FAIR VALUE
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in a principal or most advantageous market. Fair value is a market-based measurement that is determined based on inputs, which refer broadly to assumptions that market participants use in pricing assets or liabilities. These inputs can be readily observable, market corroborated, or generally unobservable inputs. We make certain assumptions we believe that market participants would use in pricing assets or liabilities, including assumptions about risk, and the risks inherent in the inputs to valuation techniques. We believe we use valuation techniques that maximize the use of observable market-based inputs and minimize the use of unobservable inputs.
Significant Accounting Policy – Fair Value
A fair value hierarchy has been established that prioritizes the inputs to valuation techniques used to measure fair value in three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall in different levels of the fair value hierarchy. All assets and liabilities are required to be classified in their entirety based on the lowest level of input that is significant to the fair value measurement in its entirety. Assessing the significance of a particular input may require judgment considering factors specific to the asset or liability and may affect the valuation of the asset or liability and its placement within the fair value hierarchy. We classify fair value balances based on the fair value hierarchy defined as follows:
•Level 1 — Consists of unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access as of the reporting date.
•Level 2 — Consists of inputs other than quoted prices included within Level 1 that are directly observable for the assets or liabilities or indirectly observable through corroboration with observable market data.
•Level 3 — Consists of unobservable inputs for assets or liabilities whose fair value is estimated based on internally developed models or methodologies using inputs that are generally less readily observable and supported by little, if any, market activity at the measurement date. Unobservable inputs are developed based on the best available information and subject to cost-benefit constraints.
Fair Value of Financial Instruments
The following table presents the carrying amount and fair value of financial instruments:
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| December 31, 2025 | | December 31, 2024 |
| Carrying | | Fair Value | | Carrying | | Fair Value |
| Amount | | Level 1 | | Level 2 | | Level 3 | | Amount | | Level 1 | | Level 2 | | Level 3 |
| (millions) |
Cash equivalents (a) | $ | 23 | | | $ | — | | | $ | 23 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Long-term notes receivable — related party | 4 | | | — | | | — | | | 4 | | | 4 | | | — | | | — | | | 4 | |
Short-term borrowings (a) | — | | | — | | | — | | | — | | | 150 | | | — | | | 150 | | | — | |
Long-term debt (b) | $ | 3,324 | | | $ | — | | | $ | 3,318 | | | $ | — | | | $ | 3,319 | | | $ | — | | | $ | 3,136 | | | $ | — | |
______________________________________(a)Cash equivalents and Short-term borrowings are stated at cost, which approximates fair value.
(b)Carrying value represents principal of $3.4 billion, net of unamortized debt discounts and issuance costs.