ETE 03-31-2014 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 March 31, 2014
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 May 2, 2014, the registrant had 543,712,024 Common Units outstanding.
 


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, 2013 filed with the Securities and Exchange Commission on February 27, 2014.
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
 
 
 
Citrus
 
Citrus Corp., which owns 100% of FGT
 
 
 
CrossCountry
 
CrossCountry Energy LLC, which owns an indirect 50% interest in Citrus
 
 
 
Eagle Rock
 
Eagle Rock Energy Partners, L.P.
 
 
 
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 $2.5 billion revolving credit facility
 
 
 
EPA
 
U.S. Environmental Protection Agency
 
 
 
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
Hoover
 
Hoover Energy Partners, LP
 
 
 
 
 
 
IDRs
 
incentive distribution rights
 
 
 
LIBOR
 
London Interbank Offered Rate
 
 
 
LNG
 
liquefied natural gas
 
 
 

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Lone Star
 
Lone Star NGL LLC
 
 
 
MACS
 
Mid-Atlantic Convenience Stores, LLC
 
 
 
MGE
 
Missouri Gas Energy
 
 
 
MEP
 
Midcontinent Express Pipeline LLC
 
 
 
MMBtu
 
million British thermal units
 
 
 
MTBE
 
methyl tertiary butyl ether
 
 
 
NEG
 
New England Gas Company
 
 
 
NGL
 
natural gas liquid, such as propane, butane and natural gasoline
 
 
NYMEX
 
New York Mercantile Exchange
 
 
 
OSHA
 
Federal Occupational Safety and Health Act
 
 
OTC
 
over-the-counter
 
 
 
Panhandle
 
Panhandle Eastern Pipe Line Company, LP
 
 
 
PCBs
 
polychlorinated biphenyl
 
 
 
PEPL Holdings
 
PEPL Holdings, LLC, a wholly-owned subsidiary of ETP
 
 
 
PES
 
Philadelphia Energy Solutions
 
 
 
PHMSA
 
Pipeline Hazardous Materials Safety Administration
 
 
 
PVR
 
PVR Partners, L.P.
 
 
 
Regency
 
Regency Energy Partners LP
 
 
 
Regency Credit Facility
 
Regency’s $1.5 billion revolving credit facility
 
 
 
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
 
 
 
SUGS
 
Southern Union Gas Services
 
 
 
Sunoco
 
Sunoco, Inc.
 
 
 
Sunoco Logistics
 
Sunoco Logistics Partners L.P.
 
 
 
Susser Holdings
 
Susser Holdings Corporation
 
 
 
Susser Petroleum
 
Susser Petroleum Partners, LP
 
 
 
Transwestern
 
Transwestern Pipeline Company, LLC
 
 
 
Trunkline LNG
 
Trunkline LNG 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 and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Adjusted EBITDA reflects amounts for less than wholly owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on the Partnership’s proportionate ownership.

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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)
 
 
March 31,
2014
 
December 31, 2013
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
1,010

 
$
590

Accounts receivable, net
4,423

 
3,658

Accounts receivable from related companies
40

 
63

Inventories
1,484

 
1,807

Exchanges receivable
101

 
67

Price risk management assets
12

 
39

Current assets held for sale
167

 

Other current assets
279

 
312

Total current assets
7,516

 
6,536

 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
37,679

 
33,917

ACCUMULATED DEPRECIATION
(3,564
)
 
(3,235
)
 
34,115

 
30,682

 
 
 
 
ADVANCES TO AND INVESTMENTS IN UNCONSOLIDATED AFFILIATES
3,818

 
4,014

NON-CURRENT PRICE RISK MANAGEMENT ASSETS
1

 
18

GOODWILL
6,216

 
5,894

INTANGIBLE ASSETS, net
5,132

 
2,264

OTHER NON-CURRENT ASSETS, net
971

 
922

Total assets
$
57,769

 
$
50,330


















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)

 
March 31,
2014
 
December 31, 2013
LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
4,272

 
$
3,834

Accounts payable to related companies
10

 
14

Exchanges payable
284

 
284

Price risk management liabilities
70

 
53

Accrued and other current liabilities
1,958

 
1,678

Current maturities of long-term debt
1,388

 
637

Current liabilities held for sale
109

 

Total current liabilities
8,091

 
6,500

 
 
 
 
LONG-TERM DEBT, less current maturities
24,905

 
22,562

DEFERRED INCOME TAXES
3,700

 
3,865

NON-CURRENT PRICE RISK MANAGEMENT LIABILITIES
59

 
73

OTHER NON-CURRENT LIABILITIES
1,024

 
1,019

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 12)

 

 
 
 
 
PREFERRED UNITS OF SUBSIDIARY
32

 
32

 
 
 
 
EQUITY:
 
 
 
General Partner
(1
)
 
(3
)
Limited Partners:
 
 
 
Common Unitholders
1,271

 
1,066

Class D Units
10

 
6

Accumulated other comprehensive income
6

 
9

Total partners’ capital
1,286

 
1,078

Noncontrolling interest
18,672

 
15,201

Total equity
19,958

 
16,279

Total liabilities and equity
$
57,769

 
$
50,330












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 March 31,
 
2014
 
2013
REVENUES:
 
 
 
Natural gas sales
$
1,430

 
$
973

NGL sales
1,254

 
713

Crude sales
4,093

 
3,201

Gathering, transportation and other fees
872

 
740

Refined product sales
4,478

 
4,662

Other
953

 
890

Total revenues
13,080

 
11,179

COSTS AND EXPENSES:
 
 
 
Cost of products sold
11,442

 
9,807

Operating expenses
407

 
372

Depreciation and amortization
373


312

Selling, general and administrative
148

 
157

Total costs and expenses
12,370

 
10,648

OPERATING INCOME
710

 
531

OTHER INCOME (EXPENSE):
 
 
 
Interest expense, net of interest capitalized
(315
)

(310
)
Equity in earnings of unconsolidated affiliates
104

 
90

Gains (losses) on interest rate derivatives
(2
)

6

Gain on sale of AmeriGas common units
70

 

Other, net
2

 
(19
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
569

 
298

Income tax expense (benefit) from continuing operations
145


(2
)
INCOME FROM CONTINUING OPERATIONS
424

 
300

Income from discontinued operations
24


22

NET INCOME
448

 
322

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST
280

 
232

NET INCOME ATTRIBUTABLE TO PARTNERS
168

 
90

GENERAL PARTNER’S INTEREST IN NET INCOME

 

CLASS D UNITHOLDER’S INTEREST IN NET INCOME
1

 

LIMITED PARTNERS’ INTEREST IN NET INCOME
$
167

 
$
90

INCOME FROM CONTINUING OPERATIONS PER LIMITED PARTNER UNIT:
 
 
 
Basic
$
0.30

 
$
0.14

Diluted
$
0.30

 
$
0.14

NET INCOME PER LIMITED PARTNER UNIT:
 
 
 
Basic
$
0.30

 
$
0.16

Diluted
$
0.30

 
$
0.16




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 (LOSS)
(Dollars in millions)
(unaudited)
 
 
Three Months Ended March 31,
 
2014
 
2013
Net income
$
448

 
$
322

Other comprehensive income (loss), net of tax:
 
 
 
Reclassification to earnings of gains and losses on derivative instruments accounted for as cash flow hedges
4

 
(1
)
Change in value of derivative instruments accounted for as cash flow hedges
(4
)
 
2

Change in value of available-for-sale securities

 
1

Actuarial loss relating to pension and other postretirement benefits
(1
)
 
(1
)
Foreign currency translation adjustment
(3
)
 
(1
)
Change in other comprehensive income from equity investments
(7
)
 
7

 
(11
)
 
7

Comprehensive income
437

 
329

Less: Comprehensive income attributable to noncontrolling interest
272

 
238

Comprehensive income attributable to partners
$
165

 
$
91






























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 THREE MONTHS ENDED MARCH 31, 2014
(Dollars in millions)
(unaudited)
 
 
General
Partner    
 
Common
Unitholders    
 
Class D Units
 
Accumulated
Other
Comprehensive
Income
 
Non-
controlling
Interest
 
Total    
Balance, December 31, 2013
$
(3
)
 
$
1,066

 
$
6

 
$
9

 
$
15,201

 
$
16,279

Distributions to partners

 
(194
)
 
(1
)
 

 

 
(195
)
Distributions to noncontrolling interest

 

 

 

 
(397
)
 
(397
)
Subsidiary units issued for cash

 
17

 

 

 
158

 
175

Subsidiary units issued in certain acquisitions

 
104

 

 

 
3,911

 
4,015

Subsidiary units redeemed in Trunkline LNG Transaction
2

 
480

 

 

 
(482
)
 

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

 

 
4

 

 
13

 
17

Other, net

 
(3
)
 

 

 
(4
)
 
(7
)
Units repurchased under buyback program

 
(366
)
 

 

 

 
(366
)
Other comprehensive loss, net of tax

 

 

 
(3
)
 
(8
)
 
(11
)
Net income

 
167

 
1

 

 
280

 
448

Balance, March 31, 2014
$
(1
)
 
$
1,271

 
$
10

 
$
6

 
$
18,672

 
$
19,958

























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 CASH FLOWS
(Dollars in millions)
(unaudited)
 
Three Months Ended March 31,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
448

 
$
322

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
373

 
312

Deferred income taxes
(109
)
 
3

Amortization included in interest expense
(12
)
 
(16
)
Non-cash compensation expense
20

 
16

Gain on sale of AmeriGas common units
(70
)
 

LIFO valuation adjustments
(14
)
 
(38
)
Equity in earnings of unconsolidated affiliates
(104
)
 
(90
)
Distributions from unconsolidated affiliates
67

 
100

Other non-cash
(16
)
 
17

Net change in operating assets and liabilities, net of effects of acquisitions and deconsolidation
246

 
(296
)
Net cash provided by operating activities
829

 
330

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Cash paid for acquisitions, net of cash received
(214
)
 

Cash proceeds from the sale of AmeriGas common units
381

 

Capital expenditures (excluding allowance for equity funds used during construction)
(942
)
 
(761
)
Contributions in aid of construction costs
7

 
8

Contributions to unconsolidated affiliates
(50
)
 
(1
)
Distributions from unconsolidated affiliates in excess of cumulative earnings
27

 
30

Proceeds from the sale of assets
11

 
21

Other
(21
)
 
3

Net cash used in investing activities
(801
)
 
(700
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from borrowings
3,170

 
2,899

Repayments of long-term debt
(1,977
)
 
(1,961
)
Subsidiary equity offerings, net of issue costs
175

 
192

Distributions to partners
(195
)
 
(179
)
Debt issuance costs
(17
)
 
(16
)
Distributions to noncontrolling interest
(397
)
 
(333
)
Capital contributions received from noncontrolling interest

 
11

Units repurchased under buyback program
(366
)
 

Other, net
(1
)
 
(1
)
Net cash provided by financing activities
392

 
612

INCREASE IN CASH AND CASH EQUIVALENTS
420

 
242

CASH AND CASH EQUIVALENTS, beginning of period
590

 
372

CASH AND CASH EQUIVALENTS, end of period
$
1,010

 
$
614




The accompanying notes are an integral part of these consolidated financial statements.
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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”);
ETP’s and Regency’s consolidated subsidiaries and our wholly-owned subsidiaries that own the general partner and IDRs in ETP and Regency; and
our wholly-owned subsidiary, Trunkline LNG, which was acquired from ETP in February 2014.
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 and cash flows from the operations of Trunkline LNG. The Parent Company’s primary cash requirements are for general and administrative expenses, debt service requirements and distributions to its partners. Parent Company-only assets are not available to satisfy the debts and other obligations of ETE’s subsidiaries. In order to understand the financial condition of the Parent Company on a stand-alone basis, see Note 17 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 is a publicly traded partnership whose 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 and also owns MACS, a convenience store operator.
ET Interstate, a Delaware limited liability company with revenues consisting primarily of fees earned from natural gas transportation services and operational gas sales. ET Interstate 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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Holdco, a Delaware limited liability company that indirectly owns Panhandle and Sunoco. As discussed in Note 2, ETP acquired ETE’s 60% interest in Holdco on April 30, 2013. Panhandle and Sunoco operations are described as follows:
Panhandle owns and operates assets in the regulated and unregulated natural gas industry and is primarily engaged in the transportation and storage of natural gas in the United States. As discussed in Note 2, in January 2014, Panhandle consummated a merger with Southern Union, the indirect parent of Panhandle, and PEPL Holdings, the sole limited partner of Panhandle, pursuant to which each of Southern Union and PEPL Holdings were merged with and into Panhandle, with Panhandle surviving the merger.
Sunoco owns and operates retail marketing assets, which sell gasoline and middle distillates at retail locations and operates convenience stores primarily on the east coast and in the midwest region of the United States.
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.
Regency is a publicly traded partnership engaged in the gathering and processing, 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 Eagle Ford, Haynesville, Barnett, Fayetteville, Marcellus, Utica, Bone Spring, Avalon and Granite Wash shales. Its assets are located in Texas, Louisiana, Arkansas, Pennsylvania, California, Mississippi, Alabama, New Mexico and the mid-continent region of the United States, which includes Kansas, Colorado and Oklahoma. Regency also holds a 30% interest in Lone Star.
Trunkline LNG operates a LNG import terminal, which has approximately 9.0 Bcf of above ground LNG storage capacity and re-gasification facilities on Louisiana’s Gulf Coast near Lake Charles, Louisiana. Trunkline LNG is engaged in interstate commerce and is subject to the rules, regulations and accounting requirements of the FERC.
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.
Investment in Trunkline LNG, including the operations of Trunkline LNG.
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, 2013, which has been derived from audited financial statements, and the unaudited interim consolidated financial statements and notes thereto of the Partnership as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 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 March 31, 2014, and the Partnership’s results of operations and cash flows for the three months ended March 31, 2014 and 2013. 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, 2013, as filed with the SEC on February 27, 2014.

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Certain prior period amounts have been reclassified to conform to the 2014 presentation. These reclassifications had no impact on net income or total equity.
We record the collection of taxes to be remitted to government authorities on a net basis except for ETP’s retail marketing operations, in which consumer excise taxes on sales of refined products and merchandise are included in both revenues and cost of products sold in the consolidated statements of operations, with no net impact on net income. Excise taxes collected by ETP’s retail marketing operations were $530 million and $514 million for the three months ended March 31, 2014 and 2013, respectively.
New Accounting Pronouncements
In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (“ASU 2014-08”), which changed the requirements for reporting discontinued operations.  Under ASU 2014-08, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.  ASU 2014-08 is effective for all disposals or classifications as held for sale of components of an entity that occur within fiscal years beginning after December 15, 2014, and early adoption is permitted. We expect to adopt this standard for the year ending December 31, 2015. ASU 2014-08 could have an impact on whether transactions will be reported in discontinued operations in the future, as well as the disclosures required when a component of an entity is disposed.
2.
ACQUISITIONS, DIVESTITURES AND RELATED TRANSACTIONS:
Pending Transactions
ETP’s Pending Acquisition of Susser Holdings
On April 27, 2014, ETP entered into a definitive merger agreement whereby ETP plans to acquire Susser Holdings in a unit and cash transaction for total consideration valued at approximately $1.8 billion (the “Susser Merger”). By acquiring Susser Holdings, ETP will own the general partner interest and the incentive distribution rights in Susser Petroleum, approximately 11 million Susser Petroleum common units (representing approximately 50.2% of Susser Petroleum’s outstanding units), and Susser Holdings’ existing retail operations, consisting of 630 convenience store locations. The Susser Merger is expected to close in the third quarter of 2014, subject to approval of the shareholders of Susser Holdings and customary regulatory approvals.
Regency’s Pending Acquisition of Eagle Rock’s Midstream Business
In December 2013, Regency entered into an agreement to purchase Eagle Rock’s midstream business for approximately $1.3 billion (the “Eagle Rock Acquisition”). This acquisition is expected to complement Regency’s core gathering and processing business and, when combined with the PVR Acquisition, is expected to further diversify Regency’s basin exposure in the Texas Panhandle, East Texas and South Texas. On April 29, 2014, Eagle Rock’s unitholders approved the Eagle Rock Acquisition. After receiving that approval, all significant closing conditions have been met with the exception of the Federal Trade Commission’s (“FTC”) antitrust approval. On April 30, 2014, Regency and Eagle Rock certified substantial compliance with the FTC in response to its Request for Additional Information and Documentary Material regarding the Eagle Rock Acquisition.  In order to facilitate the FTC’s review, Eagle Rock and Regency have agreed with the FTC to not close the proposed transaction before June 30, 2014, unless the FTC first closes its investigation.
Closed Transactions
Panhandle Merger
On January 10, 2014, Panhandle consummated a merger with Southern Union, the indirect parent of Panhandle, and PEPL Holdings, the sole limited partner of Panhandle, pursuant to which each of Southern Union and PEPL Holdings, a wholly-owned subsidiary of Southern Union, were merged with and into Panhandle (the “Panhandle Merger”), with Panhandle as the surviving entity. In connection with the Panhandle Merger, Panhandle assumed Southern Union’s obligations under its 7.6% Senior Notes due 2024, 8.25% Senior Notes due 2029 and the Junior Subordinated Notes due 2066. At the time of the Panhandle Merger, Southern Union did not have material operations of its own, other than its ownership of Panhandle and noncontrolling interests in PEI Power II, LLC, Regency (31.4 million common units and 6.3 million Class F Units), and ETP (2.2 million Common Units). In connection with the Panhandle Merger, Panhandle also assumed PEPL Holdings’ guarantee of $600 million of Regency senior notes.

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Trunkline LNG Transaction
On February 19, 2014, ETP completed the transfer to ETE of Trunkline LNG, the entity that owns a LNG regasification facility in Lake Charles, Louisiana, in exchange for the redemption by ETP of 18.7 million ETP Common Units held by ETE (the “Trunkline LNG Transaction”). This transaction was effective as of January 1, 2014, at which time ETP deconsolidated Trunkline LNG, including goodwill of $184 million and intangible assets of $50 million related to Trunkline LNG.
In connection with ETE’s acquisition of Trunkline LNG, ETP agreed to continue to provide management services for ETE through 2015 in relation to both Trunkline LNG’s regasification facility and the development of a liquefaction project at Trunkline LNG’s facility, for which ETE has agreed to pay incremental management fees to ETP of $75 million per year for the years ending December 31, 2014 and 2015. ETE also agreed to provide additional subsidies to ETP through the relinquishment of future incentive distributions, as discussed further in Note 9.
Regency’s Acquisition of PVR
On March 21, 2014, Regency acquired all of the PVR outstanding units for a total purchase price of $5.7 billion (based on Regency’s closing price of $27.82 per unit on March 21, 2014), including $1.8 billion of assumed debt (“PVR Acquisition”). PVR unitholders received (on a per unit basis) 1.02 Regency common units and a one-time cash payment of $36 million, which was funded through borrowings under Regency’s revolving credit facility. The PVR Acquisition enhances Regency’s geographic diversity with a strategic presence in the Marcellus and Utica shales in the Appalachian Basin and the Granite Wash in the Mid-Continent region. Regency accounted for the acquisition of PVR using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. From March 21, 2014 through March 31, 2014, revenues and net income attributable to PVR’s operations of $37 million and $2 million, respectively, are included in Regency’s results of operations.
Management’s evaluation of the assigned fair values is ongoing. The table below represents a preliminary allocation of the total purchase price:
 
 
March 21, 2014
Current assets
 
$
150

Plant, property and equipment
 
2,687

Investment in unconsolidated affiliates
 
62

Goodwill and intangible assets
 
3,079

Total assets acquired
 
$
5,978

Current liabilities
 
166

Long-term debt
 
1,887

Asset retirement obligations
 
3

Net assets acquired
 
$
3,922

Regency’s Acquisition of Hoover
On February 3, 2014, Regency acquired certain subsidiaries of Hoover for a total purchase price of $293 million, consisting of (i) 4,040,471 Regency Common Units issued to Hoover, (ii) $184 million in cash and (iii) $2 million in asset retirement obligations assumed (the “Hoover Acquisition”). The acquisition of Hoover increases Regency’s fee-based revenue, expanding its existing footprint in the southern portion of the Delaware Basin in West Texas, and its services to producers into crude and water gathering. A portion of the consideration is being held in escrow as security for certain indemnification claims. Regency financed the cash portion of the purchase price through borrowings under its revolving credit facility. Regency accounted for the acquisition of Hoover using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date. From February 3, 2014 through March 31, 2014, revenues and net income attributable to Hoover’s operations of $5 million and $2 million, respectively, included in Regency’s results of operations.

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Management’s evaluation of the assigned fair values is ongoing. The table below represents a preliminary allocation of the total purchase price:
 
 
February 3, 2014
Current assets
 
$
5

Property, plant and equipment
 
114

Goodwill and intangible assets
 
181

Total assets acquired
 
$
300

Current liabilities
 
5

Asset retirement obligations
 
2

Net assets acquired
 
$
293

Pro Forma Results of Operations
The following unaudited pro forma consolidated results of operations for the three months ended March 31, 2014 and 2013 are presented as if the PVR and Hoover acquisitions had been completed on January 1, 2013, and assume there were no other changes in operations. This pro forma information does not necessarily reflect the actual results that would have occurred had the acquisitions occurred on January 1, 2013, nor is it indicative of future results of operations.
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Revenues
 
$
13,362

 
$
11,449

Net income attributable to partners
 
161

 
84

 
 
 
 
 
Basic net income per Limited Partner unit
 
$
0.29

 
$
0.15

Diluted net income per Limited Partner unit
 
$
0.29

 
$
0.15

The pro forma consolidated results of operations include adjustments to reflect incremental expenses associated with the fair value adjustments recorded as a result of applying the acquisition method of accounting and incremental interest expense related to the financing of a portion of the purchase price.
The pro forma information is not necessarily indicative of the results of operations that would have occurred had the transactions been made at the beginning of the periods presented or the future results of the combined operations.
Discontinued Operations
Discontinued operations for the three months ended March 31, 2014 included the results of operations for a marketing business that had been recently acquired by ETP and was sold effective April 1, 2014. The disposed subsidiary’s results of operations were not material during any periods in 2013; therefore, the disposed subsidiary’s results were not reclassified to discontinued operations in the prior period.
Discontinued operations for the three months ended March 31, 2013 included the results of Southern Union’s distribution operations.

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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. In January 2014, ETP sold 9.2 million additional AmeriGas units. As of March 31, 2014, ETP owns 12.9 million AmeriGas common units representing an approximate 14% limited partner interest.
Citrus. ETP owns a 50% interest in Citrus, which owns 100% of FGT, a natural gas pipeline system that originates in Texas and delivers natural gas to the Florida peninsula.
FEP. ETP owns a 50% interest in the FEP, which owns a 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 an intrastate pipeline system.
MEP. Regency owns a 50% interest in MEP, which owns 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.
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 March 31,
 
2014
 
2013
Revenue
$
1,819

 
$
1,511

Operating income
464

 
437

Net income
344

 
318

In addition to the equity method investments described above, our subsidiaries have other equity method investments, which are not significant to our consolidated financial statements.
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 were as follows:
 
Three Months Ended March 31,
 
2014
 
2013
NON-CASH INVESTING ACTIVITIES:
 
 
 
Accrued capital expenditures
$
192

 
$
434

Net gains from subsidiary common unit transactions
$
603

 
$
10

NON-CASH FINANCING ACTIVITIES:
 
 
 
Subsidiary issuances of common units in connection with PVR and Hoover acquisitions
$
4,015

 
$

Long-term debt assumed in PVR acquisition
$
1,887

 
$


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5.
INVENTORIES:
Inventories consisted of the following:
 
March 31,
2014
 
December 31,
2013
Natural gas and NGLs
$
239

 
$
523

Crude oil
572

 
488

Refined products
466

 
597

Other
207

 
199

Total inventories
$
1,484

 
$
1,807


ETP utilizes commodity derivatives to manage price volatility associated with certain of 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 commodity derivatives, interest rate derivatives 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 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.
Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value of our consolidated debt obligations as of March 31, 2014 and December 31, 2013 was $27.64 billion and $23.97 billion, respectively. As of March 31, 2014 and December 31, 2013, the aggregate carrying amount of our consolidated debt obligations was $26.29 billion and $23.20 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.

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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 March 31, 2014 and December 31, 2013 based on inputs used to derive their fair values:
 
Fair Value Measurements at
March 31, 2014
 
Fair Value
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Interest rate derivatives
$
4

 
$

 
$
4

 
$

Commodity derivatives:
 
 
 
 
 
 
 
Condensate — Forward Swaps

 

 

 

Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
5

 
5

 

 

Swing Swaps IFERC
1

 
1

 

 

Fixed Swaps/Futures
118

 
118

 

 

NGLs — Forwards/Swaps
6

 
3

 
3

 

Power:
 
 
 
 
 
 
 
Forwards
5

 

 
5

 

Futures
1

 
1

 

 


Refined Products — Futures
1

 
1

 

 

Crude — Futures
1

 
1

 

 

Total commodity derivatives
138

 
130

 
8

 

Total assets
$
142

 
$
130

 
$
12

 
$

Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(96
)
 
$

 
$
(96
)
 
$

Embedded derivatives in the Regency Preferred Units
(20
)
 

 

 
(20
)
Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(3
)
 
(3
)
 

 

Swing Swaps IFERC
(4
)
 
(4
)
 

 

Fixed Swaps/Futures
(145
)
 
(135
)
 
(10
)
 

NGLs — Forwards/Swaps
(6
)
 
(5
)
 
(1
)
 

Power:
 
 
 
 
 
 
 
Forwards
(2
)
 

 
(2
)
 

Futures
(3
)
 
(3
)
 

 

Refined Products — Futures
(1
)
 
(1
)
 

 

Total commodity derivatives
(164
)
 
(151
)
 
(13
)
 

Total liabilities
$
(280
)
 
$
(151
)
 
$
(109
)
 
$
(20
)



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Fair Value Measurements at
December 31, 2013
 
Fair Value
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Interest rate derivatives
$
47

 
$

 
$
47

 
$

Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
5

 
5

 

 

Swing Swaps IFERC
8

 
1

 
7

 

Fixed Swaps/Futures
203

 
201

 
2

 

NGLs — Swaps
7

 
5

 
2

 

Power — Forwards
3

 

 
3

 

Refined Products — Futures
5

 
5

 

 

Total commodity derivatives
231

 
217

 
14

 

Total Assets
$
278

 
$
217

 
$
61

 
$

Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(95
)
 
$

 
$
(95
)
 
$

Embedded derivatives in the Regency Preferred Units
(19
)
 

 

 
(19
)
Commodity derivatives:
 
 
 
 
 
 
 
Condensate — Forward Swaps
(1
)
 

 
(1
)
 

Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(4
)
 
(4
)
 

 

Swing Swaps IFERC
(6
)
 

 
(6
)
 

Fixed Swaps/Futures
(206
)
 
(201
)
 
(5
)
 

Forward Physical Contracts
(1
)
 

 
(1
)
 

NGLs — Swaps
(9
)
 
(5
)
 
(4
)
 

Power — Forwards
(1
)
 

 
(1
)
 

Refined Products — Futures
(5
)
 
(5
)
 

 

Total commodity derivatives
(233
)
 
(215
)
 
(18
)
 

Total Liabilities
$
(347
)
 
$
(215
)
 
$
(113
)
 
$
(19
)
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 three months ended March 31, 2014. There were no transfers between the fair value hierarchy levels during the three months ended March 31, 2014 or 2013.
Balance, December 31, 2013
$
(19
)
Net unrealized loss included in other income (expense)
(1
)
Balance, March 31, 2014
$
(20
)
  

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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 March 31,
 
2014
 
2013
Income from continuing operations
$
424

 
$
300

Less: Income from continuing operations attributable to noncontrolling interest
259

 
224

Income from continuing operations, net of noncontrolling interest
165

 
76

Less: Class D Unitholder’s interest in income from continuing operations
1

 

Income from continuing operations available to Limited Partners
$
164

 
$
76

Basic Income from Continuing Operations per Limited Partner Unit:
 
 
 
Weighted average limited partner units
557.7

 
559.9

Basic income from continuing operations per Limited Partner unit
$
0.30

 
$
0.14

Basic income from discontinued operations per Limited Partner unit
$
0.00

 
$
0.02

Diluted Income from Continuing Operations per Limited Partner Unit:
 
 
 
Income from continuing operations available to Limited Partners
$
164

 
$
76

Dilutive effect of equity-based compensation of subsidiaries and distributions to Class D Unitholder
(1
)
 

Diluted income from continuing operations available to Limited Partners
$
163

 
$
76

Weighted average limited partner units
557.7

 
559.9

Dilutive effect of unconverted unit awards
0.7

 

Weighted average limited partner units, assuming dilutive effect of unvested unit awards
558.4

 
559.9

Diluted income from continuing operations per Limited Partner unit
$
0.30

 
$
0.14

Diluted income from discontinued operations per Limited Partner unit
$
0.00

 
$
0.02



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8.
DEBT OBLIGATIONS:
Our outstanding consolidated indebtedness was as follows:
 
March 31,
2014
 
December 31,
2013
Parent Company Indebtedness:
 
 
 
ETE Senior Notes due October 15, 2020
$
1,187

 
$
1,187

ETE Senior Notes due January 15, 2024
450

 
450

ETE Senior Secured Term Loan due December 2, 2019
1,000

 
1,000

ETE Senior Secured Revolving Credit Facility due December 2, 2018
520

 
171

Subsidiary Indebtedness:
 
 
 
ETP Senior Notes
11,182

 
11,182

Regency Senior Notes
3,700

 
2,800

PVR Senior Notes
1,173

 

Transwestern Senior Unsecured Notes
870

 
870

Panhandle Senior Notes
1,085

 
1,085

Sunoco Senior Notes
965

 
965

Sunoco Logistics Senior Notes
1,975

 
2,150

Revolving Credit Facilities:
 
 
 
ETP $2.5 billion Revolving Credit Facility due October 27, 2017

 
65

Regency $1.5 billion Revolving Credit Facility due May 21, 2018
606

 
510

Sunoco Logistics $35 million Revolving Credit Facility due April 30, 2015
35

 
35

Sunoco Logistics $1.5 billion Revolving Credit Facility due November 19, 2018
950

 
200

Other Long-Term Debt
228

 
228

Unamortized discounts, premiums and fair value adjustments, net
367

 
301

Total
26,293

 
23,199

Less: Current maturities of long-term debt
1,388

 
637

Long-term debt and notes payable, less current maturities
$
24,905

 
$
22,562

Parent Company Indebtedness
The Parent Company’s indebtedness, including its senior notes, senior secured term loan and senior secured revolving credit facility, is secured by all of its and certain of its subsidiaries’ tangible and intangible assets.
ETE Term Loan Facility
On April 16, 2014, the Parent Company amended its Senior Secured Term Loan Agreement (the “ETE Term Credit Agreement”) to increase the aggregate principal amount to $1.4 billion.  The Parent Company used the proceeds from this $400 million increase to repay borrowings under its revolving credit facility and for general partnership purposes.  No other significant changes were made to the terms of the ETE Term Credit Agreement, including maturity date and interest rate.
Revolving Credit Facility
In May 2014, the Parent Company amended its revolving credit facility to increase the capacity to $1.2 billion. As of March 31, 2014, there were $520 million outstanding borrowings under the Parent Company Credit Facility and the amount available for future borrowings was $280 million. The weighted average interest rate on the total amount outstanding as of March 31, 2014 was 2.16%.
Senior Notes
The Parent Company currently has outstanding an aggregate of $1.19 billion in principal amount of 7.5% Senior Notes due 2020 and $450 million in principal amount of 5.875% Senior Notes due 2024.

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Sunoco Logistics Senior Notes
In April 2014, Sunoco Logistics issued $300 million aggregate principal amount of 4.25% Senior Notes due April 2024 and $700 million aggregate principal amount of 5.30% Senior Notes due April 2044. The net proceeds from the offering were used to pay outstanding borrowings under the Sunoco Logistics’ Credit Facility and for general partnership purposes.
Regency Senior Notes
In February 2014, Regency issued $900 million aggregate principal amount of 5.875% Senior Notes due March 1, 2022.
In March 2014, as part of the PVR Acquisition, Regency assumed the outstanding senior notes of PVR with an aggregate notional amount of $1.17 billion. The senior notes consist of $300 million 8.25% senior notes due April 15, 2018, $400 million 6.5% senior notes due May 15, 2021, and $473 million 8.375% senior notes due June 1, 2020. In April 2014, Regency redeemed all of the $300 million 8.25% senior notes due April 15, 2018 for $313 million.
In April 2014, Regency commenced a private offer to exchange any and all outstanding 8.375% Eagle Rock Senior Notes due 2019, of which $550 million in aggregate principal amount is outstanding, for 8.375% Senior Notes due 2019 to be issued by Regency with substantially the same economic terms, and is contingent upon the closing of the Eagle Rock Acquisition. On April 28, 2014, Regency extended the expiration date on this exchange offer to May 28, 2014, unless further extended or terminated.
Subsidiary Credit Facilities
ETP Credit Facility
The ETP Credit Facility allows for borrowings of up to $2.5 billion and expires in October 2017. The indebtedness under the ETP Credit Facility is unsecured and not guaranteed by any of ETP’s subsidiaries and has equal rights to holders of ETP’s current and future unsecured debt. As of March 31, 2014, the ETP Credit Facility had no outstanding borrowings.
Regency Credit Facility
In February 2014, Regency entered into an amendment to the Regency Credit Facility to increase the borrowing capacity of the Regency Credit Facility to $1.5 billion with a $500 million uncommitted incremental facility and extended the maturity date to May 21, 2018.
As of March 31, 2014, the Regency Credit Facility had a balance outstanding of $606 million in revolving credit loans and approximately $21 million in letters of credit. The total amount available under the Regency Credit Facility, as of March 31, 2014, which was reduced by any letters of credit, was approximately $873 million, and the weighted average interest rate on the total amount outstanding as of March 31, 2014 was 2.41%.
Sunoco Logistics Credit Facilities
Sunoco Logistics maintains a $1.50 billion unsecured credit facility (the “Sunoco Logistics Credit Facility”) which matures in November 2018. The Sunoco Logistics Credit Facility contains an accordion feature, under which the total aggregate commitment may be extended to $2.25 billion under certain conditions. As of March 31, 2014, the Sunoco Logistics Credit Facility had $950 million outstanding.
Compliance with Our Covenants
We and our subsidiaries were in compliance with all requirements, tests, limitations, and covenants related to our respective credit agreements as of March 31, 2014.

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9.
EQUITY:
ETE Common Unit Activity
The change in ETE Common Units during the three months ended March 31, 2014 was as follows:
 
Number of
Units
Outstanding at December 31, 2013
559.9

Repurchase of units under buyback program
(8.1
)
Outstanding at March 31, 2014
551.8

From January through April, ETE repurchased approximately $750 million of ETE common units under its buyback program.
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 three months ended March 31, 2014, we recognized increases in partners’ capital of $603 million.
Sales of Common Units by ETP
ETP has entered into an Equity Distribution Agreement pursuant to which ETP may sell from time to time ETP Common Units having aggregate offering prices of up to an agreed-upon threshold. During the three months ended March 31, 2014, ETP received proceeds of $106 million, net of commissions of $1 million, from the issuance of units pursuant to the Equity Distribution Agreement, which proceeds were used for general partnership purposes. ETP also received $38 million, net of commissions, in April 2014 from the settlement of transactions initiated in March 2014 under this agreement. No amounts remain available to be issued under this agreement.
During the three months ended March 31, 2014, distributions of $36 million were reinvested under ETP’s Distribution Reinvestment Plan resulting in the issuance of 0.7 million ETP Common Units. As of March 31, 2014, a total of 1.4 million ETP Common Units remain available to be issued under the existing registration statement for ETP’s Distribution Reinvestment Plan.
As discussed in Note 2, ETP redeemed and cancelled 18.7 million of its Common Units in connection with the Trunkline LNG Transaction.
Sales of Common Units by Regency
From time to time, Regency has sold Regency Common Units through an Equity Distribution Agreement, such sales of Regency Common Units are made by means of ordinary brokers’ transactions on the New York Stock Exchange at market prices, in block transactions, or as otherwise agreed upon by Regency and the sales agent which is the counterparty to the equity distribution agreement. For the three months ended March 31, 2014, Regency received net proceeds of $34 million from units issued pursuant to its Equity Distribution Agreement, which proceeds were used for general partnership purposes. As of March 31, 2014, no amounts remain available to be issued under its agreement.
Regency issued 4.0 million and 140.4 million Regency Common Units in connection with the Hoover and PVR acquisitions, respectively.
Parent Company Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by us subsequent to December 31, 2013:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2013
 
February 7, 2014
 
February 19, 2014
 
$
0.34625

March 31, 2014
 
May 5, 2014
 
May 19, 2014
 
0.35875


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ETP Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by ETP subsequent to December 31, 2013:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2013
 
February 7, 2014
 
February 14, 2014
 
$
0.92000

March 31, 2014
 
May 5, 2014
 
May 15, 2014
 
0.93500

In connection with previous transactions between ETP and ETE, ETE has agreed to relinquish its right to certain incentive distributions in future periods, and ETP has agreed to make incremental distributions on the Class H Units in future periods. For the distributions to be paid for the three months ended March 31, 2014, the net impact of these adjustments will result in a reduction of $26 million in the distributions from ETP to ETE. Following is a summary of the net reduction in total distributions that would potentially be made to ETE in current and future quarters:
 
 
 
 
 
Total Year
2014 (remainder)
 
$
80

2015
 
51

2016
 
72

2017
 
50

2018
 
45

2019
 
35


Regency Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Regency subsequent to December 31, 2013:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2013
 
February 7, 2014
 
February 14, 2014
 
$
0.47500

March 31, 2014
 
May 8, 2014
 
May 15, 2014
 
0.48000

Sunoco Logistics Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Sunoco Logistics subsequent to December 31, 2013:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2013
 
February 10, 2014
 
February 14, 2014
 
$
0.66250

March 31, 2014
 
May 9, 2014
 
May 15, 2014
 
0.69500

On May 5, 2014, Sunoco Logistics’ Board of Directors declared a two-for-one split of Sunoco Logistics common units. The unit split will result in the issuance of one additional Sunoco Logistics common unit for every one unit owned as of the close of business on June 5, 2014. The unit split will be effective June 12, 2014. All Sunoco Logistics unit and per unit information is presented on a pre-split basis.

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Accumulated Other Comprehensive Income
The following table presents the components of AOCI, net of tax:
 
March 31,
2014
 
December 31, 2013
Available-for-sale securities
$
2

 
$
2

Foreign currency translation adjustment
(4
)
 
(1
)
Net loss on commodity related hedges
(4
)
 
(4
)
Actuarial gain related to pensions and other postretirement benefits
55

 
56

Equity investments, net
1

 
8

Subtotal
50

 
61

Amounts attributable to noncontrolling interest
(44
)
 
(52
)
Total AOCI, net of tax
$
6

 
$
9

10.
INCOME TAXES:
The increase in the effective tax rate for the three months ended March 31, 2014 was primarily due to the Trunkline LNG Transaction (see Note 2). The Trunkline LNG Transaction, which was treated as a sale for tax purposes, resulted in $85 million of incremental income tax expense.
11.
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 March 31,
 
2014
 
2013
 
Pension Benefits
 
Other Postretirement Benefits
 
Pension Benefits
 
Other Postretirement Benefits
Net periodic benefit cost:
 
 
 
 
 
 
 
Service cost
$

 
$

 
$
2

 
$

Interest cost
8

 
1

 
9

 
2

Expected return on plan assets
(11
)
 
(2
)
 
(15
)
 
(3
)
Actuarial (gain) loss amortization
(1
)
 

 
1

 

Settlement credits
(1
)
 

 
(2
)
 

 
(5
)
 
(1
)
 
(5
)
 
(1
)
Regulatory adjustment

 

 
2

 

Net periodic benefit cost
$
(5
)
 
$
(1
)
 
$
(3
)
 
$
(1
)
Panhandle has historically recovered 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 reflected in expense over periods in which this difference will be recovered in rates, as promulgated by the applicable utility commission.
Panhandle no longer has pension plans after the sale of the assets of MEG and NEG in 2013.

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12.
REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES:
Contingent Matters Potentially Impacting the Partnership from Our Investment in Citrus
Florida Gas Pipeline Relocation Costs. The Florida Department of Transportation, Florida’s Turnpike Enterprise (“FDOT/FTE”) has various turnpike/State Road 91 widening projects that have impacted or may, over time, impact one or more of FGTs’ mainline pipelines located in FDOT/FTE rights-of-way. Certain FDOT/FTE projects have been or are the subject of litigation in Broward County, Florida. On November 16, 2012, FDOT paid to FGT the sum of approximately $100 million, representing the amount of the judgment, plus interest, in a case tried in 2011.
On April 14, 2011, FGT filed suit against the FDOT/FTE and other defendants in Broward County, Florida seeking an injunction and damages as the result of the construction of a mechanically stabilized earth wall and other encroachments in FGT easements as part of FDOT/FTE’s I-595 project. On August 21, 2013, FGT and FDOT/FTE entered into a settlement agreement pursuant to which, among other things, FDOT/FTE paid FGT approximately $19 million in September, 2013 in settlement of FGT’s claims with respect to the I-595 project. The settlement agreement also provided for agreed easement widths for FDOT/FTE right-of-way and for cost sharing between FGT and FDOT/FTE for any future relocations. Also in September 2013, FDOT/FTE paid FGT an additional approximate $1 million for costs related to the aforementioned turnpike/State Road 91 case tried in 2011.
FGT will continue to seek rate recovery in the future for these types of costs to the extent not reimbursed by the FDOT/FTE. There can be no assurance that FGT will be successful in obtaining complete reimbursement for any such relocation costs from the FDOT/FTE or from its customers or that the timing of such reimbursement will fully compensate FGT for its costs.
Contingent Residual Support Agreement — AmeriGas
In connection with the closing of the contribution of ETP’s propane operations in January 2012, 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 from a finance subsidiary of AmeriGas that have maturity dates and repayment terms that mirror those of an equal principal amount of senior notes issued by this finance company subsidiary to third party purchases.
PEPL Holdings Guarantee of Collection
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”).
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. In connection with the completion of the Panhandle Merger, in which PEPL Holdings was merged with and into Panhandle, the guarantee of collection for the Regency Debt was assumed by Panhandle.
NGL Pipeline Regulation
ETP has interests in NGL pipelines located in Texas and New Mexico. ETP commenced the interstate transportation of NGLs in 2013, which is subject to the jurisdiction of the FERC under the Interstate Commerce Act (“ICA”) and the Energy Policy Act of 1992. Under the ICA, tariff rates must be just and reasonable and not unduly discriminatory and pipelines may not confer any undue preference. The tariff rates established for interstate services were based on a negotiated agreement; however, the FERC’s rate-making methodologies may limit ETP’s ability to set rates based on our actual costs, may delay or limit the use of rates that reflect increased costs and may subject us to potentially burdensome and expensive operational, reporting and other requirements. Any of the foregoing could adversely affect ETP’s business, revenues and cash flow.
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.

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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 $33 million for the three months ended March 31, 2014 and 2013, respectively, which include contingent rentals totaling $3 million and $4 million in the three months ended March 31, 2014 and 2013, respectively.  During the three months ended March 31, 2014 and 2013, $8 million and $5 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.
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 March 31, 2014, Sunoco is a defendant in seven cases, one of which was initiated by the State of New Jersey and two others by the Commonwealth of Puerto Rico with the more recent Puerto Rico action being a companion case alleging damages for additional sites beyond those at issue in the initial Puerto Rico action. Six of these cases are venued in a multidistrict litigation (“MDL”) proceeding in a New York federal court. The most recently filed Puerto Rico action is expected to be transferred to the MDL. The New Jersey and Puerto Rico 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.
Fact discovery has concluded with respect to an initial set of fewer than 20 sites each that will be the subject of the first trial phase in the New Jersey case and the initial Puerto Rico case. Insufficient information has been developed about the plaintiffs’ legal theories or the facts with respect to statewide natural resource damage claims to provide an analysis of the ultimate potential 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 during the period in which any said adverse determination occurs, but does not believe that any such adverse determination would have a material adverse effect on the Partnership’s consolidated financial position.
Litigation Relating to the PVR Merger
Five putative class action lawsuits challenging the merger have been filed and are currently pending. All of the cases name PVR, PVR GP and the current directors of PVR GP, as well as Regency and the General Partner of Regency (collectively, the “Regency Defendants”), as defendants. Each of the lawsuits has been brought by a purported unitholder of PVR, both individually and on behalf of a putative class consisting of public unitholders of PVR. The lawsuits generally allege, among other things, that the directors of PVR GP breached their fiduciary duties to unitholders of PVR, that PVR GP, PVR and the Regency Defendants aided and abetted the directors of PVR GP in the alleged breach of their fiduciary duties, and, as to the actions in federal court, that some or all of PVR, PVR GP, and the directors of PVR GP violated Section 14(a) of the Exchange Act and Rule 14a-9 promulgated thereunder and Section 20(a) of the Exchange Act. The lawsuits purport to seek, in general, (i) injunctive relief, (ii) disclosure of certain additional information concerning the transaction, (iii) in the event the merger is consummated, rescission or an award of rescissory damages, (iv) an award of plaintiffs’ costs and (v) the accounting for damages allegedly caused by the defendants to these actions, and, (vi) such further relief as the court deems just and proper.

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The styles of the pending cases are as follows: David Naiditch v. PVR Partners, L.P., et al. (Case No. 9015-VCL) in the Court of Chancery of the State of Delaware); Charles Monatt v. PVR Partners, LP, et al. (Case No. 2013-10606) and Saul Srour v. PVR Partners, L.P., et al. (Case No. 2013-011015), each pending in the Court of Common Pleas for Delaware County, Pennsylvania; Stephen Bushansky v. PVR Partners, L.P., et al. (C.A. No. 2:13-cv-06829-HB); and Mark Hinnau v. PVR Partners, L.P., et al. (C.A. No. 2:13-cv-07496-HB), pending in the United States District Court for the Eastern District of Pennsylvania.
On January 28, 2014, the defendants entered into a Memorandum of Understanding (“MOU”) with Monatt, Srour, Bushansky, Naiditch and Hinnau pursuant to which defendants and the referenced plaintiffs agreed in principle to a settlement of their lawsuits (“Settled Lawsuits”), which will be memorialized in a separate settlement agreement, subject to customary conditions, including consummation of the PVR Acquisition, which occurred on March 21, 2014, completion of certain confirmatory discovery, class certification and final approval by the Court of Common Pleas for Delaware County, Pennsylvania. If the Court approves the settlement, the Settled Lawsuits will be dismissed with prejudice and all defendants will be released from any and all claims relating to the Settled Lawsuits.
The settlement will not affect any provisions of the merger agreement or the form or amount of consideration to be received by PVR unitholders in the PVR Acquisition. The defendants have denied and continue to deny any wrongdoing or liability with respect to the plaintiffs’ claims in the aforementioned litigation and have entered into the settlement to eliminate the uncertainty, burden, risk, expense, and distraction of further litigation.
Utility Line Services, Inc. vs. PVR Marcellus Gas Gathering LLC
On May 22, 2012, Plaintiff and Counterclaim Defendant, Utility Line Services, Inc. (“ULS”) filed suit against PVR Marcellus Gas Gathering, LLC now known as Regency Marcellus Gas Gathering LLC (“Regency Marcellus”) relating to a dispute involving payment under a construction contract (the “Construction Contract”) entered into in October 2010 for Regency Marcellus’ multi-phase pipeline construction project in Lycoming County, PA (the “Project”). Under the terms of the Construction Contract, Regency Marcellus believed ULS was obligated to design, permit and build Phases I and II of Regency Marcellus’ 30-inch pipeline and to design additional phases of the project. Due to ULS’ deficiencies and delays throughout the project, as well as extensive overbilling for its services, Regency Marcellus allowed the Construction Contract to terminate in accordance with its terms in December 2011 and refused to pay ULS’ outstanding invoices for the Project. ULS then filed suit alleging: Regency Marcellus’ refusal to pay certain invoices totaling approximately $17 million; penalties pursuant to the Pennsylvania Contractor and Subcontractor Payment Act, 73 P.S. § 501, et seq. (“CASPA”), Regency Marcellus’ alleged wrongful withholding of payments owed to ULS; and breach of contract in connection with Regency Marcellus’ alleged wrongful termination of ULS in December 2011. ULS alleged damages, inclusive of CASPA penalties, are in excess of $30 million. Regency Marcellus alleged counterclaims against ULS for breach of the parties’ contract for engineering and construction services; restitution for Regency Marcellus’ overpayments to ULS because of ULS’ improper billing practices; attorneys’ fees resulting from ULS’ meritless claim under CASPA; and professional malpractice against ULS for negligent performance of various engineering services on the Project. Regency Marcellus’ alleged damages exceed $21 million.
Trial commenced on March 24, 2014 and on April 17, 2014, the jury found in favor of ULS and assessed damages against Regency Marcellus of approximately $24 million. In addition, the jury may order interest and attorneys’ fees against Regency Marcellus of approximately $10 million. The jury found against Regency Marcellus on its counterclaims. Regency Marcellus has filed appropriate post-trial pleadings and is considering its appeal options.
Litigation Related to the Eagle Rock Acquisition
Two putative class action lawsuits challenging Regency’s acquisition of the Eagle Rock midstream assets are currently pending in federal district court in Houston, Texas. Both cases name Eagle Rock and its current directors, as well as Regency and a subsidiary (collectively, the “Regency Defendants”), as defendants. Each of the lawsuits has been brought by a purported unitholder of Eagle Rock (collectively, the “Plaintiffs”), both individually and on behalf of a putative class consisting of public unitholders of Eagle Rock. The Plaintiffs in each case seek to enjoin the transaction, claiming, among other things, that it yields inadequate consideration, was tainted by conflict and constitutes breaches of common law fiduciary duties or contractually imposed duties to the shareholders. The Regency Defendants are named as “aiders and abettors” of the allegedly wrongful actions of Eagle Rock and its board.
Other Litigation and Contingencies
We or our subsidiaries are a party to various legal proceedings and/or regulatory proceedings incidental to our businesses.  For each of these matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, the likelihood of an unfavorable outcome and the availability of insurance coverage.  If we determine that an unfavorable outcome of a particular matter is probable and can be estimated, we accrue the contingent obligation, as well as any expected

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insurance recoverable amounts related to the contingency.  As of March 31, 2014 and December 31, 2013, accruals of approximately $41 million and $46 million, respectively, were reflected on our balance sheets related to these contingent obligations.  As new information becomes available, our estimates may change.  The impact of these changes may have a significant effect on our results of operations in a single period.
The outcome of these matters cannot be predicted with certainty and there can be no assurance that the outcome of a particular matter will not result in the payment of amounts that have not been accrued for the matter.  Furthermore, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome.
No amounts have been recorded in our March 31, 2014 or December 31, 2013 consolidated balance sheets for contingencies and current litigation, other than amounts disclosed herein.
Attorney General of the Commonwealth of Massachusetts v New England Gas Company.  On July 7, 2011, the Massachusetts Attorney General (“AG”) filed a regulatory complaint with the Massachusetts Department of Public Utilities (“MDPU”) against New England Gas Company with respect to certain environmental cost recoveries.  The AG is seeking a refund to New England Gas Company customers for alleged “excessive and imprudently incurred costs” related to legal fees associated with Southern Union’s environmental response activities.  In the complaint, the AG requests that the MDPU initiate an investigation into the New England Gas Company’s collection and reconciliation of recoverable environmental costs including:  (i) the prudence of any and all legal fees, totaling $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. Panhandle (as successor to Southern Union) believes it has complied with all applicable requirements regarding its filings for cost recovery and has not recorded any accrued liability; however, Panhandle will continue to assess its potential exposure for such cost recoveries as the matter progresses.
Environmental Matters
Our operations are subject to extensive federal, state and local environmental and safety laws and regulations that require expenditures to ensure compliance, including related to air emissions and wastewater discharges, at operating facilities and for remediation at current and former facilities as well as waste disposal sites.  Although we believe our operations are in substantial compliance with applicable environmental laws and regulations, risks of additional costs and liabilities are inherent in the business of transporting, storing, gathering, treating, compressing, blending and processing natural gas, natural gas liquids and other products.  As a result, there can be no assurance that significant costs and liabilities will not be incurred.  Costs of planning, designing, constructing and operating pipelines, plants and other facilities must incorporate compliance with environmental laws and regulations and safety standards.  Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, the issuance of injunctions and the filing of federally authorized citizen suits.  Contingent losses related to all significant known environmental matters have been accrued and/or separately disclosed. However, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome.
Environmental exposures and liabilities are difficult to assess and estimate due to unknown factors such as the magnitude of possible contamination, the timing and extent of remediation, the determination of our liability in proportion to other parties, improvements in cleanup technologies and the extent to which environmental laws and regulations may change in the future.  Although environmental costs may have a significant impact on the results of operations for any single period, we believe that such costs will not have a material adverse effect on our financial position.
Based on information available at this time and reviews undertaken to identify potential exposure, we believe the amount reserved for environmental matters is adequate to cover the potential exposure for cleanup costs.

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Environmental Remediation
Our subsidiaries are responsible for environmental remediation at certain sites, including the following:
Certain of our interstate pipelines conduct soil and groundwater remediation related to contamination from past uses of PCBs.  PCB assessments are ongoing and, in some cases, our subsidiaries could potentially be held responsible for contamination caused by other parties.
Certain gathering and processing systems are responsible for soil and groundwater remediation related to releases of hydrocarbons.
Currently operating Sunoco retail sites.
Legacy sites related to Sunoco, that are subject to environmental assessments include formerly owned terminals and other logistics assets, retail sites that Sunoco no longer operates, closed and/or sold refineries and other formerly owned sites.
Sunoco is potentially subject to joint and several liability for the costs of remediation at sites at which it has been identified as a potentially responsible party (“PRP”).  As of March 31, 2014, Sunoco had been named as a PRP at 39 identified or potentially identifiable as “Superfund” sites under federal and/or comparable state law.  Sunoco is usually one of a number of companies identified as a PRP at a site.  Sunoco has reviewed the nature and extent of its involvement at each site and other relevant circumstances and, based upon Sunoco’s purported nexus to the sites, believes that its potential liability associated with such sites will not be significant.
To the extent estimable, expected remediation costs are included in the amounts recorded for environmental matters in our consolidated balance sheets.  In some circumstances, future costs cannot be reasonably estimated because remediation activities are undertaken as claims are made by customers and former customers.  To the extent that an environmental remediation obligation is recorded by a subsidiary that applies regulatory accounting policies, amounts that are expected to be recoverable through tariffs or rates are recorded as regulatory assets on our consolidated balance sheets.
The table below reflects the amounts of accrued liabilities recorded in our consolidated balance sheets related to environmental matters that are considered to be probable and reasonably estimable.  Except for matters discussed above, we do not have any material environmental matters assessed as reasonably possible that would require disclosure in our consolidated financial statements.
 
March 31,
2014
 
December 31, 2013
Current
$
72

 
$
47

Non-current
339

 
356

Total environmental liabilities
$
411

 
$
403

In 2013, we established a wholly-owned captive insurance company to bear certain risks associated with environmental obligations related to certain sites that are no longer operating. The premiums paid to the captive insurance company include estimates for environmental claims that have been incurred but not reported, based on an actuarially determined fully developed claims expense estimate. In such cases, we accrue losses attributable to unasserted claims based on the discounted estimates that are used to develop the premiums paid to the captive insurance company.
During the three months ended March 31, 2014 and 2013, the Partnership recorded $8 million and $7 million, respectively, of expenditures related to environmental cleanup programs.
On June 29, 2011, the EPA finalized a rule under the CAA that revised the new source performance standards for manufacturers, owners and operators of new, modified and reconstructed stationary internal combustion engines.  The rule became effective on August 29, 2011.  The rule modifications may require us to undertake significant expenditures, including expenditures for purchasing, installing, monitoring and maintaining emissions control equipment, if we replace equipment or expand existing facilities in the future.  At this point, we are not able to predict the cost to comply with the rule’s requirements, because the rule applies only to changes we might make in the future.
Our pipeline operations are subject to regulation by the DOT under the PHMSA, pursuant to which the PHMSA has established requirements relating to the design, installation, testing, construction, operation, replacement and management of pipeline facilities.  Moreover, the PHMSA, through the Office of Pipeline Safety, has promulgated a rule requiring pipeline operators to develop integrity management programs to comprehensively evaluate their pipelines, and take measures to protect pipeline segments located in what the rule refers to as “high consequence areas.”  Activities under these integrity management programs involve the performance of internal pipeline inspections, pressure testing or other effective means to assess the integrity of

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these regulated pipeline segments, and the regulations require prompt action to address integrity issues raised by the assessment and analysis.  Integrity testing and assessment of all of these assets will continue, and the potential exists that results of such testing and assessment could cause us to incur future capital and operating expenditures for repairs or upgrades deemed necessary to ensure the continued safe and reliable operation of our pipelines; however, no estimate can be made at this time of the likely range of such expenditures.
Our operations are also subject to the requirements of the OSHA, and comparable state laws that regulate the protection of the health and safety of employees.  In addition, OSHA’s hazardous communication standard requires that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and citizens.  We believe that our operations are in substantial compliance with the OSHA requirements, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances.
Air Quality Control. SUGS is currently negotiating settlements to certain enforcement actions by the New Mexico Environmental Department (“NMED”) and the Texas Commission on Environmental Quality (“TCEQ”). The TCEQ recently initiated a state-wide emissions inventory for the sulfur dioxide emissions from sites with reported emissions of 10 tons per year or more. If this data demonstrates that any source or group of sources may cause or contribute to a violation of the National Ambient Air Quality Standards, they must be sufficiently controlled to ensure timely attainment of the standard. This may potentially affect three SUGS recovery units in Texas. It is unclear at this time how the NMED will address the sulfur dioxide standard.
Compliance Orders from the New Mexico Environmental Department. SUGS has been in discussions with the NMED concerning allegations of violations of New Mexico air regulations related to the Jal #3 and Jal #4 facilities. Hearings on the compliance orders were delayed until June 2014 to allow the parties to pursue substantive settlement discussions. SUGS has meritorious defenses to the NMED claims and can offer significant mitigating factors to the claimed violations. SUGS has recorded a liability of less than $1 million related to the claims and will continue to assess its potential exposure to the allegations as the matter progresses.
 
13.
PRICE RISK MANAGEMENT ASSETS AND LIABILITIES:
Commodity Price Risk
We are exposed to market risks related to the volatility of commodity prices. To manage the impact of volatility from these prices, our subsidiaries utilize various exchange-traded and OTC commodity financial instrument contracts. These contracts consist primarily of futures, swaps and options and are recorded at fair value in our consolidated balance sheets. Following is a description of price risk management activities by operating entity.
ETP
ETP injects and holds natural gas in its Bammel storage facility to take advantage of contango markets (i.e., when the price of natural gas is higher in the future than the current spot price). ETP uses financial derivatives to hedge the natural gas held in connection with these arbitrage opportunities. At the inception of the hedge, ETP locks in a margin by purchasing gas in the spot market or off peak season and entering into a financial contract to lock in the sale price. If ETP designates the related financial contract as a fair value hedge for accounting purposes, ETP values the hedged natural gas inventory at current spot market prices along with the financial derivative ETP uses to hedge it. Changes in the spread between the forward natural gas prices designated as fair value hedges and the physical inventory spot price result in unrealized gains or losses until the underlying physical gas is withdrawn and the related designated derivatives are settled. Once the gas is withdrawn and the designated derivatives are settled, the previously unrealized gains or losses associated with these positions are realized. Unrealized margins represent the unrealized gains or losses from ETP’s derivative instruments using mark-to-market accounting, with changes in the fair value of ETP’s derivatives being recorded directly in earnings. These margins fluctuate based upon changes in the spreads between the physical spot price and forward natural gas prices. If the spread narrows between the physical and financial prices, ETP will record unrealized gains or lower unrealized losses. If the spread widens, ETP will record unrealized losses or lower unrealized gains. Typically, as we enter the winter months, the spread converges so that ETP recognizes in earnings the original locked-in spread through either mark-to-market adjustments or the physical withdraw of natural gas.
ETP is also exposed to market risk on natural gas it retains for fees in ETP’s intrastate transportation and storage segment and operational gas sales on ETP’s interstate transportation and storage segment. ETP uses financial derivatives to hedge the sales price of this gas, including futures, swaps and options. Certain contracts that qualify for hedge accounting are designated as cash flow hedges of the forecasted sale of natural gas. The change in value, to the extent the contracts are effective, remains

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in AOCI until the forecasted transaction occurs. When the forecasted transaction occurs, any gain or loss associated with the derivative is recorded in cost of products sold in the consolidated statement of operations.
ETP is also exposed to commodity price risk on NGLs and residue gas it retains for fees in ETP’s midstream segment whereby ETP’s subsidiaries generally gather and process natural gas on behalf of producers, sell the resulting residue gas and NGL volumes at market prices and remit to producers an agreed upon percentage of the proceeds based on an index price for the residue gas and NGLs. ETP uses NGL and crude derivative swap contracts to hedge forecasted sales of NGL and condensate equity volumes. Certain contracts that qualify for hedge accounting are accounted for as cash flow hedges. The change in value, to the extent the contracts are effective, remains in AOCI until the forecasted transaction occurs. When the forecasted transaction occurs, any gain or loss associated with the derivative is recorded in cost of products sold in the consolidated statement of operations.
ETP may use derivatives in ETP’s NGL transportation and services segment to manage ETP’s storage facilities and the purchase and sale of purity NGLs.
Sunoco Logistics utilizes derivatives such as swaps, futures and other derivative instruments to mitigate the risk associated with market movements in the price of refined products and NGLs. These derivative contracts act as a hedging mechanism against the volatility of prices by allowing Sunoco Logistics to transfer this price risk to counterparties who are able and willing to bear it. Since the first quarter 2013, Sunoco Logistics has not designated any of its derivative contracts as hedges for accounting purposes. Therefore, all realized and unrealized gains and losses from these derivative contracts are recognized in the consolidated statements of operations during the current period.
ETP’s trading activities include the use of financial commodity derivatives to take advantage of market opportunities. These trading activities are a complement to ETP’s transportation and storage segment’s operations and are netted in cost of products sold in the consolidated statements of operations. Additionally, ETP also has trading activities related to power and natural gas in its other operations which are also netted in cost of products sold. As a result of ETP’s trading activities and the use of derivative financial instruments in ETP’s transportation and storage segment, the degree of earnings volatility that can occur may be significant, favorably or unfavorably, from period to period. ETP attempts to manage this volatility through the use of daily position and profit and loss reports provided to ETP’s risk oversight committee, which includes members of senior management, and the limits and authorizations set forth in ETP’s commodity risk management policy.
Derivatives are utilized in ETP’s other operations in order to mitigate price volatility and manage fixed price exposure incurred from contractual obligations. ETP attempts to maintain balanced positions in its marketing activities to protect against volatility in the energy commodities markets; however, net unbalanced positions can exist.

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The following table details ETP’s outstanding commodity-related derivatives:
 
March 31, 2014
 
December 31, 2013
 
Notional
Volume
 
Maturity
 
Notional
Volume
 
Maturity
Mark-to-Market Derivatives
 
 
 
 
 
 
 
(Trading)
 
 
 
 
 
 
 
Natural Gas (MMBtu):
 
 
 
 
 
 
 
Fixed Swaps/Futures
10,475,000

 
2014-2019
 
9,457,500

 
2014-2019
Basis Swaps IFERC/NYMEX (1)
(14,502,500
)
 
2014-2015
 
(487,500
)
 
2014-2017
Swing Swaps

 
 
1,937,500

 
2014-2016
Power (Megawatt):
 
 
 
 
 
 
 
Forwards
527,550

 
2014
 
351,050

 
2014
Futures
(1,161,949
)
 
2014
 
(772,476
)
 
2014
Options — Puts
(160,000
)
 
2014
 
(52,800
)
 
2014
Options — Calls
104,800

 
2014
 
103,200

 
2014
Crude (Bbls) — Futures
343,000

 
2014
 
103,000

 
2014
(Non-Trading)
 
 
 
 
 
 
 
Natural Gas (MMBtu):
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
3,520,000

 
2014
 
570,000

 
2014
Swing Swaps IFERC
32,690,000

 
2014
 
(9,690,000
)
 
2014-2016
Fixed Swaps/Futures
(1,402,500
)
 
2014-2015
 
(8,195,000
)
 
2014-2015
Forward Physical Contracts
(5,483,135
)
 
2014-2015
 
5,668,559

 
2014-2015
Natural Gas Liquid (Bbls) — Forwards/Swaps
(904,000
)
 
2014
 
(1,133,600
)
 
2014
Refined Products (Bbls) — Futures
(123,000
)
 
2014
 
(280,000
)
 
2014
Fair Value Hedging Derivatives
 
 
 
 
 
 
 
(Non-Trading)
 
 
 
 
 
 
 
Natural Gas (MMBtu):
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX

 
 
(7,352,500
)
 
2014
Fixed Swaps/Futures
(4,500,000
)
 
2014
 
(50,530,000
)
 
2014
Hedged Item — Inventory
4,500,000

 
2014
 
50,530,000

 
2014
Cash Flow Hedging Derivatives
 
 
 
 
 
 
 
(Non-Trading)
 
 
 
 
 
 
 
Natural Gas (MMBtu):
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(1,375,000
)
 
2014
 
(1,825,000
)
 
2014
Fixed Swaps/Futures
(9,625,000
)
 
2014
 
(12,775,000
)
 
2014
Natural Gas Liquid (Bbls) — Forwards/Swaps
(765,000
)
 
2014
 
(780,000
)
 
2014
Crude (Bbls) — Futures

 
 
(30,000
)
 
2014

(1) 
Includes aggregate amounts for open positions related to Houston Ship Channel, Waha Hub, NGPL TexOk, West Louisiana Zone and Henry Hub locations.
We expect losses of $4 million related to ETP’s commodity derivatives to be reclassified into earnings over the next 12 months related to amounts currently reported in AOCI. The amount ultimately realized, however, will differ as commodity prices change and the underlying physical transaction occurs.
Regency
Regency is a net seller of NGLs, condensate and natural gas as a result of its gathering and processing operations. The prices of these commodities are impacted by changes in the supply and demand as well as market forces. Regency’s profitability and cash flow are affected by the inherent volatility of these commodities, which could adversely affect its ability to make

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distributions to its unitholders. Regency manages this commodity price exposure through an integrated strategy that includes management of its contract portfolio, matching sales prices of commodities with purchases, optimization of its portfolio by monitoring basis and other price differentials in operating areas, and the use of derivative contracts. In some cases, Regency may not be able to match pricing terms or to cover its risk to price exposure with financial hedges, and it may be exposed to commodity price risk. Speculative positions are prohibited under Regency’s policy.
The following table details Regency’s outstanding commodity-related derivatives:
 
March 31, 2014
 
December 31, 2013
 
Notional
Volume
 
Maturity
 
Notional
Volume
 
Maturity
Mark-to-Market Derivatives
 
 
 
 
 
 
 
(Non-Trading)
 
 
 
 
 
 
 
Natural Gas (MMBtu) — Fixed Swaps/Futures
(23,425,000
)
 
2014-2015
 
(24,455,000
)
 
2014-2015
Propane (Gallons) — Forwards/Swaps
(40,782,000
)
 
2014-2015
 
(52,122,000
)
 
2014-2015
NGLs (Barrels) — Forwards/Swaps
(330,000
)
 
2014
 
(438,000
)
 
2014
WTI Crude Oil (Barrels) — Forwards/Swaps
(392,000
)
 
2014
 
(521,000
)
 
2014
Interest Rate Risk
We are exposed to market risk for changes in interest rates. To maintain a cost effective capital structure, we borrow funds using a mix of fixed rate debt and floating rate debt. We also manage our interest rate exposures by utilizing interest rate swaps to achieve a desired mix of fixed and floating rate debt. We also utilize forward starting interest rate swaps to lock in the rate on a portion of anticipated debt issuances.
The following table summarizes our interest rate swaps outstanding none of which were designated as hedges for accounting purposes:
 
 
 
 
 
 
Notional Amount
Outstanding
Entity
 
Term
 
Type(1)
 
March 31,
2014
 
December 31, 2013
ETP
 
July 2014(2)
 
Forward-starting to pay a fixed rate of 4.25% and receive a floating rate
 
$
400

 
$
400

ETP
 
July 2015(2)
 
Forward-starting to pay a fixed rate of 3.38% and receive a floating rate
 
200

 

ETP
 
July 2016(3)
 
Forward-starting to pay a fixed rate of 3.80% and receive a floating rate
 
200

 

ETP
 
July 2017(4)
 
Forward-starting to pay a fixed rate of 4.18% and receive a floating rate
 
200

 

ETP
 
July 2018
 
Pay a floating rate plus a spread of 4.17% and receive a fixed rate of 6.70%