Energy Transfer 2012 Annual Report Download - page 110

102
Pensions and Other Postretirement Benefit Plans
The Partnership is required to measure plan assets and benefit obligations as of its fiscal year-end balance sheet date. The Partnership
recognizes the changes in the funded status of its defined benefit postretirement plans through AOCI.
The calculation of the net periodic benefit cost and benefit obligation requires the use of a number of assumptions. Changes in
these assumptions can have a significant effect on the amounts reported in the financial statements. The Partnership believes that
the two most critical assumptions are the assumed discount rate and the expected rate of return on plan assets.
The discount rate is established by using the Citigroup Pension Discount Curve as published on the Society of Actuaries website
as the hypothetical portfolio of high-quality debt instruments that would provide the necessary cash flows to pay the benefits when
due. Net periodic benefit cost and benefit obligation increases and equity correspondingly decreases as the discount rate is reduced.
The expected rate of return on plan assets is based on long-term expectations given current investment objectives and historical
results. Net periodic benefit cost increases as the expected rate of return on plan assets is correspondingly reduced.
Legal Matters. We are subject to litigation and regulatory proceedings as a result of our business operations and transactions. We
utilize both internal and external counsel in evaluating our potential exposure to adverse outcomes from claims, orders, judgments
or settlements. To the extent that actual outcomes differ from our estimates, or additional facts and circumstances cause us to revise
our estimates, our earnings will be affected. We expense legal costs as incurred, and all recorded legal liabilities are revised, as
required, as better information becomes available to us. The factors we consider when recording an accrual for contingencies
include, among others: (i) the opinions and views of our legal counsel; (ii) our previous experience; and (iii) the decision of our
management as to how we intend to respond to the complaints.
For more information on our litigation and contingencies, see Note 8 to our consolidated financial statements included in “Item
8. Financial Statements and Supplementary Data” in this report.
Environmental Remediation Activities. Sunoco’s accrual for environmental remediation activities reflects anticipated work at
identified sites where an assessment has indicated that cleanup costs are probable and reasonably estimable. The accrual is
undiscounted and is based on currently available information, estimated timing of remedial actions and related inflation
assumptions, existing technology and presently enacted laws and regulations. It is often extremely difficult to develop reasonable
estimates of future site remediation costs due to changing regulations, changing technologies and their associated costs, and changes
in the economic environment. Engineering studies, historical experience and other factors are used to identify and evaluate
remediation alternatives and their related costs in determining the estimated accruals for environmental remediation activities.
Losses attributable to unasserted claims are also reflected in the accruals to the extent they are probable of occurrence and reasonably
estimable.
In general, each remediation site/issue is evaluated individually based upon information available for the site/issue and no pooling
or statistical analysis is used to evaluate an aggregate risk for a group of similar items (e.g., service station sites) in determining
the amount of probable loss accrual to be recorded. Sunoco’s estimates of environmental remediation costs also frequently involve
evaluation of a range of estimates. In many cases, it is difficult to determine that one point in the range of loss estimates is more
likely than any other. In these situations, existing accounting guidance requires that the minimum of the range be accrued.
Accordingly, the low end of the range often represents the amount of loss which has been recorded.
In addition to the probable and estimable losses which have been recorded, management believes it is reasonably possible (i.e.,
less than probable but greater than remote) that additional environmental remediation losses will be incurred. At December 31,
2012, the aggregate of the estimated maximum additional reasonably possible losses, which relate to numerous individual sites,
totaled approximately $200 million. This estimate of reasonably possible losses associated with environmental remediation is
largely based upon analysis during 2012 and continuing into early 2013 of the potential liabilities associated with the establishment
of the segregated environmental fund discussed above. It also includes estimates for remediation activities at current logistics and
retail assets. This reasonably possible loss estimate in many cases reflects the upper end of the loss ranges which are described
above. Such estimates include potentially higher contractor costs for expected remediation activities, the potential need to use
more costly or comprehensive remediation methods and longer operating and monitoring periods, among other things.
Total future costs for environmental remediation activities will depend upon, among other things, the identification of any additional
sites, the determination of the extent of the contamination at each site, the timing and nature of required remedial actions, the
nature of operations at each site, the technology available and needed to meet the various existing legal requirements, the nature
and terms of cost-sharing arrangements with other potentially responsible parties, the availability of insurance coverage, the nature
and extent of future environmental laws and regulations, inflation rates, terms of consent agreements or remediation permits with
regulatory agencies and the determination of Sunoco’s liability at the sites, if any, in light of the number, participation level and
financial viability of the other parties. The recognition of additional losses, if and when they were to occur, would likely extend
Table of Contents