonably possible that the ultimate resolution of these actions and our related indemnification obligation could result in a potential loss that may be material to our results of operations. In connection with this indemnification, we have an accrued liability balance associated with this matter, and as a result, have exposure to future developments.
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 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 have been stayed until May 1, 2020. However, on April 21, 2020, we filed a Notice of Appeal. We also expect to file post-judgment motions. These post-trial motions will be resolved before the appeal. 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 one major customer, 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 that major customer in causing the alleged royalty underpayments. We believe that the claims asserted are subject to indemnity obligations owed to us by that major customer. That customer has reached a tentative settlement to resolve substantially all Pennsylvania royalty cases pending, which settlement would apply to both the customer and us. The settlement as reported would not require any contribution from us.
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 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. The Court of Chancery previously scheduled trial for May 20 through May 24, 2019; the court struck the trial setting and re-scheduled trial for June 8 through June 11 and June 15, 2020; due to COVID-19, the court struck the setting and has re-scheduled trial for August 31 through September 4, 2020.
Former Olefins Business
SABIC Petrochemicals, the other interest owner in our former Geismar, Louisiana, olefins facility we sold in July 2017, is seeking recovery from us for losses it allegedly suffered, including its share of personal injury settlements in which it was a co-defendant, as well as amounts related to lost income, defense costs, and property damage associated with an explosion and fire at the plant in June 2013. Due to the complexity of the various claims and available defenses, we are unable to reliably estimate any reasonably possible losses at this time. Trial began on October 14, 2019, as scheduled, but on October 21, 2019, the Court declared a mistrial due to the conduct of an officer of SABIC Petrochemicals and SABIC Petrochemicals’ expert witness. Trial is currently reset for November 4, 2020. We believe that certain losses incurred arising directly from the explosion and fire will be covered by our general liability policy and any uninsured losses are not expected to be material.
Other
On August 31, 2018, Transco submitted to the FERC a general rate filing principally designed to recover increased costs and to comply with the terms of the settlement in its prior rate proceeding. The new rates became effective March 1, 2019, subject to refund and the outcome of a hearing. In October 2019, we reached an agreement on the terms of a settlement with the participants that would resolve all issues in the rate case without the need for a hearing, and on December 31, 2019, we filed a formal stipulation and agreement with the FERC setting forth such terms of settlement. On March 24, 2020, the FERC issued an order approving the uncontested rate case settlement, which will become effective on June 1, 2020. As of March 31, 2020, we have provided a $248 million reserve for rate refunds related to increased rates collected since March 2019, which we believe is adequate for any refunds that may be required.
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 March 31, 2020, we have accrued liabilities totaling $30 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 March 31, 2020, 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 promulgate and propose 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, air quality standards for one-hour nitrogen dioxide emissions, and volatile organic compound and methane new source performance standards impacting design and operation of storage vessels, pressure valves, and compressors. The EPA previously issued its rule regarding National Ambient Air Quality Standards for ground-level ozone. We are monitoring the rule’s implementation as it will trigger additional federal and state regulatory actions that may impact our operations. Implementation of the regulations is expected to result in impacts to our operations and increase the cost of additions to Property, plant, and equipment – net in the Consolidated Balance Sheet for both new and existing facilities in affected areas. We are unable to reasonably estimate the cost of additions that may be required to meet the regulations at this time due to uncertainty created by various legal challenges to these regulations and the need for further specific regulatory guidance.
Continuing operations
Our interstate gas pipelines are involved in remediation 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 March 31, 2020, we have accrued liabilities of $4 million for these costs. We expect that these costs will be recoverable through rates.
We also accrue environmental remediation costs for natural gas underground storage facilities, primarily related to soil and groundwater contamination. At March 31, 2020, we have accrued liabilities totaling $6 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.
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|
|
•
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Former agricultural fertilizer and chemical operations and former retail petroleum and refining operations;
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|
|
|
|
•
|
Former petroleum products and natural gas pipelines;
|
|
|
|
|
•
|
Former petroleum refining facilities;
|
|
|
|
|
•
|
Former exploration and production and mining operations;
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|
|
|
|
•
|
Former electricity and natural gas marketing and trading operations.
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At March 31, 2020, we have accrued environmental liabilities of $20 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 March 31, 2020, other than as previously disclosed, we are not aware of any material claims against us involving the 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.
In addition to the foregoing, various other proceedings are pending against us which 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.
Note 13 – Segment Disclosures
Our reportable segments are Transmission & Gulf of Mexico, Northeast G&P, and West. All remaining business activities are included in Other. (See Note 1 – General, Description of Business, and Basis of Presentation.)
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 revenues primarily represent the sale of NGLs from our natural gas processing plants 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.
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•
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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.
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The following table reflects the reconciliation of Segment revenues to Total revenues as reported in the Consolidated Statement of Operations and Total assets by reportable segment.
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Transmission & Gulf of Mexico
|
|
Northeast G&P
|
|
West
|
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Other
|
|
Eliminations
|
|
Total
|
|
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|
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(Millions)
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|
Three Months Ended March 31, 2020
|
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Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
814
|
|
|
$
|
344
|
|
|
$
|
311
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
1,474
|
|
|
Internal
|
15
|
|
|
14
|
|
|
—
|
|
|
3
|
|
|
(32
|
)
|
|
—
|
|
|
Total service revenues
|
829
|
|
|
358
|
|
|
311
|
|
|
8
|
|
|
(32
|
)
|
|
1,474
|
|
|
Total service revenues – commodity consideration
|
5
|
|
|
2
|
|
|
21
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
41
|
|
|
23
|
|
|
347
|
|
|
—
|
|
|
—
|
|
|
411
|
|
|
Internal
|
11
|
|
|
6
|
|
|
12
|
|
|
—
|
|
|
(29
|
)
|
|
—
|
|
|
Total product sales
|
52
|
|
|
29
|
|
|
359
|
|
|
—
|
|
|
(29
|
)
|
|
411
|
|
|
Total revenues
|
$
|
886
|
|
|
$
|
389
|
|
|
$
|
691
|
|
|
$
|
8
|
|
|
$
|
(61
|
)
|
|
$
|
1,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
Segment revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
$
|
811
|
|
|
$
|
266
|
|
|
$
|
359
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
1,440
|
|
|
Internal
|
12
|
|
|
10
|
|
|
—
|
|
|
3
|
|
|
(25
|
)
|
|
—
|
|
|
Total service revenues
|
823
|
|
|
276
|
|
|
359
|
|
|
7
|
|
|
(25
|
)
|
|
1,440
|
|
|
Total service revenues – commodity consideration
|
13
|
|
|
5
|
|
|
46
|
|
|
—
|
|
|
—
|
|
|
64
|
|
|
Product sales
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
52
|
|
|
36
|
|
|
462
|
|
|
—
|
|
|
—
|
|
|
550
|
|
|
Internal
|
30
|
|
|
11
|
|
|
17
|
|
|
—
|
|
|
(58
|
)
|
|
—
|
|
|
Total product sales
|
82
|
|
|
47
|
|
|
479
|
|
|
—
|
|
|
(58
|
)
|
|
550
|
|
|
Total revenues
|
$
|
918
|
|
|
$
|
328
|
|
|
$
|
884
|
|
|
$
|
7
|
|
|
$
|
(83
|
)
|
|
$
|
2,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
18,656
|
|
|
$
|
14,702
|
|
|
$
|
10,619
|
|
|
$
|
1,309
|
|
|
$
|
(657
|
)
|
|
$
|
44,629
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
18,796
|
|
|
$
|
15,399
|
|
|
$
|
11,265
|
|
|
$
|
1,151
|
|
|
$
|
(571
|
)
|
|
$
|
46,040
|
|
The following table reflects the reconciliation of Modified EBITDA to Net income (loss) as reported in the Consolidated Statement of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2020
|
|
2019
|
|
|
(Millions)
|
|
Modified EBITDA by segment:
|
|
|
|
|
Transmission & Gulf of Mexico
|
$
|
662
|
|
|
$
|
636
|
|
|
Northeast G&P
|
369
|
|
|
299
|
|
|
West
|
215
|
|
|
256
|
|
|
Other
|
7
|
|
|
(4
|
)
|
|
|
1,253
|
|
|
1,187
|
|
|
Accretion expense associated with asset retirement obligations for nonregulated operations
|
(10
|
)
|
|
(9
|
)
|
|
Depreciation and amortization expenses
|
(429
|
)
|
|
(416
|
)
|
|
Impairment of goodwill
|
(187
|
)
|
|
—
|
|
|
Equity earnings (losses)
|
22
|
|
|
80
|
|
|
Impairment of equity-method investments
|
(938
|
)
|
|
(74
|
)
|
|
Other investing income (loss) – net
|
3
|
|
|
1
|
|
|
Proportional Modified EBITDA of equity-method investments
|
(192
|
)
|
|
(190
|
)
|
|
Interest expense
|
(296
|
)
|
|
(296
|
)
|
|
(Provision) benefit for income taxes
|
204
|
|
|
(69
|
)
|
|
Net income (loss)
|
$
|
(570
|
)
|
|
$
|
214
|
|