ETE-6.30.2013 10-Q
Table of Contents

 

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, 2013
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.)
3738 Oak Lawn Avenue, Dallas, Texas 75219
(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 August 2, 2013, the registrant had units outstanding as follows:
Energy Transfer Equity, L.P. 280,711,650 Common Units


Table of Contents

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


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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, 2012 filed with the Securities and Exchange Commission on March 1, 2013.
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
 
 
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
 
 
 
Canyon
 
ETC Canyon Pipeline, LLC
 
 
 
Citrus
 
Citrus Corp., which owns 100% of FGT
 
 
 
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 Credit Facility
 
ETP’s revolving credit facility
 
 
 
ETP GP
 
Energy Transfer Partners GP, L.P., the general partner of ETP
 
 
 
ETP LLC
 
Energy Transfer Partners, L.L.C., the general partner of ETP GP
 
 
 
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.
 
 
 
Holdco
 
ETP Holdco Corporation
 
 
 
Holdco Transaction
 
October 5, 2012 transaction including contributions from ETP and ETE to Holdco
 
 
 
IDRs
 
incentive distribution rights
 
 
 
LIBOR
 
London Interbank Offered Rate
 
 
 
LNG
 
liquefied natural gas
 
 
 

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Table of Contents

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
 
 
OTC
 
over-the-counter
 
 
 
OSHA
 
Federal Occupational Safety and Health Act
 
 
Panhandle
 
Panhandle Eastern Pipe Line Company, LP and its subsidiaries
 
 
 
PEPL Holdings
 
PEPL Holdings, LLC, a wholly-owned subsidiary of Southern Union, which owns the general partner and 100% of the limited partner interests in Panhandle Eastern Pipeline Company
 
 
 
PES
 
Philadelphia Energy Solutions
 
 
 
PHMSA
 
Pipeline Hazardous Materials Safety Administration
 
 
 
Preferred Units
 
ETE’s Series A Convertible Preferred Units
 
 
 
Propane Business
 
Heritage Operating, L.P. and Titan Energy Partners, L.P.
 
 
 
Propane Contribution
 
ETP’s contribution of its Propane Business to AmeriGas
 
 
 
Regency
 
Regency Energy Partners LP
 
 
 
Regency Preferred Units
 
Regency’s Series A Convertible Preferred Units, the Preferred Units of a Subsidiary
 
 
 
SEC
 
Securities and Exchange Commission
 
 
 
Southern Union
 
Southern Union Company
 
 
 
Southern Union Merger
 
ETE’s acquisition of Southern Union on March 26, 2012
 
 
 
SUGS
 
Southern Union Gas Services
 
 
 
Sunoco
 
Sunoco, Inc.
 
 
 
Sunoco Logistics
 
Sunoco Logistics Partners L.P.
 
 
 
Sunoco Merger
 
ETP’s acquisition of Sunoco on October 5, 2012
 
 
 
Transwestern
 
Transwestern Pipeline Company, LLC
 
 
 
WTI
  
West Texas Intermediate Crude

Adjusted EBITDA is a term used throughout this document, which we define as earnings before interest, taxes, depreciation, 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, loss on extinguishment of debt, gain on deconsolidation of ETP’s Propane Business and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities includes 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

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
 
 
June 30,
2013
 
December 31, 2012
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
621

 
$
372

Accounts receivable, net
3,318

 
3,057

Accounts receivable from related companies
82

 
71

Inventories
1,641

 
1,522

Exchanges receivable
50

 
55

Price risk management assets
54

 
25

Current assets held for sale
102

 
184

Other current assets
285

 
311

Total current assets
6,153

 
5,597

 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
31,848

 
30,388

ACCUMULATED DEPRECIATION
(2,661
)
 
(2,104
)
 
29,187

 
28,284

 
 
 
 
NON-CURRENT ASSETS HELD FOR SALE
1,000


985

ADVANCES TO AND INVESTMENTS IN UNCONSOLIDATED AFFILIATES
4,640

 
4,737

NON-CURRENT PRICE RISK MANAGEMENT ASSETS
24

 
43

GOODWILL
6,372

 
6,434

INTANGIBLE ASSETS, net
2,221

 
2,291

OTHER NON-CURRENT ASSETS, net
546

 
533

Total assets
$
50,143

 
$
48,904

















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

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

 
June 30,
2013
 
December 31, 2012
LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
3,385

 
$
3,107

Accounts payable to related companies
14

 
15

Exchanges payable
153

 
156

Price risk management liabilities
57

 
115

Accrued and other current liabilities
1,542

 
1,754

Current maturities of long-term debt
899

 
613

Current liabilities held for sale
75

 
85

Total current liabilities
6,125

 
5,845

 
 
 
 
NON-CURRENT LIABILTIES HELD FOR SALE
140


142

LONG-TERM DEBT, less current maturities
21,860

 
21,440

PREFERRED UNITS

 
331

DEFERRED INCOME TAXES
3,861

 
3,566

NON-CURRENT PRICE RISK MANAGEMENT LIABILITIES
135

 
162

OTHER NON-CURRENT LIABILITIES
849

 
995

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 14)

 

 
 
 
 
PREFERRED UNITS OF SUBSIDIARY
73

 
73

 
 
 
 
EQUITY:
 
 
 
General Partner
(2
)
 

Limited Partners:
 
 
 
Common Unitholders
1,485

 
2,125

Accumulated other comprehensive loss
(2
)
 
(12
)
Total partners’ capital
1,481

 
2,113

Noncontrolling interest
15,619

 
14,237

Total equity
17,100

 
16,350

Total liabilities and equity
$
50,143

 
$
48,904










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

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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,
 
2013
 
2012
 
2013
 
2012
REVENUES:
 
 
 
 
 
 
 
Natural gas sales
$
864

 
$
554

 
$
1,837

 
$
1,057

NGL sales
787

 
592

 
1,500

 
1,120

Crude sales
3,992

 

 
7,193

 

Gathering, transportation and other fees
815

 
596

 
1,555

 
1,085

Refined product sales
4,650

 

 
9,312

 

Other
955

 
135

 
1,845

 
285

Total revenues
12,063

 
1,877

 
23,242

 
3,547

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of products sold
10,565

 
962

 
20,372

 
1,977

Operating expenses
375

 
236

 
724

 
406

Depreciation and amortization
318


206

 
630

 
360

Selling, general and administrative
161

 
108

 
341

 
255

Total costs and expenses
11,419

 
1,512

 
22,067

 
2,998

OPERATING INCOME
644

 
365

 
1,175

 
549

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Interest expense, net of interest capitalized
(305
)

(282
)
 
(615
)
 
(495
)
Bridge loan related fees



 

 
(62
)
Equity in earnings of unconsolidated affiliates
54

 
22

 
144

 
97

Gain on deconsolidation of Propane Business


1

 

 
1,057

Losses on extinguishment of debt
(7
)
 
(8
)
 
(7
)
 
(123
)
Gains (losses) on interest rate derivatives
46


(44
)
 
52

 
(17
)
Other, net
(14
)
 
19

 
(33
)
 
31

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
418

 
73

 
716

 
1,037

Income tax expense from continuing operations
89


5

 
87


7

INCOME FROM CONTINUING OPERATIONS
329

 
68

 
629

 
1,030

Income from discontinued operations
9


7

 
31


6

NET INCOME
338

 
75

 
660

 
1,036

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
211

 
21

 
443

 
816

NET INCOME ATTRIBUTABLE TO PARTNERS
127

 
54

 
217

 
220

GENERAL PARTNER’S INTEREST IN NET INCOME

 

 

 
1

LIMITED PARTNERS’ INTEREST IN NET INCOME
$
127

 
$
54

 
$
217

 
$
219

INCOME FROM CONTINUING OPERATIONS PER LIMITED PARTNER UNIT:
 
 
 
 
 
 
 
Basic
$
0.44

 
$
0.18

 
$
0.72

 
$
0.85

Diluted
$
0.44

 
$
0.18

 
$
0.72

 
$
0.84

NET INCOME PER LIMITED PARTNER UNIT:
 
 
 
 
 
 
 
Basic
$
0.45

 
$
0.19

 
$
0.77

 
$
0.87

Diluted
$
0.45

 
$
0.19

 
$
0.77

 
$
0.86



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

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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,
 
2013
 
2012
 
2013
 
2012
Net income
$
338

 
$
75

 
$
660

 
$
1,036

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Reclassification to earnings of gains and losses on derivative instruments accounted for as cash flow hedges
(1
)
 
(8
)
 
(2
)
 
(8
)
Change in value of derivative instruments accounted for as cash flow hedges
6

 
(1
)
 
8

 
21

Change in value of available-for-sale securities
(1
)
 

 

 

Actuarial gain relating to pension and other postretirement benefits
2

 

 
1

 

Foreign currency translation adjustment

 

 
(1
)
 

Change in other comprehensive income from equity investments
(3
)
 
(22
)
 
4

 
(22
)
 
3

 
(31
)
 
10

 
(9
)
Comprehensive income
341

 
44

 
670

 
1,027

Less: Comprehensive income attributable to noncontrolling interest
209

 
(4
)
 
447

 
806

Comprehensive income attributable to partners
$
132

 
$
48

 
$
223

 
$
221





























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

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ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2013
(Dollars in millions)
(unaudited)
 
 
General
Partner    
 
Common
Unitholders    
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interest
 
Total    
Balance, December 31, 2012
$

 
$
2,125

 
$
(12
)
 
$
14,237

 
$
16,350

Distributions to partners
(1
)
 
(359
)
 

 

 
(360
)
Distributions to noncontrolling interest

 

 

 
(684
)
 
(684
)
Subsidiary units issued for cash

 
142

 

 
1,076

 
1,218

Subsidiary units issued in certain acquisitions
(1
)
 
(506
)
 

 
507

 

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

 

 

 
26

 
26

Capital contributions from noncontrolling interest

 

 

 
12

 
12

Other, net

 
(1
)
 
4

 
(2
)
 
1

Deemed distribution related to SUGS Transaction

 
(133
)
 

 

 
(133
)
Other comprehensive income, net of tax

 

 
6

 
4

 
10

Net income

 
217

 

 
443

 
660

Balance, June 30, 2013
$
(2
)
 
$
1,485

 
$
(2
)
 
$
15,619

 
$
17,100


























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

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Table of Contents

ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
 
Six Months Ended June 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
660

 
$
1,036

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
630

 
360

Deferred income taxes
68

 
4

Gain on curtailment of other postretirement benefit plans

 
(15
)
Amortization of finance costs charged to interest
(33
)
 
6

Bridge loan related fees

 
62

Non-cash compensation expense
27

 
24

Gain on deconsolidation of Propane Business

 
(1,057
)
Losses on disposal of assets
5

 
2

Losses on extinguishment of debt
7

 
123

LIFO valuation adjustment
(16
)
 

Equity in earnings of unconsolidated affiliates
(144
)
 
(97
)
Distributions from unconsolidated affiliates
191

 
101

Other non-cash
25

 
29

Net change in operating assets and liabilities, net of effects of acquisitions and deconsolidation (see Note 2)
(293
)
 
(153
)
Net cash provided by operating activities
1,127

 
425

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Cash paid for Southern Union Merger, net of cash received

 
(2,972
)
Cash paid for all other acquisitions, net of cash received
(5
)
 
(10
)
Capital expenditures (excluding allowance for equity funds used during construction)
(1,504
)
 
(1,294
)
Contributions in aid of construction costs
11

 
12

Contributions to unconsolidated affiliates
(2
)
 
(20
)
Distributions from unconsolidated affiliates in excess of cumulative earnings
59

 
76

Proceeds from the sale of assets
53

 
34

Cash proceeds from contribution of propane operations

 
1,443

Other
(46
)
 
(2
)
Net cash used in investing activities
(1,434
)
 
(2,733
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from borrowings
6,063

 
5,964

Repayments of long-term debt
(5,305
)
 
(3,101
)
Subsidiary equity offerings, net of issue costs
1,218

 
390

Distributions to partners
(360
)
 
(315
)
Debt issuance costs
(37
)
 
(98
)
Distributions to noncontrolling interest
(684
)
 
(447
)
Capital contributions received from noncontrolling interest
12

 
10

Redemption of Preferred Units
(340
)
 

Other, net
(11
)
 
(3
)
Net cash provided by financing activities
556

 
2,400

INCREASE IN CASH AND CASH EQUIVALENTS
249

 
92

CASH AND CASH EQUIVALENTS, beginning of period
372

 
126

CASH AND CASH EQUIVALENTS, end of period
$
621

 
$
218

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

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Table of Contents

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.
OPERATIONS AND 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 Regency (see description of their respective operations below under “Business Operations”); and
ETP’s and Regency’s consolidated subsidiaries and our wholly-owned subsidiaries that own the general partner and IDR interests in ETP and Regency.
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 Regency. 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 19 for stand-alone financial information apart from that of the consolidated partnership information included herein.
Our activities are primarily conducted through our operating subsidiaries as follows:
ETP’s operations are conducted through the following subsidiaries:
ETC OLP, a Texas limited partnership engaged in midstream and intrastate transportation and storage natural gas operations. ETC OLP owns and operates, through its wholly and majority-owned subsidiaries, natural gas gathering systems, intrastate natural gas pipeline systems and gas processing plants and is engaged in the business of purchasing, gathering, transporting, processing, and marketing natural gas and NGLs in the states of Texas, Louisiana, New Mexico and West Virginia. ETC OLP’s intrastate transportation and storage operations primarily focus on transporting natural gas in Texas through our Oasis pipeline, ET Fuel System, East Texas pipeline and HPL System. ETC OLP’s midstream operations focus on the gathering, compression, treating, conditioning and processing of natural gas, primarily on or through our Southeast Texas System, Eagle Ford System, North Texas System and Northern Louisiana assets. ETC OLP also owns a 70% interest in Lone Star.
Energy Transfer Interstate Holdings, LLC, a Delaware limited liability company with revenues consisting primarily of fees earned from natural gas transportation services and operational gas sales, which is the parent company of:
Transwestern, a Delaware limited liability company engaged in interstate transportation of natural gas. Transwestern’s revenues consist primarily of fees earned from natural gas transportation services and operational gas sales.
ETC Fayetteville Express Pipeline, LLC, a Delaware limited liability company that directly owns a 50% interest in FEP, which owns 100% of the Fayetteville Express interstate natural gas pipeline.
ETC Tiger Pipeline, LLC, a Delaware limited liability company engaged in interstate transportation of natural gas.
CrossCountry, a Delaware limited liability company that indirectly owns a 50% interest in Citrus, which owns 100% of the FGT interstate natural gas pipeline.
ETC Compression, LLC, a Delaware limited liability company engaged in natural gas compression services and related equipment sales.

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Sunoco Logistics, a publicly traded Delaware limited partnership that owns and operates a logistics business, consisting of refined products and crude oil pipelines, terminalling and storage assets, and refined products and crude oil acquisition and marketing assets.
Holdco, a Delaware limited liability company that indirectly owns Southern Union and Sunoco. As discussed in Note 2, ETP acquired ETE’s 60% interest in Holdco on April 30, 2013. Sunoco and Southern Union operations are described as follows:
Southern Union owns and operates assets in the regulated and unregulated natural gas industry and is primarily engaged in the transportation, storage and distribution of natural gas in the United States. As discussed in Note 2, on April 30, 2013, Southern Union completed its contribution to Regency of all of the issued and outstanding membership interest in Southern Union Gathering Company, LLC, and its subsidiaries, including SUGS.
Sunoco owns and operates retail marketing assets, which sell gasoline and middle distillates at retail and operates convenience stores primarily on the east coast and in the midwest region of the United States.
Regency is a publicly traded partnership engaged in the gathering and processing, contract compression, treating and transportation of natural gas and the transportation, fractionation and storage of NGLs. Regency focuses on providing midstream services in some of the most prolific natural gas producing regions in the United States, including the Haynesville, Eagle Ford, Barnett, Fayetteville, Bone Spring, Avalon and Marcellus shales, as well as the Permian Delaware basin and the mid-continent region. Its assets are located in Texas, Louisiana, Arkansas, Pennsylvania, California, Mississippi, Alabama, West Virginia and the mid-continent region of the United States, which includes Kansas, Colorado and Oklahoma. Regency also holds a 30% interest in Lone Star.
Our reportable segments reflect the following reportable business segments:
Investment in ETP, including the consolidated operations of ETP.
Investment in Regency, including the consolidated operations of Regency.
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.
Preparation of Interim Financial Statements
The accompanying consolidated balance sheet as of December 31, 2012, which has been derived from audited financial statements, and the unaudited interim consolidated financial statements and notes thereto of the Partnership as of June 30, 2013 and for the three months ended June 30, 2013 and 2012, have been prepared in accordance with GAAP for interim consolidated financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. However, management believes that the disclosures made are adequate to make the information not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonal nature of the Partnership’s operations, maintenance activities of the Partnership’s subsidiaries and the impact of forward natural gas prices and differentials on certain derivative financial instruments that are accounted for using mark-to-market accounting.
In the opinion of management, all adjustments (all of which are normal and recurring) have been made that are necessary to fairly state the consolidated financial position of the Partnership as of June 30, 2013, and the Partnership’s results of operations and cash flows for the three and six months ended June 30, 2013 and 2012. The unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on March 1, 2013.
Certain prior period amounts have been reclassified to conform to the 2013 presentation. These reclassifications had no impact on net income or total equity.
As a result of the Southern Union Merger in March 2012 and the Holdco Transaction in October 2012, the periods presented herein do not include activities from Southern Union or Sunoco prior to the consummation of the respective mergers and/or transactions.


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2.
ACQUISITIONS, DIVESTITURES AND RELATED TRANSACTIONS:
Sale of Distribution Operations
In December 2012, Southern Union entered into definitive purchase and sale agreements dated December 14, 2012 (collectively, the “Purchase and Sale Agreements”) with each of Plaza Missouri Acquisition, Inc. (“Laclede Missouri”) and Plaza Massachusetts Acquisition, Inc. (“Laclede Massachusetts”), both of which are subsidiaries of The Laclede Group, Inc. (together, the “Laclede Entities”), pursuant to which Laclede Missouri has agreed to acquire the assets of Southern Union’s Missouri Gas Energy division, and Laclede Massachusetts has agreed to acquire the assets of Southern Union’s New England Gas Company division. Total consideration for the acquisitions will be $1.04 billion, subject to customary closing adjustments, less the assumption of $19 million of debt. In February 2013, the Laclede Entities entered into an agreement with Algonquin Power & Utilities Corp (“APUC”) that will allow a subsidiary of APUC to assume the right of the Laclede Entities to purchase the assets of Southern Union’s New England Gas Company division, subject to certain approvals. The sale of Southern Union’s Missouri Gas Energy division is expected to close on or after September 1, 2013. The sale of Southern Union’s New England Gas Company division is expected to close in the fourth quarter of 2013.
For the three and six months ended June 30, 2013 and the period from March 26, 2012 to June 30, 2012, the distribution operations have been classified as discontinued operations in the consolidated statements of operations. The assets and liabilities of the disposal group have been classified as assets and liabilities held for sale as of June 30, 2013 and December 31, 2012.
SUGS Contribution
On April 30, 2013, Southern Union completed its contribution to Regency of all of the issued and outstanding membership interest in Southern Union Gathering Company, LLC, and its subsidiaries, including SUGS (the “SUGS Contribution”). The consideration paid by Regency in connection with this transaction consisted of (i) the issuance of approximately 31.4 million Regency common units to Southern Union, (ii) the issuance of approximately 6.3 million Regency Class F units to Southern Union, (iii) the distribution of $463 million in cash to Southern Union, net of closing adjustments, and (iv) the payment of $30 million in cash to a subsidiary of ETP. This transaction was between commonly controlled entities; therefore, the amounts recorded in the consolidated balance sheet for the investment in Regency and the related deferred tax liabilities were based on the historical book value of SUGS. In addition, PEPL Holdings, a wholly-owned subsidiary of Southern Union, provided a guarantee of collection with respect to the payment of the principal amounts of Regency’s debt related to the SUGS Contribution. The Regency Class F units have the same rights, terms and conditions as the Regency common units, except that Southern Union will not receive distributions on the Regency Class F units for the first eight consecutive quarters following the closing, and the Regency Class F units will thereafter automatically convert into Regency common units on a one-for-one basis.
ETP’s Acquisition of ETE’s Holdco Interest
On April 30, 2013, ETP acquired ETE’s 60% interest in Holdco for approximately 49.5 million of newly issued ETP Common Units and $1.40 billion in cash, less $68 million of closing adjustments (the “Holdco Acquisition”). As a result, ETP now owns 100% of Holdco. ETE, which owns the general partner and IDRs of ETP, agreed to forego incentive distributions on the newly issued ETP units for each of the first eight consecutive quarters beginning with the quarter in which the closing of the transaction occurred and 50% of incentive distributions on the newly issued ETP units for the following eight consecutive quarters. ETP controlled Holdco prior to this acquisition; therefore, the transaction did not constitute a change of control.
Sunoco Merger
On October 5, 2012, Sam Acquisition Corporation, a Pennsylvania corporation and a wholly-owned subsidiary of ETP, completed its merger with Sunoco. Under the terms of the merger agreement, Sunoco shareholders received a total of approximately 55 million ETP Common Units and $2.6 billion in cash.
Management is continuing to validate certain assumptions made in connection with the purchase price allocation of Sunoco; therefore, certain assets and/or liabilities may be adjusted.

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3.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES:
The following investments in unconsolidated affiliates are reflected in our consolidated financial statements using the equity method:
AmeriGas. ETP owned approximately 30 million AmeriGas common units as of June 30, 2013. On July 12, 2013, ETP sold 7.5 million of its AmeriGas common units, which were received in connection with the Partnership’s contribution of its retail propane operations to AmeriGas in January 2012, for net proceeds of $346 million.
Citrus. ETP owns a 50% interest in Citrus, which owns 100% of FGT, an approximate 5,400 mile natural gas pipeline system that originates in Texas and delivers natural gas to the Florida peninsula. The other 50% interest in Citrus is owned by a subsidiary of Kinder Morgan, Inc.
FEP. ETP owns a 50% interest in the FEP, which owns an approximately 185-mile natural gas pipeline that originates in Conway County, Arkansas, continues eastward through White County, Arkansas and terminates at an interconnect with Trunkline Gas Company, LLC in Panola County, Mississippi.
HPC. Regency owns a 49.99% interest in HPC, which, through its ownership of the Regency Intrastate Gas System, delivers natural gas from Northwest Louisiana to downstream pipelines and markets through a 450-mile intrastate pipeline system.
MEP. Regency owns a 50% interest in MEP, which owns approximately 500 miles of natural gas pipelines that extend from Southeast Oklahoma, across Northeast Texas, Northern Louisiana and Central Mississippi to an interconnect with the Transcontinental natural gas pipeline system in Butler, Alabama.
PES. Sunoco owns an approximate 30% non-operating interest in PES, a joint venture with The Carlyle Group, L.P., which owns a refinery in Philadelphia. Sunoco has a ten-year supply contract for gasoline and diesel produced at the refinery for its retail marketing business.
The following table presents aggregated selected income statement data for our unconsolidated affiliates listed above (on a 100% basis for all periods presented).
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
5,356

 
$
1,045

 
$
9,502

 
$
2,411

Operating income
291

 
220

 
640

 
534

Net income
158

 
50

 
388

 
265

In addition to the equity method investments described above, ETP and Regency have other equity method investments, which are not significant to our consolidated financial statements.


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4.
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.
Non-cash investing and financing activities are as follows:
 
Six Months Ended June 30,
 
2013
 
2012
NON-CASH INVESTING ACTIVITIES:
 
 
 
Accrued capital expenditures
$
538

 
$
485

Accrued advances to affiliates
$

 
$
4

Net losses from subsidiary common unit transactions
$
(364
)
 
$
(14
)
AmeriGas limited partner interest received in Propane Contribution
$

 
$
1,123

NON-CASH FINANCING ACTIVITIES:
 
 
 
Issuance of common units in connection with Southern Union Merger
$

 
$
2,354

Subsidiary issuances of common units in connection with certain acquisitions
$

 
$
112


5.
INVENTORIES:
Inventories consisted of the following:
 
June 30,
2013
 
December 31,
2012
Natural gas and NGLs
$
357

 
$
338

Crude oil
548

 
418

Refined products
531

 
572

Other
205

 
194

Total inventories
$
1,641

 
$
1,522


ETP utilizes commodity derivatives to manage price volatility associated with its natural gas inventory and designates certain of these derivatives as fair value hedges for accounting purposes. Changes in fair value of the designated hedged inventory have been recorded in inventory on our consolidated balance sheets and in cost of products sold in our consolidated statements of operations.
6.
FAIR VALUE MEASUREMENTS:
We have marketable securities, commodity derivatives, interest rate derivatives, the Preferred Units and embedded derivatives in the Regency 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, and we discount the future cash flows accordingly, including the effects of credit risk. Level 3 inputs are unobservable. Derivatives related to the Regency 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. At December 31, 2012, the fair value of the Preferred Units was based predominantly on an income approach model and considered Level 3. The Preferred Units were redeemed on April 1, 2013.
Based on the estimated borrowing rates currently available to us and our subsidiaries for long-term loans with similar terms and average maturities, the aggregate fair value of our consolidated debt obligations as of June 30, 2013 and December 31,

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2012 was $23.59 billion and $24.15 billion, respectively. As of June 30, 2013 and December 31, 2012, the aggregate carrying amount of our consolidated debt obligations was $22.76 billion and $22.05 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.
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, 2013 and December 31, 2012 based on inputs used to derive their fair values:
 
Fair Value Measurements at
June 30, 2013
 
Fair Value
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Interest rate derivatives
$
40

 
$

 
$
40

 
$

Commodity derivatives:
 
 
 
 
 
 
 
Condensate — Forward Swaps
2

 

 
2

 

Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
5

 
5

 

 

Swing Swaps IFERC
3

 

 
3

 

Fixed Swaps/Futures
76

 
68

 
8

 

Options — Calls
1

 

 
1

 

Options — Puts
1

 

 
1

 

Forward Physical Contracts
1

 

 
1

 

NGLs — Forwards/Swaps
20

 
16

 
4

 

Power:
 
 
 
 
 
 
 
Forwards
9

 

 
9

 

Futures
2

 
2

 

 


Options — Calls
8

 

 
8

 

Total commodity derivatives
128

 
91

 
37

 

Total Assets
$
168

 
$
91

 
$
77

 
$

Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(122
)
 
$

 
$
(122
)
 
$

Embedded derivatives in the Regency Preferred Units
(47
)
 

 

 
(47
)
Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(9
)
 
(9
)
 

 

Swing Swaps IFERC
(4
)
 

 
(4
)
 

Fixed Swaps/Futures
(59
)
 
(54
)
 
(5
)
 

Options — Calls
(1
)
 

 
(1
)
 

Options — Puts
(1
)
 

 
(1
)
 

NGLs — Forwards/Swaps
(7
)
 
(6
)
 
(1
)
 

Power:
 
 
 
 
 
 
 
Forwards
(9
)
 

 
(9
)
 

Futures
(2
)
 
(2
)
 

 

Options — Calls
(5
)
 

 
(5
)
 

Crude
(1
)
 
(1
)
 

 

Total commodity derivatives
(98
)
 
(72
)
 
(26
)
 

Total Liabilities
$
(267
)
 
$
(72
)
 
$
(148
)
 
$
(47
)



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Fair Value Measurements at
December 31, 2012
 
Fair Value
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Interest rate derivatives
$
55

 
$

 
$
55

 
$

Commodity derivatives:
 
 
 
 
 
 
 
Condensate — Forward Swaps
2

 

 
2

 

Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
11

 
11

 

 

Swing Swaps IFERC
3

 

 
3

 

Fixed Swaps/Futures
98

 
94

 
4

 

Options — Calls
3

 

 
3

 

Options — Puts
1

 

 
1

 

Forward Physical Contracts
1

 

 
1

 

NGLs — Swaps
2

 
1

 
1

 

Power:
 
 
 
 
 
 
 
Forwards
27

 

 
27

 

Futures
1

 
1

 

 

Options — Calls
2

 

 
2

 

Refined Products
5

 
1

 
4

 

Total commodity derivatives
156

 
108

 
48

 

Total Assets
$
211

 
$
108

 
$
103

 
$

Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(235
)
 
$

 
$
(235
)
 
$

Preferred Units
(331
)
 

 

 
(331
)
Embedded derivatives in the Regency Preferred Units
(25
)
 

 

 
(25
)
Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(18
)
 
(18
)
 

 

Swing Swaps IFERC
(2
)
 

 
(2
)
 

Fixed Swaps/Futures
(103
)
 
(94
)
 
(9
)
 

Options — Calls
(3
)
 

 
(3
)
 

Options — Puts
(1
)
 

 
(1
)
 

NGLs — Swaps
(4
)
 
(3
)
 
(1
)
 

Power:
 
 
 
 
 
 
 
Forwards
(27
)
 

 
(27
)
 

Futures
(2
)
 
(2
)
 

 

Refined Products
(8
)
 
(1
)
 
(7
)
 

Total commodity derivatives
(168
)
 
(118
)
 
(50
)
 

Total Liabilities
$
(759
)
 
$
(118
)
 
$
(285
)
 
$
(356
)

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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, 2013. There were no transfers between the fair value hierarchy levels during the six months ended June 30, 2013 or 2012.
Balance, December 31, 2012
$
(356
)
Realized loss included in other income (expense)
(9
)
Net unrealized loss included in other income (expense)
(22
)
Redemption of Preferred Units
340

Balance, June 30, 2013
$
(47
)

  
7.
NET INCOME PER LIMITED PARTNER UNIT:
A reconciliation of income from continuing operations and weighted average units used in computing basic and diluted income from continuing operations per unit is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Income from continuing operations
$
329

 
$
68

 
$
629

 
$
1,030

Less: Income from continuing operations attributable to noncontrolling interest
206

 
19

 
428

 
815

Income from continuing operations, net of noncontrolling interest
123

 
49

 
201

 
215

Less: General Partner’s interest in income from continuing operations

 

 

 
1

Income from continuing operations available to Limited Partners
$
123

 
$
49

 
$
201

 
$
214

Basic Income from Continuing Operations per Limited Partner Unit:
 
 
 
 
 
 
 
Weighted average limited partner units
280.5

 
280.0

 
280.2

 
253.3

Basic income from continuing operations per Limited Partner unit
$
0.44

 
$
0.18

 
$
0.72

 
$
0.85

Basic income from discontinued operations per Limited Partner unit
$
0.01

 
$
0.01

 
$
0.05

 
$
0.02

Diluted Income from Continuing Operations per Limited Partner Unit:
 
 
 
 
 
 
 
Income from continuing operations available to Limited Partners
$
123

 
$
49

 
$
201

 
$
214

Dilutive effect of equity-based compensation of subsidiaries

 

 

 
(1
)
Diluted income from continuing operations available to Limited Partners
$
123

 
$
49

 
$
201

 
$
213

Weighted average limited partner units
280.5

 
280.0

 
280.2

 
253.3

Diluted income from continuing operations per Limited Partner unit
$
0.44

 
$
0.18

 
$
0.72

 
$
0.84

Diluted income from discontinued operations per Limited Partner unit
$
0.01

 
$
0.01

 
$
0.05

 
$
0.02


8.
DEBT OBLIGATIONS:
ETE Term Loan
On March 23, 2012, ETE entered into a Senior Secured Term Loan Agreement (the “Term Credit Agreement”) with Credit Suisse AG, as Administrative Agent, and the other lenders from time to time party thereto (the “Term Lenders”), which became effective on March 26, 2012. The Term Credit Agreement has a scheduled maturity date of March 26, 2017, with an option

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for ETE to extend the term subject to the terms and conditions set forth therein. Pursuant to the Term Credit Agreement, the Term Lenders have provided senior secured financing in an aggregate principal amount of $2 billion. Interest accrues on advances at a LIBOR rate or a base rate plus an applicable margin based on the election of ETE for each interest period. The applicable margin for LIBOR rate loans is 3.00% and the applicable margin for base rate loans is 2.00%.  Proceeds of the borrowings under the Term Credit Agreement were used to partially fund the Southern Union Merger, to repay amounts outstanding under the Parent Company Credit Facility, and to pay transaction fees and expenses related to the Southern Union Merger, the new Term Credit Agreement and other transactions incidental thereto.
During the three months ended June 30, 2013, proceeds from ETP’s acquisition of ETE’s 60% interest in Holdco were used to repay borrowings of $1.10 billion on ETE’s Term Credit Agreement. The total amount outstanding as of June 30, 2013 was $900 million.
Senior Notes
Regency Senior Notes
In April 2013, in conjunction with Southern Union’s contribution of SUGS to Regency, Regency issued $600 million senior notes in a private placement that mature on November 1, 2023 and bear interest at 4.5% payable semi-annually. In April 3013, Regency also delivered notice of redemption to the holders of its 2016 Senior Notes. In June 2013, Regency redeemed all of the $163 million outstanding 9.375% Senior Notes due 2016 for $178 million cash, including accrued and unpaid interest of $7 million and other fees and expenses.
ETP Senior Notes
In January 2013, ETP issued $800 million of 3.6% Senior Notes due February 2023 and $450 million of 5.15% Senior Notes due February 2043. ETP used the net proceeds of $1.24 billion from the offering to repay borrowings outstanding under the ETP Credit Facility and for general partnership purposes.
Sunoco Logistics Senior Notes
In January 2013, Sunoco Logistics issued $350 million of 3.45% Senior Notes due January 2023 and $350 million of 4.95% Senior Notes due January 2043. The net proceeds of $691 million from the offering were used to pay outstanding borrowings under the Sunoco Logistics’ Credit Facilities and for general partnership purposes.
ETP Note Exchange
On June 24, 2013, ETP completed the exchange of approximately $1.09 billion total principal amount of Southern Union’s outstanding senior notes, comprising 77% of the principal amount of the 7.6% Senior Notes due 2024, 89% of the principal amount of the 8.25% Senior Notes due 2029 and 91% of the principal amount of the Junior Subordinated Notes due 2066.  These notes were exchanged for new notes issued by ETP with the same coupon rates and maturity dates.  In conjunction with this transaction, Southern Union entered into intercompany notes payable to ETP, which provide for the reimbursement by Southern Union of ETP’s payments under the newly issued notes.
Revolving Credit Facilities
Parent Company Credit Facility
As of June 30, 2013, there were no outstanding borrowings under the Parent Company Credit Facility and the amount available for future borrowings was $200 million.
ETP Credit Facility
ETP has a $2.5 billion revolving credit facility (the “ETP Credit Facility”) that expires in October 2016. Indebtedness under the ETP Credit Facility is unsecured and not guaranteed by any of the Partnership’s subsidiaries and has equal rights to holders of ETP’s current and future unsecured debt.
As of June 30, 2013, the ETP Credit Facility had a balance of $900 million outstanding and the amount available for future borrowings was $1.49 billion after taking into account letters of credit of $107 million. The weighted average interest rate on the total amount outstanding as of June 30, 2013 was 1.70%.

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Regency Credit Facility
In May 2013, Regency entered into an agreement to increase the borrowing capacity of the Regency Credit Facility to $1.2 billion with a $300 million uncommitted incremental facility and extended the maturity date to May 21, 2018.
As of June 30, 2013, the Regency Credit Facility had a balance outstanding of $535 million in revolving credit loans and approximately $13 million in letters of credit. The total amount available under the Regency Credit Facility, as of June 30, 2013, which was reduced by any letters of credit, was approximately $652 million, and the weighted average interest rate on the total amount outstanding as of June 30, 2013 was 2.20%.
Southern Union Credit Facilities
Proceeds from the SUGS Contribution were used to repay $240 million of borrowings under the Eighth Amended and Restated Revolving Credit Agreement (the “Southern Union Credit Facility”) and the facility was terminated.
Sunoco Logistics Credit Facilities
Sunoco Logistics maintains two credit facilities to fund its working capital requirements, finance acquisitions and capital projects and for general partnership purposes. The credit facilities consist of a $350 million unsecured credit facility which expires in August 2016 and a $200 million unsecured credit facility which expires in August 2013. There were no outstanding borrowings under these credit facilities as of June 30, 2013.
West Texas Gulf Pipe Line Company, a subsidiary of Sunoco Logistics, has a $35 million revolving credit facility. Outstanding borrowings under this credit facility were $35 million as of June 30, 2013.
Compliance with Our Covenants
We were in compliance with all requirements, tests, limitations, and covenants related to our respective credit agreements as of June 30, 2013.
9.
PREFERRED UNITS:
On April 1, 2013, ETE paid $300 million to redeem (the “Redemption”) all of its 3,000,000 outstanding Preferred Units from Regency GP Acquirer L.P. (“GE Regency”) pursuant to a Preferred Unit Redemption Agreement, dated as of March 28, 2013, between ETE and GE Regency. Prior to the Redemption, on March 28, 2013, ETE paid GE Regency $40 million in cash in exchange for GE Regency relinquishing its right to receive any premium in connection with a future redemption or conversion of the Preferred Units.
10.
EQUITY:
ETE Common Units Issued
The change in ETE Common Units during the six months ended June 30, 2013 was as follows:
 
Number of
Units
Outstanding at December 31, 2012
280.0

Issuance of restricted units under equity incentive plans
0.8

Outstanding at June 30, 2013
280.8

Sales of Common Units by Subsidiaries
The Parent Company accounts for the difference between the carrying amount of its investments in ETP and Regency and the underlying book value arising from the issuance or redemption of units by ETP or Regency (excluding transactions with the Parent Company) as capital transactions.
As a result of ETP’s and Regency’s issuances of common units during the six months ended June 30, 2013, we recognized decreases in partners’ capital of $364 million.
Sales of Common Units by ETP
In January 2013 and May 2013, ETP entered into Equity Distribution Agreements pursuant to which ETP may sell from time to time ETP Common Units having aggregate offering prices of up to $200 million and $800 million, respectively. During

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the six months ended June 30, 2013, ETP received proceeds of $387 million, net of commissions of $4 million, from the issuance of units pursuant to the Equity Distribution Agreements, which proceeds were used for general partnership purposes. ETP also received $26 million net of commissions, in July 2013 from the settlement of transactions initiated in June 2013 under these agreements. Approximately $609 million of ETP Common Units remain available to be issued under these agreements.
During the six months ended June 30, 2013, distributions of $46 million were reinvested under the Distribution Reinvestment Plan resulting in the issuance of 1.0 million ETP Common Units. As of June 30, 2013, a total of 3.3 million ETP Common Units remain available to be issued under the existing registration statement.
In April 2013, ETP issued 13.8 million ETP Common Units at $48.05 per ETP Common Unit in an underwritten public offering. Proceeds, net of commissions, of $657 million from the offering were used to repay amounts outstanding under the ETP Credit Facility and for general partnership purposes.
ETP Class G Units
In April 2013, all of the outstanding ETP Class F Units, which were issued in connection with the Sunoco Merger, were exchanged for ETP Class G Units on a one-for-one basis. The Class G Units have terms that are substantially the same as the Class F Units, with the principal difference between the Class G Units and the Class F Units being that allocations of depreciation and amortization to the Class G Units for tax purposes are based on a predetermined percentage and are not contingent on whether ETP has net income or loss. These units are held by a subsidiary and therefore are reflected as treasury units in ETP’s consolidated financial statements.
ETP Class H Units
On August 7, 2013, ETP, ETE and ETE Common Holdings, LLC, a wholly-owned subsidiary of ETE (“ETE Holdings”) entered into an Exchange and Redemption Agreement, pursuant to which ETP has agreed to redeem and cancel 50.2 million of its common units representing limited partner interests (the “Redeemed Units”) currently owned by ETE Holdings in exchange for the issuance by ETP to ETE Holdings of a new class of limited partner interest in ETP (the “Class H Units”) which will generally be entitled to (i) allocations of profits, losses and other items from ETP corresponding to 50% of the profits, losses, and other items allocated to ETP by Sunoco Partners LLC (“Sunoco Partners”), the general partner of Sunoco Logistics, with respect to the IDRs and general partner interest in Sunoco Logistics held by Sunoco Partners, (ii) distributions from available cash at ETP for each quarter equal to 50% of the cash distributed to ETP by Sunoco Partners with respect to the IDRs and general partner interest in Sunoco Logistics held by Sunoco Partners for such quarter and, to the extent not previously distributed to holders of the Class H Units, for any previous quarters and (iii) incremental additional cash distributions in the aggregate amount of $329 million to be payable by ETP to ETE Holdings over 15 quarters, commencing with the quarter ending September 30, 2013 and ending with the quarter ending March 31, 2017. The incremental cash distributions referred to in clause (iii) of the previous sentence are intended to offset a portion of the IDR subsidies previously granted by ETE to ETP in connection with the Citrus Merger, the Holdco Transaction and the Holdco Acquisition. In connection with the issuance of the Class H units, ETE and ETP also agreed to certain adjustments to the prior IDR subsidies in order to ensure that the IDR subsidies are fixed amounts for each quarter to which the IDR subsidies are in effect. For a summary of the net IDR subsidy amounts resulting from this transaction, see “Quarterly Distributions of Available Cash” below.
This transaction is subject to certain customary closing conditions. In the Exchange and Redemption Agreement, ETP, ETE and ETE Holdings have made customary representations and warranties and have agreed to customary covenants relating to this transaction.
Parent Company Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by us subsequent to December 31, 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2012
 
February 7, 2013
 
February 19, 2013
 
$
0.635

March 31, 2013
 
May 6, 2013
 
May 17, 2013
 
0.645

June 30, 2013
 
August 5, 2013
 
August 19, 2013
 
0.655


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ETP Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by ETP subsequent to December 31, 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2012
 
February 7, 2013
 
February 14, 2013
 
$
0.89375

March 31, 2013
 
May 6, 2013
 
May 15, 2013
 
0.89375

June 30, 2013
 
August 5, 2013
 
August 14, 2013
 
0.89375

Following are incentive distributions ETE has agreed to relinquish:
In conjunction with the Partnership’s Citrus Merger, ETE agreed to relinquish its rights to $220 million of the incentive distributions from ETP that ETE would otherwise be entitled to receive over 16 consecutive quarters beginning with the distribution paid on May 15, 2012.
In conjunction with the Holdco transaction in October 2012, ETE agreed to relinquish its right to $210 million of incentive distributions from ETP that ETE would otherwise be entitled to receive over 12 consecutive quarters beginning with the distribution paid on November 14, 2012.
As discussed in Note 2, in connection with ETP’s acquisition of ETE’s 60% interest in Holdco on April 30, 2013, ETE also agreed to relinquish incentive distributions on the newly issued Common Units for the first eight consecutive quarters beginning with the distribution paid on August 14, 2013, and 50% of the incentive distributions for the following eight consecutive quarters.
As discussed under “Class H Units” above, ETP has agreed to make incremental cash distributions of $329 million over 15 quarters, commencing with the quarter ending September 30, 2013 and ending with the quarter ending March 31, 2017, in respect of the Class H units as a means to offset prior IDR subsidies that ETE agreed to in connection with the Citrus Merger, the Holdco Transaction and the Holdco Acquisition.
As a result, the net IDR subsidies from ETE, taking into account the incremental cash distributions related to the Class H units as an offset thereto, will be the amounts set forth in the table below:
 
 
Quarters Ending
 
 
 
 
March 31
 
June 30
 
September 30
 
December 31
 
Total Year
2013
 
N/A

 
N/A

 
$
21.00

 
$
21.00

 
$
42.00

2014
 
$
27.25

 
$
27.25

 
27.25

 
27.25

 
109.00

2015
 
13.25

 
13.25

 
13.25

 
13.25

 
53.00

2016
 
5.50

 
5.50

 
5.50

 
5.50

 
22.00


Regency Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Regency subsequent to December 31, 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2012
 
February 7, 2013
 
February 14, 2013
 
$
0.460

March 31, 2013
 
May 6, 2013
 
May 13, 2013
 
0.460

June 30, 2013
 
August 5, 2013
 
August 14, 2013
 
0.465

In conjunction with Southern Union’s contribution of SUGS to Regency, ETE agreed to forego incentive distributions with respect to the Regency common units issued in the transaction for the first eight consecutive quarters following the closing.
Sunoco Logistics Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Sunoco Logistics subsequent to December 31, 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2012
 
February 8, 2013
 
February 14, 2013
 
$
0.5450

March 31, 2013
 
May 9, 2013
 
May 15, 2013
 
0.5725

June 30, 2013
 
August 8, 2013
 
August 14, 2013
 
0.6000


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Accumulated Other Comprehensive Loss
The following table presents the components of accumulated other comprehensive loss, net of tax:
 
June 30,
2013
 
December 31, 2012
Net gains (losses) on commodity related hedges
$
6

 
$
(3
)
Foreign currency translation adjustment
(1
)
 

Actuarial loss related to pensions and other postretirement benefits
(9
)
 
(10
)
Equity investments, net
(5
)
 
(9
)
Subtotal
(9
)
 
(22
)
Amounts attributable to noncontrolling interest
7

 
10

Total accumulated other comprehensive loss, net of tax
$
(2
)
 
$
(12
)
 
11.
UNIT-BASED COMPENSATION PLANS:
We and certain of our subsidiaries have equity incentive plans for employees, officers and directors, which provide for various types of awards, including options to purchase common units, restricted units, phantom units, DERs, common unit appreciation rights, and other unit-based awards.
ETE Long-Term Incentive Plan
During the six months ended June 30, 2013, 750,000 awards were granted to an ETE employee and 6,042 awards were granted to ETE directors. As of June 30, 2013 a total of 804,190 unit awards remain unvested. We expect to recognize a total of $42 million in compensation expense over a weighted average period of 4.5 years related to unvested awards.
ETP Unit-Based Compensation Plans
During the six months ended June 30, 2013, ETP employees were granted a total of 1,074,163 unvested awards with five-year service vesting requirements, and directors were granted a total of 9,060 unvested awards with three-year and five-year service vesting requirements. The weighted average grant-date fair value of these awards was $45.37 per unit. As of June 30, 2013 a total of 2,827,915 unit awards remain unvested, including the new awards granted during the period. ETP expects to recognize $76 million in compensation expense over a weighted average period of 1.8 years related to unvested awards.
Regency Unit-Based Compensation Plans
During the six months ended June 30, 2013, Regency employees and directors were granted 52,360 Regency phantom units with 5-year service vesting requirements. As of June 30, 2013, a total of 1,189,247 Regency Phantom Units remain unvested, with a weighted average grant date fair value of $24.43 per unit. Regency expects to recognize a total of $22 million in compensation expense over a period of 5 years related to Regency’s unvested phantom units.
Sunoco Logistics Unit-Based Compensation Plan
As of June 30, 2013, a total of 936,438 Sunoco Logistics restricted units were outstanding for which Sunoco Logistics expects to recognize $19 million in compensation expense over a weighted-average period of 2.5 years.
12.
INCOME TAXES:

The following table summarizes the Partnership’s income tax expense from continuing operations:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2013
 
2012
 
2013
 
2012
Income tax expense from continuing operations
$
89

 
$
5

 
$
87

 
$
7

Effective tax rate
21
%
 
7
%
 
12
%
 
1
%

The increase in the effective tax rate in the 2013 periods presented over the 2012 periods presented is primarily due to the Partnership conducting a significant portion of its activities through corporate subsidiaries, Southern Union and Sunoco. The Southern Union transaction was completed in March 2012 while the Holdco and Sunoco transactions were completed in October 2012.

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13.
RETIREMENT BENEFITS:
The following table sets forth the components of net period benefit cost of the Partnership’s pension and other postretirement benefit plans:
 
Three Months Ended June 30,
 
2013
 
2012 (1)
 
Pension Benefits
 
Other Postretirement Benefits
 
Pension Benefits
 
Other Postretirement Benefits
Net Periodic Benefit Cost:
 
 
 
 
 
 
 
Service cost
$
3

 
$
1

 
$
2

 
$

Interest cost
9

 
1

 
(1
)
 
1

Expected return on plan assets
(15
)
 
(1
)
 
(1
)
 
(2
)
 
(3
)
 
1

 

 
(1
)
Regulatory adjustment(3)
2

 
(3
)
 

 
1

Net periodic benefit cost
$
(1
)
 
$
(2
)
 
$

 
$

 
Six Months Ended June 30,
 
2013
 
2012 (1)
 
Pension Benefits
 
Other Postretirement Benefits
 
Pension Benefits
 
Other Postretirement Benefits
Net Periodic Benefit Cost:
 
 
 
 
 
 
 
Service cost
$
5

 
$
1

 
$
2

 
$

Interest cost
18

 
3

 
(1
)
 
1

Expected return on plan assets
(30
)
 
(4
)
 
(1
)
 
(2
)
Actuarial loss amortization
1

 

 

 

Settlement credits
(2
)
 

 

 

Curtailment recognition(2)

 

 

 
(15
)
 
(8
)
 

 

 
(16
)
Regulatory adjustment(3)
4

 

 

 
1

Net periodic benefit cost
$
(4
)
 
$

 
$

 
$
(15
)
(1) 
The three and six months ended June 30, 2012 include components of net periodic benefit cost of Southern Union subsequent to the Southern Union Merger on March 26, 2012.
(2) 
Subsequent to the Southern Union Merger, Southern Union amended certain of its other postretirement employee benefit plans, which prospectively restrict participation in the plans for the impacted active employees.  The plan amendments resulted in the plans becoming currently over-funded and, accordingly, Southern Union recorded a pre-tax curtailment gain of $75 million.  Such gain was offset by establishment of a non-current refund liability in the amount of $60 million.  As such, the net curtailment gain recognition was $15 million.
(3) 
In its distribution operations, Southern Union recovers certain qualified pension benefit plan and other postretirement benefit plan costs through rates charged to utility customers.  Certain utility commissions require that the recovery of these costs be based on the Employee Retirement Income Security Act of 1974, as amended, or other utility commission specific guidelines.  The difference between these regulatory-based amounts and the periodic benefit cost calculated pursuant to GAAP is deferred as a regulatory asset or liability and amortized to expense over periods in which this difference will be recovered in rates, as promulgated by the applicable utility commission.
14.
REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES:
FERC Audit
The FERC is currently conducting an audit of Panhandle Eastern Pipe Line Company, LP, a subsidiary of Southern Union, to evaluate its compliance with the Uniform System of Accounts as prescribed by the FERC, annual and quarterly financial

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reporting to the FERC, reservation charge crediting policy and record retention.  A draft audit report was received on July 19, 2013 noting no issues that would have a material impact on the Partnership’s historical financial position or results of operations.
Contingent Residual Support Agreement — AmeriGas
In connection with the closing of the contribution of ETP’s propane operations in January 2013, ETP agreed to provide contingent, residual support of $1.55 billion of senior notes issued by AmeriGas and certain of its affiliates with maturities through 2022.
PEPL Holdings Guarantee of Collection
In connection with the SUGS Contribution, Regency issued $600 million of 4.50% Senior Notes due 2023 (the “Regency Debt”), the proceeds of which were used by Regency to fund the cash portion of the consideration, as adjusted, and pay certain other expenses or disbursements directly related to the closing of the SUGS Contribution. In connection with the closing of the SUGS Contribution on April 30, 2013, Regency entered into an agreement with PEPL Holdings, a subsidiary of Southern Union, pursuant to which PEPL Holdings provided a guarantee of collection (on a nonrecourse basis to Southern Union) to Regency and Regency Energy Finance Corp. with respect to the payment of the principal amount of the Regency Debt through maturity in 2023.
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 2056.  Rental expense under these operating leases has been included in operating expenses in the accompanying statements of operations and totaled $32 million and $12 million for the three months ended June 30, 2013 and 2012, respectively, which include contingent rentals totaling $6 million in the three months ended June 30, 2013.  For the six months ended June 30, 2013 and 2012, rental expense for operating leases totaled $65 million and $19 million, respectively, which include contingent rentals totaling $10 million in the six months ended June 30, 2013.  During the three and six months ended June 30, 2013, $5 million and $10 million, respectively, of rental expense was recovered through related sublease rental income.
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.
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 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.
Sunoco Litigation
Following the announcement of the Sunoco Merger on April 30, 2012, eight putative class action and derivative complaints were filed in connection with the Sunoco Merger in the Court of Common Pleas of Philadelphia County, Pennsylvania.  Each complaint names as defendants the members of Sunoco’s board of directors and alleges that they breached their fiduciary duties by negotiating and executing, through an unfair and conflicted process, a merger agreement that provides inadequate consideration and that contains impermissible terms designed to deter alternative bids. Each complaint also names as defendants Sunoco, ETP, ETP GP, ETP LLC, and Sam Acquisition Corporation, alleging that they aided and abetted the breach of fiduciary duties by Sunoco’s directors; some of the complaints also name ETE as a defendant on those aiding and abetting claims. In September 2012, all of these lawsuits were settled with no payment obligation on the part of any of the defendants

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following the filing of Current Reports on Form 8-K that included additional disclosures that were incorporated by reference into the proxy statement related to the Sunoco Merger. Subsequent to the settlement of these cases, the plaintiffs’ attorneys sought compensation from Sunoco for attorneys’ fees related to their efforts in obtaining these additional disclosures. In January 2013, Sunoco entered into agreements to compensate the plaintiffs’ attorneys in the state court actions in the aggregate amount of not more than $950,000 and to compensate the plaintiffs’ attorneys in the federal court action in the amount of not more than $250,000. The payment of $950,000 was made in July 2013.
Litigation Relating to the Southern Union Merger
In June 2011, several putative class action lawsuits were filed in the Judicial District Court of Harris County, Texas naming as defendants the members of the Southern Union Board, as well as Southern Union and ETE.  The lawsuits were styled Jaroslawicz v. Southern Union Company, et al., Cause No. 2011-37091, in the 333rd Judicial District Court of Harris County, Texas and Magda v. Southern Union Company, et al., Cause No. 2011-37134, in the 11th Judicial District Court of Harris County, Texas.  The lawsuits were consolidated into an action styled In re: Southern Union Company; Cause No. 2011-37091, in the 333rd Judicial District Court of Harris County, Texas.  Plaintiffs allege that the Southern Union directors breached their fiduciary duties to Southern Union’s stockholders in connection with the Merger and that Southern Union and ETE aided and abetted the alleged breaches of fiduciary duty.  The amended petitions allege that the Merger involves an unfair price and an inadequate sales process, that Southern Union’s directors entered into the Merger to benefit themselves personally, including through consulting and noncompete agreements, and that defendants have failed to disclose all material information related to the Merger to Southern Union stockholders.  The amended petitions seek injunctive relief, including an injunction of the Merger, and an award of attorneys’ and other fees and costs, in addition to other relief.  On October 21, 2011, the court denied ETE’s October 13, 2011, motion to stay the Texas proceeding in favor of cases pending in the Delaware Court of Chancery.
Also in June 2011, several putative class action lawsuits were filed in the Delaware Court of Chancery naming as defendants the members of the Southern Union Board, as well as Southern Union and ETE.  Three of the lawsuits also named Merger Sub as a defendant.  These lawsuits are styled: Southeastern Pennsylvania Transportation Authority, et al. v. Southern Union Company, et al., C.A. No. 6615-CS; KBC Asset Management NV v. Southern Union Company, et al., C.A. No. 6622-CS; LBBW Asset Management Investment GmbH v. Southern Union Company, et al., C.A. No. 6627-CS; and Memo v. Southern Union Company, et al., C.A. No. 6639-CS.  These cases were consolidated with the following style: In re Southern Union Co. Shareholder Litigation, C.A. No. 6615-CS, in the Delaware Court of Chancery.  The consolidated complaint asserts similar claims and allegations as the Texas state-court consolidated action.  On July 25, 2012, the Delaware plaintiffs filed a notice of voluntary dismissal of all claims without prejudice.  In the notice, plaintiffs stated their claims were being dismissed to avoid duplicative litigation and indicated their intent to join the Texas case.
The Texas case remains pending, and discovery is ongoing.
MTBE Litigation
Sunoco, 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 are asserting primarily 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 are seeking to recover compensatory damages, and in some cases, injunctive relief, punitive damages and attorneys’ fees.
As of June 30, 2013, Sunoco was a defendant in two lawsuits involving one state and Puerto Rico.  These cases are venued in a multidistrict proceeding in a New York federal court.  Both cases assert natural resource damage claims.  In addition, Sunoco has received notice from another state that it intends to file an MTBE lawsuit in the near future asserting natural resource damage claims.
Discovery is proceeding in these cases.  There has been insufficient information developed about the plaintiffs’ legal theories or the facts in the natural resource damage claims that would be relevant to an analysis of the ultimate liability of Sunoco in these matters; however, it is reasonably possible that a loss may be realized.  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 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.
Other Litigation and Contingencies
In November 2011, a derivative lawsuit was filed in the Judicial District Court of Harris County, Texas naming as defendants ETP, ETP GP, ETP LLC, the boards of directors of ETP LLC (collectively with ETP GP and ETP LLC, the “ETP Defendants”),

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certain members of management for ETP and ETE, ETE, and Southern Union.  The lawsuit is styled W. J. Garrett Trust v. Bill W. Byrne, et al., Cause No. 2011-71702, in the 157th Judicial District Court of Harris County, Texas.  Plaintiffs assert claims for breaches of fiduciary duty, breaches of contractual duties, and acts of bad faith against each of the ETP Defendants and the individual defendants.  Plaintiffs also assert claims for aiding and abetting and tortious interference with contract against Southern Union.  On October 5, 2012, certain defendants filed a motion for summary judgment with respect to the primary allegations in this action.  On December 13, 2012, Plaintiffs filed their opposition to the motion for summary judgment.  Defendants filed a reply on December 19, 2012.  On December 20, 2012, the court conducted an oral hearing on the motion.  Plaintiffs filed a post-hearing sur-reply on January 7, 2013.  On January 16, 2013, the Court granted defendants’ motion for summary judgment.  The parties agreed to settle the matter and executed a memorandum of understanding. The parties are drafting a stipulation of settlement (with proposed judgment) and will have a settlement hearing likely in August 2013 for the Court to approve the settlement, which will dispose of the case. It is unlikely the Court will reject the settlement.
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, 2013 and December 31, 2012, accruals of approximately $37 million and $42 million 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.
No amounts have been recorded in our June 30, 2013 or December 31, 2012 consolidated balance sheets for contingencies and current litigation, other than amounts disclosed herein.
Will Price.  Will Price, an individual, filed actions in the U.S. District Court for the District of Kansas for damages against a number of companies, including Panhandle, alleging mis-measurement of natural gas volumes and Btu content, resulting in lower royalties to mineral interest owners.  On September 19, 2009, the Court denied plaintiffs’ request for class certification.  Plaintiffs have filed a motion for reconsideration, which the Court denied on March 31, 2010.  Panhandle believes that its measurement practices conformed to the terms of its FERC natural gas tariffs, which were filed with and approved by the FERC.  As a result, Southern Union believes that it has meritorious defenses to the Will Price lawsuit (including FERC-related affirmative defenses, such as the filed rate/tariff doctrine, the primary/exclusive jurisdiction of the FERC, and the defense that Panhandle complied with the terms of its tariffs).  Panhandle will continue to vigorously defend the case.  Southern Union believes it has no liability associated with this proceeding.
Litigation Related to Incident at JJ's Restaurant.  On February 19, 2013, there was a natural gas explosion at JJ's Restaurant located at 910 W. 48th Street in Kansas City, Missouri.  One person died and media reports indicate that up to fifteen people were transported to area hospitals.  The extent and nature of those injuries are currently unknown.  The restaurant building was destroyed in the explosion and fire.  Immediately surrounding buildings sustained damage, but the full extent of that damage is unknown at this time.  A contractor, Heartland Midwest LLC, was in the process of installing cable for Time Warner Cable and hit a natural gas line while directionally boring.  The utility locates for the work were done by USIC Locating Services, Inc., a utility infrastructure locating company engaged by Missouri Gas Energy to locate and mark underground gas lines (and engaged by others to mark other underground facilities).  Several parties have retained counsel, and to date, nine lawsuits have been filed in the Circuit Court of Jackson County, Missouri, against numerous defendants.  MGE and MGE employee, Michael Palier, are defendants in all but one of the lawsuits (Palier v. Time Warner).  The lawsuits filed to date include Simmons v. MGE, Case No. 1316-CV07265 (no trial date set); Tanner v. MGE, Case No. 1316-CV09906 (no trial date set), JJ's Restaurant v. MGE, Case No. 1316-CV11288 (two trial dates set on January 12, 2015 and April 6, 2015); Meek v. MGE, Case No. 1316-CV13523 (no trial date set); Cramer v. MGE, Case No. 1316-CV13738 (no trial date set); Plazaview, LLC v. MGE, Case No. 1316-CV16817 (no trial date set); Mingos v. MGE, Case No. 1316-CV18072 (no trial date set); Palier v. Time Warner, Case No. 1316-CV18684 (no trial date set); and Couture v. MGE, Case No. 1316-CV18787 (no trial date set).  Discovery in the pending lawsuits is ongoing.  No demands have been made in any of the pending lawsuits.  The Partnership anticipates that more lawsuits will be filed.  The Missouri Public Service Commission and the Occupational Safety and Health Administration investigations are ongoing.  The Partnership will assess its potential exposure as the matter progresses as no estimate can be made at this time.

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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 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, Southern Union’s 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. Southern Union believes it has complied with all applicable requirements regarding its filings for cost recovery and has not recorded any accrued liability; however, Southern Union will continue to assess its potential exposure for such cost recoveries as the matter progresses.
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.  Moreover, there can be no assurance that other developments, such as increasingly stringent environmental laws, regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from the operations, will not result in substantial costs and liabilities.  We are unable to estimate any losses or range of losses that could result from such developments.  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.
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