Energy Transfer 2012 Annual Report Download - page 32

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charged for intrastate transportation must be fair and equitable, and amounts collected in excess of fair and equitable rates are
subject to refund with interest. The terms and conditions of service set forth in the intrastate facility’s statement of operating
conditions are also subject to the FERC review and approval. Should the FERC determine not to authorize rates equal to or greater
than our currently approved Section 311 rates, our business may be adversely affected. Failure to observe the service limitations
applicable to transportation and storage services under Section 311, failure to comply with the rates approved by the FERC for
Section 311 service, and failure to comply with the terms and conditions of service established in the pipeline’s FERC-approved
statement of operating conditions could result in an alteration of jurisdictional status, and/or the imposition of administrative, civil
and criminal remedies.
The FERC has adopted market-monitoring and annual reporting regulations, which regulations are applicable to many intrastate
pipelines as well as other entities that are otherwise not subject to the FERC’s NGA jurisdiction such as natural gas marketers.
These regulations are intended to increase the transparency of wholesale energy markets, to protect the integrity of such markets,
and to improve the FERC’s ability to assess market forces and detect market manipulation. The FERC has also issued regulations
requiring interstate pipelines and certain major non-interstate pipelines to post, on a daily basis, capacity, scheduled flow information
and actual flow information. As these posting requirements for major non-interstate pipelines have been vacated on appeal by the
U.S. 5th Circuit Court of Appeals, it is not known with certainty whether and to what extent the FERC will continue to attempt to
impose such posting requirements. Should the FERC succeed in reimposing these or similar regulations we could be subject to
further costs and administrative burdens, none of which are expected to have a material impact on our operations.
Our intrastate natural gas operations are also subject to regulation by various agencies in Texas, principally the Texas Railroad
Commission (“TRRC”). Our intrastate pipeline and storage operations in Texas are also subject to the Texas Utilities Code, as
implemented by the TRRC. Generally, the TRRC is vested with authority to ensure that rates, operations and services of gas
utilities, including intrastate pipelines, are just and reasonable and not discriminatory. The rates we charge for transportation
services are deemed just and reasonable under Texas law unless challenged in a customer or TRRC complaint. We cannot predict
whether such a complaint will be filed against us or whether the TRRC will change its regulation of these rates. Failure to comply
with the Texas Utilities Code can result in the imposition of administrative, civil and criminal remedies.
Regulation of Sales of Natural Gas and NGLs. The price at which we buy and sell natural gas currently is not subject to federal
regulation and, for the most part, is not subject to state regulation. The price at which we sell NGLs is not subject to federal or
state regulation.
To the extent that we enter into transportation contracts with natural gas pipelines that are subject to FERC regulation, we are
subject to FERC requirements related to use of such capacity. Any failure on our part to comply with the FERC’s regulations and
policies, or with an interstate pipeline’s tariff, could result in the imposition of civil and criminal penalties.
Our sales of natural gas are affected by the availability, terms and cost of pipeline transportation. As noted above, the price and
terms of access to pipeline transportation are subject to extensive federal and state regulation. The FERC is continually proposing
and implementing new rules and regulations affecting those segments of the natural gas industry. These initiatives also may affect
the intrastate transportation of natural gas under certain circumstances. The stated purpose of many of these regulatory changes
is to promote competition among the various sectors of the natural gas industry and these initiatives generally reflect more light-
handed regulation. We cannot predict the ultimate impact of these regulatory changes to our natural gas marketing operations, and
we note that some of the FERC’s regulatory changes may adversely affect the availability and reliability of interruptible
transportation service on interstate pipelines. We do not believe that we will be affected by any such FERC action in a manner
that is materially different from other natural gas marketers with whom we compete.
Regulation of Gathering Pipelines. Section 1(b) of the NGA exempts natural gas gathering facilities from the jurisdiction of the
FERC under the NGA. We own a number of natural gas pipelines in Texas, Louisiana and West Virginia that we believe meet the
traditional tests the FERC uses to establish a pipeline’s status as a gatherer not subject to FERC jurisdiction. However, the distinction
between the FERC-regulated transmission services and federally unregulated gathering services has been the subject of substantial
litigation and varying interpretations, so the classification and regulation of our gathering facilities could be subject to change
based on future determinations by the FERC and the courts. State regulation of gathering facilities generally includes various
safety, environmental and, in some circumstances, nondiscriminatory take requirements and complaint-based rate regulation.
In Texas, our gathering facilities are subject to regulation by the TRRC under the Texas Utilities Code in the same manner as
described above for our intrastate pipeline facilities. Louisiana’s Pipeline Operations Section of the Department of Natural
Resources’ Office of Conservation is generally responsible for regulating intrastate pipelines and gathering facilities in Louisiana
and has authority to review and authorize natural gas transportation transactions and the construction, acquisition, abandonment
and interconnection of physical facilities.
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