Energy Transfer 2013 Annual Report Download - page 51

Table of Contents
regulations have been promulgated and are already in effect, the rulemaking and implementation process is still ongoing, and we cannot yet predict the ultimate
effect of the rules and regulations on our business.
The Dodd-Frank Act expanded the types of entities that are required to register with the CFTC and the SEC as a result of their activities in the derivatives
markets or otherwise become specifically qualified to enter into derivatives contracts. We will be required to assess our activities in the derivatives markets,
and to monitor such activities on an ongoing basis, to ascertain and to identify any potential change in our regulatory status.
Reporting and recordkeeping requirements also could significantly increase operating costs and expose us to penalties for non-compliance. Certain CFTC
recordkeeping requirements became effective on October 14, 2010, and additional recordkeeping requirements will be phased in through April 2013. Beginning
on December 31, 2012, certain CFTC reporting rules became effective, and additional reporting requirements will be phased in through April 2013. These
additional recordkeeping and reporting requirements may require additional compliance resources. Added public transparency as a result of the reporting rules
may also have a negative effect on market liquidity which could also negatively impact commodity prices and our ability to hedge.
The CFTC has also issued regulations to set position limits for certain futures and option contracts in the major energy markets and for swaps that are their
economic equivalents. The CFTC’s position limits rules were to become effective on October 12, 2012, but a United States District Court vacated and
remanded the position limits rules to the CFTC. The CFTC has appealed that ruling and it is uncertain at this time whether, when, and to what extent the
CFTC’s position limits rules will become effective.
The new regulations may also require us to comply with certain margin requirements for our over-the counter derivative contracts with certain CFTC- or SEC-
registered entities that could require us to enter into credit support documentation and/or post significant amounts of cash collateral, which could adversely
affect our liquidity and ability to use derivatives to hedge our commercial price risk; however, the proposed margin rules are not yet final and therefore the
application of those provisions to us is uncertain at this time. The financial reform legislation may also require the counterparties to our derivative instruments
to spin off some of their derivatives activities to a separate entity, which may not be as creditworthy as the current counterparty.
The new legislation also requires that certain derivative instruments be centrally cleared and executed through an exchange or other approved trading platform.
Mandatory exchange trading and clearing requirements could result in increased costs in the form of additional margin requirements imposed by clearing
organizations. On December 13, 2012, the CFTC published final rules regarding mandatory clearing of certain interest rate swaps and certain index credit
default swaps and setting compliance dates for different categories of market participants, the earliest of which was March 11, 2013. The CFTC has not yet
proposed any rules requiring the clearing of any other classes of swaps, including physical commodity swaps. Although there may be an exception to the
mandatory exchange trading and clearing requirement that applies to our trading activities, we must obtain approval from the board of directors of our General
Partner and make certain filings in order to rely on this exception. In addition, mandatory clearing requirements applicable to other market participants, such
as swap dealers, may change the cost and availability of the swaps that we use for hedging.
Rules promulgated under the Dodd-Frank Act further defined forwards as well as instances where forwards may become swaps. Because the CFTC rules,
interpretations, no-action letters, and case law are still developing, it is possible that some arrangements that previously qualified as forwards or energy service
contracts may fall in the regulatory category of swaps or options. In addition, the CFTC’s rules applicable to trade options may further impose burdens on our
ability to conduct our traditional hedging operations and could become subject to CFTC investigations in the future.
The new legislation and any new regulations could significantly increase the cost of derivative contracts (including through restrictions on the types of
collateral we are required to post), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter,
reduce our ability to monetize or restructure existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of
derivatives as a result of the legislation and regulations, our results of operations may become more volatile and our cash flows may be less predictable.
Finally, if we fail to comply with applicable laws, rules or regulations, we may be subject to fines, cease-and-desist orders, civil and criminal penalties or
other sanctions.
A natural disaster, catastrophe or other event could result in severe personal injury, property damage and environmental damage, which could
curtail our operations and otherwise materially adversely affect our cash flow and, accordingly, affect the market price of our Common Units.
Some of our operations involve risks of personal injury, property damage and environmental damage, which could curtail our operations and otherwise
materially adversely affect our cash flow. For example, natural gas facilities operate at high pressures, sometimes in excess of 1,100 pounds per square inch.
Virtually all of our operations are exposed to potential natural disasters, including hurricanes, tornadoes, storms, floods and/or earthquakes.
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