Energy Transfer 2013 Annual Report Download - page 162

Table of Contents
Our investment in Sunoco Logistics segment extends credit terms to certain customers after review of various credit indicators, including the customer’s
credit rating. Outstanding customer receivable balances are regularly reviewed for possible non-payment indicators and reserves are recorded for doubtful
accounts based upon management’s estimate of collectability at the time of review. Actual balances are charged against the reserve when all collection
efforts have been exhausted.
Our interstate transportation and storage operations have a concentration of customers in the electric and gas utility industries as well as natural gas
producers. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that the customers may be
similarly affected by changes in economic or other conditions. From time to time, specifically identified customers having perceived credit risk are
required to provide prepayments or other forms of collateral. Management believes that the portfolio of receivables, which includes regulated electric
utilities, regulated local distribution companies and municipalities, is subject to minimal credit risk. Our interstate transportation and storage operations
establish an allowance for doubtful accounts on trade receivables based on the expected ultimate recovery of these receivables and consider many factors
including historical customer collection experience, general and specific economic trends and known specific issues related to individual customers,
sectors and transactions that might impact collectability.
Our retail marketing segment extends credit to customers after a review of credit rating and other credit indicators. Management records reserves for bad
debt by computing a proportion of average write-off activity over the past five years in comparison to the outstanding balance in accounts receivable.
This proportion is then applied to the accounts receivable balance at the end of the reporting period to calculate a current estimate of what is uncollectible.
The credit department and business line managers make the decision to write off an account, based on understanding of the potential collectability.
We enter into netting arrangements with counterparties of derivative contracts to mitigate credit risk. Transactions are confirmed with the counterparty and
the net amount is settled when due. Amounts outstanding under these netting arrangements are presented on a net basis in the consolidated balance sheets.
Inventories
Inventories consist principally of natural gas held in storage, crude oil, petroleum and chemical products. Natural gas held in storage is valued at the
lower of cost or market utilizing the weighted-average cost method. The cost of crude oil and petroleum and chemical products is determined using the last-
in, first out method. The cost of appliances, parts and fittings is determined by the first-in, first-out method.
Inventories consisted of the following:
December 31,
2013
2012
Natural gas and NGLs $519
$334
Crude oil 488
418
Refined products 597
572
Appliances, parts and fittings, and other 161
171
Total inventories $1,765
$1,495
We utilize commodity derivatives to manage price volatility associated with our natural gas inventory. Changes in fair value of designated hedged
inventory are recorded in inventory on our consolidated balance sheets and cost of products sold in our consolidated statements of operations.
Exchanges
Exchanges consist of natural gas and NGL delivery imbalances (over and under deliveries) with others. These amounts, which are valued at market
prices or weighted average market prices pursuant to contractual imbalance agreements, turn over monthly and are recorded as exchanges receivable or
exchanges payable on our consolidated balance sheets. These imbalances are generally settled by deliveries of natural gas or NGLs, but may be settled in
cash, depending on contractual terms.
F - 15