Energy Transfer 2010 Annual Report Download - page 163

parent companies and American Electric Power Corporation (“AEP”), were defendants in litigation with
Bank of America (“B of A”) that related to AEP’s acquisition of HPL in the Enron bankruptcy and B of A’s
financing of cushion gas stored in the Bammel storage facility (“Cushion Gas”). This litigation is referred to
as the “Cushion Gas Litigation.” In 2004, ETC OLP (a subsidiary of ETP) acquired the HPL Entities from
AEP, at which time AEP agreed, pursuant to a Cushion Gas Litigation Agreement, to indemnify ETC OLP
and the HPL Entities for any damages arising from the Cushion Gas Litigation and the loss of use of the
Cushion Gas, up to a maximum of the amount paid by ETC OLP for the HPL Entities and the working gas
inventory (approximately $1.00 billion in the aggregate). The Cushion Gas Litigation Agreement terminates
upon final resolution of the Cushion Gas Litigation. In addition, under the terms of the Purchase and Sale
Agreement, AEP retained control of additional matters relating to ongoing litigation and environmental
remediation and agreed to bear the costs of or indemnify ETC OLP and the HPL Entities for the costs
related to such matters. On December 18, 2007, the United States District Court for the Southern District of
New York held that B of A is entitled to receive monetary damages from AEP and the HPL Entities of
approximately $347.3 million less the monetary amount B of A would have incurred to remove 55 Bcf of
natural gas from the Bammel storage facility. Following an attempted appeal of this decision by AEP, the
parties to this litigation entered into a settlement agreement in February 2011 that, among other matters,
recognized AEP’s ownership rights to the cushion gas and recognized HPL’s continued right to use this
cushion gas through 2013 pursuant to a right to use agreement entered into between predecessors of AEP
and HPL in 2001. The settlement agreement also reaffirms the indemnification obligations of AEP in the
Cushion Gas Litigation Agreement. As a result of the settlement agreement and the indemnification
provisions in the Cushion Gas Litigation Agreement, ETP does not expect that it will have any liability to
either AEP or B of A with respect to the matters subject to this litigation.
Other Matters. In addition to those matters described above, we or our subsidiaries are a party to various
legal proceedings and/or regulatory proceedings incidental to our businesses. For each of these matters, we
evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, the
likelihood of an unfavorable outcome and the availability of insurance coverage. If we determine that an
unfavorable outcome of a particular matter is probable, can be estimated and is not covered by insurance, we
make an accrual for the matter. For matters that are covered by insurance, we accrue the related deductible.
As of December 31, 2010 and 2009, accruals of approximately $10.2 million and $11.1 million,
respectively, were recorded related to deductibles. As new information becomes available, our estimates
may change. The impact of these changes may have a significant effect on our results of operations in a
single period.
The outcome of these matters cannot be predicted with certainty and it is possible that the outcome of a
particular matter will result in the payment of an amount in excess of the amount accrued for the matter. As
our accrual amounts are non-cash, any cash payment of an amount in resolution of a particular matter would
likely be made from cash from operations or borrowings. If cash payments to resolve a particular matter
substantially exceed our accrual for such matter, we may experience a material adverse impact on our
results of operations, cash available for distribution and our liquidity.
No amounts have been recorded in our December 31, 2010 or 2009 consolidated balance sheets for our
contingencies and current litigation matters, other than accruals related to environmental matters and
deductibles.
Environmental Matters
Our operations are subject to extensive federal, state and local environmental and safety laws and
regulations that can require expenditures to ensure compliance, including related to air emissions and
wastewater discharges, at operating facilities and for remediation at current and former facilities as well as
waste disposal sites. Although we believe our operations are in substantial compliance with applicable
environmental laws and regulations, risks of additional costs and liabilities are inherent in the natural gas
pipeline, gathering, treating, compressing, blending and processing business. As a result, there can be no
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