Disclosures about Derivative Instruments and Hedging Activities | 9 Months Ended |
Jun. 30, 2014 |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ' |
Disclosures About Derivative Instruments and Hedging Activities | ' |
Disclosures about Derivative Instruments and Hedging Activities |
The Partnership is exposed to certain market risks related to its ongoing business operations. Management uses derivative financial and commodity instruments, among other things, to manage these risks. The primary risk currently managed by derivative instruments is commodity price risk for propane. Although we use derivative financial and commodity instruments to reduce market risk associated with forecasted transactions, we do not use derivative financial and commodity instruments for speculative or trading purposes. The use of derivative instruments is controlled by our risk management and credit policies which govern, among other things, the derivative instruments the Partnership can use, counterparty credit limits and contract authorization limits. |
Commodity Price Risk |
In order to manage market risk associated with the Partnership’s fixed-price programs, which permit customers to lock in the prices they pay for propane principally during the months of October through March, the Partnership uses over-the-counter derivative commodity instruments, principally price swap and option contracts. In addition, the Partnership from time to time enters into price swap and option agreements to reduce short-term commodity price volatility. At June 30, 2014 and 2013, total volumes associated with LPG commodity derivative instruments totaled 210.3 million gallons and 177.8 million gallons, respectively. At June 30, 2014, for those LPG commodity derivative instruments accounted for as cash flow hedges, the maximum period over which we are hedging propane market price risk is 24 months with a weighted average of 7 months. |
During the periods presented in the financial statements, we accounted for a significant portion of our commodity price risk contracts as cash flow hedges. Effective April 1, 2014, the Partnership determined that on a prospective basis it would not elect cash flow hedge accounting for its commodity derivative transactions. All unrealized and realized gains and losses on the Partnership’s derivative commodity transactions entered into beginning April 1, 2014, are included as a component of cost of sales on the Condensed Consolidated Statements of Operations. Changes in the fair values of contracts qualifying for cash flow hedge accounting are recorded in AOCI and noncontrolling interest, to the extent effective in offsetting changes in the underlying commodity price risk, until earnings are affected by the hedged item. At June 30, 2014, the amount of net gains associated with commodity price risk hedges expected to be reclassified into earnings during the next twelve months based upon current fair values is $4,772. |
Derivative Financial Instruments Credit Risk |
The Partnership is exposed to credit loss in the event of nonperformance by counterparties to derivative financial and commodity instruments. Our counterparties principally consist of major energy companies and major U.S. financial institutions. We maintain credit policies with regard to our counterparties that we believe reduce overall credit risk. These policies include evaluating and monitoring our counterparties’ financial condition, including their credit ratings, and entering into agreements with counterparties that govern credit limits. Certain of these agreements call for the posting of collateral by the counterparty or by the Partnership in the forms of letters of credit, parental guarantees or cash. We have concentrations of credit risk associated with derivative financial instruments held by certain derivative financial instrument counterparties. Although we have concentrations of credit risk, the maximum amount of loss due to credit risk that we would incur if these counterparties comprising the concentration failed to perform according to the terms of their contracts was not material at June 30, 2014, based upon the fair values of such derivative instruments. Certain of our derivative contracts have credit-risk-related contingent features that may require the posting of additional collateral in the event of a downgrade in the Partnership’s debt rating. At June 30, 2014, if the credit-risk-related contingent features were triggered, the amount of collateral required to be posted would not be material. |
|
The following table provides information regarding the fair values and balance sheet locations of our derivative assets and liabilities existing as of June 30, 2014 and 2013: |
|
| | | | | | | | | | | | | | | | | | | | |
| | Derivative Assets | | Derivative (Liabilities) |
| | Balance Sheet | | Fair Value | | Balance Sheet | | Fair Value |
| | Location | | 2014 | | 2013 | | Location | | 2014 | | 2013 |
Derivatives Designated as Hedging Instruments: | | | | | | | | | | | | |
Propane contracts | | Derivative financial instruments and other assets | | $ | 6,378 | | | $ | 424 | | | Derivative financial instruments and other noncurrent liabilities | | $ | — | | | $ | (15,224 | ) |
|
Derivatives Not Designated as Hedging Instruments: | | | | | | | | | | | | |
Propane contracts | | Derivative financial instruments | | 313 | | | — | | | Derivative financial instruments | | (2,067 | ) | | — | |
|
Amounts above offset in the Balance Sheet | | | | (1,829 | ) | | — | | | | | 1,829 | | | — | |
|
Total Derivatives | | | | $ | 4,862 | | | $ | 424 | | | | | $ | (238 | ) | | $ | (15,224 | ) |
|
The following table provides information on the effects of derivative instruments on the Condensed Consolidated Statements of Operations and changes in AOCI and noncontrolling interest for the three and nine months ended June 30, 2014 and 2013: |
| | |
| | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, | | | | | | | | | | | | |
| | Gain (Loss) Recognized in | | Gain (Loss) Reclassified from | | Location of Gain (Loss) | | |
AOCI and Noncontrolling | AOCI and Noncontrolling | Reclassified from | | |
Interest | Interest into Income | AOCI and Noncontrolling | | |
| | 2014 | | 2013 | | 2014 | | 2013 | | Interest into Income | | |
Cash Flow Hedges: | | | | | | | | | | | | |
Propane contracts | | $ | 884 | | | $ | (19,434 | ) | | $ | 5,258 | | | $ | (8,479 | ) | | Cost of sales - propane | | |
| |
| | | | | | | | | | | | |
| | (Loss) | | | | | | Location of (Loss) | | |
| | Recognized in Income | | | | | | Recognized in Income | | |
Derivatives Not Designated as Hedging Instruments: | | 2014 | | 2013 | | | | | | | | |
Propane contracts | | $ | (2,006 | ) | | $ | — | | | | | | | Cost of sales - propane | | |
| |
| | | | | | | | | | | | |
Nine Months Ended June 30, | | | | | | | | | | | | |
| | Gain (Loss) Recognized in | | Gain (Loss) Reclassified from | | Location of Gain (Loss) | | |
AOCI and Noncontrolling | AOCI and Noncontrolling | Reclassified from | | |
Interest | Interest into Income | AOCI and Noncontrolling | | |
| | 2014 | | 2013 | | 2014 | | 2013 | | Interest into Income | | |
Cash Flow Hedges: | | | | | | | | | | | | |
Propane contracts | | $ | 46,231 | | | $ | (24,348 | ) | | $ | 53,685 | | | $ | (51,229 | ) | | Cost of sales - propane | | |
| |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Gain | | | | | | Location of Gain | | |
| | Recognized in Income | | | | | | Recognized in Income | | |
Derivatives Not Designated as Hedging Instruments: | | 2014 | | 2013 | | | | | | | | |
Propane contracts | | $ | 4,924 | | | $ | — | | | | | | | Cost of sales - propane | | |
| |
The amounts of derivative gains or losses representing ineffectiveness were not material for the three and nine months ended June 30, 2014 and 2013. |
|
We are also a party to a number of contracts that have elements of a derivative instrument. These contracts include, among others, binding purchase orders and contracts which provide for the purchase and delivery of propane and service contracts that require the counterparty to provide commodity storage or transportation service to meet our normal sales commitments. Although many of these contracts have the requisite elements of a derivative instrument, these contracts qualify for normal purchase and normal sales exception accounting under GAAP because they provide for the delivery of products or services in quantities that are expected to be used in the normal course of operating our business and the price in the contract is based on an underlying that is directly associated with the price of the product or service being purchased or sold. |