Energy Transfer 2015 Annual Report Download - page 115

Table of Contents
Pensions and Other Postretirement Benefit Plans. We are required to measure plan assets and benefit obligations as of its fiscal year-end balance sheet date.
We recognize the changes in the funded status of our defined benefit postretirement plans through AOCI or are reflected as a regulatory asset or regulatory
liability for regulated subsidiaries.
The calculation of the net periodic benefit cost and benefit obligation requires the use of a number of assumptions. Changes in these assumptions can have a
significant effect on the amounts reported in the financial statements. The Partnership believes that the two most critical assumptions are the assumed
discount rate and the expected rate of return on plan assets.
The discount rate is established by using a hypothetical portfolio of high-quality debt instruments that would provide the necessary cash flows to pay the
benefits when due. Net periodic benefit cost and benefit obligation increases and equity correspondingly decreases as the discount rate is reduced.
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 11 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, 2015, the aggregate of the estimated maximum reasonably
possible losses, which relate to numerous individual sites, totaled approximately $5 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
109