Energy Transfer 2015 Annual Report Download - page 178

Table of Contents
customer collection experience, general and specific economic trends, and known specific issues related to individual customers, sectors, and
transactions that might impact collectability. Increases in the allowance are recorded as a component of operating expenses; reductions in the allowance
are recorded when receivables are subsequently collected or written-off. Past due receivable balances are written-off when our efforts have been
unsuccessful in collecting the amount due.
Our retail marketing segment extends credit to customers after a review of various credit indicators. Depending on the type of customer and its risk
profile, security in the form of a cash deposit, letter of credit or mortgages may be required. 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 allowance
computation may then be adjusted to reflect input provided by the credit department and business line managers who may have specific knowledge of
uncollectible items. 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, refined products and spare parts. 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 refined products is determined using the last-in, first out method.
The cost of spare parts is determined by the first-in, first-out method.
Inventories consisted of the following:
December 31,
2015
2014
Natural gas and NGLs $ 415
$ 392
Crude oil 424
364
Refined products 104
392
Spare parts and other 270
312
Total inventories $ 1,213
$ 1,460
During the year ended December 31, 2015, the Partnership recorded write-downs of $104 million on its crude oil, refined products and NGL inventories
as a result of a decline in the market price of these products. The write-down was calculated based upon current replacement costs.
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 cost 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.
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