Energy Transfer 2015 Annual Report Download - page 111

Table of Contents
We adopted the provisions of ASU 2015-17 upon issuance and prior period amounts have been reclassified to conform to the current period presentation.
Estimates and Critical Accounting Policies
The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the
accounting rules have developed. Accounting rules generally do not involve a selection among alternatives, but involve an implementation and
interpretation of existing rules, and the use of judgment applied to the specific set of circumstances existing in our business. We make every effort to properly
comply with all applicable rules, and we believe the proper implementation and consistent application of the accounting rules are critical. Our critical
accounting policies are discussed below. For further details on our accounting policies see Note 2 to our consolidated financial statements.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the accrual for and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The natural gas industry conducts its business by processing actual transactions at
the end of the month following the month of delivery. Consequently, the most current month’s financial results for the midstream, NGL and intrastate
transportation and storage segments are estimated using volume estimates and market prices. Any differences between estimated results and actual results are
recognized in the following month’s financial statements. Management believes that the operating results estimated for the year ended December 31, 2015
represent the actual results in all material respects.
Some of the other significant estimates made by management include, but are not limited to, the timing of certain forecasted transactions that are hedged, the
fair value of derivative instruments, useful lives for depreciation, depletion and amortization, purchase accounting allocations and subsequent realizability of
intangible assets, fair value measurements used in the goodwill impairment test, market value of inventory, assets and liabilities resulting from the regulated
ratemaking process, contingency reserves and environmental reserves. Actual results could differ from those estimates.
Revenue Recognition Revenues for sales of natural gas and NGLs are recognized at the later of the time of delivery of the product to the customer or the
time of sale. Revenues from service labor, transportation, treating, compression and gas processing, are recognized upon completion of the service.
Transportation capacity payments are recognized when earned in the period the capacity is made available.
Our intrastate transportation and storage and interstate transportation and storage segments’ results are determined primarily by the amount of capacity our
customers reserve as well as the actual volume of natural gas that flows through the transportation pipelines. Under transportation contracts, our customers are
charged (i) a demand fee, which is a fixed fee for the reservation of an agreed amount of capacity on the transportation pipeline for a specified period of time
and which obligates the customer to pay even if the customer does not transport natural gas on the respective pipeline, (ii) a transportation fee, which is based
on the actual throughput of natural gas by the customer, (iii) fuel retention based on a percentage of gas transported on the pipeline, or (iv) a combination of
the three, generally payable monthly. Excess fuel retained after consumption is typically valued at market prices.
Our intrastate transportation and storage segment also generates revenues and margin from the sale of natural gas to electric utilities, independent power
plants, local distribution companies, industrial end-users and other marketing companies on the HPL System. Generally, we purchase natural gas from the
market, including purchases from our marketing operations, and from producers at the wellhead.
In addition, our intrastate transportation and storage segment generates revenues and margin from fees charged for storing customers’ working natural gas in
our storage facilities. We also engage in natural gas storage transactions in which we seek to find and profit from pricing differences that occur over time
utilizing the Bammel storage reservoir. We purchase physical natural gas and then sell financial contracts at a price sufficient to cover our carrying costs and
provide for a gross profit margin. We expect margins from natural gas storage transactions to be higher during the periods from November to March of each
year and lower during the period from April through October of each year due to the increased demand for natural gas during colder weather. However, we
cannot assure that management’s expectations will be fully realized in the future and in what time period, due to various factors including weather,
availability of natural gas in regions in which we operate, competitive factors in the energy industry, and other issues.
Results from the midstream segment are determined primarily by the volumes of natural gas gathered, compressed, treated, processed, purchased and sold
through our pipeline and gathering systems and the level of natural gas and NGL prices. We generate midstream revenues and gross margins principally
under fee-based or other arrangements in which we receive a fee for natural gas gathering, compressing, treating or processing services. The revenue earned
from these arrangements is directly related to the volume of natural gas that flows through our systems and is not directly dependent on commodity prices.
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