Energy Transfer 2012 Annual Report Download - page 54

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investigate such rates. If, upon completion of an investigation, FERC finds that the new or changed rate is unlawful, it is authorized
to require the carrier to refund revenues in excess of the prior tariff during the term of the investigation. FERC also may investigate,
upon complaint or on its own motion, rates that are already in effect and may order a carrier to change its rates prospectively.
Upon an appropriate showing, a shipper may obtain reparations for damages sustained for a period of up to two years prior to the
filing of a complaint.
The primary ratemaking methodology used by FERC to authorize increases in the tariff rates of petroleum pipelines is price
indexing. If the rate changes allowed under the indexing methodology are not large enough to fully reflect actual increases to our
pipeline costs, our financial condition could be adversely affected. If applying the index methodology results in a rate increase
that is substantially in excess of our actual cost increases, or it results in a rate decrease that is substantially less than our pipeline's
actual cost decrease, we may be required to reduce our pipeline rates. FERC's ratemaking methodologies may limit our ability to
set rates based on its costs or may delay the use of rates that reflect increased costs. In addition, if FERC's indexing methodology
changes, the new methodology could materially and adversely affect our financial condition, results of operations or cash flows.
Under the Energy Policy Act adopted in 1992, certain interstate pipeline rates were deemed just and reasonable or “grandfathered.”
Revenues are derived from such grandfathered rates on most of our FERC-regulated pipelines. A person challenging a grandfathered
rate must, as a threshold matter, establish a substantial change since the date of enactment of the Energy Policy Act, in either the
economic circumstances or the nature of the service that formed the basis for the rate. If FERC were to find a substantial change
in circumstances, then the existing rates could be subject to detailed review and there is a risk that some rates could be found to
be in excess of levels justified by the pipeline's costs. In such event, FERC could order us to reduce pipeline rates prospectively
and to pay refunds to shippers.
If FERC's petroleum pipeline ratemaking methodologies procedures changes, the new methodology or procedures could adversely
affect our business and results of operations.
Should we violate laws and regulations prohibiting market manipulation, we could be subject to substantial fines and penalties
and lose the governmental authorizations needed conduct our businesses.
The Energy Policy Act of 2005 amended the NGA and NGPA to prohibit fraud and manipulation in natural gas markets. FERC
subsequently issued a final rule making it unlawful for any entity, in connection with the purchase or sale of natural gas or
transportation service subject to FERC's jurisdiction, to defraud, make an untrue statement or omit a material fact or engage in
any practice, act or course of business that operates or would operate as a fraud. FERC is authorized to impose civil penalties of
up to $1 million per day per violation and grant other relief, such as ordering refunds, or revoking operating authority.
Wholesale sales of petroleum are subject to provisions of the Energy Independence and Security Act of 2007 (“EISA”) and
regulations by the FTC. Under the EISA, the FTC issued a rule that prohibits fraudulent or deceptive conduct (including false or
misleading statements of material fact) in connection with wholesale purchases or sales of crude oil or refined petroleum products.
The FTC rule also bans intentional failures to state a material fact when the omission makes a statement misleading and distorts,
or is likely to distort, market conditions for any product covered by the rule. The FTC holds substantial enforcement authority
under the EISA, including authority to request that a court impose fines of up to $1 million per day per violation. FERC may also
order reparations and suspend tariffs for violations of the ICA in connection with interstate oil pipeline transportation.
Under the Commodity Exchange Act, the CFTC is directed to prevent price manipulations for the commodity and futures markets,
including the energy futures markets. Pursuant to the Dodd-Frank Act, the CFTC has adopted anti-market manipulation regulations
that prohibit, among other things, fraud and price manipulation in the commodity and futures markets. The CFTC also has statutory
authority to assess fines of up to $1,000,000 or triple the monetary gain for violations of its anti-market manipulation regulations
State regulatory measures could adversely affect the business and operations of our midstream and intrastate pipeline and
storage assets.
Our midstream and intrastate transportation and storage operations are generally exempt from FERC regulation under the NGA,
but FERC regulation still significantly affects our business and the market for our products. The rates, terms and conditions of
service for the interstate services we provide in our intrastate gas pipelines and gas storage are subject to FERC regulation under
Section 311 of the NGPA. Our HPL System, East Texas pipeline, Oasis pipeline and ET Fuel System provide such services. Under
Section 311, rates charged for transportation and storage must be fair and equitable. Amounts collected in excess of fair and
equitable rates are subject to refund with interest, and the terms and conditions of service, set forth in the pipeline's statement of
operating conditions, are subject to FERC review and approval. Should FERC determine not to authorize rates equal to or greater
than our costs of service, our cash flow would be negatively affected.
Our midstream and intrastate gas and oil transportation pipelines and our intrastate gas storage operations are subject to state
regulation. All of the states in which we operate midstream assets, intrastate pipelines or intrastate storage facilities have adopted
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