Energy Transfer 2013 Annual Report Download - page 109

Table of Contents
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 10 to our consolidated financial statements included in “Item 8. Financial Statements and
Supplementary Data” in this report.
Environmental Remediation Activities. The Partnership’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 for known claims 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 generally reflected in the accruals on an undiscounted basis, to the extent they are probable of occurrence and
reasonably estimable. We have 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.
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. The
Partnership’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, 2013, the aggregate of the estimated maximum additional
reasonably possible losses, which relate to numerous individual sites, totaled approximately $6 million. This estimate of reasonably possible losses comprises
estimates for remediation activities at current logistics and retail assets and, 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 the Partnership’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 over many years.
Management believes that the Partnership’s exposure to adverse developments with respect to any individual site is not expected to be material. However, if
changes in environmental laws or regulations occur or the assumptions used to estimate losses at multiple sites are adjusted, such changes could impact
multiple facilities, formerly owned facilities and third-party sites at the same time. As a result, from time to time, significant charges against income for
environmental remediation may occur; however, management does not believe that any such charges would have a material adverse impact on the
Partnership’s consolidated financial position.
Deferred Income Taxes. ETP recognizes benefits in earnings and related deferred tax assets for net operating loss carryforwards (“NOLs”) and tax credit
carryforwards. If necessary, a charge to earnings and a related valuation allowance are recorded to reduce
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