Energy Transfer 2012 Annual Report Download - page 73

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Holdco Transaction
Immediately following the closing of the Sunoco Merger, ETE contributed its interest in Southern Union into ETP Holdco
Corporation (“Holdco”), an ETP-controlled entity, in exchange for a 60% equity interest in Holdco. In conjunction with ETE's
contribution, ETP contributed its interest in Sunoco to Holdco and retained a 40% equity interest in Holdco. Pursuant to a
stockholders agreement between ETE and ETP, ETP controls Holdco. Consequently, ETP consolidated Holdco (including Sunoco
and Southern Union) in its financial statements subsequent to consummation of the Holdco Transaction. Prior to the contribution
of Sunoco to Holdco, Sunoco contributed $2.0 billion of cash and its interests in Sunoco Logistics to ETP in exchange for 90,706,000
Class F Units representing limited partner interests in ETP ("Class F Units"). The Class F Units are entitled to 35% of the quarterly
cash distribution generated by ETP and its subsidiaries other than Holdco, subject to a maximum cash distribution of $3.75 per
Class F Unit per year, which is the current level.
Under the terms of the Holdco transaction agreement, ETE agreed to relinquish its right to $210 million of incentive distributions
from ETP that ETE would otherwise be entitled to receive over 12 consecutive quarters beginning with the distribution paid on
November 14, 2012.
Sale of Distribution Operations
In December 2012, Southern Union entered into a purchase and sale agreement with the Laclede Entities, pursuant to which
Laclede Missouri has agreed to acquire the assets of the Missouri Gas Energy division and Laclede Massachusetts has agreed to
acquire the assets of the New England Gas Company division. Total consideration for the acquisitions will be $1.04 billion, subject
to customary closing adjustments, less the assumption of approximately $19 million of debt. For the period from March 26, 2012
to December 31, 2012, the distribution operations have been reclassified to discontinued operations in the consolidated statements
of operations. The assets and liabilities of the disposal group have been reclassified and reported as assets and liabilities held for
sale as of December 31, 2012.
SUGS Contribution
On February 27, 2013, Southern Union entered into a definitive contribution agreement to contribute to Regency all of the issued
and outstanding membership interest in Southern Union Gathering Company, LLC, and its subsidiaries, including SUGS. The
consideration to be paid by Regency in connection with this transaction will consist of (i) the issuance of 31,372,419 Regency
common units to Southern Union, (ii) the issuance of 6,274,483 Regency Class F units to Southern Union, (iii) the distribution of
$570 million in cash to Southern Union, and (iv) the payment of $30 million in cash to a subsidiary of ETP. The Regency Class
F units will have the same rights, terms and conditions as the Regency common units, except that Southern Union will not receive
distributions on the Regency Class F units for the first eight consecutive quarters following the closing, and the Regency Class F
units will thereafter automatically convert into Regency common units on a one-for-one basis. Upon the closing of the transaction,
ETE will agree to forego all distributions with respect to its IDRs on the Regency common units issued in the transaction for the
first eight consecutive quarters following the closing. The transaction is expected to close in the second quarter of 2013.
General
Our primary objective is to increase the level of our distributable cash flow over time by pursuing a business strategy that is
currently focused on growing our businesses through, among other things, pursuing certain construction and expansion
opportunities relating to our existing infrastructure and acquiring certain strategic operations and businesses or assets as
demonstrated by our acquisition with Regency of LDH, the Citrus Acquisition, the Sunoco merger, the Holdco Transaction and
our recent announcements regarding organic growth projects. The actual amounts of cash that we will have available for distribution
will primarily depend on the amount of cash we generate from our operations.
During the past several years, we have been successful in completing several transactions that have increased our distributable
cash flow. We have also made, and are continuing to make, significant investments in internal growth projects, primarily the
construction of pipelines, gathering systems and natural gas treating and processing plants, which we believe will provide additional
distributable cash flow to our Partnership for years to come.
Our principal operations as of December 31, 2012 included the following segments:
• Intrastate natural gas transportation and storage – Revenue is principally generated from fees charged to customers to reserve
firm capacity on or move gas through our pipelines on an interruptible basis. Our interruptible or short-term business is
generally impacted by basis differentials between delivery points on our system and the price of natural gas. The basis
differentials that primarily impact our interruptible business are primarily among receipt points between West Texas to East
Texas or segments thereof. When narrow or flat spreads exist, our open capacity may be underutilized and go unsold.
Conversely, when basis differentials widen, our interruptible volumes and fees generally increase. The fee structure normally
consists of a monetary fee and fuel retention. Excess fuel retained after consumption, if any, is typically sold at market prices.
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