Energy Transfer 2015 Annual Report Download - page 175

Table of Contents
resulting NGLs to third parties at market prices, (iv) purchasing all or a specified percentage of natural gas and/or NGL delivered from producers and
treating or processing our plant facilities, and (v) making other direct purchases of natural gas and/or NGL at specified delivery points to meet
operational or marketing obligations. In many cases, we provide services under contracts that contain a combination of more than one of the
arrangements described above. The terms of our contracts vary based on gas quality conditions, the competitive environment at the time the contracts are
signed and customer requirements. Our contract mix may change as a result of changes in producer preferences, expansion in regions where some types of
contracts are more common and other market factors.
NGL storage and pipeline transportation revenues are recognized when services are performed or products are delivered, respectively. Fractionation and
processing revenues are recognized when product is either loaded into a truck or injected into a third party pipeline, which is when title and risk of loss
pass to the customer.
In our natural gas compression business, revenue is recognized for compressor packages and technical service jobs using the completed contract method
which recognizes revenue upon completion of the job. Costs incurred on a job are deducted at the time revenue is recognized.
We conduct marketing activities in which we market the natural gas that flows through our assets, referred to as on-system gas. We also attract other
customers by marketing volumes of natural gas that do not move through our assets, referred to as off-system gas. For both on-system and off-system gas,
we purchase natural gas from natural gas producers and other supply points and sell that natural gas to utilities, industrial consumers, other marketers and
pipeline companies, thereby generating gross margins based upon the difference between the purchase and resale prices.
Terminalling and storage revenues are recognized at the time the services are provided. Pipeline revenues are recognized upon delivery of the barrels to
the location designated by the shipper. Crude oil acquisition and marketing revenues, as well as refined product marketing revenues, are recognized
when title to the product is transferred to the customer. Revenues are not recognized for crude oil exchange transactions, which are entered into primarily
to acquire crude oil of a desired quality or to reduce transportation costs by taking delivery closer to end markets. Any net differential for exchange
transactions is recorded as an adjustment of inventory costs in the purchases component of cost of products sold and operating expenses in the
statements of operations.
Our retail marketing segment sells gasoline and diesel in addition to a broad mix of merchandise such as groceries, fast foods and beverages at its
convenience stores. A portion of our gasoline and diesel sales are to wholesale customers on a consignment basis, in which we retain title to inventory,
control access to and sale of fuel inventory, and recognize revenue at the time the fuel is sold to the ultimate customer. We typically own the fuel
dispensing equipment and underground storage tanks at consignment sites, and in some cases we own the entire site and have entered into an operating
lease with the wholesale customer operating the site. In addition, our retail outlets derive other income from lottery ticket sales, money orders, prepaid
phone cards and wireless services, ATM transactions, car washes, movie rental and other ancillary product and service offerings. Some of Sunoco, Inc.’s
retail outlets provide a variety of car care services. Revenues related to the sale of products are recognized when title passes, while service revenues are
recorded on a net commission basis and are recognized when services are provided. Title passage generally occurs when products are shipped or
delivered in accordance with the terms of the respective sales agreements. In addition, revenues are not recognized until sales prices are fixed or
determinable and collectability is reasonably assured.
Regulatory Accounting – Regulatory Assets and Liabilities
Our interstate transportation and storage segment is subject to regulation by certain state and federal authorities, and certain subsidiaries in that segment
have accounting policies that conform to the accounting requirements and ratemaking practices of the regulatory authorities. The application of these
accounting policies allows certain of our regulated entities to defer expenses and revenues on the balance sheet as regulatory assets and liabilities when
it is probable that those expenses and revenues will be allowed in the ratemaking process in a period different from the period in which they would have
been reflected in the consolidated statement of operations by an unregulated company. These deferred assets and liabilities will be reported in results of
operations in the period in which the same amounts are included in rates and recovered from or refunded to customers. Management’s assessment of the
probability of recovery or pass through of regulatory assets and liabilities will require judgment and interpretation of laws and regulatory commission
orders. If, for any reason, we cease to meet the criteria for application of regulatory accounting treatment for these entities, the regulatory assets and
liabilities related to those portions ceasing to meet such criteria would be eliminated from the consolidated balance sheet for the period in which the
discontinuance of regulatory accounting treatment occurs.
Although Panhandle’s natural gas transmission systems and storage operations are subject to the jurisdiction of FERC in accordance with the Natural Gas
Act of 1938 and Natural Gas Policy Act of 1978, it does not currently apply regulatory accounting policies in accounting for its operations. In 1999,
prior to its acquisition by Southern Union, Panhandle
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