Williams Co (WMB) Risk Analysis

GAAP requires Williams to test certain assets for impairment on either an annual basis or when events or circumstances occur which indicate that the carrying value of such assets might be impaired. The outcome of such testing could result in impairments of Williams' assets including property, plant, and equipment, intangible assets, and/ or equity-method investments. Additionally, any asset monetizations could result in impairments if any assets are sold or otherwise exchanged for amounts less than their carrying value. If Williams determines that an impairment has occurred, Williams would be required to take an immediate noncash charge to earnings.

In an effort to manage Williams' financial exposure related to commodity price and market fluctuations, Williams has entered, and may in the future enter into contracts to hedge certain risks associated with its assets and operations. In these hedging activities, Williams has used, and may in the future use, fixed-price, forward, physical purchase, and sales contracts, futures, financial swaps, and option contracts traded in the over-the-counter markets or on exchanges. Nevertheless, no single hedging arrangement can adequately address all risks present in a given contract. For example, a forward contract that would be effective in hedging commodity price volatility risks would not hedge the contract's counterparty credit or performance risk. Therefore, unhedged risks will always continue to exist. While Williams attempts to manage counterparty credit risk within guidelines established by its credit policy, Williams may not be able to successfully manage all credit risk and as such, future cash flows and results of operations could be impacted by counterparty default. The difference in accounting treatment for the underlying position and the financial instrument used to hedge the value of the contract can cause volatility in Williams' reported net income while the positions are open due to mark-to-market accounting.

Revenues from certain components of Williams' business can have seasonal characteristics. In many parts of the country, demand for natural gas and other fuels peaks during the winter. As a result, Williams' overall operating results in the future might fluctuate substantially on a seasonal basis. Demand for natural gas and other fuels could vary significantly from Williams' expectations depending on the nature and location of its facilities and pipeline systems and the terms of the natural gas transportation arrangements relative to demand created by unusual weather patterns.

Williams, Transco, and NWP are subject to the risk of loss resulting from nonpayment and/or nonperformance by customers and counterparties in the ordinary course of business. Generally, Williams', Transco's, and NWP's customers are rated investment grade, are otherwise considered creditworthy, are required to make prepayments or provide security to satisfy credit concerns, or are dependent upon Williams, Transco or NWP, in some cases without a readily available alternative, to provide necessary services. However, Williams', Transco's, and NWP's credit procedures and policies cannot completely eliminate customer and counterparty credit risk. Williams', Transco's, and NWP's customers and counterparties include industrial customers, local distribution companies, natural gas producers, and marketers whose creditworthiness may be suddenly and disparately impacted by, among other factors, commodity price volatility, deteriorating energy market conditions, and public and regulatory opposition to energy producing activities. In a low commodity price environment, certain customers have been or could be negatively impacted, causing them significant economic stress resulting, in some cases, in a customer bankruptcy filing or an effort to renegotiate contracts. To the extent one or more of Williams', Transco's, or NWP's key customers commences bankruptcy proceedings, the contracts with such customers may be subject to rejection under applicable provisions of the United States Bankruptcy Code or may be renegotiated. Further, during any such bankruptcy proceeding, prior to assumption, rejection, or renegotiation of such contracts, the bankruptcy court may temporarily authorize the payment of value for services less than contractually required, which could have a material adverse effect on Williams', Transco's, and NWP's businesses, results of operations, cash flows, and financial condition. If Williams, Transco, and NWP fail to adequately assess the creditworthiness of existing or future customers and counterparties or otherwise do not take sufficient mitigating actions, including obtaining sufficient collateral, deterioration in their creditworthiness and any resulting increase in nonpayment and/or nonperformance by them could cause Williams, Transco, or NWP to write down or write off accounts receivable. Such write-downs or write-offs could negatively affect Williams', Transco's, or NWP's operating results for the period in which they occur, and, if significant, could have a material adverse effect on Williams', Transco's, or NWP's businesses, financial condition, results of operations, and cash flows.

Williams, Transco, and NWP have experienced, and anticipate continuing to face, opposition to the operation and expansion of pipelines and facilities from governmental officials, environmental groups, landowners, tribal groups, local groups, and other advocates. In some instances, Williams, Transco, and NWP encounter opposition that disfavors hydrocarbon-based energy supplies regardless of practical implementation or financial considerations. Opposition to operation and expansion can take many forms, including the delay or denial of required governmental permits, organized protests, attempts to block or sabotage operations, intervention in regulatory or administrative proceedings involving assets, or lawsuits or other actions designed to prevent, disrupt, or delay the operation or expansion of assets and business. In addition, acts of sabotage or eco-terrorism could cause significant damage or injury to people, property, or the environment or lead to extended interruptions of operations. Any such event that delays or prevents the expansion of Williams', Transco's, or NWP's businesses, that interrupts the revenues generated by operations, or that causes significant expenditures not covered by insurance, could adversely affect Williams', Transco's, and NWP's financial condition and results of operations.

Public and regulatory scrutiny of the energy industry has resulted in the proposal and/or implementation of increased regulations. Such scrutiny has also resulted in various inquiries, investigations, and court proceedings, including litigation of energy industry matters. Both the shippers on Williams', Transco's, and NWP's pipelines and regulators have rights to challenge the rates charged under certain circumstances. Any successful challenge could materially affect Williams', Transco's, and NWP's results of operations. Certain inquiries, investigations, and court proceedings are ongoing. Adverse effects may continue as a result of the uncertainty of ongoing inquiries, investigations, and court proceedings, or additional inquiries and proceedings by federal or state regulatory agencies or private plaintiffs. In addition, Williams, Transco, and NWP cannot predict the outcome of any of these inquiries or whether these inquiries will lead to additional legal proceedings against them, civil or criminal fines and/or penalties, or other regulatory action, including legislation, which might be materially adverse to the operation of Williams', Transco's, and NWP's businesses and results of operations or increase their operating costs in other ways. Current legal proceedings or other matters, including environmental matters, suits, regulatory appeals, and similar matters might result in adverse decisions against Williams, Transco, and NWP which, among other outcomes, could result in the imposition of substantial penalties and fines and could damage their reputation. The result of such adverse decisions, either individually or in the aggregate, could be material and may not be covered fully or at all by insurance. In addition, existing regulations, including those pertaining to financial assurances to be provided by Williams', Transco's, and NWP's businesses in respect of potential asset decommissioning and abandonment activities, might be revised, reinterpreted, or otherwise enforced in a manner that differs from prior regulatory action. New laws and regulations, including those pertaining to oil and gas hedging and cash collateral requirements, might also be adopted or become applicable to Williams, Transco, and NWP, their customers, or their business activities. If new laws or regulations are imposed relating to oil and gas extraction, or if additional or revised levels of reporting, regulation, or permitting moratoria are required or imposed, including those related to hydraulic fracturing, the volumes of natural gas and other products that Williams, Transco, and NWP transport, gather, process, and treat could decline, compliance costs could increase, and results of operations could be adversely affected.

Williams', Transco's, and NWP's operations are subject to extensive federal, state, tribal, and local laws and regulations governing environmental protection, endangered and threatened species, the discharge of materials into the environment, and the security of chemical and industrial facilities. Substantial costs, liabilities, delays, and other significant issues related to environmental laws and regulations are inherent in the gathering, transportation, storage, processing, and treating of natural gas, fractionation, transportation, and storage of NGLs, and crude oil transportation and production handling as well as waste disposal practices and construction activities, as applicable. New or amended environmental laws and regulations can also result in significant increases in capital costs incurred to comply with such laws and regulations. Failure to comply with these laws, regulations, and permits may result in the assessment of administrative, civil and/or criminal penalties, the imposition of remedial obligations, the imposition of stricter conditions on or revocation of permits, the issuance of injunctions limiting or preventing some or all operations, and delays or denials in granting permits. Joint and several strict liability may be incurred without regard to fault under certain environmental laws and regulations, for the remediation of contaminated areas and in connection with spills or releases of materials associated with natural gas, oil, and wastes on, under, or from Williams', Transco's, and NWP's properties and facilities. Private parties, including the owners of properties through which Williams', Transco's, and NWP's pipeline and gathering systems pass and facilities where their wastes are taken for reclamation or disposal, may have the right to pursue legal actions to enforce compliance as well as to seek damages for noncompliance with environmental laws and regulations or for personal injury or property damage arising from their operations. Some sites at which Williams, Transco, and NWP operate are located near current or former third-party hydrocarbon storage and processing or oil and natural gas operations or facilities, and there is a risk that contamination has migrated from those sites. Williams, Transco, and NWP are generally responsible for all liabilities associated with the environmental condition of their facilities and assets, whether acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. In connection with certain acquisitions and divestitures, Williams, Transco, and NWP could acquire, or be required to provide indemnification against, environmental liabilities that could expose them to material losses, which may not be covered by insurance. In addition, the steps Williams, Transco and NWP could be required to take to bring certain facilities into compliance could be prohibitively expensive, and Williams, Transco, and NWP might be required to shut down, divest, or alter the operation of those facilities, which might cause them to incur losses. In addition, climate change regulations and the costs that may be associated with such regulations and with the regulation of emissions of GHGs have the potential to affect the businesses of Williams, Transco, and NWP. Regulatory actions by the Environmental Protection Agency or the passage of new climate change laws or regulations could result in increased costs to operate and maintain facilities, install new emission controls on facilities, or administer and manage any GHG emissions program. Williams, Transco, and NWP believe it is possible that future governmental legislation and/or regulation may require them either to limit GHG emissions associated with operations or to purchase allowances for such emissions. Williams, Transco, and NWP could also be subjected to a carbon tax assessed on the basis of carbon dioxide emissions or otherwise. However, Williams, Transco, and NWP cannot predict precisely what form these future regulations might take, the stringency of any such regulations or when they might become effective. Several legislative bills have been introduced in the United States Congress that would require carbon dioxide emission reductions. Previously considered proposals have included, among other things, limitations on the amount of GHGs that can be emitted (so called "caps") together with systems of permitted emissions allowances. These proposals could require Williams, Transco, and NWP to reduce emissions or to purchase allowances for such emissions. In addition to activities on the federal level, state and regional initiatives could also lead to the regulation of GHG emissions sooner than and/or independent of federal regulation. These regulations could be more stringent than any federal legislation that may be adopted. Future legislation and/or regulation designed to reduce GHG emissions could make some of Williams', Transco's, and NWP's activities uneconomic to maintain or operate. Williams, Transco, and NWP continue to monitor legislative and regulatory developments in this area and otherwise take efforts to limit and reduce GHG emissions from their facilities. Although the regulation of GHG emissions may have a material impact on Williams', Transco's, and NWP's operations and rates, Williams, Transco, and NWP believe it is premature to attempt to quantify the potential costs of the impacts. If Williams, Transco, and NWP are unable to recover or pass through a significant level of costs related to complying with climate change regulatory requirements, it could have a material adverse effect on Williams', Transco's, and NWP's results of operations and financial condition.