Estimates, Significant Accounting Policies and Balance Sheet Detials (Notes) | 12 Months Ended |
Dec. 31, 2013 |
ESTIMATES, SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL | ' |
Estimates Significant Accounting Policies And Balance Sheet Detail Text Block | ' |
ESTIMATES, SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL: |
Use of Estimates |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the accrual for and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. |
The natural gas industry conducts its business by processing actual transactions at the end of the month following the month of delivery. Consequently, the most current month’s financial results for the midstream, NGL and intrastate transportation and storage operations are estimated using volume estimates and market prices. Any differences between estimated results and actual results are recognized in the following month’s financial statements. Management believes that the estimated operating results represent the actual results in all material respects. |
Some of the other significant estimates made by management include, but are not limited to, the timing of certain forecasted transactions that are hedged, the fair value of derivative instruments, useful lives for depreciation and amortization, purchase accounting allocations and subsequent realizability of intangible assets, fair value measurements used in the goodwill impairment test, market value of inventory, assets and liabilities resulting from the regulated ratemaking process, contingency reserves and environmental reserves. Actual results could differ from those estimates. |
Revenue Recognition |
Revenues for sales of natural gas and NGLs are recognized at the later of the time of delivery of the product to the customer or the time of sale or installation. Revenues from service labor, transportation, treating, compression and gas processing are recognized upon completion of the service. Transportation capacity payments are recognized when earned in the period the capacity is made available. |
Our intrastate transportation and storage and interstate transportation and storage segments’ results are determined primarily by the amount of capacity our customers reserve as well as the actual volume of natural gas that flows through the transportation pipelines. Under transportation contracts, our customers are charged (i) a demand fee, which is a fixed fee for the reservation of an agreed amount of capacity on the transportation pipeline for a specified period of time and which obligates the customer to pay even if the customer does not transport natural gas on the respective pipeline, (ii) a transportation fee, which is based on the actual throughput of natural gas by the customer, (iii) fuel retention based on a percentage of gas transported on the pipeline, or (iv) a combination of the three, generally payable monthly. Fuel retained for a fee is typically valued at market prices. |
Our intrastate transportation and storage segment also generates revenues and margin from the sale of natural gas to electric utilities, independent power plants, local distribution companies, industrial end-users and other marketing companies on the HPL System. Generally, we purchase natural gas from the market, including purchases from our marketing operations, and from producers at the wellhead. |
In addition, our intrastate transportation and storage segment generates revenues and margin from fees charged for storing customers’ working natural gas in our storage facilities. We also engage in natural gas storage transactions in which we seek to find and profit from pricing differences that occur over time utilizing the Bammel storage reservoir. We purchase physical natural gas and then sell financial contracts at a price sufficient to cover our carrying costs and provide for a gross profit margin. We expect margins from natural gas storage transactions to be higher during the periods from November to March of each year and lower during the period from April through October of each year due to the increased demand for natural gas during colder weather. However, we cannot assure that management’s expectations will be fully realized in the future and in what time period, due to various factors including weather, availability of natural gas in regions in which we operate, competitive factors in the energy industry, and other issues. |
Results from the midstream segment are determined primarily by the volumes of natural gas gathered, compressed, treated, processed, purchased and sold through our pipeline and gathering systems and the level of natural gas and NGL prices. We generate midstream revenues and gross margins principally under fee-based or other arrangements in which we receive a fee for natural gas gathering, compressing, treating or processing services. The revenue earned from these arrangements is directly related to the volume of natural gas that flows through our systems and is not directly dependent on commodity prices. |
We also utilize other types of arrangements in our midstream segment, including (i) discount-to-index price arrangements, which involve purchases of natural gas at either (1) a percentage discount to a specified index price, (2) a specified index price less a fixed amount or (3) a percentage discount to a specified index price less an additional fixed amount, (ii) percentage-of-proceeds arrangements under which we gather and process natural gas on behalf of producers, sell the resulting residue gas and NGL volumes at market prices and remit to producers an agreed upon percentage of the proceeds based on an index price, (iii) keep-whole arrangements where we gather natural gas from the producer, process the natural gas and sell the resulting NGLs to third parties at market prices, (iv) purchasing all or a specified percentage of natural gas and/or NGL delivered from producers and treating or processing our plant facilities, and (v) making other direct purchases of natural gas and/or NGL at specified delivery points to meet operational or marketing obligations. In many cases, we provide services under contracts that contain a combination of more than one of the arrangements described above. The terms of our contracts vary based on gas quality conditions, the competitive environment at the time the contracts are signed and customer requirements. Our contract mix may change as a result of changes in producer preferences, expansion in regions where some types of contracts are more common and other market factors. |
NGL storage and pipeline transportation revenues are recognized when services are performed or products are delivered, respectively. Fractionation and processing revenues are recognized when product is either loaded into a truck or injected into a third party pipeline, which is when title and risk of loss pass to the customer. |
In our natural gas compression business, revenue is recognized for compressor packages and technical service jobs using the completed contract method which recognizes revenue upon completion of the job. Costs incurred on a job are deducted at the time revenue is recognized. |
We conduct marketing activities in which we market the natural gas that flows through our assets, referred to as on-system gas. We also attract other customers by marketing volumes of natural gas that do not move through our assets, referred to as off-system gas. For both on-system and off-system gas, we purchase natural gas from natural gas producers and other supply points and sell that natural gas to utilities, industrial consumers, other marketers and pipeline companies, thereby generating gross margins based upon the difference between the purchase and resale prices. |
Terminalling and storage revenues are recognized at the time the services are provided. Pipeline revenues are recognized upon delivery of the barrels to the location designated by the shipper. Crude oil acquisition and marketing revenues, as well as refined product marketing revenues, are recognized when title to the product is transferred to the customer. Revenues are not recognized for crude oil exchange transactions, which are entered into primarily to acquire crude oil of a desired quality or to reduce transportation costs by taking delivery closer to end markets. Any net differential for exchange transactions is recorded as an adjustment of inventory costs in the purchases component of cost of products sold and operating expenses in the statements of operations. |
Our retail marketing segment sells gasoline and diesel in addition to a broad mix of merchandise such as groceries, fast foods and beverages at its convenience stores. In addition, some of Sunoco’s retail outlets provide a variety of car care services. Revenues related to the sale of products are recognized when title passes, while service revenues are recognized when services are provided. Title passage generally occurs when products are shipped or delivered in accordance with the terms of the respective sales agreements. In addition, revenues are not recognized until sales prices are fixed or determinable and collectability is reasonably assured. |
Regulatory Accounting – Regulatory Assets and Liabilities |
Our interstate transportation and storage segment is subject to regulation by certain state and federal authorities, and certain subsidiaries in that segment have accounting policies that conform to the accounting requirements and ratemaking practices of the regulatory authorities. The application of these accounting policies allows certain of our regulated entities to defer expenses and revenues on the balance sheet as regulatory assets and liabilities when it is probable that those expenses and revenues will be allowed in the ratemaking process in a period different from the period in which they would have been reflected in the consolidated statement of operations by an unregulated company. These deferred assets and liabilities will be reported in results of operations in the period in which the same amounts are included in rates and recovered from or refunded to customers. Management’s assessment of the probability of recovery or pass through of regulatory assets and liabilities will require judgment and interpretation of laws and regulatory commission orders. If, for any reason, we cease to meet the criteria for application of regulatory accounting treatment for these entities, the regulatory assets and liabilities related to those portions ceasing to meet such criteria would be eliminated from the consolidated balance sheet for the period in which the discontinuance of regulatory accounting treatment occurs. |
Southern Union recorded regulatory assets with respect to its distribution segment operations. At December 31, 2012, we had $123 million of regulatory assets included in the consolidated balance sheet as non-current assets held for sale. Southern Union’s distribution operations were sold in 2013. |
Although Panhandle’s natural gas transmission systems and storage operations are subject to the jurisdiction of FERC in accordance with the Natural Gas Act of 1938 and Natural Gas Policy Act of 1978, it does not currently apply regulatory accounting policies in accounting for its operations. In 1999, prior to its acquisition by Southern Union, Panhandle discontinued the application of regulatory accounting policies primarily due to the level of discounting from tariff rates and its inability to recover specific costs. |
Cash, Cash Equivalents and Supplemental Cash Flow Information |
Cash and cash equivalents include all cash on hand, demand deposits, and investments with original maturities of three months or less. We consider cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. |
We place our cash deposits and temporary cash investments with high credit quality financial institutions. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit. |
The net change in operating assets and liabilities (net of acquisitions) included in cash flows from operating activities is comprised as follows: |
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| Years Ended December 31, | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | | | |
Accounts receivable | $ | (458 | ) | | $ | 300 | | | $ | 3 | | | | | | | | | | | | | | | | | | | | | |
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Accounts receivable from related companies | (17 | ) | | (50 | ) | | (28 | ) | | | | | | | | | | | | | | | | | | | | |
Inventories | (256 | ) | | (253 | ) | | 68 | | | | | | | | | | | | | | | | | | | | | |
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Exchanges receivable | (24 | ) | | 11 | | | 3 | | | | | | | | | | | | | | | | | | | | | |
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Other current assets | (56 | ) | | 571 | | | (62 | ) | | | | | | | | | | | | | | | | | | | | |
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Other non-current assets, net | (22 | ) | | (53 | ) | | 7 | | | | | | | | | | | | | | | | | | | | | |
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Accounts payable | 525 | | | (979 | ) | | 31 | | | | | | | | | | | | | | | | | | | | | |
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Accounts payable to related companies | (122 | ) | | 100 | | | 6 | | | | | | | | | | | | | | | | | | | | | |
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Exchanges payable | 131 | | | — | | | 3 | | | | | | | | | | | | | | | | | | | | | |
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Accrued and other current liabilities | 152 | | | (151 | ) | | 60 | | | | | | | | | | | | | | | | | | | | | |
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Other non-current liabilities | 151 | | | 25 | | | — | | | | | | | | | | | | | | | | | | | | | |
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Price risk management assets and liabilities, net | (150 | ) | | 4 | | | 75 | | | | | | | | | | | | | | | | | | | | | |
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Net change in operating assets and liabilities, net of effects of acquisitions and deconsolidations | $ | (146 | ) | | $ | (475 | ) | | $ | 166 | | | | | | | | | | | | | | | | | | | | | |
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Non-cash investing and financing activities and supplemental cash flow information are as follows: |
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| Years Ended December 31, | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | | | |
NON-CASH INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | |
Accrued capital expenditures | $ | 167 | | | $ | 359 | | | $ | 202 | | | | | | | | | | | | | | | | | | | | | |
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AmeriGas limited partner interest received in exchange for contribution of Propane Business | $ | — | | | $ | 1,123 | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
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Regency common and Class F units received in exchange for contribution of SUGS | $ | 961 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
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NON-CASH FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt assumed and non-compete agreement notes payable issued in acquisitions | $ | — | | | $ | 6,658 | | | $ | 4 | | | | | | | | | | | | | | | | | | | | | |
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Issuance of Common Units in connection with acquisitions | $ | — | | | $ | 2,295 | | | $ | 3 | | | | | | | | | | | | | | | | | | | | | |
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Issuance of Common Units in connection with the Holdco Acquisition | $ | 2,464 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
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Issuance of Class H Units | $ | 1,514 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
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Contributions receivable related to noncontrolling interest | $ | 13 | | | $ | 23 | | | $ | — | | | | | | | | | | | | | | | | | | | | | |
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SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | | | | | | | | | | | | | | | | | | |
Cash paid for interest, net of interest capitalized | $ | 903 | | | $ | 678 | | | $ | 476 | | | | | | | | | | | | | | | | | | | | | |
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Cash paid for income taxes | $ | 57 | | | $ | 22 | | | $ | 24 | | | | | | | | | | | | | | | | | | | | | |
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Accounts Receivable |
Our midstream, NGL and intrastate transportation and storage operations deal with counterparties that are typically either investment grade or are otherwise secured with a letter of credit or other form of security (corporate guaranty prepayment or master setoff agreement). Management reviews midstream and intrastate transportation and storage accounts receivable balances bi-weekly. Credit limits are assigned and monitored for all counterparties of the midstream and intrastate transportation and storage operations. Bad debt expense related to these receivables is recognized at the time an account is deemed uncollectible. |
Our investment in Sunoco Logistics segment extends credit terms to certain customers after review of various credit indicators, including the customer’s credit rating. Outstanding customer receivable balances are regularly reviewed for possible non-payment indicators and reserves are recorded for doubtful accounts based upon management’s estimate of collectability at the time of review. Actual balances are charged against the reserve when all collection efforts have been exhausted. |
Our interstate transportation and storage operations have a concentration of customers in the electric and gas utility industries as well as natural gas producers. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that the customers may be similarly affected by changes in economic or other conditions. From time to time, specifically identified customers having perceived credit risk are required to provide prepayments or other forms of collateral. Management believes that the portfolio of receivables, which includes regulated electric utilities, regulated local distribution companies and municipalities, is subject to minimal credit risk. Our interstate transportation and storage operations establish an allowance for doubtful accounts on trade receivables based on the expected ultimate recovery of these receivables and consider many factors including historical customer collection experience, general and specific economic trends and known specific issues related to individual customers, sectors and transactions that might impact collectability. |
Our retail marketing segment extends credit to customers after a review of credit rating and other credit indicators. Management records reserves for bad debt by computing a proportion of average write-off activity over the past five years in comparison to the outstanding balance in accounts receivable. This proportion is then applied to the accounts receivable balance at the end of the reporting period to calculate a current estimate of what is uncollectible. The credit department and business line managers make the decision to write off an account, based on understanding of the potential collectability. |
We enter into netting arrangements with counterparties of derivative contracts to mitigate credit risk. Transactions are confirmed with the counterparty and the net amount is settled when due. Amounts outstanding under these netting arrangements are presented on a net basis in the consolidated balance sheets. |
Inventories |
Inventories consist principally of natural gas held in storage, crude oil, petroleum and chemical products. Natural gas held in storage is valued at the lower of cost or market utilizing the weighted-average cost method. The cost of crude oil and petroleum and chemical products is determined using the last-in, first out method. The cost of appliances, parts and fittings is determined by the first-in, first-out method. |
Inventories consisted of the following: |
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| December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
Natural gas and NGLs | $ | 519 | | | $ | 334 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Crude oil | 488 | | | 418 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Refined products | 597 | | | 572 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Appliances, parts and fittings, and other | 161 | | | 171 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total inventories | $ | 1,765 | | | $ | 1,495 | | | | | | | | | | | | | | | | | | | | | | | | | |
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We utilize commodity derivatives to manage price volatility associated with our natural gas inventory. Changes in fair value of designated hedged inventory are recorded in inventory on our consolidated balance sheets and cost of products sold in our consolidated statements of operations. |
Exchanges |
Exchanges consist of natural gas and NGL delivery imbalances (over and under deliveries) with others. These amounts, which are valued at market prices or weighted average market prices pursuant to contractual imbalance agreements, turn over monthly and are recorded as exchanges receivable or exchanges payable on our consolidated balance sheets. These imbalances are generally settled by deliveries of natural gas or NGLs, but may be settled in cash, depending on contractual terms. |
Other Current Assets |
Other current assets consisted of the following: |
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| December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
Deposits paid to vendors | $ | 49 | | | $ | 41 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Prepaid and other | 261 | | | 293 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Total other current assets | $ | 310 | | | $ | 334 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Property, Plant and Equipment |
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful or FERC mandated lives of the assets, if applicable. Expenditures for maintenance and repairs that do not add capacity or extend the useful life are expensed as incurred. Expenditures to refurbish assets that either extend the useful lives of the asset or prevent environmental contamination are capitalized and depreciated over the remaining useful life of the asset. Additionally, we capitalize certain costs directly related to the construction of assets including internal labor costs, interest and engineering costs. Upon disposition or retirement of pipeline components or natural gas plant components, any gain or loss is recorded to accumulated depreciation. When entire pipeline systems, gas plants or other property and equipment are retired or sold, any gain or loss is included in our consolidated statements of operations. |
We review property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of long-lived assets is not recoverable, we reduce the carrying amount of such assets to fair value. A write down of the carrying amounts of the Canyon assets to their fair values was recorded for approximately $128 million during the year ended December 31, 2012. |
Capitalized interest is included for pipeline construction projects, except for certain interstate projects for which an allowance for funds used during construction (“AFUDC”) is accrued. Interest is capitalized based on the current borrowing rate of our revolving credit facility when the related costs are incurred. AFUDC is calculated under guidelines prescribed by the FERC and capitalized as part of the cost of utility plant for interstate projects. It represents the cost of servicing the capital invested in construction work-in-process. AFUDC is segregated into two component parts – borrowed funds and equity funds. |
Components and useful lives of property, plant and equipment were as follows: |
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| December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
Land and improvements | $ | 878 | | | $ | 551 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Buildings and improvements (5 to 45 years) | 900 | | | 673 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Pipelines and equipment (5 to 83 years) | 16,966 | | | 17,031 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Natural gas and NGL storage facilities (5 to 46 years) | 1,083 | | | 1,057 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Bulk storage, equipment and facilities (2 to 83 years) | 1,933 | | | 1,745 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Tanks and other equipment (5 to 40 years) | 1,685 | | | 1,187 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Retail equipment (3 to 99 years) | 450 | | | 258 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Vehicles (1 to 25 years) | 124 | | | 135 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Right of way (20 to 83 years) | 1,901 | | | 2,042 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Furniture and fixtures (2 to 25 years) | 48 | | | 65 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Linepack | 116 | | | 116 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Pad gas | 52 | | | 58 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Other (1 to 48 years) | 626 | | | 806 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Construction work-in-process | 1,668 | | | 1,688 | | | | | | | | | | | | | | | | | | | | | | | | | |
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| 28,430 | | | 27,412 | | | | | | | | | | | | | | | | | | | | | | | | | |
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Less – Accumulated depreciation | (2,483 | ) | | (1,639 | ) | | | | | | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | $ | 25,947 | | | $ | 25,773 | | | | | | | | | | | | | | | | | | | | | | | | | |
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We recognized the following amounts of depreciation expense for the periods presented: |
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| Years Ended December 31, | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | | | |
Depreciation expense(1) | $ | 944 | | | $ | 615 | | | $ | 380 | | | | | | | | | | | | | | | | | | | | | |
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Capitalized interest, excluding AFUDC | $ | 43 | | | $ | 99 | | | $ | 11 | | | | | | | | | | | | | | | | | | | | | |
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(1) | Depreciation expense amounts have been adjusted by $26 million for the year ended December 31, 2011 to present Canyon’s operations as discontinued operations. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Advances to and Investments in Unconsolidated Affiliates |
We own interests in a number of related businesses that are accounted for by the equity method. In general, we use the equity method of accounting for an investment for which we exercise significant influence over, but do not control, the investee’s operating and financial policies. |
Goodwill |
Goodwill is tested for impairment annually or more frequently if circumstances indicate that goodwill might be impaired. Our annual impairment test is performed as of August 31 for subsidiaries in our intrastate transportation and storage and midstream segments and during the fourth quarter for subsidiaries in our interstate transportation and storage, NGL transportation and services, and retail marketing segments and all others. We recorded goodwill impairments for the periods presented in these consolidated financial statements. |
Changes in the carrying amount of goodwill were as follows: |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Intrastate | | Interstate | | Midstream | | NGL Transportation and Services | | Investment in Sunoco Logistics | | Retail Marketing | | All Other | | Total |
Transportation | Transportation and Storage |
and Storage | |
Balance, December 31, 2011 | $ | 10 | | | $ | 99 | | | $ | 37 | | | $ | 432 | | | $ | — | | | $ | — | | | $ | 642 | | | $ | 1,220 | |
|
Goodwill acquired | — | | | 1,785 | | | 338 | | | — | | | 1,368 | | | 1,272 | | | 375 | | | 5,138 | |
|
Goodwill sold in deconsolidation of Propane Business | — | | | — | | | — | | | — | | | — | | | — | | | (619 | ) | | (619 | ) |
|
Goodwill allocated to the disposal group | — | | | — | | | — | | | — | | | — | | | — | | | (133 | ) | | (133 | ) |
|
Balance, December 31, 2012 | 10 | | | 1,884 | | | 375 | | | 432 | | | 1,368 | | | 1,272 | | | 265 | | | 5,606 | |
|
Goodwill acquired | — | | | — | | | — | | | — | | | — | | | 156 | | | — | | | 156 | |
|
Goodwill disposed | — | | | — | | | (337 | ) | | — | | | — | | | — | | | — | | | (337 | ) |
|
Goodwill impairment | — | | | (689 | ) | | — | | | — | | | — | | | — | | | — | | | (689 | ) |
|
Other | — | | | — | | | (2 | ) | | — | | | (22 | ) | | 17 | | | — | | | (7 | ) |
|
Balance, December 31, 2013 | $ | 10 | | | $ | 1,195 | | | $ | 36 | | | $ | 432 | | | $ | 1,346 | | | $ | 1,445 | | | $ | 265 | | | $ | 4,729 | |
|
Goodwill is recorded at the acquisition date based on a preliminary purchase price allocation and generally may be adjusted when the purchase price allocation is finalized. We recorded a net decrease in goodwill of $877 million during the year ended December 31, 2013 primarily due to Trunkline LNG’s goodwill impairment of $689 million (see below) and a decrease of $337 million as a result of the SUGS Contribution (see Note 3). These decreases were offset by additional goodwill of $156 million from acquisitions in 2013. This additional goodwill is not expected to be deductible for tax purposes. |
During the fourth quarter of 2013, we performed a goodwill impairment test on our Trunkline LNG reporting unit. In accordance with GAAP, we performed step one of the goodwill impairment test and determined that the estimated fair value of the Trunkline LNG reporting unit was less than its carrying amount primarily due to changes related to (i) the structure and capitalization of the planned LNG export project at Trunkline LNG’s Lake Charles facility, (ii) an analysis of current macroeconomic factors, including global natural gas prices and relative spreads, as of the date of our assessment, (iii) judgments regarding the prospect of obtaining regulatory approval for a proposed LNG export project and the uncertainty associated with the timing of such approvals, and (iv) changes in assumptions related to potential future revenues from the import facility and the proposed export facility. An assessment of these factors in the fourth quarter of 2013 led to a conclusion that the estimated fair value of the Trunkline LNG reporting unit was less than its carrying amount. We then applied the second step in the goodwill impairment test, allocating the estimated fair value of the reporting unit among all of the assets and liabilities of the reporting unit in a hypothetical purchase price allocation. The assets and liabilities of the reporting unit had recently been measured at fair value in 2012 as a result of the acquisition of Southern Union, and those estimated fair values had been recorded at the reporting unit through the application of “push-down” accounting. For purposes of the hypothetical purchase price allocation used in the goodwill impairment test, we estimated the fair value of the assets and liabilities of the reporting unit in a manner similar to the original purchase price allocation. In allocating value to the property, plant and equipment, we used current replacement costs adjusted for assumed depreciation. We also included the estimated fair value of working capital and identifiable intangible assets in the reporting unit. We adjusted deferred income taxes based on these estimated fair values. Based on this hypothetical purchase price allocation, estimated goodwill was $184 million, which was less than the balance of $873 million that had originally been recorded by the reporting unit through “push-down” accounting in 2012. As a result, we recorded a goodwill impairment of $689 million during the fourth quarter of 2013. |
No other goodwill impairments were identified or recorded for our reporting units. |
Intangible Assets |
Intangible assets are stated at cost, net of amortization computed on the straight-line method. We eliminate from our balance sheet the gross carrying amount and the related accumulated amortization for any fully amortized intangibles in the year they are fully amortized. |
Components and useful lives of intangible assets were as follows: |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 31-Dec-13 | | 31-Dec-12 | | | | | | | | | | | | | | | | |
| Gross Carrying | | Accumulated | | Gross Carrying | | Accumulated | | | | | | | | | | | | | | | | |
Amount | Amortization | Amount | Amortization | | | | | | | | | | | | | | | | |
Amortizable intangible assets: | | | | | | | | | | | | | | | | | | | | | | | |
Customer relationships, contracts and agreements (3 to 46 years) | $ | 1,393 | | | $ | (164 | ) | | $ | 1,290 | | | $ | (80 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Patents (9 years) | 48 | | | (6 | ) | | 48 | | | (1 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other (10 to 15 years) | 4 | | | (1 | ) | | 4 | | | (1 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total amortizable intangible assets | $ | 1,445 | | | $ | (171 | ) | | $ | 1,342 | | | $ | (82 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Non-amortizable intangible assets: | | | | | | | | | | | | | | | | | | | | | | | |
Trademarks | 294 | | | — | | | 301 | | | — | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Total intangible assets | $ | 1,739 | | | $ | (171 | ) | | $ | 1,643 | | | $ | (82 | ) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Aggregate amortization expense of intangible assets was as follows: |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | | | |
Reported in depreciation and amortization | $ | 88 | | | $ | 36 | | | $ | 24 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Estimated aggregate amortization expense for the next five years is as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Years Ending December 31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2014 | | $ | 93 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
2015 | | 93 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
2016 | | 93 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
2017 | | 93 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
2018 | | 92 | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of amortizable intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value. We review non-amortizable intangible assets for impairment annually, or more frequently if circumstances dictate. |
Other Non-Current Assets, net |
Other non-current assets, net are stated at cost less accumulated amortization. Other non-current assets, net consisted of the following: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
Unamortized financing costs (3 to 30 years) | $ | 70 | | | $ | 54 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Regulatory assets | 86 | | | 87 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Deferred charges | 144 | | | 140 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Restricted funds | 378 | | | — | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other | 88 | | | 76 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total other non-current assets, net | $ | 766 | | | $ | 357 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Restricted funds primarily consisted of restricted cash held in our wholly-owned captive insurance companies. |
Asset Retirement Obligation |
We have determined that we are obligated by contractual or regulatory requirements to remove facilities or perform other remediation upon retirement of certain assets. The fair value of any ARO is determined based on estimates and assumptions related to retirement costs, which the Partnership bases on historical retirement costs, future inflation rates and credit-adjusted risk-free interest rates. These fair value assessments are considered to be level 3 measurements, as they are based on both observable and unobservable inputs. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to settle the ARO. |
An ARO is required to be recorded when a legal obligation to retire an asset exists and such obligation can be reasonably estimated. We will record an asset retirement obligation in the periods in which management can reasonably estimate the settlement dates. |
Except for the AROs of Southern Union, Sunoco Logistics and Sunoco discussed below, management was not able to reasonably measure the fair value of asset retirement obligations as of December 31, 2013 and 2012 because the settlement dates were indeterminable. Although a number of other onshore assets in Southern Union’s system are subject to agreements or regulations that give rise to an ARO upon Southern Union’s discontinued use of these assets, AROs were not recorded because these assets have an indeterminate removal or abandonment date given the expected continued use of the assets with proper maintenance or replacement. Sunoco has legal asset retirement obligations for several other assets at its refineries, pipelines and terminals, for which it is not possible to estimate when the obligations will be settled. Consequently, the retirement obligations for these assets cannot be measured at this time. At the end of the useful life of these underlying assets, Sunoco is legally or contractually required to abandon in place or remove the asset. Sunoco Logistics believes it may have additional asset retirement obligations related to its pipeline assets and storage tanks, for which it is not possible to estimate whether or when the retirement obligations will be settled. Consequently, these retirement obligations cannot be measured at this time. |
Below is a schedule of AROs by entity recorded as other non-current liabilities in ETP’s consolidated balance sheet: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
Southern Union | $ | 55 | | | $ | 46 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Sunoco | 84 | | | 53 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Sunoco Logistics | 41 | | | 41 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| $ | 180 | | | $ | 140 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Individual component assets have been and will continue to be replaced, but the pipeline and the natural gas gathering and processing systems will continue in operation as long as supply and demand for natural gas exists. Based on the widespread use of natural gas in industrial and power generation activities, management expects supply and demand to exist for the foreseeable future. We have in place a rigorous repair and maintenance program that keeps the pipelines and the natural gas gathering and processing systems in good working order. Therefore, although some of the individual assets may be replaced, the pipelines and the natural gas gathering and processing systems themselves will remain intact indefinitely. |
As of December 31, 2013, there were no legally restricted funds for the purpose of settling AROs. |
Accrued and Other Current Liabilities |
Accrued and other current liabilities consisted of the following: |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | | | | | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | | | | | | | | | | | | | | | | | | | | | | | |
Interest payable | $ | 294 | | | $ | 256 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Customer advances and deposits | 126 | | | 44 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Accrued capital expenditures | 166 | | | 356 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Accrued wages and benefits | 155 | | | 236 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Taxes payable other than income taxes | 214 | | | 203 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Income taxes payable | 3 | | | 40 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Deferred income taxes | 119 | | | 130 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other | 351 | | | 297 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Total accrued and other current liabilities | $ | 1,428 | | | $ | 1,562 | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Deposits or advances are received from our customers as prepayments for natural gas deliveries in the following month. Prepayments and security deposits may also be required when customers exceed their credit limits or do not qualify for open credit. |
Environmental Remediation |
We accrue environmental remediation costs for work at identified sites where an assessment has indicated that cleanup costs are probable and reasonably estimable. Such accruals are undiscounted and are based on currently available information, estimated timing of remedial actions and related inflation assumptions, existing technology and presently enacted laws and regulations. If a range of probable environmental cleanup costs exists for an identified site, the minimum of the range is accrued unless some other point in the range is more likely in which case the most likely amount in the range is accrued. |
Fair Value of Financial Instruments |
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value. Price risk management assets and liabilities are recorded at fair value. |
Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value and carrying amount of our debt obligations as of December 31, 2013 was $17.69 billion and $17.09 billion, respectively. As of December 31, 2012, the aggregate fair value and carrying amount of our debt obligations was $17.84 billion and $16.22 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities. |
We have commodity derivatives and interest rate derivatives that are accounted for as assets and liabilities at fair value in our consolidated balance sheets. We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of marketable securities and commodity derivatives transacted through a clearing broker with a published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. We consider OTC commodity derivatives entered into directly with third parties as a Level 2 valuation since the values of these derivatives are quoted on an exchange for similar transactions. Additionally, we consider our options transacted through our clearing broker as having Level 2 inputs due to the level of activity of these contracts on the exchange in which they trade. We consider the valuation of our interest rate derivatives as Level 2 as the primary input, the LIBOR curve, is based on quotes from an active exchange of Eurodollar futures for the same period as the future interest swap settlements. Level 3 inputs are unobservable. During the period ended December 31, 2013, no transfers were made between any levels within the fair value hierarchy. |
The following tables summarize the fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of December 31, 2013 and 2012 based on inputs used to derive their fair values: |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Total | | Fair Value Measurements at December 31, 2013 | | | | | | | | | | | | | | | | | | | | |
Level 1 | | Level 2 | | | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate derivatives | $ | 47 | | | $ | — | | | $ | 47 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Commodity derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Natural Gas: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Basis Swaps IFERC/NYMEX | 5 | | | 5 | | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Swing Swaps IFERC | 8 | | | 1 | | | 7 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Fixed Swaps/Futures | 201 | | | 201 | | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Power: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Forwards | 3 | | | — | | | 3 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Natural Gas Liquids – Forwards/Swaps | 5 | | | 5 | | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Refined Products – Futures | 5 | | | 5 | | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total commodity derivatives | 227 | | | 217 | | | 10 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total assets | $ | 274 | | | $ | 217 | | | $ | 57 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Interest rate derivatives | $ | (95 | ) | | $ | — | | | $ | (95 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Commodity derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | |
Natural Gas: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Basis Swaps IFERC/NYMEX | (4 | ) | | (4 | ) | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Swing Swaps IFERC | (6 | ) | | — | | | (6 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Fixed Swaps/Futures | (201 | ) | | (201 | ) | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Forward Physical Swaps | (1 | ) | | — | | | (1 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Power: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Forwards | (1 | ) | | — | | | (1 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Natural Gas Liquids – Forwards/Swaps | (5 | ) | | (5 | ) | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Refined Products – Futures | (5 | ) | | (5 | ) | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total commodity derivatives | (223 | ) | | (215 | ) | | (8 | ) | | | | | | | | | | | | | | | | | | | | |
Total liabilities | $ | (318 | ) | | $ | (215 | ) | | $ | (103 | ) | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value | | Fair Value Measurements at December 31, 2012 | | | | | | | | | | | | | | | | | | | | |
| Total | Level 1 | | Level 2 | | | | | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate derivatives | $ | 55 | | | $ | — | | | $ | 55 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Commodity derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | |
Natural Gas: | | | | | | | | | | | | | | | | | | | | | | | | | |
Basis Swaps IFERC/NYMEX | 11 | | | 11 | | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Swing Swaps IFERC | 3 | | | — | | | 3 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Fixed Swaps/Futures | 96 | | | 94 | | | 2 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Options – Puts | 1 | | | — | | | 1 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Options – Calls | 3 | | | — | | | 3 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Forward Physical Swaps | 1 | | | — | | | 1 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Power: | | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | 27 | | | — | | | 27 | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Futures | 1 | | | 1 | | | — | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Options – Calls | 2 | | | — | | | 2 | | | | | | | | | | | | | | | | | | | | | |
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Natural Gas Liquids – Swaps | 1 | | | 1 | | | — | | | | | | | | | | | | | | | | | | | | | |
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Refined Products – Futures | 5 | | | 1 | | | 4 | | | | | | | | | | | | | | | | | | | | | |
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Total commodity derivatives | 151 | | | 108 | | | 43 | | | | | | | | | | | | | | | | | | | | | |
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Total assets | $ | 206 | | | $ | 108 | | | $ | 98 | | | | | | | | | | | | | | | | | | | | | |
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Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate derivatives | $ | (223 | ) | | $ | — | | | $ | (223 | ) | | | | | | | | | | | | | | | | | | | | |
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Commodity derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | |
Natural Gas: | | | | | | | | | | | | | | | | | | | | | | | | | |
Basis Swaps IFERC/NYMEX | (18 | ) | | (18 | ) | | — | | | | | | | | | | | | | | | | | | | | | |
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Swing Swaps IFERC | (2 | ) | | — | | | (2 | ) | | | | | | | | | | | | | | | | | | | | |
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Fixed Swaps/Futures | (103 | ) | | (94 | ) | | (9 | ) | | | | | | | | | | | | | | | | | | | | |
Options – Puts | (1 | ) | | — | | | (1 | ) | | | | | | | | | | | | | | | | | | | | |
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Options – Calls | (3 | ) | | — | | | (3 | ) | | | | | | | | | | | | | | | | | | | | |
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Power: | | | | | | | | | | | | | | | | | | | | | | | | | |
Forwards | (27 | ) | | — | | | (27 | ) | | | | | | | | | | | | | | | | | | | | |
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Futures | (2 | ) | | (2 | ) | | — | | | | | | | | | | | | | | | | | | | | | |
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Natural Gas Liquids – Swaps | (3 | ) | | (3 | ) | | — | | | | | | | | | | | | | | | | | | | | | |
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Refined Products – Futures | (8 | ) | | (1 | ) | | (7 | ) | | | | | | | | | | | | | | | | | | | | |
Total commodity derivatives | (167 | ) | | (118 | ) | | (49 | ) | | | | | | | | | | | | | | | | | | | | |
Total liabilities | $ | (390 | ) | | $ | (118 | ) | | $ | (272 | ) | | | | | | | | | | | | | | | | | | | | |
At December 31, 2013, the fair value of the Trunkline LNG reporting unit was classified as Level 3 of the fair value hierarchy due to the significance of unobservable inputs developed using company-specific information. We used the income approach to measure the fair value of the Trunkline LNG reporting unit. Under the income approach, we calculated the fair value based on the present value of the estimated future cash flows. The discount rate used, which was an unobservable input, was based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business's ability to execute on the projected cash flows. |
Contributions in Aid of Construction Costs |
On certain of our capital projects, third parties are obligated to reimburse us for all or a portion of project expenditures. The majority of such arrangements are associated with pipeline construction and production well tie-ins. Contributions in aid of construction costs (“CIAC”) are netted against our project costs as they are received, and any CIAC which exceeds our total project costs, is recognized as other income in the period in which it is realized. |
Shipping and Handling Costs |
Shipping and handling costs related to fuel sold are included in cost of products sold. Shipping and handling costs related to fuel consumed for compression and treating are included in operating expenses and are as follows: |
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| Years Ended December 31, | | | | | | | | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | | | | | |
Shipping and handling costs – recorded in operating expenses | $ | 28 | | | $ | 25 | | | $ | 40 | | | | | | | | | | | | | | | | | | | | | |
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Costs and Expenses |
Costs of products sold include actual cost of fuel sold, adjusted for the effects of our hedging and other commodity derivative activities, and the cost of appliances, parts and fittings. Operating expenses include all costs incurred to provide products to customers, including compensation for operations personnel, insurance costs, vehicle maintenance, advertising costs, purchasing costs and plant operations. Selling, general and administrative expenses include all partnership related expenses and compensation for executive, partnership, and administrative personnel. |
We record the collection of taxes to be remitted to government authorities on a net basis except for our retail marketing segment in which consumer excise taxes on sales of refined products and merchandise are included in both revenues and costs and expenses in the consolidated statements of operations, with no effect on net income (loss). Excise taxes collected by our retail marketing segment were $2.22 billion and $573 million for the years ended December 31, 2013 and 2012, respectively. |
Income Taxes |
ETP is a publicly traded limited partnership and is not taxable for federal and most state income tax purposes. As a result, our earnings or losses, to the extent not included in a taxable subsidiary, for federal and most state purposes are included in the tax returns of the individual partners. Net earnings for financial statement purposes may differ significantly from taxable income reportable to Unitholders as a result of differences between the tax basis and financial basis of assets and liabilities, differences between the tax accounting and financial accounting treatment of certain items, and due to allocation requirements related to taxable income under our Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”). |
As a publicly traded limited partnership, we are subject to a statutory requirement that our “qualifying income” (as defined by the Internal Revenue Code, related Treasury Regulations, and IRS pronouncements) exceed 90% of our total gross income, determined on a calendar year basis. If our qualifying income does not meet this statutory requirement, ETP would be taxed as a corporation for federal and state income tax purposes. For the years ended December 31, 2013, 2012 and 2011, our qualifying income met the statutory requirement. |
The Partnership conducts certain activities through corporate subsidiaries which are subject to federal, state and local income taxes. Holdco, which owns Sunoco and Southern Union, is a corporate subsidiary. The Partnership and its corporate subsidiaries account for income taxes under the asset and liability method. |
Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized. |
The determination of the provision for income taxes requires significant judgment, use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, we reassess these probabilities and record any changes through the provision for income taxes. |
Accounting for Derivative Instruments and Hedging Activities |
For qualifying hedges, we formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment and the gains and losses offset related results on the hedged item in the statement of operations. The market prices used to value our financial derivatives and related transactions have been determined using independent third party prices, readily available market information, broker quotes and appropriate valuation techniques. |
At inception of a hedge, we formally document the relationship between the hedging instrument and the hedged item, the risk management objectives, and the methods used for assessing and testing effectiveness and how any ineffectiveness will be measured and recorded. We also assess, both at the inception of the hedge and on a quarterly basis, whether the derivatives that are used in our hedging transactions are highly effective in offsetting changes in cash flows. If we determine that a derivative is no longer highly effective as a hedge, we discontinue hedge accounting prospectively by including changes in the fair value of the derivative in net income for the period. |
If we designate a commodity hedging relationship as a fair value hedge, we record the changes in fair value of the hedged asset or liability in cost of products sold in our consolidated statements of operations. This amount is offset by the changes in fair value of the related hedging instrument. Any ineffective portion or amount excluded from the assessment of hedge ineffectiveness is also included in the cost of products sold in the consolidated statements of operations. |
Cash flows from derivatives accounted for as cash flow hedges are reported as cash flows from operating activities, in the same category as the cash flows from the items being hedged. |
If we designate a derivative financial instrument as a cash flow hedge and it qualifies for hedge accounting, the change in the fair value is deferred in AOCI until the underlying hedged transaction occurs. Any ineffective portion of a cash flow hedge’s change in fair value is recognized each period in earnings. Gains and losses deferred in AOCI related to cash flow hedges remain in AOCI until the underlying physical transaction occurs, unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter. For financial derivative instruments that do not qualify for hedge accounting, the change in fair value is recorded in cost of products sold in the consolidated statements of operations. |
We manage a portion of our interest rate exposures by utilizing interest rate swaps and similar instruments. Certain of our interest rate derivatives are accounted for as either cash flow hedges or fair value hedges. For interest rate derivatives accounted for as either cash flow or fair value hedges, we report realized gains and losses and ineffectiveness portions of those hedges in interest expense. For interest rate derivatives not designated as hedges for accounting purposes, we report realized and unrealized gains and losses on those derivatives in “Gains (losses) on interest rate derivatives” in the consolidated statements of operations. |
Pensions and Other Postretirement Benefit Plans |
Employers are required to recognize in their balance sheets the overfunded or underfunded status of defined benefit pension and other postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for other postretirement plans). Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. Employers must recognize the change in the funded status of the plan in the year in which the change occurs through AOCI in equity or are reflected as a regulatory asset or regulatory liability for regulated subsidiaries. |
Allocation of Income |
For purposes of maintaining partner capital accounts, the Partnership Agreement specifies that items of income and loss shall generally be allocated among the partners in accordance with their percentage interests. The capital account provisions of our Partnership Agreement incorporate principles established for U.S. Federal income tax purposes and are not comparable to the partners’ capital balances reflected under GAAP in our consolidated financial statements. Our net income for partners’ capital and statement of operations presentation purposes is allocated to the General Partner and Limited Partners in accordance with their respective partnership percentages, after giving effect to priority income allocations for incentive distributions, if any, to our General Partner, the holder of the IDRs pursuant to our Partnership Agreement, which are declared and paid following the close of each quarter. Earnings in excess of distributions are allocated to the General Partner and Limited Partners based on their respective ownership interests. |