Energy Transfer 2015 Annual Report Download - page 56

Table of Contents
perform natural gas compression, dehydration and acid gas removal. While Congress has from time to time considered adopting legislation to reduce
emissions of greenhouse gases, there has not been significant activity in the form of adopted legislation. In the absence of such federal climate legislation, a
number of state and regional efforts have emerged that are aimed at tracking and/or reducing greenhouse gas emissions by means of cap and trade programs.
The adoption of any legislation or regulations that requires reporting of greenhouse gases or otherwise restricts emissions of greenhouse gases from our
equipment and operations could require us to incur significant added costs to reduce emissions of greenhouse gases or could adversely affect demand for the
natural gas and NGLs we gather and process or fractionate. For example, in August 2015, the EPA announced proposed rules, expected to be finalized in
2016, that would establish new controls for methane emissions from certain new, modified or reconstructed equipment and processes in the oil and natural
gas source category, including oil and natural gas production and natural gas processing and transmission facilities as part of an overall effort to reduce
methane emissions by up to 45 percent from 2012 levels in 2025. On an international level, the United States is one of almost 200 nations that agreed in
December 2015 to an international climate change agreement in Paris, France that calls for countries to set their own GHG emissions targets and be
transparent about the measures each country will use to achieve its GHG emissions targets
The adoption of the Dodd-Frank Act could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price,
interest rate and other risks associated with our business, resulting in our operations becoming more volatile and our cash flows less predictable.
Congress has adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), a comprehensive financial reform
legislation that establishes federal oversight and regulation of the over-the-counter derivatives market and entities, such as us, that participate in that market.
The legislation was signed into law by President Obama on July 21, 2010 and requires the CFTC, the SEC and other regulators to promulgate rules and
regulations implementing the new legislation. While certain regulations have been promulgated and are already in effect, the rulemaking and
implementation process is still ongoing, and we cannot yet predict the ultimate effect of the rules and regulations on our business.
The Dodd-Frank Act expanded the types of entities that are required to register with the CFTC and the SEC as a result of their activities in the derivatives
markets or otherwise become specifically qualified to enter into derivatives contracts. We will be required to assess our activities in the derivatives markets,
and to monitor such activities on an ongoing basis, to ascertain and to identify any potential change in our regulatory status.
Reporting and recordkeeping requirements also could significantly increase operating costs and expose us to penalties for non-compliance, and require
additional compliance resources. Added public transparency as a result of the reporting rules may also have a negative effect on market liquidity which
could also negatively impact commodity prices and our ability to hedge.
In October 2011, the CFTC has also issued regulations to set position limits for certain futures and option contracts in the major energy markets and for swaps
that are their economic equivalents. However, in September 2012, the CFTC’s position limits rules were vacated by the U.S. District Court for the District of
Columbia. In November 2013, the CFTC proposed new rules that would place limits on positions in certain core futures and equivalent swaps contracts for or
linked to certain physical commodities, subject to exceptions for certain bona fide hedging transactions. As these new position limit rules are not yet final,
the impact of those provisions on us is uncertain at this time.
The CFTC has designated certain interest rate swaps and credit default swaps for mandatory clearing and exchange trading. The associated rules require us, in
connection with covered derivative activities, to comply with such requirements or take steps to qualify for an exemption to such requirements. We must
obtain approval from the board of directors of our General Partner and make certain filings in order to rely on the end-user exception from the mandatory
clearing requirements for swaps entered to hedge our commercial risks. The application of mandatory clearing and trade execution requirements to other
market participants, such as swap dealers, may change the cost and availability of the swaps that we use for hedging. The CFTC has not yet proposed rules
designating any other classes of swaps, including physical commodity swaps, for mandatory clearing and exchange trading.
In addition, the Dodd-Frank Act requires that regulators establish margin rules for uncleared swaps. The application of such requirements to other market
participants, such as swap dealers, may change the cost and availability of the swaps we use for hedging. If any of our swaps do not qualify for the commercial
end-user exception, posting of collateral could impact our liquidity and reduce cash available to us for capital expenditures, reducing our ability to execute
hedges to reduce risk and protect cash flow.
Rules promulgated under the Dodd-Frank Act further defined forwards as well as instances where forwards may become swaps. Because the CFTC rules,
interpretations, no-action letters, and case law are still developing, it is possible that some arrangements that previously qualified as forwards or energy
service contracts may fall in the regulatory category of swaps or options. In addition, the CFTC’s rules applicable to trade options may further impose
burdens on our ability to conduct our traditional hedging operations and could become subject to CFTC investigations in the future.
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