Energy Transfer 2015 Annual Report Download - page 52

Table of Contents
The costs of our interstate pipeline operations may increase and we may not be able to recover all of those costs due to FERC regulation of our rates. If we
propose to change our tariff rates, our proposed rates may be challenged by the FERC or third parties, and the FERC may deny, modify or limit our proposed
changes if we are unable to persuade the FERC that changes would result in just and reasonable rates that are not unduly discriminatory. We also may be
limited by the terms of rate case settlement agreements or negotiated rate agreements with individual customers from seeking future rate increases, or we may
be constrained by competitive factors from charging our tariff rates.
To the extent our costs increase in an amount greater than our revenues increase, or there is a lag between our cost increases and our ability to file for, and
obtain rate increases, our operating results would be negatively affected. Even if a rate increase is permitted by the FERC to become effective, the rate
increase may not be adequate. We cannot guarantee that our interstate pipelines will be able to recover all of our costs through existing or future rates.
The ability of interstate pipelines held in tax-pass-through entities, like us, to include an allowance for income taxes as a cost-of-service element in their
regulated rates has been subject to extensive litigation before the FERC and the courts for a number of years. It is currently the FERC’s policy to permit
pipelines to include in cost-of-service a tax allowance to reflect actual or potential income tax liability on their public utility income attributable to all
partnership or limited liability company interests, to the extent that the ultimate owners have an actual or potential income tax liability on such income.
Whether a pipeline’s owners have such actual or potential income tax liability will be reviewed by the FERC on a case-by-case basis. Under the FERC’s
policy, we thus remain eligible to include an income tax allowance in the tariff rates we charge for interstate natural gas transportation. The effectiveness of
the FERC’s policy and the application of that policy remain subject to future challenges, refinement or change by the FERC or the courts.
Our interstate natural gas pipelines are subject to laws, regulations and policies governing terms and conditions of service, which could adversely affect
our business and results of operations.
In addition to rate oversight, the FERC’s regulatory authority extends to many other aspects of the business and operations of our interstate natural gas
pipelines, including:
• terms and conditions of service;
• the types of services interstate pipelines may or must offer their customers;
• construction of new facilities;
• acquisition, extension or abandonment of services or facilities;
• reporting and information posting requirements;
• accounts and records; and
• relationships with affiliated companies involved in all aspects of the natural gas and energy businesses.
Compliance with these requirements can be costly and burdensome. In addition, we cannot guarantee that the FERC will authorize tariff changes and other
activities we might propose and to do so in a timely manner and free from potentially burdensome conditions. Future changes to laws, regulations, policies
and interpretations thereof may impair our access to capital markets or may impair the ability of our interstate pipelines to compete for business, may impair
their ability to recover costs or may increase the cost and burden of operation.
Rate regulation or market conditions may not allow us to recover the full amount of increases in the costs of our crude oil and products pipeline
operations.
Transportation provided on our common carrier interstate crude oil and products pipelines is subject to rate regulation by the FERC, which requires that tariff
rates for transportation on these oil pipelines be just and reasonable and not unduly discriminatory. If we propose new or changed rates, the FERC or
interested persons may challenge those rates and the FERC is authorized to suspend the effectiveness of such rates for up to seven months and to investigate
such rates. If, upon completion of an investigation, the FERC finds that the proposed rate is unjust or unreasonable, it is authorized to require the carrier to
refund revenues in excess of the prior tariff during the term of the investigation. The FERC also may investigate, upon complaint or on its own motion, rates
that are already in effect and may order a carrier to change its rates prospectively. Upon an appropriate showing, a shipper may obtain reparations for damages
sustained for a period of up to two years prior to the filing of a complaint.
The primary ratemaking methodology used by the FERC to authorize increases in the tariff rates of petroleum pipelines is price indexing. The FERC’s
ratemaking methodologies may limit our ability to set rates based on our costs or may delay the use of rates that reflect increased costs. In addition, if the
FERC’s indexing methodology changes, the new methodology could materially and adversely affect our financial condition, results of operations or cash
flows.
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