Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20162017
or
¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-2921
PANHANDLE EASTERN PIPE LINE COMPANY, LP
(Exact name of registrant as specified in its charter)
Delaware44-0382470
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
8111 Westchester Drive, Suite 600, Dallas, Texas 75225
(Address of principle executive offices) (zip code)
(214) 981-0700
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨   Accelerated filer ¨   Non-accelerated filer x
Large accelerated filer¨Accelerated filer¨
Non-accelerated filer
ý (Do not check if a smaller reporting company)
Smaller reporting company¨
Emerging growth company¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No x
Panhandle Eastern Pipe Line Company, LP meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

FORM 10-Q

PANHANDLE EASTERN PIPE LINE COMPANY, LP
TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
   
ITEM 1.
FINANCIAL STATEMENTS (UNAUDITED)
 
   
 
Consolidated Balance Sheets
1
   
 
Consolidated Statements of Operations and Comprehensive Income
3
   
 
Consolidated Statement of Partners’ Capital
4
   
 
Consolidated Statements of Cash Flows
5
   
 
Notes to Consolidated Financial Statements
6
   
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
10
 
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
1211
 
ITEM 4.
CONTROLS AND PROCEDURES
1211
 
PART II - OTHER INFORMATION
   
ITEM 1.
LEGAL PROCEEDINGS
1312
   
ITEM 1A.
RISK FACTORS
1312
   
ITEM 6.
EXHIBITS
1312
  
SIGNATURE
1413


i
Table of Contents

Forward-Looking Statements
Certain matters discussed in this report, excluding historical information, as well as some statements by Panhandle Eastern Pipe Line Company, LP and its subsidiaries (“PEPL” or the “Company”) in periodic press releases and some oral statements of Panhandle officials during presentations about the Company, include forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “estimate,” “intend,” “continue,” “believe,” “may,” “will” or similar expressions help identify forward-looking statements. Although the Company believes such forward-looking statements are based on reasonable assumptions and current expectations and projections about future events, no assurance can be given that such assumptions, expectations, or projections will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated, projected, forecasted, estimated or expressed in forward-looking statements since many of the factors that determine these results are subject to uncertainties and risks that are difficult to predict and beyond management’s control. For additional discussion of risks, uncertainties and assumptions, see “Part I — Item 1A. Risk Factors” in the Company’s Report on Form 10-K/A10-K for the year ended December 31, 20152016 filed with the Securities and Exchange Commission on August 8, 2016.February 24, 2017.
Definitions
The following is a list of certain acronyms and terms generally used in the energy industry and throughout this document:
   
ETE Energy Transfer Equity, L.P.
ETPEnergy Transfer Partners, L.P., a subsidiary of ETE
   
Exchange Act Securities Exchange Act of 1934
   
FERC Federal Energy Regulatory Commission
   
GAAP Accounting principles generally accepted in the United States of America
   
PCBs Polychlorinated biphenyls
   
Sea Robin Sea Robin Pipeline Company, LLC
   
SEC United States Securities and Exchange Commission
   
Southern UnionSouthern Union Company
Southwest Gas Pan Gas Storage LLC (d.b.a. Southwest Gas)
   
TBtu Trillion British thermal units
   
Trunkline Trunkline Gas Company, LLC

ii
Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)

September 30, 2016 December 31, 2015
  (Restated)June 30, 2017 December 31, 2016
ASSETS      
Current assets:      
Cash and cash equivalents$5
 $3
$9
 $4
Accounts receivable, net42
 48
36
 46
Accounts receivable from related companies7
 172
5
 17
Exchanges receivable11
 5
9
 7
Inventories123
 113
116
 179
Other current assets5
 9
2
 4
Total current assets193
 350
177
 257
      
Property, plant and equipment3,352
 3,338
3,289
 3,242
Accumulated depreciation(340) (286)(381) (355)
3,012
 3,052
2,908
 2,887
      
Other non-current assets, net147
 137
155
 153
Advances to affiliates255
 258
Notes receivable from related parties265
 574
182
 251
Goodwill923
 923
285
 285
Total assets$4,795
 $5,294
$3,707
 $3,833




















PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)

September 30, 2016 December 31, 2015
  (Restated)June 30, 2017 December 31, 2016
LIABILITIES AND PARTNERS’ CAPITAL      
Current liabilities:      
Current maturities of long-term debt$1
 $1
$715
 $307
Accounts payable and accrued liabilities8
 3
4
 11
Accounts payable to related companies54
 125
42
 66
Exchanges payable109
 94
101
 165
Accrued interest25
 12
12
 12
Customer advances and deposits10
 9
9
 9
Other current liabilities45
 55
43
 40
Total current liabilities252
 299
926
 610
      
Long-term debt, less current maturities1,147
 1,165
414
 834
Deferred income taxes771
 725
730
 711
Other non-current liabilities222
 222
221
 217
Commitments and contingencies

 



 

      
Partners’ capital:      
Partners’ capital2,401
 2,881
1,411
 1,456
Accumulated other comprehensive income2
 2
5
 5
Total partners’ capital2,403
 2,883
1,416
 1,461
Total liabilities and partners’ capital$4,795
 $5,294
$3,707
 $3,833











PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in millions)
(unaudited)
Three Months Ended
September 30,		 Nine Months Ended
September 30,
2016 2015 2016 2015Three Months Ended
June 30,		 Six Months Ended
June 30,
  (Restated)   (Restated)2017 2016 2017 2016
OPERATING REVENUES:              
Transportation and storage of natural gas$115
 $121
 $371
 $393
$100
 $119
 $223
 $255
Other5
 5
 14
 16
4
 5
 9
 10
Total operating revenues120
 126
 385
 409
104
 124
 232
 265
OPERATING EXPENSES:              
Cost of natural gas and other energy—
 1
 2
 4
1
 1
 2
 2
Operating and maintenance53
 56
 155
 159
46
 52
 97
 102
General and administrative11
 12
 29
 35
7
 8
 17
 18
Depreciation and amortization33
 31
 98
 101
32
 33
 63
 65
Total operating expenses97
 100
 284
 299
86
 94
 179
 187
OPERATING INCOME23
 26
 101
 110
18
 30
 53
 78
OTHER INCOME (EXPENSE):              
Interest expense, net(12) (13) (37) (38)(11) (12) (23) (25)
Equity in earnings of unconsolidated affiliates—
 28
 —
 26
Interest income — affiliates9
 6
 23
 7
4
 7
 8
 14
Other, net—
 1
 —
 5
2
 (1) 1
 —
Total other income (expense), net(3) 22
 (14) —
INCOME BEFORE INCOME TAX EXPENSE20
 48
 87
 110
13
 24
 39
 67
Income tax expense7
 23
 28
 35
5
 9
 17
 21
NET INCOME$13
 $25
 $59
 $75
$8
 $15
 $22
 $46
              
OTHER COMPREHENSIVE INCOME, NET OF TAX       
Actuarial gain relating to postretirement benefit plans—
 —
 —
 1


 

 

 

COMPREHENSIVE INCOME$13
 $25
 $59
 $76
$8
 $15
 $22
 $46









PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
FOR THE NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20162017
(Dollars in millions)
(unaudited)

 Partners’ Capital 
Accumulated Other
Comprehensive Income
 Total
Balance, December 31, 2015 (Restated)$2,881
 $2
 $2,883
Distribution to partners(541) —
 (541)
Unit-based compensation expense2
 —
 2
Net income59
 —
 59
Balance, September 30, 2016$2,401
 $2
 $2,403
 Partners’ Capital 
Accumulated Other
Comprehensive Income
 Total
Balance, December 31, 2016$1,456
 $5
 $1,461
Distributions to partners(74) —
 (74)
Unit-based compensation expense2
 —
 2
Deemed contribution from partners5
 —
 5
Net income22
 —
 22
Balance, June 30, 2017$1,411
 $5
 $1,416







































PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)

Nine Months Ended
September 30,
2016 2015Six Months Ended
June 30,
  (Restated)2017 2016
OPERATING ACTIVITIES:      
Net income$59
 $75
$22
 $46
Reconciliation of net income to net cash provided by operating activities:      
Depreciation and amortization98
 101
63
 65
Deferred income taxes45
 48
19
 15
Amortization of deferred financing fees(18) (17)(13) (12)
Income from unconsolidated affiliates—
 (26)
Distributions of earnings received from unconsolidated affiliates—
 9
Other non-cash8
 10
8
 5
Changes in operating assets and liabilities110
 (23)(9) 31
Net cash flows provided by operating activities302
 177
90
 150
INVESTING ACTIVITIES:      
Capital expenditures(70) (99)(83) (24)
Distributions from unconsolidated affiliates in excess of cumulative earnings—
 45
Repayment of note receivable from related party35
 40
99
 18
Note receivable issued to related party(265) (40)
Notes receivable issued to related party(30) (129)
Other3
 —
Net cash flows used in investing activities(300) (54)(11) (135)
FINANCING ACTIVITIES:      
Distributions to partners—
 (125)(74) —
Net cash flows used in financing activities—
 (125)(74) —
Net change in cash and cash equivalents2
 (2)5
 15
Cash and cash equivalents, beginning of period3
 32
4
 3
Cash and cash equivalents, end of period$5
 $30
$9
 $18
      
NON-CASH ACTIVITIES:   
Distribution for settlement of note receivable from related party$541
 $—
SUPPLEMENTAL INFORMATION:   
Non-cash activity - Settlement of related party payable$5
 $—
Cash paid for interest$37
 $37






PANHANDLE EASTERN PIPE LINE COMPANY, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts are in millions)
(unaudited)

1.ORGANIZATION AND BASIS OF PRESENTATION
Organization
Panhandle Eastern Pipe Line Company, LP and its subsidiaries are primarily engaged in the transportation of natural gas from the Gulf of Mexico, south Texas and the panhandle region of Texas and Oklahoma to major United States markets in the Midwest and Great Lakes regions and the storage of natural gas and are subject to the rules and regulations of the FERC.  The Company’s subsidiaries are Trunkline, Sea Robin and Southwest Gas.
In April 2017, Energy Transfer Partners, L.P. (“ETP”) merged with a subsidiary of Sunoco Logistics Partners L.P., at which time ETP changed its name from “Energy Transfer Partners, L.P.” to “Energy Transfer, LP” and Sunoco Logistics Partners L.P. changed its name to “Energy Transfer Partners, L.P.” References to “ETP” refer to the consolidated entity named Energy Transfer Partners, L.P. subsequent to the close of the merger.
Energy Transfer, LP is a wholly-owned subsidiary of Energy Transfer Partners, L.P.
Southern Union Panhandle LLC, an indirect wholly-owned subsidiary of ETP, owns a 1% general partnershippartner interest in PEPL and ETP indirectly owns a 99% limited partnershippartner interest in PEPL.

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net income or total partners’ capital.
Basis of Presentation
The unaudited financial information included in this Form 10-Q has been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A10-K for the year ended December 31, 2015.2016. In the opinion of the Company’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.
Restatement of Previously Issued Financial Statements
In connection with the preparation of the Form 10-Q for the three and six months ended June 30, 2016, the Company determined that, due to certain clerical errors, the state tax rate utilized to calculate the tax provision for the Company was incorrect, resulting in income tax expense being understated by $20 million and $36 million for the years ended December 31, 2015 and 2014, respectively. As a result, the Company restated the consolidated financial statements, consolidated financial information and notes to the consolidated financial statements as of and for the years ended December 31, 2015 and 2014. Certain amounts that were previously reported by the Company with respect to the periods presented herein have been restated.
The effects of the revision in the consolidated statements of operations and comprehensive income for the three and nine month periods ended September 30, 2015 are summarized in the following table:
 Three Months Ended
September 30, 2015		 Nine Months Ended
September 30, 2015
 Previously Reported As Restated Previously Reported As Restated
Income tax expense (benefit)$(28) $23
 $9
 $35
Net income76
 25
 101
 75
Comprehensive income76
 25
 102
 76
The effects of the revisions in the consolidated statements of cash flows for the nine month period ended September 30, 2015 are summarized in the following table:
 Nine Months Ended
September 30, 2015
 Previously Reported As Restated
Net income$101
 $75
Deferred income taxes22
 48

Use of Estimates
The unaudited consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that exist at the date of the consolidated financial statements. Although these estimates are based on management’s available knowledge of current and expected future events, actual results could be different from those estimates.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU 2014-09, which is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted asThe guidance permits two methods of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. ASU 2014-09 can be adopted eitheradoption: retrospectively to each prior reporting period presented (full retrospective method), or as a cumulative-effect adjustment  asretrospectively with the cumulative effect of initially applying the guidance recognized at the date of adoption.initial application (the cumulative catchup transition method). The Company expects to adopt ASU 2014-09 in the first quarter of 2018 and will apply the cumulative catchup transition method. The Company is currentlyin the process of evaluating revenue contracts by fee type to determine the potential impact if any,of adopting the new standards. At this point the Company has determined that adopting thisthe timing and/or amount of revenues recognized on certain contracts may be impacted by the adoption of the new accountingstandard; however, the Company is still in the process of quantifying these impacts and cannot say whether or not they would be material to the financial statements. In

addition, the Company is in the process of implementing appropriate changes to business processes, systems and controls to support recognition and disclosure under the new standard. The Company continues to monitor additional authoritative or interpretive guidance related to the new standard will haveas it becomes available, as well as comparing to conclusions on our revenue recognition policies.specific interpretative issues to other industry peers, to the extent that such information is available.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which establishes the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact if any, that adopting this new standard will have on the consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles-Goodwill and other (Topic 350): Simplifying the test for goodwill impairment”. The amendments in this update remove the second step of the two-step test currently required by Topic 350. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We expect that our adoption of this standard will change our approach for testing goodwill for impairment; however, this standard requires prospective application and therefore will only impact periods subsequent to adoption. The Company plans to apply this ASU for its annual goodwill impairment test in the fourth quarter of 2017.
2.RELATED PARTY TRANSACTIONS
Accounts receivable from related companies reflected on the consolidated balance sheets primarily related to services provided to ETE, ETP and other affiliates. Accounts payable to related companies reflected on the consolidated balance sheets related to various services provided by ETP and other affiliates.
The following table provides a summary of the related party activity included in the consolidated statements of operations:
Three Months Ended
September 30,		 Nine Months Ended
September 30,		Three Months Ended
June 30,		 Six Months Ended
June 30,
2016 2015 2016 20152017 2016 2017 2016
Operating revenues$4
 $4
 $13
 $13
$3
 $4
 $7
 $9
Operating and maintenance4
 4
 11
 12
2
 3
 4
 7
General and administrative6
 8
 20
 24
5
 7
 11
 14
Interest income — affiliates9
 6
 23
 7
4
 7
 8
 14
Equity in earnings of unconsolidated affiliates—
 28
 —
 26
The Company received $54 million in cash distributionssettled related to its investment in ETP during the nine months ended September 30, 2015.
As discussed in Note 3, the Company settled a note receivable fromparty payables with a subsidiary of ETP through a non-cash distributioncontribution during the threesix months ended SeptemberJune 30, 2016.2017 for $5 million.
3.INVESTMENTS IN UNCONSOLIDATED AFFILIATES
The Company’s investment in ETP consisted of 17.8 million ETP common units and was accounted for using the equity method. Effective September 1, 2015, the Company exchanged these ETP common units for a note receivable from a subsidiary of ETP in the amount of $1.37 billion. The note receivable accrued interest annually at 4.75% and was due on September 1, 2035. On August 31, 2016, the remaining balance of $541 million on the note receivable and related accrued interest from a subsidiary of ETP was settled through a non-cash distribution.

4.FAIR VALUE MEASURES
The Company did not have any assets or liabilities measured at fair value on a recurring basis at SeptemberJune 30, 20162017 or December 31, 2015.2016. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term maturities. Based on the estimated borrowing rates currently available to the Company and its subsidiaries for loans with similar terms and average maturities, the aggregate fair value of the Company’s consolidated debt obligations at September 30, 2016 and December 31, 2015 was $1.14 billion and $1.20$1.14 billion at June 30, 2017 and December 31, 2016, respectively. The fair value of the Company’s consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities. The Company did not have any Level 3 instruments measured at fair value at SeptemberJune 30, 20162017 or December 31, 2015,2016, and there were no transfers between hierarchy levels.

5.4.REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES
Contingent Residual Support Agreement with ETP
The Company provides contingent, residual support to Citrus ETP Finance LLC (on a non-recourse basis to the Company) with respect to Citrus ETP Finance LLC’s obligations to ETP to support the payment of $2 billion in principal amount of senior notes issued by ETP on January 17, 2012.
FERC Audit
In March 2016, the FERC commenced an audit of Trunkline for the period from January 1, 2013 to present to evaluate Trunkline’s compliance with the requirements of its FERC gas tariff, the accounting regulations of the Uniform System of Accounts as prescribed by the FERC, and the FERC’s annual reporting requirements. The audit is ongoing.
Environmental Matters
The Company’s operations are subject to federal, state and local laws, rules and regulations regarding water quality, hazardous and solid waste management, air quality control and other environmental matters.  These laws, rules and regulations require the Company to conduct its operations in a specified manner and to obtain and comply with a wide variety of environmental regulations, licenses, permits, inspections and other approvals.  Failure to comply with environmental laws, rules and regulations may expose the Company to significant fines, penalties and/or interruptions in operations.  The Company’s environmental policies and procedures are designed to achieve compliance with such applicable laws and regulations.  These evolving laws and regulations and claims for damages to property, employees, other persons and the environment resulting from current or past operations may result in significant expenditures and liabilities in the future.  The Company engages in a process of updating and revising its procedures for the ongoing evaluation of its operations to identify potential environmental exposures and enhance compliance with regulatory requirements.
The Company is responsible for environmental remediation at certain sites on its natural gas transmission systems for contamination resulting from the past use of lubricants containing PCBs in compressed air systems; the past use of paints containing PCBs; and the prior use of wastewater collection facilities and other on-site disposal areas.  The Company has implemented a program to remediate such contamination.  The primary remaining remediation activity on the Company’s systems is associated with past use of paints containing PCBs or PCB impacts to equipment surfaces and to a building at one location. The PCB assessments are ongoing and the related estimated remediation costs are subject to further change. Other remediation typically involves the management of contaminated soils and may involve remediation of groundwater.  Activities vary with site conditions and locations, the extent and nature of the contamination, remedial requirements, complexity and sharing of responsibility.  The ultimate liability and total costs associated with these sites will depend upon many factors.  If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Company could potentially be held responsible for contamination caused by other parties.  In some instances, the Company may share liability associated with contamination with other potentially responsible parties.  The Company may also benefit from contractual indemnities that cover some or all of the cleanup costs.  These sites are generally managed in the normal course of business or operations.
The Company’s environmental remediation activities are undertaken in cooperation with and under the oversight of appropriate regulatory agencies, enabling the Company under certain circumstances to take advantage of various voluntary cleanup programs in order to perform the remediation in the most effective and efficient manner.



The table below reflects the amount of accrued liabilities recorded on the consolidated balance sheets at the dates indicated to cover environmental remediation activities where management believes a loss is probable and reasonably estimable.  The Company is not able to estimate the possible loss or range of loss in excess of amounts accrued. The Company does not have any material environmental remediation matters assessed as reasonably possible.
September 30, 2016 December 31, 2015
��June 30, 2017 December 31, 2016
Current$—
 $—
$—
 $—
Non-current2
 3
2
 2
Total environmental liabilities$2
 $3
$2
 $2
Litigation and Other Claims
The Company is involved in legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business.
Attorney General of the Commonwealth of Massachusetts v. New England Gas Company
On July 7, 2011, the Massachusetts Attorney General (“AG”) filed a regulatory complaint with the Massachusetts Department of Public Utilities (“MDPU”) against New England Gas Company with respect to certain environmental cost recoveries.  The AG is seeking a refund to New England Gas Company customers for alleged “excessive and imprudently incurred costs” related to legal fees associated with Southern Union’s environmental response activities.  In the complaint, the AG requests that the MDPU initiate an investigation into the New England Gas Company’s collection and reconciliation of recoverable environmental costs including:  (i) the prudence of any and all legal fees, totaling $19 million, that were charged by the Kasowitz, Benson, Torres & Friedman firm and passed through the recovery mechanism since 2005, the year when a partner in the firm, the Southern Union former Vice Chairman, President and Chief Operating Officer, joined Southern Union’s management team; (ii) the prudence of any and all legal fees that were charged by the Bishop, London & Dodds firm and passed through the recovery mechanism since 2005, the period during which a member of the firm served as Southern Union’s Chief Ethics Officer; and (iii) the propriety and allocation of certain legal fees charged that were passed through the recovery mechanism that the AG contends only qualify for a lesser, 50%, level of recovery.  Southern Union has filed its answer denying the allegations and moved to dismiss the complaint, in part on a theory of collateral estoppel.  The hearing officer has deferred consideration of Southern Union’s motion to dismiss.  The AG’s motion to be reimbursed expert and consultant costs by Southern Union of up to $150,000 was granted. By tariff, these costs are recoverable through rates charged to New England Gas Company customers. The hearing officer previously stayed discovery pending resolution of a dispute concerning the applicability of attorney-client privilege to legal billing invoices. The MDPU issued an interlocutory order on June 24, 2013 that lifted the stay, and discovery has resumed. The Company (as successor to Southern Union) believes it has complied with all applicable requirements regarding its filings for cost recovery and has not recorded any accrued liability; however, the Company will continue to assess its potential exposure for such cost recoveries as the matter progresses.
Liabilities for Litigation and Other Claims
The Company records accrued liabilities for litigation and other claim costs when management believes a loss is probable and reasonably estimable.  When management believes there is at least a reasonable possibility that a material loss or an additional material loss may have been incurred, the Company discloses (i) an estimate of the possible loss or range of loss in excess of the amount accrued; or (ii) a statement that such an estimate cannot be made. As of SeptemberJune 30, 20162017 and December 31, 2015,2016, the Company has litigation and other claim-related accrued liabilities of $21 million and $22$21 million, respectively.respectively, included in other non-current liabilities on the consolidated balance sheets. The Company does not have any material litigation or other claim contingency matters assessed as probable or reasonably possible that would require disclosure in the financial statements.
Other Commitments and Contingencies
The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment (the transfer of property to the state) of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements.  The Company is currently being examined by a third party auditor on behalf of nine states for compliance with unclaimed property laws.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Tabular dollar amounts are in millions)
The information in Item 2 has been prepared pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q. Accordingly, this Item 2 includes only management’s narrative analysis of the results of operations and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q;10-Q and (ii) our Annual Report on Form 10-K/A10-K for the year ended December 31, 20152016 filed with the SEC on August 8, 2016; and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2015 Form 10-K/A.February 24, 2017.
RESULTS OF OPERATIONS
 Nine Months Ended
September 30,
 2016 2015 Six Months Ended
June 30,
   (Restated) 2017 2016
OPERATING REVENUES:        
Transportation and storage of natural gas $371
 $393
 $223
 $255
Other 14
 16
 9
 10
Total operating revenues 385
 409
 232
 265
OPERATING EXPENSES:    
    
Cost of natural gas and other energy 2
 4
 2
 2
Operating and maintenance 155
 159
 97
 102
General and administrative 29
 35
 17
 18
Depreciation and amortization 98
 101
 63
 65
Total operating expenses 284
 299
 179
 187
OPERATING INCOME 101
 110
 53
 78
OTHER INCOME (EXPENSE):    
    
Interest expense, net (37) (38) (23) (25)
Equity in earnings of unconsolidated affiliates —
 26
Interest income — affiliates 23
 7
 8
 14
Other, net —
 5
 1
 —
Total other income (expense), net (14) —
INCOME BEFORE INCOME TAX EXPENSE 87
 110
 39
 67
Income tax expense 28
 35
 17
 21
NET INCOME $59
 $75
 $22
 $46
    
Panhandle natural gas volumes transported (TBtu):    
    
PEPL 458
 450
 306
 313
Trunkline 369
 501
 250
 255
Sea Robin 64
 86
 37
 46
Operating Revenues. Operating revenues decreased for the ninesix months ended SeptemberJune 30, 20162017 compared to the same period in the prior year due to the transfer of one of Trunkline’s pipelines that was taken out of service during the third quarter of 2015 in advance of being repurposed from natural gas service to crude oil service, lower reservation revenues on the Panhandle and Trunkline pipelines due to capacity sold at lower ratescustomer demand driven by weak spreads and declines in productionmild weather and third party maintenance on the Sea Robin Pipeline. These decreases were partially offset by higher parking revenues on the Panhandlepipeline due to producer maintenance and Trunkline pipelines.production declines.



General and administrativeOperating Expenses. General and administrativeOperating expenses decreased for the ninesix months ended SeptemberJune 30, 20162017 compared to the same period in the prior year due to lower allocated costs insurances proceeds and a refund of franchise taxes.system gas activity.
Equity in earnings of unconsolidatedInterest income - affiliates. Equity in earnings of unconsolidatedInterest income - affiliates decreased for the ninesix months endedSeptember June 30, 20162017 compared to the same period in the prior year primarily due to the exchangesettlement of the Company’s investment in ETP for a note receivable from a subsidiary of ETP effective September 1, 2015. The earnings for the nine months ended September 30, 2015 reflects the Company’s earnings related to its investment in ETP through September 1, 2015.
Interest Income - Affiliates. Interest income from affiliates increased for the nine months ended September 30, 2016 compared to the same period in the prior year due to the issuances of notes receivable with ETP and a subsidiary of ETP, effective February 2016 and September 2015, respectively.August 2016.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 3, Quantitative and Qualitative Disclosures About Market Risk, has been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was performedWe have established disclosure controls and procedures to ensure that information required to be disclosed by us, including our consolidated entities, in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Under the supervision and with the participation of oursenior management, including the Chief Executive Officer (“Principal Executive Officer”) and the Chief Financial Officer (“Principal Financial Officer”), of the effectiveness of the design and operation ofour General Partner, we evaluated our disclosure controls and procedures, (asas such terms areterm is defined in Rules 13a-15(e) and 15d-15(e) ofunder Rule 13a–15(e) promulgated under the Exchange Act) as ofAct. Based on this evaluation, the end of the period covered by this report. Based upon that evaluation, management, including the ChiefPrincipal Executive Officer and Chiefthe Principal Financial Officer of our General Partner concluded that due to the material weakness described below, our disclosure controls and procedures were not effective as of September 30, 2016.
In connection with the preparation of the Form 10-Q for the three and six months ended June 30, 2016, the Company determined2017 to ensure that dueinformation required to certain clerical errors, the state tax rate utilized to calculate the tax provision for the Company was incorrect, resulting in income tax expense being understatedbe disclosed by $20 million and $36 million for the years ended December 31, 2015 and 2014, respectively, and overstated by $1 million for the three months ended March 31, 2016. As a result, the Company restated the consolidated financial statements, consolidated financial information and notes to the consolidated financial statements as of and for the years ended December 31, 2015 and 2014. The Company filed a Form 10-K/A on August 8, 2016. The errors did not impact any periods prior to January 1, 2014.
As a result of the item described above, the Company restated the consolidated financial statements, consolidated financial information and notes to the consolidated financial statements as of and for the three and nine months ended September 30, 2015, included in this Form 10-Q. The impact of these errors caused a change to the Company’s previously reported income tax expense (benefit) of ($28) million and $9 million for the three and nine months ended September 30, 2015, respectively.
These clerical errors resulted from a deficiencyus in the procedures to reviewreports we file or submit under the tax models used in recordingExchange Act (1) is recorded, processed, summarized and reported within the Company’s tax provision. We have concluded that such deficiency constituted a material weaknesstime periods specified in the Company’s internal controls. DuringSEC’s rules and forms, and (2) is accumulated and communicated to management, including the three months ended September 30, 2016, management revised the process for reviewing the tax models used in recording the Company’s tax provision. Nevertheless, the Company continuesPrincipal Executive Officer and Principal Financial Officer of our General Partner, to report the above material weakness while sufficient evaluation of newly established procedures and controls occurs. Notwithstanding the material weakness, management has concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented.allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Other than described above, thereThere have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the Exchange Act) during the three months ended SeptemberJune 30, 20162017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to or has property subject to litigation and other proceedings, including matters arising under provisions relating to the protection of the environment, as described in Note 54 in this Quarterly Report on Form 10-Q and in Note 11 in the Company’s Form 10-K for the year ended December 31, 2015.2016.
The Company is subject to federal and state requirements for the protection of the environment, including those for the discharge of hazardous materials and remediation of contaminated sites. As a result, the Company is a party to or has its property subject to various other lawsuits or proceedings involving environmental protection matters. For information regarding these matters, see Note 54 in this Quarterly Report on Form 10-Q and Note 11 included in the Company’s Form 10-K for the year ended December 31, 2015.2016.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in the Company’s Form 10-K/A10-K filed with the SEC on August 8, 2016.February 24, 2017.
ITEM 6. EXHIBITS
The exhibits listed below are filed or furnished, as indicated, as part of this report:
 
Exhibit
Number
 Description
 31.1* Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 31.2* Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 32.1** Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 32.2** Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 101.INS* XBRL Instance Document
 101.SCH* XBRL Taxonomy Extension Schema Document
 101.CAL* XBRL Taxonomy Calculation Linkbase Document
 101.DEF* XBRL Taxonomy Extension Definitions Document
 101.LAB* XBRL Taxonomy Label Linkbase Document
 101.PRE* XBRL Taxonomy Presentation Linkbase Document

*    Filed herewith.
**    Furnished herewith.


SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Panhandle Eastern Pipe Line Company, LP has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
  PANHANDLE EASTERN PIPE LINE COMPANY, LP
  (Registrant)
     
    
Date:NovemberAugust 9, 20162017By:  /s/   A. Troy Sturrock
    A. Troy Sturrock
    Senior Vice President and Controller (duly authorized to sign on behalf of the registrant)

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