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EX-32.2 - EXHIBIT 32.2 - Energy Transfer Equity, L.P.ete-06302016ex322.htm
EX-32.1 - EXHIBIT 32.1 - Energy Transfer Equity, L.P.ete-06302016ex321.htm
EX-31.2 - EXHIBIT 31.2 - Energy Transfer Equity, L.P.ete-06302016ex312.htm
EX-31.1 - EXHIBIT 31.1 - Energy Transfer Equity, L.P.ete-06302016ex311.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-32740
ENERGY TRANSFER EQUITY, L.P.
(Exact name of registrant as specified in its charter)
 
Delaware
 
30-0108820
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
8111 Westchester Drive, Suite 600, Dallas, Texas 75225
(Address of principal 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  ý    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  ý    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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
ý
 
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
 
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý
At July 29, 2016, the registrant had 1,044,791,157 Common Units outstanding.
 



FORM 10-Q
ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
 


i


Forward-Looking Statements
Certain matters discussed in this report, excluding historical information, as well as some statements by Energy Transfer Equity, L.P. (“Energy Transfer Equity,” the “Partnership” or “ETE”) in periodic press releases and some oral statements of Energy Transfer Equity officials during presentations about the Partnership, 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 Partnership and its general partner believe 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 Partnership’s actual results may vary materially from those anticipated, estimated or expressed, forecasted, projected or expected 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 Partnership’s Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on February 29, 2016 and “Part II — Item 1A. Risk Factors,” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 and in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
Definitions
The following is a list of certain acronyms and terms generally used in the energy industry and throughout this document:
 
/d
 
per day
 
 
 
 
AmeriGas
 
AmeriGas Partners, L.P.
 
 
 
 
 
AOCI
 
accumulated other comprehensive income (loss)
 
 
 
 
 
Bbls
 
barrels
 
 
 
 
Bcf
 
billion cubic feet
 
 
 
 
 
Btu
 
British thermal unit, an energy measurement used by gas companies to convert the volume of gas used to its heat equivalent, and thus calculate the actual energy content
 
 
 
 
 
Citrus
 
Citrus, LLC
 
 
 
 
 
Convertible Units
 
Series A Convertible Preferred Units in ETE
 
 
 
 
 
EPA
 
Environmental Protection Agency
 
 
 
 
 
ET Rover
 
ET Rover Pipeline LLC
 
 
 
 
 
ETC
 
Energy Transfer Corp LP
 
 
 
 
 
ETC OLP
 
La Grange Acquisition, L.P., which conducts business under the assumed name of Energy Transfer Company
 
 
 
 
 
ETP
 
Energy Transfer Partners, L.P.
 
 
 
 
 
ETP GP
 
Energy Transfer Partners GP, L.P., the general partner of ETP
 
 
 
 
 
ETP Preferred Units
 
ETP’s Series A Convertible Preferred Units
 
 
 
 
 
Exchange Act
 
Securities Exchange Act of 1934
 
 
 
 
 
FEP
 
Fayetteville Express Pipeline LLC
 
 
 
 
 
FERC
 
Federal Energy Regulatory Commission
 
 
 
 
 
FGT
 
Florida Gas Transmission Company, LLC
 
 
 
 
 
GAAP
 
accounting principles generally accepted in the United States of America
 
 
 
 
 
HPC
 
RIGS Haynesville Partnership Co.
 
 
 
 
 
IDRs
 
incentive distribution rights
 
 
 
 

ii


 
Lake Charles LNG
 
Lake Charles LNG Company, LLC
 
 
 
 
 
LIBOR
 
London Interbank Offered Rate
 
 
 
 
 
LNG
 
liquefied natural gas
 
 
 
 
 
Lone Star
 
Lone Star NGL LLC
 
 
 
 
 
MEP
 
Midcontinent Express Pipeline LLC
 
 
 
 
 
MMBtu
 
million British thermal units
 
 
 
 
 
MTBE
 
methyl tertiary butyl ether
 
 
 
 
 
NGL
 
natural gas liquid, such as propane, butane and natural gasoline
 
 
 
 
NYMEX
 
New York Mercantile Exchange
 
 
 
 
 
OSHA
 
Federal Occupational Safety and Health Act
 
 
 
 
OTC
 
over-the-counter
 
 
 
 
 
Panhandle
 
Panhandle Eastern Pipe Line Company, LP
 
 
 
 
 
PCBs
 
polychlorinated biphenyl
 
 
 
 
 
PHMSA
 
Pipeline Hazardous Materials Safety Administration
 
 
 
 
 
Plan
 
the plan of the Partnership pursuant to which eligible offerees elected to forgo certain distributions on some or all of their ETE common units and reinvest those distributions in convertible units
 
 
 
 
 
Regency
 
Regency Energy Partners LP
 
 
 
 
 
Retail Holdings
 
ETP Retail Holdings LLC, a joint venture between subsidiaries of ETC OLP and Sunoco, Inc.
 
 
 
 
 
SEC
 
Securities and Exchange Commission
 
 
 
 
 
Southern Union
 
Southern Union Company
 
 
 
 
 
Sunoco GP
 
Sunoco GP LLC, the general partner of Sunoco LP
 
 
 
 
 
Sunoco Logistics
 
Sunoco Logistics Partners L.P.
 
 
 
 
 
Sunoco LP
 
Sunoco LP (previously named Susser Petroleum Partners, LP)
 
 
 
 
 
Susser
 
Susser Holdings Corporation
 
 
 
 
 
Transwestern
 
Transwestern Pipeline Company, LLC
 
 
 
 
 
Trunkline
 
Trunkline Gas Company, LLC
 
 
 
 
 
WMB
 
The Williams Companies, Inc.
 
 
 
 
 
WTI
 
West Texas Intermediate Crude
Adjusted EBITDA is a term used throughout this document, which we define as earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt, gain on deconsolidation and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Adjusted EBITDA reflects amounts for less than wholly-owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on the Partnership’s proportionate ownership.

iii


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
 
 
June 30, 2016
 
December 31, 2015
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
475

 
$
606

Accounts receivable, net
2,944

 
2,400

Accounts receivable from related companies
60

 
119

Inventories
1,929

 
1,636

Derivative assets
38

 
46

Other current assets
644

 
603

Total current assets
6,090

 
5,410

 
 
 
 
Property, plant and equipment
58,663

 
54,979

Accumulated depreciation and depletion
(7,277
)
 
(6,296
)
 
51,386

 
48,683

 
 
 
 
Advances to and investments in unconsolidated affiliates
3,453

 
3,462

Non-current derivative assets
18

 

Other non-current assets, net
742

 
730

Intangible assets, net
5,356

 
5,431

Goodwill
7,515

 
7,473

Total assets
$
74,560

 
$
71,189


















The accompanying notes are an integral part of these consolidated financial statements.
1



ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in million)
(unaudited)

 
June 30, 2016
 
December 31, 2015
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,931

 
$
2,274

Accounts payable to related companies
20

 
28

Derivative liabilities
29

 
69

Accrued and other current liabilities
2,195

 
2,408

Current maturities of long-term debt
1,013

 
131

Total current liabilities
6,188

 
4,910

 
 
 
 
Long-term debt, less current maturities
38,501

 
36,837

Long-term notes payable – related companies
107

 

Non-current derivative liabilities
367

 
137

Deferred income taxes
5,215

 
4,590

Other non-current liabilities
1,137

 
1,069

 
 
 
 
Commitments and contingencies

 

 
 
 
 
Preferred units of subsidiary
33

 
33

Redeemable noncontrolling interests
15

 
15

 
 
 
 
Equity:
 
 
 
General Partner
(2
)
 
(2
)
Limited Partners:
 
 
 
Common Unitholders
(1,738
)
 
(952
)
Class D Units

 
22

Series A Convertible Preferred Units
59

 

Total partners’ capital (deficit)
(1,681
)
 
(932
)
Noncontrolling interest
24,678

 
24,530

Total equity
22,997

 
23,598

Total liabilities and equity
$
74,560

 
$
71,189












The accompanying notes are an integral part of these consolidated financial statements.
2


ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per unit data)
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
REVENUES
 
 
 
 
 
 
 
Natural gas sales
$
695

 
$
898

 
$
1,533

 
$
1,933

NGL sales
1,150

 
988

 
2,090

 
1,969

Crude sales
1,714

 
2,680

 
2,923

 
4,888

Gathering, transportation and other fees
1,087

 
1,035

 
2,090

 
2,081

Refined product sales
3,877

 
4,434

 
6,416

 
8,090

Other
821

 
1,559

 
1,974

 
3,013

Total revenues
9,344

 
11,594

 
17,026

 
21,974

COSTS AND EXPENSES
 
 
 
 
 
 
 
Cost of products sold
7,054

 
9,338

 
12,676

 
17,825

Operating expenses
688

 
663

 
1,329

 
1,291

Depreciation, depletion and amortization
588


514

 
1,150

 
1,007

Selling, general and administrative
187

 
183

 
343

 
338

Total costs and expenses
8,517

 
10,698

 
15,498

 
20,461

OPERATING INCOME
827

 
896

 
1,528

 
1,513

OTHER INCOME (EXPENSE)
 
 
 
 
 
 
 
Interest expense, net
(450
)
 
(408
)
 
(877
)
 
(779
)
Equity in earnings of unconsolidated affiliates
95

 
117

 
156

 
174

Losses on extinguishments of debt

 
(33
)
 

 
(33
)
Gains (losses) on interest rate derivatives
(81
)
 
127

 
(151
)
 
50

Other, net
24

 
17

 
40

 
24

INCOME BEFORE INCOME TAX BENEFIT
415

 
716

 
696

 
949

Income tax benefit
(9
)
 
(56
)
 
(64
)
 
(44
)
NET INCOME
424

 
772

 
760

 
993

Less: Net income attributable to noncontrolling interest
183

 
474

 
207

 
411

NET INCOME ATTRIBUTABLE TO PARTNERS
241

 
298

 
553

 
582

General Partner’s interest in net income
1

 

 
2

 
1

Convertible Unitholders’ interest in income
1

 

 
1

 

Class D Unitholder’s interest in net income

 

 

 
1

Limited Partners’ interest in net income
$
239

 
$
298

 
$
550

 
$
580

NET INCOME PER LIMITED PARTNER UNIT:
 
 
 
 
 
 
 
Basic
$
0.23

 
$
0.28

 
$
0.53

 
$
0.54

Diluted
$
0.23

 
$
0.28

 
$
0.52

 
$
0.54


The accompanying notes are an integral part of these consolidated financial statements.
3


ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
(unaudited)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
424

 
$
772

 
$
760

 
$
993

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in value of derivative instruments accounted for as cash flow hedges

 

 

 
1

Change in value of available-for-sale securities
3

 
(1
)
 
5

 

Actuarial gain (loss) relating to pension and other postretirement benefit plans
6

 

 
(3
)
 
45

Foreign currency translation adjustments

 

 
(1
)
 
(2
)
Change in other comprehensive income from unconsolidated affiliates
(5
)
 

 
(11
)
 
(2
)
 
4

 
(1
)
 
(10
)
 
42

Comprehensive income
428

 
771

 
750

 
1,035

Less: Comprehensive income attributable to noncontrolling interest
187

 
470

 
197

 
450

Comprehensive income attributable to partners
$
241

 
$
301

 
$
553

 
$
585






























The accompanying notes are an integral part of these consolidated financial statements.
4


ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2016
(Dollars in millions)
(unaudited)
 
 
General Partner    
 
Common Unitholders    
 
Class D Units
 
Series A Convertible Preferred Units
 
Accumulated Other Comprehensive Income (Loss)
 
Non-controlling Interest
 
Total    
Balance, December 31, 2015
$
(2
)
 
$
(952
)
 
$
22

 
$

 
$

 
$
24,530

 
$
23,598

Distributions to partners
(2
)
 
(538
)
 

 

 

 

 
(540
)
Distributions to noncontrolling interest

 

 

 

 

 
(1,343
)
 
(1,343
)
Distributions reinvested

 
(58
)
 

 
58

 

 

 

Subsidiary units issued

 
(12
)
 

 

 

 
1,087

 
1,075

Non-cash compensation expense, net of units tendered by employees for tax withholdings

 

 
(22
)
 

 

 
43

 
21

Capital contributions received from noncontrolling interest

 

 

 

 

 
161

 
161

Units repurchased under buyback program

 

 

 

 

 

 

Sunoco, Inc. retail business to Sunoco LP transaction

 
(741
)
 

 

 

 

 
(741
)
Other comprehensive loss, net of tax

 

 

 

 

 
(10
)
 
(10
)
Other, net

 
13

 

 

 

 
3

 
16

Net income
2

 
550

 

 
1

 

 
207

 
760

Balance, June 30, 2016
$
(2
)
 
$
(1,738
)
 
$

 
$
59

 
$

 
$
24,678

 
$
22,997




















The accompanying notes are an integral part of these consolidated financial statements.
5


ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
 
Six Months Ended
June 30,
 
2016
 
2015
OPERATING ACTIVITIES
 
 
 
Net income
$
760

 
$
993

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
1,150

 
1,007

Deferred income taxes
(84
)
 
77

Amortization included in interest expense
(1
)
 
(16
)
Unit-based compensation expense
23

 
48

(Gains) losses on disposal of assets
6

 
(3
)
Losses on extinguishments of debt

 
33

Inventory valuation adjustments
(168
)
 
(150
)
Equity in earnings of unconsolidated affiliates
(156
)
 
(174
)
Distributions from unconsolidated affiliates
133

 
162

Other non-cash
(114
)
 
22

Net change in operating assets and liabilities, net of effects of acquisition
(31
)
 
(886
)
Net cash provided by operating activities
1,518

 
1,113

INVESTING ACTIVITIES
 
 
 
Cash paid for acquisitions, net of cash received
(116
)
 
(475
)
Cash proceeds from sale of noncontrolling interest in Rover Pipeline LLC to AE-Midco Rover, LLC

 
64

Cash paid for acquisition of a noncontrolling interest

 
(129
)
Capital expenditures, excluding allowance for equity funds used during construction
(3,723
)
 
(4,181
)
Contributions in aid of construction costs
25

 
12

Contributions to unconsolidated affiliates
(30
)
 
(43
)
Distributions from unconsolidated affiliates in excess of cumulative earnings
56

 
64

Proceeds from the sale of assets
16

 
15

Change in restricted cash
(2
)
 
8

Other
(1
)
 
(8
)
Net cash used in investing activities
(3,775
)
 
(4,673
)
FINANCING ACTIVITIES
 
 
 
Proceeds from borrowings
12,048

 
15,466

Repayments of long-term debt
(9,551
)
 
(11,301
)
Subsidiary units issued for cash
1,075

 
1,773

Distributions to partners
(540
)
 
(509
)
Debt issuance costs
(29
)
 
(61
)
Distributions to noncontrolling interest
(1,343
)
 
(1,133
)
Capital contributions received from noncontrolling interest
161

 
398

Units repurchased under buyback program

 
(294
)
Other, net
305

 
(3
)
Net cash provided by financing activities
2,126

 
4,336

Increase (decrease) in cash and cash equivalents
(131
)
 
776

Cash and cash equivalents, beginning of period
606

 
847

Cash and cash equivalents, end of period
$
475

 
$
1,623


The accompanying notes are an integral part of these consolidated financial statements.
6


ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar and unit amounts, except per unit data, are in millions)
(unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
Organization
Unless the context requires otherwise, references to “we,” “us,” “our,” the “Partnership” and “ETE” mean Energy Transfer Equity, L.P. and its consolidated subsidiaries. References to the “Parent Company” mean Energy Transfer Equity, L.P. on a stand-alone basis.
The consolidated financial statements of ETE presented herein include the results of operations of:
the Parent Company;
our controlled subsidiaries, ETP and Sunoco LP;
consolidated subsidiaries of our controlled subsidiaries and our wholly-owned subsidiaries that own general partner interests and IDR interests in ETP and Sunoco LP; and
our wholly-owned subsidiary, Lake Charles LNG.
Our subsidiaries also own varying undivided interests in certain pipelines. Ownership of these pipelines has been structured as an ownership of an undivided interest in assets, not as an ownership interest in a partnership, limited liability company, joint venture or other forms of entities. Each owner controls marketing and invoices separately, and each owner is responsible for any loss, damage or injury that may occur to their own customers. As a result, we apply proportionate consolidation for our interests in these entities.
Business Operations
The Parent Company’s principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in ETP and Sunoco LP and cash flows from the operations of Lake Charles LNG. The Parent Company’s primary cash requirements are for general and administrative expenses, debt service requirements and distributions to its partners. Parent Company-only assets are not available to satisfy the debts and other obligations of ETE’s subsidiaries. In order to understand the financial condition of the Parent Company on a stand-alone basis, see Note 14 for stand-alone financial information apart from that of the consolidated partnership information included herein.
Our financial statements reflect the following reportable business segments:
Investment in ETP, including the consolidated operations of ETP;
Investment in Sunoco LP, including the consolidated operations of Sunoco LP;
Investment in Lake Charles LNG, including the operations of Lake Charles LNG; and
Corporate and Other, including the following:
activities of the Parent Company; and
the goodwill and property, plant and equipment fair value adjustments recorded as a result of the 2004 reverse acquisition of Heritage Propane Partners, L.P.
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 Partnership’s Annual Report on Form 10-K for the year ended December 31, 2015. In the opinion of the Partnership’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.
Certain prior period amounts have been reclassified to conform to the 2016 presentation. These reclassifications had no impact on net income or total equity.

7


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.
Subsidiary Common Unit Transactions
The Parent Company accounts for the difference between the carrying amount of its investments in ETP and Sunoco LP and the underlying book value arising from the issuance or redemption of units by ETP or Sunoco LP (excluding transactions with the Parent Company) as capital transactions.
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 as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within those annual periods. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented or as a cumulative-effect adjustment as of the date of adoption. The Partnership is currently evaluating the impact, if any, that adopting this new accounting standard will have on our revenue recognition policies.
In February 2015, the FASB issued Accounting Standards Update No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”), which changed the requirements for consolidations analysis. Under ASU 2015-02, reporting entities are required to evaluate whether they should consolidate certain legal entities. The Partnership adopted this standard on January 1, 2016, and the adoption did not impact the Partnership’s financial position or results of operations.
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 Partnership is currently evaluating the impact, if any, that adopting this new standard will have on the consolidated financial statements and related disclosures.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Stock Compensation (Topic 718) (“ASU 2016-09”). The objective of the update is to reduce complexity in accounting standards. The areas for simplification in this update involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. In addition, the amendments in this update eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Partnership is currently evaluating the impact that it will have on the consolidated financial statements and related disclosures.
2.
ACQUISITIONS AND CONTRIBUTION TRANSACTIONS
WMB Merger
On June 24, 2016, the Delaware Court of Chancery issued an opinion finding that ETE was contractually entitled to terminate its Merger Agreement with WMB in the event Latham & Watkins LLP (“Latham”) were unable to deliver a required tax opinion on or prior to June 28, 2016. Latham advised ETE that it was unable to deliver the tax opinion as of June 28, 2016. Consistent with its rights and obligations under the merger agreement, ETE subsequently provided written notice terminating the merger agreement due to the failure of conditions under the merger agreement, including Latham’s inability to deliver the tax opinion, as well as the other bases detailed in ETE’s filings in the Delaware lawsuit referenced above.
WMB has appealed the decision by the Delaware Court of Chancery to the Delaware Supreme Court.

8


Sunoco Retail to Sunoco LP
In March 2016, ETP contributed to Sunoco LP its remaining 68.42% interest in Sunoco, LLC and 100% interest in the legacy Sunoco, Inc. retail business for $2.23 billion. Sunoco LP paid $2.20 billion in cash, including a working capital adjustment, and issued 5.7 million Sunoco LP common units to Retail Holdings, a wholly-owned subsidiary of ETP. The transaction was effective January 1, 2016.
Other Sunoco LP Acquisitions
In June 2016, Sunoco LP entered into a definitive agreement to purchase the fuels business from Emerge Energy Services LP for $179 million, subject to working capital and other adjustments. The transaction is scheduled to close in the third quarter of 2016, subject to regulatory clearances and the satisfaction of other customary closing conditions. Additionally, Sunoco LP made other acquisitions primarily consisting of convenience stores, totaling $114 million plus the value of inventory on hand at closing and increasing goodwill by $45 million.
3.
CASH AND CASH EQUIVALENTS
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 by uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.
Non-cash investing activities were as follows:
 
Six Months Ended
June 30,
 
2016
 
2015
NON-CASH INVESTING ACTIVITIES:
 
 
 
Accrued capital expenditures
$
881

 
$
693

Gains (losses) from subsidiary common unit issuances, net
(12
)
 
50

4.
INVENTORIES
Inventories consisted of the following:
 
June 30, 2016
 
December 31, 2015
Natural gas and NGLs
$
552

 
$
415

Crude oil
564

 
424

Refined products
452

 
420

Other
361

 
377

Total inventories
$
1,929

 
$
1,636

We utilize commodity derivatives to manage price volatility associated with our natural gas inventories stored in our Bammel storage facility. 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.
5.
FAIR VALUE MEASURES
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 consolidated debt obligations as of June 30, 2016 was $39.84 billion and $39.51 billion, respectively. As of December 31, 2015, the aggregate fair value and carrying amount of our consolidated debt obligations was $33.22 billion and $36.97 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.

9


We have commodity derivatives, interest rate derivatives and embedded derivatives in the ETP Preferred Units 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. Derivatives related to the embedded derivatives in the preferred units are valued using a binomial lattice model. The market inputs utilized in the model include credit spread, probabilities of the occurrence of certain events, common unit price, dividend yield, and expected value, and are considered Level 3. During the six months ended June 30, 2016, no transfers were made between any levels within the fair value hierarchy.

10


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 June 30, 2016 and December 31, 2015 based on inputs used to derive their fair values:
 
Fair Value Measurements at
June 30, 2016
 
Fair Value Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Interest rate derivatives
$
29

 
$

 
$
29

 
$

Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
18

 
18

 

 

Swing Swaps IFERC
6

 

 
6

 

Fixed Swaps/Futures
41

 
41

 

 

Forward Physical Swaps
4

 

 
4

 

Power:
 
 
 
 
 
 
 
Forwards
30

 

 
30

 

Futures

 

 

 

Options — Calls
3

 
3

 

 

Natural Gas Liquids – Forwards/Swaps
76

 
76

 

 

Refined Products — Futures
10

 
10

 

 

Crude – Futures
5

 
5

 

 

Total commodity derivatives
193

 
153

 
40

 

Total assets
$
222

 
$
153

 
$
69

 
$

Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(358
)
 
$

 
$
(358
)
 
$

Embedded derivatives in the ETP Preferred Units
(9
)
 

 

 
(9
)
Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(17
)
 
(17
)
 

 

Swing Swaps IFERC
(6
)
 
(1
)
 
(5
)
 

Fixed Swaps/Futures
(64
)
 
(64
)
 

 

Forward Physical Swaps
(2
)
 

 
(2
)
 

Power:
 
 
 
 
 
 
 
Forwards
(28
)
 

 
(28
)
 

Futures
(1
)
 
(1
)
 

 

Natural Gas Liquids – Forwards/Swaps
(88
)
 
(88
)
 

 

Refined Products — Futures
(21
)
 
(21
)
 

 

Crude — Futures
(7
)
 
(7
)
 

 

Total commodity derivatives
(234
)
 
(199
)
 
(35
)
 

Total liabilities
$
(601
)
 
$
(199
)
 
$
(393
)
 
$
(9
)

11


 
Fair Value Measurements at
December 31, 2015
 
Fair Value Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
16

 
16

 

 

Swing Swaps IFERC
10

 
2

 
8

 

Fixed Swaps/Futures
274

 
274

 

 

Forward Physical Contracts
4

 

 
4

 

Power:
 
 
 
 
 
 
 
Forwards
22

 

 
22

 

Futures
3

 
3

 

 

Options — Calls
1

 
1

 

 

Options — Puts
1

 
1

 

 

Natural Gas Liquids — Forwards/Swaps
99

 
99

 

 

Refined Products — Futures
15

 
15

 

 

Crude - Futures
9

 
9

 

 

Total commodity derivatives
454

 
420

 
34

 

Total assets
$
454

 
$
420

 
$
34

 
$

Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(171
)
 
$

 
$
(171
)
 
$

Embedded derivatives in the ETP Preferred Units
(5
)
 

 

 
(5
)
Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(16
)
 
(16
)
 

 

Swing Swaps IFERC
(12
)
 
(2
)
 
(10
)
 

Fixed Swaps/Futures
(203
)
 
(203
)
 

 

Power:
 
 
 
 
 
 
 
Forwards
(22
)
 

 
(22
)
 

Futures
(2
)
 
(2
)
 

 

Options — Calls
(1
)
 
(1
)
 

 

Natural Gas Liquids — Forwards/Swaps
(89
)
 
(89
)
 

 

Refined Products — Futures
(6
)
 
(6
)
 

 

Crude - Futures
(5
)
 
(5
)
 

 

Total commodity derivatives
(356
)
 
(324
)
 
(32
)
 

Total liabilities
$
(532
)
 
$
(324
)
 
$
(203
)
 
$
(5
)
The following table presents a reconciliation of the beginning and ending balances for our Level 3 financial instruments measured at fair value on a recurring basis using significant unobservable inputs for the six months ended June 30, 2016.
Balance, December 31, 2015
$
(5
)
Net unrealized gains included in other income (expense)
(4
)
Balance, June 30, 2016
$
(9
)

12


6.
NET INCOME PER LIMITED PARTNER UNIT
A reconciliation of income and weighted average units used in computing basic and diluted income per unit is as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net Income
$
424

 
$
772

 
$
760

 
$
993

Less: Income attributable to noncontrolling interest
183

 
474

 
207

 
411

Net Income, net of noncontrolling interest
241

 
298

 
553

 
582

Less: General Partner’s interest in income
1

 

 
2

 
1

Less: Convertible Unitholders’ interest in income
1

 

 
1

 

Less: Class D Unitholder’s interest in income

 

 

 
1

Income available to Limited Partners
$
239

 
$
298

 
$
550

 
$
580

Basic Income per Limited Partner Unit:
 
 
 
 
 
 
 
Weighted average limited partner units
1,048.9

 
1,076.0

 
1,046.9

 
1,077.2

Basic income per Limited Partner unit
$
0.23

 
$
0.28

 
$
0.53

 
$
0.54

Diluted Income per Limited Partner Unit:
 
 
 
 
 
 
 
Income available to Limited Partners
$
239

 
$
298

 
$
550

 
$
580

Dilutive effect of equity-based compensation of subsidiaries, distributions to Class D Unitholder and distributions to Convertible Unitholders
1

 
1

 
1

 
1

Diluted income available to Limited Partners
$
240

 
$
299

 
$
551

 
$
581

Weighted average limited partner units
1,048.9

 
1,076.0

 
1,046.9

 
1,077.2

Dilutive effect of unconverted unit awards and Convertible Units
14.9

 
1.6

 
5.6

 
1.8

Diluted weighted average limited partner units
1,063.8

 
1,077.6

 
1,052.5

 
1,079.0

Diluted income per Limited Partner unit
$
0.23

 
$
0.28

 
$
0.52

 
$
0.54

7.
DEBT OBLIGATIONS
Parent Company Indebtedness
The Parent Company’s indebtedness, including its senior notes, senior secured term loan and senior secured revolving credit facility, is secured by all of its and certain of its subsidiaries’ tangible and intangible assets.
Revolving Credit Facility
The Parent Company’s revolving credit facility has a capacity of $1.5 billion. As of June 30, 2016, there were $885 million outstanding borrowings under the Parent Company Credit Facility and the amount available for future borrowings was $615 million.
Subsidiary Indebtedness
ETP Senior Notes
Subsequent to the Regency Merger in 2015, ETP assumed $3.80 billion total aggregate principal amount of Regency’s senior notes, which remained outstanding as of June 30, 2016. These notes were previously guaranteed by certain consolidated subsidiaries that had previously been consolidated by Regency. The subsidiary guarantees on all of these outstanding notes have been released.

13


Sunoco Logistics Senior Notes
Sunoco Logistics had $175 million of 6.125% senior notes which matured and were repaid in May 2016, using borrowings under the $2.50 billion Sunoco Logistics Credit Facility.
In July 2016, Sunoco Logistics issued $550 million aggregate principal amount of 3.90% senior notes due in July 2026. The net proceeds from this offering were used to repay outstanding credit facility borrowings and for general partnership purposes.
Sunoco LP Term Loan and Senior Notes
In March 2016, Sunoco LP entered into a term loan agreement which provides secured financing in an aggregate principal amount of up to $2.035 billion due 2019. As of June 30, 2016, Sunoco LP had $1.2 billion outstanding under the term loan. Amounts borrowed under the term loan bear interest at either LIBOR or base rate plus an applicable margin based on Sunoco LP’s election for each interest period. The proceeds were used to fund a portion of the ETP dropdown and to pay fees and expenses incurred in connection with the ETP dropdown and the term loan.
In April 2016, Sunoco LP issued $800 million aggregate principal amount of 6.25% Senior Notes due 2021. The net proceeds of $789 million were used to repay a portion of the borrowings under its term loan facility.
ETP Credit Facility
The ETP Credit Facility allows for borrowings of up to $3.75 billion and expires in November 2019. The indebtedness under the ETP Credit Facility is unsecured, is not guaranteed by any of ETP’s subsidiaries and has equal rights to holders of ETP’s current and future unsecured debt. As of June 30, 2016, the ETP Credit Facility had $1.13 billion of outstanding borrowings.
Sunoco Logistics Credit Facilities
Sunoco Logistics maintains a $2.50 billion unsecured revolving credit agreement (the “Sunoco Logistics Credit Facility”), which matures in March 2020. The Sunoco Logistics Credit Facility contains an accordion feature, under which the total aggregate commitment may be increased to $3.25 billion under certain conditions. As of June 30, 2016, the Sunoco Logistics Credit Facility had $1.26 billion of outstanding borrowings.
Sunoco LP Credit Facility
Sunoco LP maintains a $1.5 billion revolving credit facility (the “Sunoco LP Credit Facility”), which expires in September 2019. The Sunoco LP Credit Facility can be increased from time to time upon Sunoco LP’s written request, subject to certain conditions, up to an additional $250 million. As of June 30, 2016, the Sunoco LP Credit Facility had $675 million of outstanding borrowings and $22 million in standby letters of credit.
Bakken Financing
In August 2016, ETP, Sunoco Logistics and Phillips 66 announced the completion of the project-level financing of the Dakota Access Pipeline and Energy Transfer Crude Oil Pipeline projects (collectively, the “Bakken Pipeline”). The $2.50 billion facility is anticipated to provide substantially all of the remaining capital necessary to complete the projects.
Compliance with Our Covenants
We and our subsidiaries were in compliance with all requirements, tests, limitations, and covenants related to our respective credit agreements as of June 30, 2016.
8.
EQUITY
ETE
The changes in ETE common units and Convertible Units during the six months ended June 30, 2016 were as follows:
 
Number of Convertible Units
 
Number of Common Units
Outstanding at December 31, 2015

 
1,044.8

Issuance of Series A Convertible Preferred Units
329.3

 

Outstanding at June 30, 2016
329.3

 
1,044.8


14


Series A Convertible Preferred Units
On March 8, 2016, the Partnership completed a private offering of 329.3 million Series A Convertible Preferred Units representing limited partner interests in the Partnership (the “Convertible Units”) to certain common unitholders (“Electing Unitholders”) who elected to participate in a plan to forgo a portion of their future potential cash distributions on common units participating in the plan for a period of up to nine fiscal quarters, commencing with distributions for the fiscal quarter ended March 31, 2016, and reinvest those distributions in the Convertible Units. With respect to each quarter for which the declaration date and record date occurs prior to the closing of the merger, or earlier termination of the merger agreement (the “WMB End Date”), each participating common unit will receive the same cash distribution as all other ETE common units up to $0.11 per unit, which represents approximately 40% of the per unit distribution paid with respect to ETE common units for the quarter ended December 31, 2015 (the “Preferred Distribution Amount”), and the holder of such participating common unit will forgo all cash distributions in excess of that amount (other than (i) any non-cash distribution or (ii) any cash distribution that is materially and substantially greater, on a per unit basis, than ETE’s most recent regular quarterly distribution, as determined by the ETE general partner (such distributions in clauses (i) and (ii), “Extraordinary Distributions”)). With respect to each quarter for which the declaration date and record date occurs after the WMB End Date, each participating common unit will forgo all distributions for each such quarter (other than Extraordinary Distributions), and each Convertible Unit will receive the Preferred Distribution Amount payable in cash prior to any distribution on ETE common units (other than Extraordinary Distributions). At the end of the plan period, which is expected to be May 18, 2018, the Convertible Units are expected to automatically convert into common units based on the Conversion Value (as defined and described below) of the Convertible Units and a conversion rate of $6.56.
The conversion value of each Convertible Unit (the “Conversion Value”) on the closing date of the offering is zero. The Conversion Value will increase each quarter in an amount equal to $0.285, which is the per unit amount of the cash distribution paid with respect to ETE common units for the quarter ended December 31, 2015 (the “Conversion Value Cap”), less the cash distribution actually paid with respect to each Convertible Unit for such quarter (or, if prior to the WMB End Date, each participating common unit). Any cash distributions in excess of $0.285 per ETE common unit, and any Extraordinary Distributions, made with respect to any quarter during the plan period will be disregarded for purposes of calculating the Conversion Value. The Conversion Value will be reflected in the carrying amount of the Convertible Units until the conversion into common units at the end of the plan period. The Convertible Units had $59 million carrying value as of June 30, 2016.
ETE issued 329,299,267 Convertible Units to the Electing Unitholders at the closing of the offering, which represents the participation by common unitholders with respect to approximately 31.5% of ETE’s total outstanding common units. ETE’s Chairman, Kelcy L. Warren, participated in the Plan with respect to substantially all of his common units, which represent approximately 18% of ETE’s total outstanding common units, and was issued 187,313,942 Convertible Units. In addition, John McReynolds, a director of our general partner and President of our general partner; and Matthew S. Ramsey, a director of our general partner and the general partner of ETP and Sunoco LP and President of the general partner of ETP, participated in the Plan with respect to substantially all of their common units, and Marshall S. McCrea, III, a director of our general partner and the general partner of ETP and Sunoco Logistics and the Group Chief Operating Officer and Chief Commercial Officer of our general partner, participated in the Plan with respect to a substantial portion of his common units. The common units for which Messrs. McReynolds, Ramsey and McCrea elected to participate in the Plan collectively represent approximately 2.2% of ETE’s total outstanding common units. ETE issued 21,382,155 Convertible Units to Mr. McReynolds, 51,317 Convertible Units to Mr. Ramsey and 1,112,728 Convertible Units to Mr. McCrea. Mr. Ray Davis, who owns an 18.8% membership interest in our general partner, participated in the Plan with respect to substantially all of his ETE common units, which represents approximately 6.9% of ETE’s total outstanding common units, and was issued 72,042,486 Convertible Units. Other than Mr. Davis, no other Electing Unitholder owns a material amount of equity securities of ETE or its affiliates.
Repurchase Program
During the six months ended June 30, 2016, ETE did not repurchase any ETE common units under its current buyback program. As of June 30, 2016, $936 million remained available to repurchase under the current program.
Subsidiary Common Unit Transactions
The Parent Company accounts for the difference between the carrying amount of its investment in ETP and Sunoco LP and the underlying book value arising from the issuance or redemption of units by ETP and Sunoco LP (excluding transactions with the Parent Company) as capital transactions. As a result of these transactions, during the six months ended June 30, 2016, we recognized decreases in partners’ capital of $12 million.

15


ETP Common Unit Transactions
During the six months ended June 30, 2016, ETP received proceeds of $324 million, net of $3 million commissions, from the issuance of common units pursuant to equity distribution agreements, which were used for general partnership purposes. As of June 30, 2016, approximately none of ETP’s common units were available to be issued under an equity distribution agreement. In July 2016, the Partnership entered into an equity distribution agreement with an aggregate offering price up to $1.50 billion.
During the six months ended June 30, 2016, distributions of $84 million were reinvested under ETP’s distribution reinvestment plan resulting in the issuance of 3.1 million common units. As of June 30, 2016, a total of 8.4 million common units remain available to be issued under the existing registration statement in connection with the distribution reinvestment plan.
Sunoco Logistics Common Unit Transactions
During the six months ended June 30, 2016, Sunoco Logistics received proceeds of $667 million, net of commissions of $7 million, from the issuance of Sunoco Logistics common units pursuant to equity distribution agreements, which were used for general partnership purposes.
Sunoco LP Common Unit Transactions
In January 2016, Sunoco LP issued 16.4 million Class C units representing limited partner interest consisting of (i) 5.2 million Class C Units issued by Sunoco LP to Aloha as consideration for the contribution by Aloha to an indirect wholly-owned subsidiary, and (ii) 11.2 million Class C Units that were issued by Sunoco LP to its indirect wholly-owned subsidiaries in exchange for all of the outstanding Class A Units held by such subsidiaries.
In March 2016, ETP contributed to Sunoco LP its remaining 68.42% interest in Sunoco, LLC and 100% interest in the legacy Sunoco, Inc. retail business for $2.23 billion. Sunoco LP paid $2.20 billion in cash, including a working capital adjustment, and issued 5.7 million Sunoco LP common units to Retail Holdings, a wholly-owned subsidiary of ETP.
On March 31, 2016, Sunoco LP sold 2.3 million of Sunoco LP’s common units in a private placement to the Partnership.
Bakken Equity Sale
In August 2016, ETP and Sunoco Logistics announced they have signed an agreement to sell 36.75% of the Bakken Pipeline project to MarEn Bakken Company LLC, an entity jointly owned by Enbridge Energy Partners, L.P. and Marathon Petroleum Corporation, for $2.00 billion in cash. The sale is expected to close in the third quarter of 2016, subject to certain closing conditions. ETP and Sunoco Logistics will receive $1.20 billion and $800 million in cash at closing, respectively, and will own a combined 38.25% of the Bakken Pipeline project.
Parent Company Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by us subsequent to December 31, 2015:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2015
 
February 4, 2016
 
February 19, 2016
 
$
0.2850

March 31, 2016
 
May 6, 2016
 
May 19, 2016
 
0.2850

June 30, 2016
 
August 8, 2016
 
August 19, 2016
 
0.2850

ETP Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by ETP subsequent to December 31, 2015:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2015
 
February 8, 2016
 
February 16, 2016
 
$
1.0550

March 31, 2016
 
May 6, 2016
 
May 16, 2016
 
1.0550

June 30, 2016
 
August 8, 2016
 
August 15, 2016
 
1.0550


16


In July 2016, ETE agreed to relinquish incentive distributions over seven quarters, beginning with $75 million for the quarter ended June 30, 2016. ETE has also previously agreed to relinquish additional incentive distributions. In the aggregate, including relinquishment agreed to in July 2016, ETE has agreed to relinquish its right to the following amounts of incentive distributions in future periods, including distributions on Class I Units.
 
 
Total Year
2016 (remainder)
 
$
249

2017
 
593

2018
 
105

2019
 
95

Sunoco Logistics Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Sunoco Logistics subsequent to December 31, 2015:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2015
 
February 8, 2016
 
February 12, 2016
 
$
0.4790

March 31, 2016
 
May 9, 2016
 
May 13, 2016
 
0.4890

June 30, 2016
 
August 8, 2016
 
August 12, 2016
 
0.5000

Sunoco LP Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Sunoco LP subsequent to December 31, 2015:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2015
 
February 5, 2016
 
February 16, 2016
 
$
0.8013

March 31, 2016
 
May 6, 2016
 
May 16, 2016
 
0.8173

June 30, 2016
 
August 5, 2016
 
August 15, 2016
 
0.8255

Accumulated Other Comprehensive Income
The following table presents the components of AOCI, net of tax:
 
June 30, 2016
 
December 31, 2015
Available-for-sale securities
$
5

 
$

Foreign currency translation adjustment
(5
)
 
(4
)
Actuarial loss related to pensions and other postretirement benefits
5

 
8

Investments in unconsolidated affiliates, net
(11
)
 

Subtotal
(6
)
 
4

Amounts attributable to noncontrolling interest
6

 
(4
)
Total AOCI, net of tax
$

 
$

9.
INCOME TAXES
For the three and six months ended June 30, 2016, the Partnership’s income tax benefit primarily resulted from losses among the Partnership’s consolidated corporate subsidiaries. Also, for the three months ended June 30, 2015, the Partnership income tax expense was favorably impacted by $11 million due to a reduction in the statutory Texas franchise tax rate which was enacted by the Texas legislature during the second quarter of 2015.


17


10.
REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES
Contingent Residual Support Agreement – AmeriGas
In connection with the closing of the contribution of its propane operations in January 2012, ETP agreed to provide contingent, residual support of $1.55 billion of intercompany borrowings made by AmeriGas and certain of its affiliates with maturities through 2022 from a finance subsidiary of AmeriGas that have maturity dates and repayment terms that mirror those of an equal principal amount of senior notes issued by this finance company subsidiary to third party purchasers. In June 2016, AmeriGas repurchased certain of its senior notes, which caused a reduction in the amount supported by ETP under the contingent residual support agreement.  As of June 30, 2016, ETP continued to provide contingent, residual support of approximately $1 billion of borrowings.
ETP Retail Holdings Guarantee of Sunoco LP Notes
Retail Holdings has provided a guarantee of collection, but not of payment, to Sunoco LP with respect to (i) $800 million principal amount of 6.375% senior notes due 2023 issued by Sunoco LP, (ii) $800 million principal amount of 6.25% senior notes due 2021 issued by Sunoco LP and (iii) $2.035 billion of borrowings outstanding under Sunoco LP’s Term Loan.
NGL Pipeline Regulation
ETP has interests in NGL pipelines located in Texas and New Mexico. ETP commenced the interstate transportation of NGLs in 2013, which is subject to the jurisdiction of the FERC under the Interstate Commerce Act (“ICA”) and the Energy Policy Act of 1992. Under the ICA, tariff rates must be just and reasonable and not unduly discriminatory and pipelines may not confer any undue preference. The tariff rates established for interstate services were based on a negotiated agreement; however, the FERC’s rate-making methodologies may limit ETP’s ability to set rates based on our actual costs, may delay or limit the use of rates that reflect increased costs and may subject us to potentially burdensome and expensive operational, reporting and other requirements. Any of the foregoing could adversely affect ETP’s business, revenues and cash flow.
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.
Commitments
In the normal course of our business, we purchase, process and sell natural gas pursuant to long-term contracts and we enter into long-term transportation and storage agreements.  Such contracts contain terms that are customary in the industry.  We believe that the terms of these agreements are commercially reasonable and will not have a material adverse effect on our financial position or results of operations.
We have certain non-cancelable leases for property and equipment, which require fixed monthly rental payments and expire at various dates through 2058.  The table below reflects rental expense under these operating leases included in operating expenses in the accompanying statements of operations, which include contingent rentals, and rental expense recovered through related sublease rental income:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Rental expense(1)
$
57

 
$
54

 
$
108

 
$
106

Less: Sublease rental income
(5
)
 
(4
)
 
(12
)
 
(12
)
Rental expense, net
$
52

 
$
50

 
$
96

 
$
94

(1) 
Includes contingent rentals totaling $7 million and $6 million for the three months ended June 30, 2016 and 2015, respectively, and $9 million and $10 million for the six months ended June 30, 2016 and 2015, respectively.
Certain of our subsidiaries’ joint venture agreements require that they fund their proportionate shares of capital contributions to their unconsolidated affiliates.  Such contributions will depend upon their unconsolidated affiliates’ capital requirements, such as for funding capital projects or repayment of long-term obligations.

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Litigation and Contingencies
We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business.  Natural gas and crude oil are flammable and combustible.  Serious personal injury and significant property damage can arise in connection with their transportation, storage or use.  In the ordinary course of business, we are sometimes threatened with or named as a defendant in various lawsuits seeking actual and punitive damages for product liability, personal injury and property damage.  We maintain liability insurance with insurers in amounts and with coverage and deductibles management believes are reasonable and prudent, and which are generally accepted in the industry.  However, there can be no assurance that the levels of insurance protection currently in effect will continue to be available at reasonable prices or that such levels will remain adequate to protect us from material expenses related to product liability, personal injury or property damage in the future.
Mont Belvieu Incident 
On June 26, 2016, a subsurface release of hydrocarbons and water, and a subsequent fire, occurred at Lone Star’s South Terminal.  All employees and contractors were accounted for, and there were no injuries. The cause of the fire and evaluation of possible damages is currently under investigation.
MTBE Litigation
Sunoco, Inc., along with other refiners, manufacturers and sellers of gasoline, is a defendant in lawsuits alleging MTBE contamination of groundwater.  The plaintiffs typically include water purveyors and municipalities responsible for supplying drinking water and governmental authorities.  The plaintiffs primarily assert product liability claims and additional claims including nuisance, trespass, negligence, violation of environmental laws and deceptive business practices.  The plaintiffs in all of the cases seek to recover compensatory damages, and in some cases also seek natural resource damages, injunctive relief, punitive damages and attorneys’ fees.
As of June 30, 2016, Sunoco, Inc. is a defendant in five cases, including cases initiated by the States of New Jersey, Vermont, Pennsylvania, and two others by the Commonwealth of Puerto Rico with the more recent Puerto Rico action being a companion case alleging damages for additional sites beyond those at issue in the initial Puerto Rico action. Four of these cases are venued in a multidistrict litigation proceeding in a New York federal court. The New Jersey, Puerto Rico, Vermont, and Pennsylvania cases assert natural resource damage claims.
Fact discovery has concluded with respect to an initial set of 19 sites each that will be the subject of the first trial phase in the New Jersey case and the initial Puerto Rico case. The initial set of 19 New Jersey trial sites are now pending before the United States District Judge for the District of New Jersey, the Hon. Freda L. Wolfson for the pre-trial and trial phases. Judge Wolfson then referred the case to United States Magistrate Judge for the District of New Jersey, the Hon. Lois H. Goodman. Judge Goodman conducted a status conference with all of the parties and inquired whether the parties will engage in a global mediation and instructed the parties to exchange possible mediator names. Sunoco informed Judge Goodman it is open to participating in global settlement discussions in a global mediation forum. The remaining portion of the New Jersey case remains in the MDL. It is reasonably possible that a loss may be realized; however, we are unable to estimate the possible loss or range of loss in excess of amounts accrued. Management believes that an adverse determination with respect to one or more of the MTBE cases could have a significant impact on results of operations during the period in which any said adverse determination occurs, but does not believe that any such adverse determination would have a material adverse effect on the Partnership’s consolidated financial position.
Regency Merger Litigation
Following the January 26, 2015 announcement of the Regency Merger, purported Regency unitholders filed lawsuits in state and federal courts in Dallas and Delaware asserting claims relating to the Regency Merger. All Regency Merger-related lawsuits have been dismissed, although one lawsuit remains pending on appeal. On June 10, 2015, Adrian Dieckman (“Dieckman”), a purported Regency unitholder, filed a class action complaint on behalf of Regency’s common unitholders in the Court of Chancery of the State of Delaware. The lawsuit alleges that the Regency Merger breached the Regency partnership agreement because Regency’s conflicts committee was not properly formed, and the Regency Merger was not approved in good faith. Defendants filed a motion to dismiss, and on March 29, 2016, the Delaware court granted Defendants’ motion and dismissed the lawsuit. On April 26, 2016, Dieckman filed his Notice of Appeal to the Supreme Court of Delaware. This appeal is styled Adrian Dieckman v. Regency GP LP, et al., No. 208, 2016, in the Supreme Court of the State of Delaware. Dieckman filed his Opening Brief on June 9, 2016, and Defendants’ Answering Brief is currently due on July 29, 2016.

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Jamie Welch Litigation
On March 10, 2016, Jamie Welch (“Welch”) filed an original petition against ETE and LE GP, LLC (“LE GP”) in Texas state court in Dallas. Welch alleges that Defendants 1) breached their contractual obligation to deliver and convert Welch’s Class D units upon termination; 2) failed to deliver long term incentive shares awarded to Welch; 3) failed to pay Welch’s 2015 bonus; 4) breached their obligation to grant Welch an interest in the Lake Charles LNG project; and 5) breached their obligation to pay Welch his severance. Welch brings claims for breach of contract and quantum meruit. On April 12, 2016, Defendants removed Welch’s lawsuit from state court to federal court in Dallas pursuant to 28 U.S.C. §§ 1441 and 1446. On April 29, 2016, Welch filed an amended complaint and removed his claim for payment of severance benefits.
Enterprise Products Partners, L.P. and Enterprise Products Operating LLC Litigation
On January 27, 2014, a trial commenced between ETP against Enterprise Products Partners, L.P. and Enterprise Products Operating LLC (collectively, “Enterprise”) and Enbridge (US) Inc.  Trial resulted in a verdict in favor of ETP against Enterprise that consisted of $319 million in compensatory damages and $595 million in disgorgement to ETP.  The jury also found that ETP owed Enterprise approximately $1 million under a reimbursement agreement.  On July 29, 2014, the trial court entered a final judgment in favor of ETP and awarded ETP $536 million, consisting of compensatory damages, disgorgement, and pre-judgment interest.  The trial court also ordered that ETP shall be entitled to recover post-judgment interest and costs of court and that Enterprise is not entitled to any net recovery on its counterclaims.  Enterprise has filed a notice of appeal with the Texas Court of Appeals, and briefing by Enterprise and ETP is complete. Oral argument was held on April 20, 2016. The Court of Appeals is taking the briefs under advisement. In accordance with GAAP, no amounts related to the original verdict or the July 29, 2014 final judgment will be recorded in our financial statements until the appeal process is completed.
Litigation Filed By or Against WMB
On April 6, 2016, WMB filed a complaint against ETE and LE GP in the Delaware Court of Chancery (the “First Delaware WMB Litigation”). This lawsuit is styled The Williams Companies, Inc. v. Energy Transfer Equity, L.P., et al., C.A. No. 12168-VCG. WMB alleged that Defendants breached the merger agreement between WMB, ETE, and several of ETE’s affiliates (the “Merger Agreement”) by issuing ETE’s Series A Convertible Preferred Units (the “Convertible Units”). According to WMB, the issuance of Convertible Units (the “Issuance”) violates various contractual restrictions on ETE’s actions between the execution and closing of the merger. WMB sought, among other things, to (a) rescind the Issuance and (b) invalidate an amendment to ETE’s partnership agreement that was adopted on March 8, 2016 as part of the Issuance.
During a hearing on April 14, 2016, the Court granted WMB’s request to expedite the case and set a permanent injunction hearing for June 15, 2016.
On the same day that it filed the First Delaware WMB Litigation, WMB also filed a petition against Mr. Warren individually in the District Court of Dallas County, Texas (the “Texas WMB Litigation”). This lawsuit is styled The Williams Companies, Inc. v. Kelcy L. Warren, C.A. No. DC-16-03941. Mr. Warren sought dismissal of this lawsuit on the ground that WMB violated the Merger Agreement’s mandatory forum selection clause by filing the Texas WMB Litigation in Texas and not Delaware. On May 25, 2016, the Dallas court granted Mr. Warren’s motion and dismissed the Texas WMB Litigation without prejudice.
On May 3, 2016, ETE and LE GP filed an answer and counterclaim in the First Delaware WMB Litigation. The counterclaim asserts in general that WMB materially breached its obligations under the Merger Agreement by (a) blocking ETE’s attempts to complete a public offering of the Convertible Units, including, among other things, by declining to allow WMB’s independent registered public accounting firm to provide the auditor consent required to be included in the registration statement for a public offering and (b) bringing the Texas WMB Litigation against Mr. Warren in the District Court of Dallas County, Texas.
On May 13, 2016, WMB filed a second lawsuit in the Delaware Court of Chancery against ETE and LE GP and added Energy Transfer Corp LP, ETE Corp GP, LLC, and Energy Transfer Equity GP, LLC as additional defendants (the “Second Delaware WMB Litigation”). This lawsuit is styled The Williams Companies, Inc. v. Energy Transfer Equity, L.P., et al., C.A. No. 12337-VCG. In general, WMB alleged that the defendants breached the Merger Agreement by (a) failing to use commercially reasonable efforts to obtain from Latham & Watkins LLP (“Latham”) the delivery of a tax opinion under Section 721 of the Tax Code (“721 Opinion”), a condition precedent to the closing of the merger, and (b) taking actions that allegedly delayed the SEC in declaring the Form S-4 filed in connection with the merger (the “Form S-4”) effective. WMB asked the Court, in general, to (a) issue a declaratory judgment that ETE breached the Merger Agreement, (b) enjoin ETE from terminating the Merger Agreement on the basis that it failed to obtain a 721 Opinion, (c) enjoin ETE from terminating the Merger Agreement on the basis that the transaction failed to close by the outside date, and (d) force ETE to close the merger or take various other affirmative actions. WMB sought to expedite the second lawsuit, and ETE agreed to expedite both Delaware actions.

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ETE also filed an answer and counterclaim in the Second Delaware WMB Litigation. In addition to the counterclaims previously asserted, ETE asserted that WMB materially breached the Merger Agreement by, among other things, (a) modifying or qualifying the WMB board of directors’ recommendation to its stockholders regarding the merger, (b) failing to provide material information to ETE for inclusion in the Form S-4 related to the merger necessary to prevent the Form S-4 from being materially misleading, (c) failing to facilitate the financing of the merger, (d) failing to be reasonable with respect to its withholding of its consent to ETE’s offering of Series A Convertible Preferred Units, and (e) failing to use its reasonable best efforts to consummate the merger. ETE sought, among other things, a declaration that it could validly terminate the Merger Agreement after June 28, 2016 in the event that Latham was unable to deliver the 721 Opinion on or prior to June 28, 2016.
After expedited discovery and a two-day trial on June 20 and 21, 2016, the Court ruled in favor of ETE and issued a declaratory judgment that ETE could terminate the merger after June 28, 2016 because of Latham’s inability to provide the required 721 Opinion. The Court also denied WMB’s requests for injunctive relief. WMB filed a notice of appeal to the Supreme Court of Delaware on June 27, 2016. The appeal is styled The Williams Companies, Inc. v. Energy Transfer Equity, L.P., et al., No. 330, 2016. WMB’s initial appellate brief is due on August 11, 2016.
ETE intends to pursue its counterclaims, including its claim that WMB modified or qualified its board recommendation, which would entitle ETE to a termination fee of $1.48 billion if ETE were successful in proving that claim. ETE also intends to seek damages for WMB’s other breaches of the Merger Agreement.
Litigation Relating to the WMB Merger
Between October 5, 2015, and December 24, 2015, purported WMB stockholders filed six putative class action lawsuits in the Delaware Court of Chancery challenging the merger. The suits are captioned Greenwald et al. v. The Williams Companies, Inc., et al., C.A. No. 11573-VCG; Ozaki v. Armstrong et al., C.A. No. 11574-VCG; Blystone v. The Williams Companies, Inc., et al., C.A. No. 11601-VCG; Glener et al. v. The Williams Companies, Inc., et al., C.A. No. 11606-VCG; Amaitis et al. v. Armstrong et al., C.A. No. 11809-VCG; and State-Boston Retirement System et al. v. Armstrong et al., C.A. No. 11844-VCG. The complaints assert various claims against the individual members of WMB’s board of directors; ETE, ETC, ETC GP, LE GP and ETE GP (the “ETE Defendants”); WMB; and others. On January 13, 2016, the Court consolidated these six actions into a new consolidated action captioned In re The Williams Companies, Inc. Merger Litigation, Consolidated C.A. No. 11844-VCG (the “Merger Litigation”). In its stipulated order, the Court dismissed without prejudice the ETE Defendants (among others) from the consolidated action.
On January 14, 2016, a purported WMB stockholder (“Bumgarner”) filed a putative class action lawsuit against WMB and ETE, captioned Bumgarner v. The Williams Companies, Inc., et al., Case No. 16-cv-26-GKF-FHM, in the United States District Court for the Northern District of Oklahoma. Bumgarner alleged that ETE and WMB violated Section 14 of the Securities Exchange Act of 1934 (the “Exchange Act”) by making allegedly false statements concerning the merger. As relief, the complaint sought an injunction against the proposed merger. On February 1, 2016, Bumgarner filed an amended complaint, making substantially the same allegations. On February 19, 2016, ETE and WMB moved to dismiss the amended complaint. Bumgarner moved for expedited discovery on April 21, 2016. On April 28, 2016, the Court granted the motion to dismiss and dismissed Bumgarner’s claims in their entirety with leave to amend. The Court also granted expedited proceedings. Bumgarner amended his complaint on May 12, 2016, and ETE and WMB again moved to dismiss. The Court granted the motion in part and denied it in part on May 26, 2016, and Bumgarner amended his complaint the same day. Following a motion to reconsider filed by ETE and WMB, the Court revised its Order on the motion to dismiss on June 3, 2016. Bumgarner filed a second motion for a preliminary injunction on June 10, 2016. On June 16, 2016, the parties reached a settlement agreement, and Bumgarner withdrew his motion for a preliminary injunction. Pursuant to the agreement, WMB issued a press release and agreed to provide an updated disclosure to its proxy statement in connection with the merger. WMB also agreed to pay Bumgarner’s attorney fees. On July 28, 2016, Bumgarner’s claim was dismissed with prejudice.
On January 19, 2016, The City of Birmingham Retirement and Relief System (“CBRRS”), a purported shareholder of WMB, filed a putative class action lawsuit against the members of WMB’s board of directors, WMB, ETE, ETC, ETC GP, LE GP, and ETE GP challenging the merger and the disclosures made in connection with the merger. The lawsuit was styled City of Birmingham Retirement and Relief System v. Alan S. Armstrong, et al., C.A. No. 16-17-RGA, in the United States District Court for the District of Delaware. CBRRS alleged violations of Section 14(a) and 20(a) of the Exchange Act among other claims. CBRRS moved to expedite, and Defendants moved to dismiss the suit. The Court denied expedition. CBRRS voluntarily dismissed the suit on March 7, 2016.
Unitholder Litigation Relating to the Issuance
In April 2016, two purported ETE unitholders (the “Issuance Plaintiffs”) filed putative class action lawsuits against, Energy Transfer Equity, L.P. and LE GP, LLC, Kelcy Warren, John McReynolds, Marshall McCrea, Matthew Ramsey, Ted Collins, K. Rick Turner, William Williams, Ray Davis, and Richard Brannon in the Delaware Court of Chancery. These lawsuits have

21


been consolidated as In re Energy Transfer Equity, L.P. Unitholder Litigation, Consolidated C.A. No. 12197-VCG, in the Court of Chancery of the State of Delaware. One of the Issuance Plaintiffs had initially filed an action to inspect the books and records of ETE on April 11, 2016 but voluntarily dismissed the books and records action on April 22, 2016.
The Issuance Plaintiffs allege that the Issuance breached various provisions of ETE’s limited partnership agreement. The Issuance Plaintiffs seek, among other things, preliminary and permanent injunctive relief that (a) prevents ETE from making distributions to the Convertible Units and (b) invalidates an amendment to ETE’s partnership agreement that was adopted on March 8, 2016 as part of the issuance of Convertible Units.
One of the Issuance Plaintiffs moved for expedited proceedings. The Delaware Court of Chancery granted a Motion to Expedite filed by one of the Issuance Plaintiffs and stated that the injunction hearing should be held before any August 2016 distribution. Defendants intend to vigorously defend this consolidated lawsuit.
Other Litigation and Contingencies
We or our subsidiaries are a party to various legal proceedings and/or regulatory proceedings incidental to our businesses.  For each of these matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, the likelihood of an unfavorable outcome and the availability of insurance coverage.  If we determine that an unfavorable outcome of a particular matter is probable and can be estimated, we accrue the contingent obligation, as well as any expected insurance recoverable amounts related to the contingency.  As of June 30, 2016 and December 31, 2015, accruals of approximately $59 million and $40 million, respectively, were reflected on our balance sheets related to these contingent obligations.  As new information becomes available, our estimates may change.  The impact of these changes may have a significant effect on our results of operations in a single period.
The outcome of these matters cannot be predicted with certainty and there can be no assurance that the outcome of a particular matter will not result in the payment of amounts that have not been accrued for the matter.  Furthermore, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome. Currently, we are not able to estimate possible losses or a range of possible losses in excess of amounts accrued.
No amounts have been recorded in our June 30, 2016 or December 31, 2015 consolidated balance sheets for contingencies and current litigation, other than amounts disclosed herein.
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 approximately $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. Panhandle (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, Panhandle will continue to assess its potential exposure for such cost recoveries as the matter progresses.
Compliance Orders from the New Mexico Environmental Department
Regency received a Notice of Violation from the New Mexico Environmental Department on September 23, 2015 for allegations of violations of New Mexico air regulations related to Jal #3. The Partnership has accrued $250,000 related to the claims and will continue to assess its potential exposure to the allegations as the matter progresses.

22


Lone Star NGL Fractionators Notice of Enforcement
Lone Star NGL Fractionators received a Notice of Enforcement from the Texas Commission on Environmental Quality on August 28, 2015 for allegations of violations of Texas air regulations related to its Mont Belvieu Gas Plant. The Partnership has accrued $300,000 related to the claim. As of April 2016, the Agreed Order is in the approval process with the Texas Commission on Environmental Quality and includes a $21,000 penalty and a $21,000 Supplemental Environmental Project.
Environmental Matters
Our operations are subject to extensive federal, state and local environmental and safety laws and regulations that require expenditures to ensure compliance, including related to air emissions and wastewater discharges, at operating facilities and for remediation at current and former facilities as well as waste disposal sites.  Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in the business of transporting, storing, gathering, treating, compressing, blending and processing natural gas, natural gas liquids and other products.  As a result, there can be no assurance that significant costs and liabilities will not be incurred.  Costs of planning, designing, constructing and operating pipelines, plants and other facilities must incorporate compliance with environmental laws and regulations and safety standards.  Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the issuance of injunctions and the filing of federally authorized citizen suits.  Contingent losses related to all significant known environmental matters have been accrued and/or separately disclosed. However, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome.
Environmental exposures and liabilities are difficult to assess and estimate due to unknown factors such as the magnitude of possible contamination, the timing and extent of remediation, the determination of our liability in proportion to other parties, improvements in cleanup technologies and the extent to which environmental laws and regulations may change in the future.  Although environmental costs may have a significant impact on the results of operations for any single period, we believe that such costs will not have a material adverse effect on our financial position.
Based on information available at this time and reviews undertaken to identify potential exposure, we believe the amount reserved for environmental matters is adequate to cover the potential exposure for cleanup costs.
Environmental Remediation
Our subsidiaries are responsible for environmental remediation at certain sites, including the following:
Certain of our interstate pipelines conduct soil and groundwater remediation related to contamination from past uses of PCBs.  PCB assessments are ongoing and, in some cases, our subsidiaries could potentially be held responsible for contamination caused by other parties.
Certain gathering and processing systems are responsible for soil and groundwater remediation related to releases of hydrocarbons.
Currently operating Sunoco, Inc. retail sites.
Legacy sites related to Sunoco, Inc., that are subject to environmental assessments include formerly owned terminals and other logistics assets, retail sites that Sunoco, Inc. no longer operates, closed and/or sold refineries and other formerly owned sites.
Sunoco, Inc. is potentially subject to joint and several liability for the costs of remediation at sites at which it has been identified as a potentially responsible party (“PRP”).  As of June 30, 2016, Sunoco, Inc. had been named as a PRP at approximately 49 identified or potentially identifiable “Superfund” sites under federal and/or comparable state law.  Sunoco, Inc. is usually one of a number of companies identified as a PRP at a site.  Sunoco, Inc. has reviewed the nature and extent of its involvement at each site and other relevant circumstances and, based upon Sunoco, Inc.’s purported nexus to the sites, believes that its potential liability associated with such sites will not be significant.
To the extent estimable, expected remediation costs are included in the amounts recorded for environmental matters in our consolidated balance sheets.  In some circumstances, future costs cannot be reasonably estimated because remediation activities are undertaken as claims are made by customers and former customers.  To the extent that an environmental remediation obligation is recorded by a subsidiary that applies regulatory accounting policies, amounts that are expected to be recoverable through tariffs or rates are recorded as regulatory assets on our consolidated balance sheets.

23


The table below reflects the amounts of accrued liabilities recorded in our consolidated balance sheets related to environmental matters that are considered to be probable and reasonably estimable.  Currently, we are not able to estimate possible losses or a range of possible losses in excess of amounts accrued. Except for matters discussed above, we do not have any material environmental matters assessed as reasonably possible that would require disclosure in our consolidated financial statements.
 
June 30, 2016
 
December 31, 2015
Current
$
42

 
$
42

Non-current
323

 
326

Total environmental liabilities
$
365

 
$
368

In 2013, we established a wholly-owned captive insurance company to bear certain risks associated with environmental obligations related to certain sites that are no longer operating. The premiums paid to the captive insurance company include estimates for environmental claims that have been incurred but not reported, based on an actuarially determined fully developed claims expense estimate. In such cases, we accrue losses attributable to unasserted claims based on the discounted estimates that are used to develop the premiums paid to the captive insurance company.
During the three months ended June 30, 2016 and 2015, Sunoco, Inc. and Sunoco LP collectively recorded $11 million and $11 million, respectively, of expenditures related to environmental cleanup programs. During the six months ended June 30, 2016 and 2015, Sunoco, Inc. and Sunoco LP recorded $19 million and $18 million, respectively, of expenditures related to environmental cleanup programs.
On December 2, 2010, Sunoco, Inc. entered an Asset Sale and Purchase Agreement to sell the Toledo Refinery to Toledo Refining Company LLC (“TRC”) wherein Sunoco, Inc. retained certain liabilities associated with the pre-Closing time period.  On January 2, 2013, USEPA issued a Finding of Violation (“FOV”) to TRC and, on September 30, 2013, EPA issued an NOV/FOV to TRC alleging Clean Air Act violations.  To date, EPA has not issued an FOV or NOV/FOV to Sunoco, Inc. directly but some of EPA’s claims relate to the time period that Sunoco, Inc. operated the refinery.  Specifically, EPA has claimed that the refinery flares were not operated in a manner consistent with good air pollution control practice for minimizing emissions and/or in conformance with their design, and that Sunoco, Inc. submitted semi-annual compliance reports in 2010 and 2011 that failed to include all of the information required by the regulations. EPA has proposed penalties in excess of $200,000 to resolve the allegations and discussions continue between the parties. The timing or outcome of this matter cannot be reasonably determined at this time, however, we do not expect there to be a material impact to our results of operations, cash flows or financial position.
Our pipeline operations are subject to regulation by the U.S. Department of Transportation under the PHMSA, pursuant to which the PHMSA has established requirements relating to the design, installation, testing, construction, operation, replacement and management of pipeline facilities.  Moreover, the PHMSA, through the Office of Pipeline Safety, has promulgated a rule requiring pipeline operators to develop integrity management programs to comprehensively evaluate their pipelines, and take measures to protect pipeline segments located in what the rule refers to as “high consequence areas.”  Activities under these integrity management programs involve the performance of internal pipeline inspections, pressure testing or other effective means to assess the integrity of these regulated pipeline segments, and the regulations require prompt action to address integrity issues raised by the assessment and analysis.  Integrity testing and assessment of all of these assets will continue, and the potential exists that results of such testing and assessment could cause us to incur future capital and operating expenditures for repairs or upgrades deemed necessary to ensure the continued safe and reliable operation of our pipelines; however, no estimate can be made at this time of the likely range of such expenditures.
In January 2012, Sunoco Logistics experienced a release on its products pipeline in Wellington, Ohio. In connection with this release, the PHMSA issued a Corrective Action Order under which Sunoco Logistics is obligated to follow specific requirements in the investigation of the release and the repair and reactivation of the pipeline. Sunoco Logistics also entered into an Order on Consent with the EPA regarding the environmental remediation of the release site. All requirements of the Order on Consent with the EPA have been fulfilled and the Order has been satisfied and closed. Sunoco Logistics has also received a "No Further Action" approval from the Ohio EPA for all soil and groundwater remediation requirements. In May 2016, Sunoco Logistics received a proposed penalty from the EPA and U.S. Department of Justice associated with this release, and continues to work with the involved parties to bring this matter to closure. The timing and outcome of this matter cannot be reasonably determined at this time. However, Sunoco Logistics does not expect there to be a material impact to its results of operations, cash flows or financial position.
Our operations are also subject to the requirements of the OSHA, and comparable state laws that regulate the protection of the health and safety of employees.  In addition, OSHA’s hazardous communication standard requires that information be

24


maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and citizens.  We believe that our operations are in substantial compliance with the OSHA requirements, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances.
11.
DERIVATIVE ASSETS AND LIABILITIES
Commodity Price Risk
We are exposed to market risks related to the volatility of commodity prices. To manage the impact of volatility from these prices, our subsidiaries utilize various exchange-traded and OTC commodity financial instrument contracts. These contracts consist primarily of futures, swaps and options and are recorded at fair value in our consolidated balance sheets.
We use futures and basis swaps, designated as fair value hedges, to hedge our natural gas inventory stored in our Bammel storage facility. At hedge inception, we lock in a margin by purchasing gas in the spot market or off peak season and entering into a financial contract. Changes in the spreads between the forward natural gas prices and the physical inventory spot price result in unrealized gains or losses until the underlying physical gas is withdrawn and the related designated derivatives are settled. Once the gas is withdrawn and the designated derivatives are settled, the previously unrealized gains or losses associated with these positions are realized.
We use futures, swaps and options to hedge the sales price of natural gas we retain for fees in our intrastate transportation and storage segment and operational gas sales on our interstate transportation and storage segment. These contracts are not designated as hedges for accounting purposes.
We use NGL and crude derivative swap contracts to hedge forecasted sales of NGL and condensate equity volumes we retain for fees in our midstream segment whereby our subsidiaries generally 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 for the residue gas and NGL. These contracts are not designated as hedges for accounting purposes.
We use derivatives in our liquids transportation and services segment to manage our storage facilities and the purchase and sale of purity NGL. These contracts are not designated as hedges for accounting purposes.
Sunoco Logistics utilizes swaps, futures and other derivative instruments to mitigate the risk associated with market movements in the price of refined products and NGLs. These contracts are not designated as hedges for accounting purposes.
We use futures and swaps to achieve ratable pricing of crude oil purchases, to convert certain expected refined product sales to fixed or floating prices, to lock in margins for certain refined products and to lock in the price of a portion of natural gas purchases or sales and transportation costs in our retail marketing segment. These contracts are not designated as hedges for accounting purposes.
We use financial commodity derivatives to take advantage of market opportunities in our trading activities which complement our transportation and storage segment’s operations and are netted in cost of products sold in our consolidated statements of operations. We also have trading and marketing activities related to power and natural gas in our all other segment which are also netted in cost of products sold. As a result of our trading activities and the use of derivative financial instruments in our transportation and storage segment, the degree of earnings volatility that can occur may be significant, favorably or unfavorably, from period to period. We attempt to manage this volatility through the use of daily position and profit and loss reports provided to our risk oversight committee, which includes members of senior management, and the limits and authorizations set forth in our commodity risk management policy.

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The following table details our outstanding commodity-related derivatives:
 
June 30, 2016
 
December 31, 2015
 
Notional
Volume
 
Maturity
 
Notional
Volume
 
Maturity
Mark-to-Market Derivatives
 
 
 
 
 
 
 
(Trading)
 
 
 
 
 
 
 
Natural Gas (MMBtu):
 
 
 
 
 
 
 
Fixed Swaps/Futures
5,825,000

 
2016-2017
 
(602,500
)
 
2016-2017
Basis Swaps IFERC/NYMEX (1)
7,920,000

 
2016-2017
 
(31,240,000
)
 
2016-2017
Power (Megawatt):
 
 
 
 
 
 
 
Forwards
272,164

 
2016-2017
 
357,092

 
2016-2017
Futures
(320,257
)
 
2016-2017
 
(109,791
)
 
2016
Options — Puts
(424,000
)
 
2016
 
260,534

 
2016
Options — Calls
696,000

 
2016
 
1,300,647

 
2016
Crude (Bbls):
 
 
 
 
 
 
 
Futures
(222,000
)
 
2016-2017
 
(591,000
)
 
2016-2017
(Non-Trading)
 
 
 
 
 
 
 
Natural Gas (MMBtu):
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(522,500
)
 
2016-2017
 
(6,522,500
)
 
2016-2017
Swing Swaps IFERC
34,465,000

 
2016-2017
 
71,340,000

 
2016-2017
Fixed Swaps/Futures
(3,835,000
)
 
2016-2018
 
(14,380,000
)
 
2016-2018
Forward Physical Contracts
3,838,458

 
2016-2017
 
21,922,484

 
2016-2017
Natural Gas Liquid and Crude (Bbls) — Forwards/Swaps
(10,443,400
)
 
2016
 
(8,146,800
)
 
2016-2018
Refined Products (Bbls) — Futures
(1,784,000
)
 
2016-2017
 
(1,289,000
)
 
2016-2017
Corn (Bushels) — Futures
(1,635,000
)
 
2016
 
1,185,000

 
2016
Fair Value Hedging Derivatives
 
 
 
 
 
 
 
(Non-Trading)
 
 
 
 
 
 
 
Natural Gas (MMBtu):