Energy Transfer 2015 Annual Report Download - page 34

Table of Contents
As of December 31, 2015 and 2014, accruals of $367 million and $401 million, respectively, were recorded in our consolidated balance sheets as accrued and
other current liabilities and other non-current liabilities to cover estimated material environmental liabilities including, for example, certain matters assumed
in connection with our acquisition of the HPL System, our acquisition of Transwestern, potential environmental liabilities for three sites that were formerly
owned by Titan Energy Partners, L.P. or its predecessors, and the predecessor owner’s share of certain environmental liabilities of ETC OLP.
The Partnership is subject to extensive and frequently changing federal, tribal, state and local laws and regulations, including those relating to the discharge
of materials into the environment or that otherwise relate to the protection of the environment, waste management and the characteristics and composition of
fuels. These laws and regulations require environmental assessment and remediation efforts at many of Sunoco, Inc.’s facilities and at formerly owned or
third-party sites. Accruals for these environmental remediation activities amounted to $344 million and $363 million at December 31, 2015 and 2014,
respectively, which is included in the total accruals above. These legacy sites that are subject to environmental assessments include formerly owned terminals
and other logistics assets, retail sites that are no longer operated by Sunoco, Inc., closed and/or sold refineries and other formerly owned sites. In December
2013, a wholly-owned captive insurance company was established for these legacy 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. As of December 31, 2015 the captive insurance company held $238 million of cash and investments.
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.
Under various environmental laws, including the RCRA, the Partnership has initiated corrective remedial action at certain of its facilities, formerly owned
facilities and at certain third-party sites. At the Partnership’s major manufacturing facilities, we have typically assumed continued industrial use and a
containment/remediation strategy focused on eliminating unacceptable risks to human health or the environment. The remediation accruals for these sites
reflect that strategy. Accruals include amounts designed to prevent or mitigate off-site migration and to contain the impact on the facility property, as well as
to address known, discrete areas requiring remediation within the plants. Remedial activities include, for example, closure of RCRA waste management units,
recovery of hydrocarbons, handling of impacted soil, mitigation of surface water impacts and prevention or mitigation of off-site migration. A change in this
approach as a result of changing the intended use of a property or a sale to a third party could result in a comparatively higher cost remediation strategy in the
future.
The Partnership currently owns or operates certain retail gasoline outlets where releases of petroleum products have occurred. Federal and state laws and
regulations require that contamination caused by such certain of releases at these sites and at formerly owned sites be assessed and remediated to meet the
applicable standards. Our obligation to remediate this type of contamination varies, depending on the extent of the release and the applicable laws and
regulations. If the Partnership is eligible to participate, a portion of the remediation costs may be recoverable from the reimbursement fund of the applicable
state, after any deductible has been met.
In general, a remediation site or issue is typically evaluated on an individual basis based upon information available for the site or issue and no pooling or
statistical analysis is used to evaluate an aggregate risk for a group of similar items (for example, service station sites) in determining the amount of probable
loss accrual to be recorded. The 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 allows us
the minimum amount of the range to accrue. 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 (that is, it is less than probable but
greater than remote) that additional environmental remediation losses will be incurred. At December 31, 2015, the aggregate of such additional estimated
maximum reasonably possible losses, which relate to numerous individual sites, totaled approximately $5 million, which amount is in excess of the $367
million in environmental accruals recorded on December 31, 2015. 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.
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