PANHANDLE EASTERN PIPE LINE COMPANY, LP - FORM 10-Q/A

Attached files

file	filename
EX-32.2 - EXHIBIT 32.2 - PANHANDLE EASTERN PIPE LINE COMPANY, LP	pepl03-31x1610xqaex322.htm
EX-32.1 - EXHIBIT 32.1 - PANHANDLE EASTERN PIPE LINE COMPANY, LP	pepl03-31x1610xqaex321.htm
EX-31.2 - EXHIBIT 31.2 - PANHANDLE EASTERN PIPE LINE COMPANY, LP	pepl03-31x1610xqaex312.htm
EX-31.1 - EXHIBIT 31.1 - PANHANDLE EASTERN PIPE LINE COMPANY, LP	pepl03-31x1610xqaex311.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-2921

PANHANDLE EASTERN PIPE LINE COMPANY, LP

(Exact name of registrant as specified in its charter)



Delaware	44-0382470
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

8111 Westchester Drive, Suite 600, Dallas, Texas 75225

(Address of principle executive offices) (zip code)

(214) 981-0700

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x 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 x

Panhandle Eastern Pipe Line Company, LP meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.

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EXPLANATORY NOTE

As noted in the Form 8-K filed August 4, 2016, we are filing this Amendment No. 1 to our Form 10-Q (“Form 10-Q/A”) for the three months ended March 31, 2016, which was originally filed on May 6, 2016 (“Original Filing”), to restate our consolidated financial statements as of and for the three months ended March 31, 2016 and to amend related disclosures, including our controls and procedures. Accordingly, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, this Form 10-Q/A contains the complete text of Items 1, 2 and 4. Unaffected items have not been repeated in this Form 10-Q/A.

In connection with the preparation of the Form 10-Q for the three and six months ended June 30, 2016, the Company determined that, due to certain clerical errors, the state tax rate utilized to calculate the tax provision for the Company was incorrect, resulting in income tax expense being understated by $20 million and $36 million for the years ended December 31, 2015 and 2014, respectively, and overstated by $1 million for the three months ended March 31, 2016. As a result, we have restated our consolidated financial statements, consolidated financial information and notes to the consolidated financial statements as of and for the years ended December 31, 2015 and 2014. The Company has separately filed a Form 10-K/A to restate certain amounts attributable to income tax related misstatements for the years ended December 31, 2015 and 2014.

As a result of the item described above, we have restated consolidated financial statements, consolidated financial information and notes to the consolidated financial statements included in the Form 10-Q/A as of and for the three months ended March 31, 2016.

With respect to the Original Filing, unrelated to the matter discussed above, the Company determined that interest income - affiliates was overstated by $9 million and income tax expense was overstated by $3 million for the three months ended March 31, 2016. The net impact of correcting this error is a $6 million decrease to net income for the three months ended March 31, 2016. As we are amending this filing due to the restatement described above, we are also including an adjustment for this immaterial correction.

Management has concluded that the Company’s disclosure controls and procedures over financial reporting were not effective as of March 31, 2016. Management is evaluating the changes to the design of the internal controls related to income tax and anticipates remediation as of September 30, 2016. A description of the material weakness in internal controls related to income tax, and the related remediation is disclosed in Item 4 of this Form 10-Q/A.

This amendment does not reflect events occurring after the filing of the Original Filing, and does not modify or update the disclosures therein in any way other than as required to reflect the adjustments described above.

We are also filing currently dated signatures from our Directors and currently dated certifications from our Chief Executive Officer and Chief Financial Officer as Exhibits 31.1, 31.2, 32.1, 32.2, as well as various exhibits related to XBRL.

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FORM 10-Q

PANHANDLE EASTERN PIPE LINE COMPANY, LP

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PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)

	Consolidated Balance Sheets	1

	Consolidated Statements of Operations and Comprehensive Income	3

	Consolidated Statement of Partners’ Capital	4

	Consolidated Statements of Cash Flows	5

	Notes to Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	11


ITEM 4.	CONTROLS AND PROCEDURES	13

PART II - OTHER INFORMATION

ITEM 6.	EXHIBITS	14

SIGNATURE		15

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Forward-Looking Statements

Certain matters discussed in this report, excluding historical information, as well as some statements by Panhandle Eastern Pipe Line Company, LP and its subsidiaries (“PEPL” or the “Company”) in periodic press releases and some oral statements of Panhandle officials during presentations about the Company, include forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “estimate,” “intend,” “continue,” “believe,” “may,” “will” or similar expressions help identify forward-looking statements. Although the Company believes such forward-looking statements are based on reasonable assumptions and current expectations and projections about future events, no assurance can be given that such assumptions, expectations, or projections will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated, projected, forecasted, estimated or expressed in forward-looking statements since many of the factors that determine these results are subject to uncertainties and risks that are difficult to predict and beyond management’s control. For additional discussion of risks, uncertainties and assumptions, see “Part I — Item 1A. Risk Factors” in the Company’s Report on Form 10-K/A for the year ended December 31, 2015 filed with the Securities and Exchange Commission on August 8, 2016.

Definitions

The following is a list of certain acronyms and terms generally used in the energy industry and throughout this document:




ETE		Energy Transfer Equity, L.P.

ETP		Energy Transfer Partners, L.P., a subsidiary of ETE

Exchange Act		Securities Exchange Act of 1934

FERC		Federal Energy Regulatory Commission

GAAP		Accounting principles generally accepted in the United States of America

PCBs		Polychlorinated biphenyls

Regency		Regency Energy Partners LP

Sea Robin		Sea Robin Pipeline Company, LLC

SEC		United States Securities and Exchange Commission

Southern Union		Southern Union Company

Southwest Gas		Pan Gas Storage LLC

TBtu		Trillion British thermal units

Trunkline		Trunkline Gas Company, LLC

iii

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PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)



	March 31, 2016			December 31, 2015
	(Restated)			(Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	22		$	3
Accounts receivable, net	45			48
Accounts receivable from related companies	72			172
Exchanges receivable	6			5
Inventories	89			113
Other current assets	7			9
Total current assets	241			350

Property, plant and equipment	3,326			3,338
Accumulated depreciation	(300		)	(286		)
	3,026			3,052

Other non-current assets, net	137			137
Advances to affiliates	258			258
Notes receivable from related parties	678			574
Goodwill	923			923
Total assets	$	5,263		$	5,294

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

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PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)



	March 31, 2016		December 31, 2015
	(Restated)		(Restated)
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Current maturities of long-term debt	$	1	$	1
Accounts payable and accrued liabilities	8		3
Accounts payable to related companies	89		125
Exchanges payable	72		94
Accrued interest	25		12
Customer advances and deposits	9		9
Other current liabilities	47		55
Total current liabilities	251		299

Long-term debt, less current maturities	1,160		1,165
Deferred income taxes	726		725
Other non-current liabilities	212		222
Commitments and contingencies

Partners’ capital:
Partners’ capital	2,912		2,881
Accumulated other comprehensive income	2		2
Total partners’ capital	2,914		2,883
Total liabilities and partners’ capital	$	5,263	$	5,294

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

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PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in millions)

(unaudited)



	Three Months Ended March 31,
	2016			2015
	(Restated)			(Restated)
OPERATING REVENUES:
Transportation and storage of natural gas	$	136		$	149
Other	5			6
Total operating revenues	141			155
OPERATING EXPENSES:
Cost of natural gas and other energy	1			2
Operating and maintenance	50			53
General and administrative	10			12
Depreciation and amortization	32			35
Total operating expenses	93			102
OPERATING INCOME	48			53
OTHER INCOME (EXPENSE):
Interest expense, net	(13		)	(13		)
Equity in earnings of unconsolidated affiliates	—			4
Interest income — affiliates	7			—
Other, net	1			(1		)
Total other income (expense), net	(5		)	(10		)
INCOME BEFORE INCOME TAX EXPENSE	43			43
Income tax expense	12			12
NET INCOME	$	31		$	31

COMPREHENSIVE INCOME	$	31		$	31

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

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PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL

FOR THE THREE MONTHS ENDED MARCH 31, 2016

(Dollars in millions)

(unaudited)



	Partners’ Capital		Accumulated Other Comprehensive Income		Total
Balance, December 31, 2015 (Restated)	$	2,881	$	2	$	2,883
Net income (Restated)	31		—		31
Balance, March 31, 2016 (Restated)	$	2,912	$	2	$	2,914

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

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PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(unaudited)



	Three Months Ended March 31,
	2016			2015
	(Restated)			(Restated)
OPERATING ACTIVITIES:
Net income	$	31		$	31
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	32			35
Deferred income taxes	1			—
Amortization of deferred financing fees	(6		)	(6		)
Income from unconsolidated affiliates	—			(4		)
Distributions of earnings received from unconsolidated affiliates	—			4
Other non-cash	2			6
Changes in operating assets and liabilities	65			4
Net cash flows provided by operating activities	125			70
INVESTING ACTIVITIES:
Capital expenditures	(2		)	(29		)
Distributions from unconsolidated affiliates in excess of cumulative earnings	—			14
Repayment of note receivable from related party	6			—
Note receivable issued to related party	(110		)	(40		)
Net cash flows used in investing activities	(106		)	(55		)
Net change in cash and cash equivalents	19			15
Cash and cash equivalents, beginning of period	3			32
Cash and cash equivalents, end of period	$	22		$	47

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

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PANHANDLE EASTERN PIPE LINE COMPANY, LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular dollar amounts are in millions)

(unaudited)


1.	ORGANIZATION AND BASIS OF PRESENTATION

Organization

Panhandle Eastern Pipe Line Company, LP and its subsidiaries are primarily engaged in the transportation of natural gas from the Gulf of Mexico, south Texas and the panhandle region of Texas and Oklahoma to major United States markets in the Midwest and Great Lakes regions and the storage of natural gas and are subject to the rules and regulations of the FERC. The Company’s subsidiaries are Trunkline, Sea Robin and Southwest Gas.

Southern Union Panhandle LLC, an indirect wholly-owned subsidiary of ETP, owns a 1% general partnership interest in PEPL and ETP indirectly owns a 99% limited partnership interest in PEPL.

Basis of Presentation

The unaudited financial information included in this Form 10-Q/A has been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2015. In the opinion of the Company’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.

Restatement of Previously Issued Financial Statements

Unrelated to the matter above, the Company determined that interest income - affiliates was overstated by $9 million and income tax expense was overstated by $3 million for the three months ended March 31, 2016. The net impact of correcting this error is a $6 million decrease to net income for the three months ended March 31, 2016. As we are amending this filing due to the restatement described above, we are also including an adjustment for this immaterial correction.

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The effects of the revisions in the consolidated balance sheet as of March 31, 2016 is summarized in the following table:



	March 31, 2016
	Previously Reported		As Restated
Accounts receivable from related companies	$	77	$	72
Total current assets	246		241

Notes receivable from related parties	682		678
Total assets	5,272		5,263

Accounts payable to related companies	66		89
Total current liabilities	228		251

Deferred income taxes	697		726
Total partners’ capital	2,975		2,914

The effects of the revisions in the consolidated statements of operations and comprehensive income for the three months ended March 31, 2016 is summarized in the following table:



	Three months ended March 31, 2016
	Previously Reported		As Restated
Interest income - affiliates	$	16	$	7
Total other income (expense), net	4		(5		)
Income before income tax expense	52		43
Income tax expense	16		12
Net income	36		31
Comprehensive income	36		31

The effects of the revisions in the consolidated statements of cash flows for the three months ended March 31, 2016 is summarized in the following table:



	Three months ended March 31, 2016
	Previously Reported			As Restated
Net income	$	36		$	31
Deferred income taxes	2			1
Changes in operating assets and liabilities	63			65
Net cash flows provided by operating activities	129			125
Repayment of note receivable from related party	2			6
Net cash flow used in investing activities	(110		)	(106		)

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Use of Estimates

The unaudited consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that exist at the date of the consolidated financial statements. Although these estimates are based on management’s available knowledge of current and expected future events, actual results could be different from those estimates.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU 2014-09, which is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted 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. In March 2016, FASB issued Accounting Standards Update No. 2016-08 to clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued Accounting Standards Update No. 2016-10 to clarify guidance related to identifying performance obligations and licensing implementation guidance contained in the new revenue recognition standard. The Company is currently evaluating the impact, if any, that adopting this new accounting standard will have on our revenue recognition policies.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which establishes the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that it will have on the consolidated financial statements and related disclosures.


2.	RELATED PARTY TRANSACTIONS

Accounts receivable from related companies reflected on the consolidated balance sheets primarily related to services provided to ETE, ETP and other affiliates. Accounts payable to related companies reflected on the consolidated balance sheets related to various services provided by ETP and other affiliates.

The following table provides a summary of the related party activity included in our consolidated statements of operations:



	Three Months Ended March 31,
	2016		2015
	(Restated)
Operating revenues	$	5	$	5
Operating and maintenance	4		4
General and administrative	7		8
Interest income — affiliates	7		—
Income from unconsolidated affiliates	—		4

The Company received $18 million in cash distributions related to its investment in ETP during the three months ended March 31, 2015.


3.	INVESTMENTS IN UNCONSOLIDATED AFFILIATES

The Company’s investment in ETP consisted of 17.8 million ETP common units and was accounted for using the equity method. Effective September 1, 2015, the Company exchanged these ETP common units for a note receivable from a subsidiary of ETP in the amount of $1.37 billion. The note receivable accrues interest annually at 4.75% and is due on September 1, 2035. In connection with this transaction, the Company also recorded a reduction in goodwill of $229 million and net deferred tax liabilities of $825 million, which amounts were associated with the exchanged ETP common units as a result of previous transactions whereby the Company had acquired ETP common units in exchange for other assets.


4.	INCOME TAXES

For the three months ended March 31, 2016 and March 31, 2105, the effective rate differed from the federal statutory rate of 35% primarily due to state income taxes.


5.	FAIR VALUE MEASURES

The Company did not have any assets or liabilities measured at fair value on a recurring basis at March 31, 2016 or December 31, 2015. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term maturities. Based on the estimated borrowing rates currently available to the Company and its subsidiaries for loans with similar terms and average maturities, the aggregate fair value of the Company’s consolidated debt obligations at March 31, 2016 and December 31, 2015 was $1.09 billion and $1.20 billion, respectively. The fair value of the Company’s consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities. The Company did not have any Level 3 instruments measured at fair value at March 31, 2016 or December 31, 2015, and there were no transfers between hierarchy levels.


6.	REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES

Contingent Residual Support Agreement with ETP

The Company provides contingent, residual support to Citrus ETP Finance LLC (on a non-recourse basis to the Company) with respect to Citrus ETP Finance LLC’s obligations to ETP to support the payment of $2 billion in principal amount of senior notes issued by ETP on January 17, 2012.

FERC Audit

In March 2016, the FERC commenced an audit of Trunkline for the period from January 1, 2013 to present to evaluate Trunkline’s compliance with the requirements of its FERC gas tariff, the accounting regulations of the Uniform System of Accounts as prescribed by the FERC, and the FERC’s annual reporting requirements.

Environmental Matters

The Company’s operations are subject to federal, state and local laws, rules and regulations regarding water quality, hazardous and solid waste management, air quality control and other environmental matters. These laws, rules and regulations require the Company to conduct its operations in a specified manner and to obtain and comply with a wide variety of environmental regulations, licenses, permits, inspections and other approvals. Failure to comply with environmental laws, rules and regulations may expose the Company to significant fines, penalties and/or interruptions in operations. The Company’s environmental policies and procedures are designed to achieve compliance with such applicable laws and regulations. These evolving laws and regulations and claims for damages to property, employees, other persons and the environment resulting from current or past operations may result in significant expenditures and liabilities in the future. The Company engages in a process of updating and revising its procedures for the ongoing evaluation of its operations to identify potential environmental exposures and enhance compliance with regulatory requirements.

The Company is responsible for environmental remediation at certain sites on its natural gas transmission systems for contamination resulting from the past use of lubricants containing PCBs in compressed air systems; the past use of paints containing PCBs; and the prior use of wastewater collection facilities and other on-site disposal areas. The Company has implemented a program to remediate such contamination. The primary remaining remediation activity on the Company’s systems is associated with past use of paints containing PCBs or PCB impacts to equipment surfaces and to a building at one location. The PCB assessments are ongoing and the related estimated remediation costs are subject to further change. Other remediation typically involves the management of contaminated soils and may involve remediation of groundwater. Activities vary with site conditions and locations, the extent and nature of the contamination, remedial requirements, complexity and sharing of responsibility. The ultimate liability and total costs associated with these sites will depend upon many factors. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Company could potentially be held responsible for contamination caused by other parties. In some instances, the Company may share liability associated with contamination with other potentially responsible parties. The Company may also benefit from contractual indemnities that cover some or all of the cleanup costs. These sites are generally managed in the normal course of business or operations.

The Company’s environmental remediation activities are undertaken in cooperation with and under the oversight of appropriate regulatory agencies, enabling the Company under certain circumstances to take advantage of various voluntary cleanup programs in order to perform the remediation in the most effective and efficient manner.

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The table below reflects the amount of accrued liabilities recorded on the consolidated balance sheets at the dates indicated to cover environmental remediation activities where management believes a loss is probable and reasonably estimable. The Company is not able to estimate the possible loss or range of loss in excess of amounts accrued. The Company does not have any material environmental remediation matters assessed as reasonably possible.



	March 31, 2016		December 31, 2015
Current	$	—	$	—
Non-current	2		3
Total environmental liabilities	$	2	$	3

Litigation and Other Claims

The Company is involved in legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business.

Attorney General of the Commonwealth of Massachusetts v. New England Gas Company

On July 7, 2011, the Massachusetts Attorney General (“AG”) filed a regulatory complaint with the Massachusetts Department of Public Utilities (“MDPU”) against New England Gas Company with respect to certain environmental cost recoveries. The AG is seeking a refund to New England Gas Company customers for alleged “excessive and imprudently incurred costs” related to legal fees associated with Southern Union’s environmental response activities. In the complaint, the AG requests that the MDPU initiate an investigation into the New England Gas Company’s collection and reconciliation of recoverable environmental costs including: (i) the prudence of any and all legal fees, totaling $19 million, that were charged by the Kasowitz, Benson, Torres & Friedman firm and passed through the recovery mechanism since 2005, the year when a partner in the firm, the Southern Union former Vice Chairman, President and Chief Operating Officer, joined Southern Union’s management team; (ii) the prudence of any and all legal fees that were charged by the Bishop, London & Dodds firm and passed through the recovery mechanism since 2005, the period during which a member of the firm served as Southern Union’s Chief Ethics Officer; and (iii) the propriety and allocation of certain legal fees charged that were passed through the recovery mechanism that the AG contends only qualify for a lesser, 50%, level of recovery. Southern Union has filed its answer denying the allegations and moved to dismiss the complaint, in part on a theory of collateral estoppel. The hearing officer has deferred consideration of Southern Union’s motion to dismiss. The AG’s motion to be reimbursed expert and consultant costs by Southern Union of up to $150,000 was granted. By tariff, these costs are recoverable through rates charged to New England Gas Company customers. The hearing officer previously stayed discovery pending resolution of a dispute concerning the applicability of attorney-client privilege to legal billing invoices. The MDPU issued an interlocutory order on June 24, 2013 that lifted the stay, and discovery has resumed. The Company (as successor to Southern Union) believes it has complied with all applicable requirements regarding its filings for cost recovery and has not recorded any accrued liability; however, the Company will continue to assess its potential exposure for such cost recoveries as the matter progresses.

Liabilities for Litigation and Other Claims

The Company records accrued liabilities for litigation and other claim costs when management believes a loss is probable and reasonably estimable. When management believes there is at least a reasonable possibility that a material loss or an additional material loss may have been incurred, the Company discloses (i) an estimate of the possible loss or range of loss in excess of the amount accrued; or (ii) a statement that such an estimate cannot be made. As of March 31, 2016 and December 31, 2015, the Company has litigation and other claim-related accrued liabilities of $21 million and $22 million, respectively. The Company does not have any material litigation or other claim contingency matters assessed as probable or reasonably possible that would require disclosure in the financial statements.

Other Commitments and Contingencies

The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment (the transfer of property to the state) of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements. The Company is currently being examined by a third party auditor on behalf of nine states for compliance with unclaimed property laws.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

(Tabular dollar amounts are in millions)

The information in Item 2 has been prepared pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q. Accordingly, this Item 2 includes only management’s narrative analysis of the results of operations and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q/A; (ii) our Annual Report on Form 10-K/A for the year ended December 31, 2015 filed with the SEC on August 8, 2016; and (iii) our management’s discussion and analysis of financial condition and results of operations included in our 2015 Form 10-K/A.

RESULTS OF OPERATIONS



	Three Months Ended March 31,
	2016			2015
	(Restated)			(Restated)
OPERATING REVENUES:
Transportation and storage of natural gas	$	136		$	149
Other	5			6
Total operating revenues	141			155
OPERATING EXPENSES:
Cost of natural gas and other energy	1			2
Operating and maintenance	50			53
General and administrative	10			12
Depreciation and amortization	32			35
Total operating expenses	93			102
OPERATING INCOME	48			53
OTHER INCOME (EXPENSE):
Interest expense, net	(13		)	(13		)
Equity in earnings of unconsolidated affiliates	—			4
Interest income — affiliates	7			—
Other, net	1			(1		)
Total other income (expense), net	(5		)	(10		)
INCOME BEFORE INCOME TAX EXPENSE	43			43
Income tax expense	12			12
NET INCOME	$	31		$	31
Panhandle natural gas volumes transported (TBtu):
PEPL	164			167
Trunkline	133			202
Sea Robin	25			27

Operating Revenues. Operating revenues decreased for the three months ended March 31, 2016 compared to the same period in the prior year primarily due to the transfer of one of the pipelines at Trunkline that was taken out of service in advance of being repurposed from natural gas service to crude oil service.

Equity in earnings of unconsolidated affiliates. Equity in earnings of unconsolidated affiliates decreased for the three months ended March 31, 2016 compared to the same period in the prior year due to the exchange of the Company’s investment in ETP for a note receivable from a subsidiary of ETP effective September 1, 2015. The earnings for the three months ended March 31, 2015 reflects the Company’s earnings related to its investment in ETP.

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Interest Income - Affiliates. Interest income from affiliates increased for the three months ended March 31, 2016 compared to the same period in the prior year due to the note receivable with a subsidiary of ETP and a note receivable with ETP, effective September 2015 and February 2016, respectively.

Income Taxes. For the three months ended March 31, 2016 and March 31, 2105, the statutory rate differed from the the federal statutory rate of 35% primarily due to state income taxes.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“Principal Executive Officer”) and Chief Financial Officer (“Principal Financial Officer”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that, due to the material weakness described below, our disclosure controls and procedures were not effective as of March 31, 2016.

As a result of the item described above, we have restated consolidated financial statements, consolidated financial information and notes to the consolidated financial statements as of and for the three months ended March 31, 2016, included in this Form 10-Q/A.

These clerical errors resulted from a deficiency in the procedures to review the tax models used in recording the Company’s tax provision. We have concluded that such deficiency constituted a material weakness in the Company’s internal controls. Management is in the process of remediating the internal controls weakness related to income tax and anticipates remediation as of September 30, 2016. Nevertheless, the Company may continue to report the above material weakness while sufficient evaluation of newly established procedures and controls occurs. Notwithstanding the material weakness, management has concluded that the consolidated financial statements included in this Form 10-Q/A present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the Exchange Act) during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

The exhibits listed below are filed or furnished, as indicated, as part of this report:



	Exhibit Number		Description
	31.1*		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2*		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2**		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS*		XBRL Instance Document
	101.SCH*		XBRL Taxonomy Extension Schema Document
	101.CAL*		XBRL Taxonomy Calculation Linkbase Document
	101.DEF*		XBRL Taxonomy Extension Definitions Document
	101.LAB*		XBRL Taxonomy Label Linkbase Document
	101.PRE*		XBRL Taxonomy Presentation Linkbase Document

* Filed herewith.

** Furnished herewith.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, Panhandle Eastern Pipe Line Company, LP has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		PANHANDLE EASTERN PIPE LINE COMPANY, LP
		(Registrant)


Date:	August 8, 2016	By:	/s/ A. Troy Sturrock
			A. Troy Sturrock
			Vice President and Controller (duly authorized to sign on behalf of the registrant)

PANHANDLE EASTERN PIPE LINE COMPANY, LP - FORM 10-Q/A - August 8, 2016

Attached files

PANHANDLE EASTERN PIPE LINE COMPANY, LP Reports