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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-32740
ENERGY TRANSFER LP
(Exact name of registrant as specified in its charter)
 
Delaware
 
30-0108820
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
8111 Westchester Drive, Suite 600, Dallas, Texas 75225
(Address of principal executive offices) (zip code)
(214) 981-0700
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
Non-accelerated filer
¨
 
Smaller reporting company
 
 
 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Units
 
ET
 
New York Stock Exchange
At May 7, 2020, the registrant had 2,694,308,251 Common Units outstanding.
 



FORM 10-Q
ENERGY TRANSFER LP AND SUBSIDIARIES
TABLE OF CONTENTS


i


Definitions
References to the “Partnership” or “ET” refer to Energy Transfer LP. In addition, the following is a list of certain acronyms and terms used throughout this document:
 
/d
 
per day
 
 
 
 
 
AOCI
 
accumulated other comprehensive income (loss)
 
 
 
 
 
BBtu
 
billion British thermal units
 
 
 
 
 
Btu
 
British thermal unit, an energy measurement used by gas companies to convert the volume of gas used to its heat equivalent, and thus calculate the actual energy content
 
 
 
 
 
CDM
 
CDM Resource Management LLC and CDM Environmental & Technical Services LLC, collectively
 
 
 
 
 
Citrus
 
Citrus, LLC
 
 
 
 
 
DOJ
 
U.S. Department of Justice
 
 
 
 
 
EPA
 
U.S. Environmental Protection Agency
 
 
 
 
 
ETC Sunoco
 
ETC Sunoco Holdings LLC (formerly Sunoco, Inc.), a wholly-owned subsidiary of ETO
 
 
 
 
 
ETO
 
Energy Transfer Operating, L.P..
 
 
 
 
 
ETP GP
 
Energy Transfer Partners GP, L.P., the general partner of ETO
 
 
 
 
 
ETO Series A Preferred Units
 
ETO’s 6.250% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETO Series B Preferred Units
 
ETO’s 6.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETO Series C Preferred Units
 
ETO’s 7.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETO Series D Preferred Units
 
ETO’s 7.625% Series D Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETO Series E Preferred Units
 
ETO’s 7.600% Series E Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETO Series F Preferred Units
 
ETO’s 6.750% Series F Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETO Series G Preferred Units
 
ETO’s 7.125% Series G Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
Exchange Act
 
Securities Exchange Act of 1934
 
 
 
 
 
FEP
 
Fayetteville Express Pipeline LLC
 
 
 
 
 
FERC
 
Federal Energy Regulatory Commission
 
 
 
 
 
FGT
 
Florida Gas Transmission Company, LLC, a wholly-owned subsidiary of Citrus
 
 
 
 
 
GAAP
 
accounting principles generally accepted in the United States of America
 
 
 
 
 
IDRs
 
incentive distribution rights
 
 
 
 
 
Lake Charles LNG
 
Lake Charles LNG Company, LLC (previously named Trunkline LNG Company, LLC), a wholly-owned subsidiary of ETO
 
 
 
 
 
LIBOR
 
London Interbank Offered Rate
 
 
 
 
 
MBbls
 
thousand barrels
 
 
 
 
 
MEP
 
Midcontinent Express Pipeline LLC
 
 
 
 
 
MTBE
 
methyl tertiary butyl ether
 
 
 
 

ii


 
NGL
 
natural gas liquid, such as propane, butane and natural gasoline
 
 
 
 
NYMEX
 
New York Mercantile Exchange
 
 
 
 
 
OSHA
 
Federal Occupational Safety and Health Act
 
 
 
 
OTC
 
over-the-counter
 
 
 
 
 
Panhandle
 
Panhandle Eastern Pipe Line Company, LP and its subsidiaries, wholly-owned by ETO
 
 
 
 
PES
 
Philadelphia Energy Solutions Refining and Marketing LLC
 
 
 
 
 
Regency
 
Regency Energy Partners LP
 
 
 
 
 
RIGS
 
Regency Interstate Gas LP
 
 
 
 
 
Rover
 
Rover Pipeline LLC
 
 
 
 
 
SEC
 
Securities and Exchange Commission
 
 
 
 
 
SemGroup
 
SemGroup Corporation
 
 
 
 
 
Series A Convertible Preferred Units
 
ET Series A convertible preferred units
 
 
 
 
 
Sunoco Logistics Operations
 
Sunoco Logistics Partners Operations L.P, a wholly-owned subsidiary of ETO
 
 
 
 
 
Sunoco LP Series A Preferred Units
 
Sunoco LP Series A Preferred Units previously held by ET
 
 
 
 
 
Sunoco R&M
 
Sunoco (R&M), LLC (formerly Sunoco, Inc. (R&M))
 
 
 
 
 
Southwest Gas
 
Pan Gas Storage LLC (d.b.a. Southwest Gas Storage Company)
 
 
 
 
 
Transwestern
 
Transwestern Pipeline Company, LLC, a wholly-owned subsidiary of ETO
 
 
 
 
 
Trunkline
 
Trunkline Gas Company, LLC, a wholly-owned subsidiary of Panhandle
 
 
 
 
 
USAC
 
USA Compression Partners, LP, a wholly-owned subsidiary of ETO
 
 
 
 
 
USAC Preferred Units
 
USAC Series A Preferred Units
 
 
 
 
 
White Cliffs
 
White Cliffs Pipeline
 
 
 
 


iii


PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
 
March 31, 2020
 
December 31, 2019*
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
196

 
$
291

Accounts receivable, net
3,371

 
5,038

Accounts receivable from related companies
132

 
159

Inventories
1,024

 
1,532

Income taxes receivable
115

 
146

Derivative assets
25

 
23

Other current assets
256

 
275

Total current assets
5,119

 
7,464

 
 
 
 
Property, plant and equipment
90,959

 
89,790

Accumulated depreciation and depletion
(16,373
)
 
(15,597
)
 
74,586

 
74,193

 
 
 
 
Advances to and investments in unconsolidated affiliates
3,337

 
3,460

Lease right-of-use assets, net
1,033

 
964

Other non-current assets, net
1,515

 
1,571

Intangible assets, net
6,116

 
6,154

Goodwill
3,835

 
5,167

Total assets
$
95,541

 
$
98,973

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.
1


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in million)
(unaudited)
 
March 31, 2020
 
December 31, 2019*
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
2,399

 
$
4,118

Accounts payable to related companies
9

 
31

Derivative liabilities
9

 
147

Operating lease current liabilities
54

 
60

Accrued and other current liabilities
3,662

 
3,342

Current maturities of long-term debt
33

 
26

Total current liabilities
6,166

 
7,724

 
 
 
 
Long-term debt, less current maturities
50,299

 
51,028

Non-current derivative liabilities
573

 
273

Non-current operating lease liabilities
821

 
901

Deferred income taxes
3,214

 
3,208

Other non-current liabilities
1,193

 
1,162

 
 
 
 
Commitments and contingencies

 

Redeemable noncontrolling interests
745

 
739

 
 
 
 
Equity:
 
 
 
Limited Partners:
 
 
 
Common Unitholders
19,512

 
21,935

General Partner
(6
)
 
(4
)
Accumulated other comprehensive loss
(59
)
 
(11
)
Total partners’ capital
19,447

 
21,920

Noncontrolling interests
13,083

 
12,018

Total equity
32,530

 
33,938

Total liabilities and equity
$
95,541

 
$
98,973

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.
2


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per unit data)
(unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019*
REVENUES:
 
 
 
Refined product sales
$
3,232

 
$
3,726

Crude sales
3,543

 
3,525

NGL sales
1,689

 
2,402

Gathering, transportation and other fees
2,385

 
2,267

Natural gas sales
588

 
964

Other
190

 
237

Total revenues
11,627

 
13,121

COSTS AND EXPENSES:
 
 
 
Cost of products sold
8,291

 
9,477

Operating expenses
879

 
808

Depreciation, depletion and amortization
867

 
774

Selling, general and administrative
204

 
147

Impairment losses
1,325

 
50

Total costs and expenses
11,566

 
11,256

OPERATING INCOME
61

 
1,865

OTHER INCOME (EXPENSE):
 
 
 
Interest expense, net of interest capitalized
(602
)
 
(590
)
Equity in earnings (losses) of unconsolidated affiliates
(7
)
 
65

Losses on extinguishments of debt
(62
)
 
(18
)
Losses on interest rate derivatives
(329
)
 
(74
)
Other, net
3

 
(4
)
INCOME (LOSS) BEFORE INCOME TAX EXPENSE
(936
)
 
1,244

Income tax expense
28

 
126

NET INCOME (LOSS)
(964
)
 
1,118

Less: Net income (loss) attributable to noncontrolling interests
(121
)
 
297

Less: Net income attributable to redeemable noncontrolling interests
12

 
13

NET INCOME (LOSS) ATTRIBUTABLE TO PARTNERS
(855
)
 
808

General Partner’s interest in net income (loss)
(1
)
 
1

Limited Partners’ interest in net income (loss)
$
(854
)
 
$
807

NET INCOME (LOSS) PER LIMITED PARTNER UNIT:
 
 
 
Basic
$
(0.32
)
 
$
0.31

Diluted
$
(0.32
)
 
$
0.31

*As adjusted. See Note 1.


The accompanying notes are an integral part of these consolidated financial statements.
3


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
(unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019*
Net income (loss)
$
(964
)
 
$
1,118

Other comprehensive income (loss), net of tax:
 
 
 
Change in value of available-for-sale securities
(9
)
 
5

Actuarial gain related to pension and other postretirement benefit plans
3

 
7

Foreign currency translation adjustments
(64
)
 

Change in other comprehensive loss from unconsolidated affiliates
(16
)
 
(4
)
 
(86
)
 
8

Comprehensive income (loss)
(1,050
)
 
1,126

Less: Comprehensive income (loss) attributable to noncontrolling interests
(121
)
 
297

Less: Comprehensive income attributable to redeemable noncontrolling interests
12

 
13

Comprehensive income (loss) attributable to partners
$
(941
)
 
$
816

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.
4


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
(Dollars in millions)
(unaudited)
 
Common Unitholders
 
General Partner
 
AOCI
 
Noncontrolling Interests
 
Total
Balance, December 31, 2019*
$
21,935

 
$
(4
)
 
$
(11
)
 
$
12,018

 
$
33,938

Distributions to partners
(1,591
)
 
(1
)
 

 

 
(1,592
)
Distributions to noncontrolling interests

 

 

 
(444
)
 
(444
)
Subsidiary units issued

 

 

 
1,580

 
1,580

Capital contributions from noncontrolling interests

 

 

 
95

 
95

Other comprehensive loss, net of tax

 

 
(48
)
 
(38
)
 
(86
)
Other, net
22

 

 

 
(7
)
 
15

Net loss, excluding amounts attributable to redeemable noncontrolling interests
(854
)
 
(1
)
 

 
(121
)
 
(976
)
Balance, March 31, 2020
$
19,512

 
$
(6
)
 
$
(59
)
 
$
13,083

 
$
32,530

 
Common Unitholders
 
General Partner
 
AOCI
 
Noncontrolling Interests
 
Total
Balance, December 31, 2018*
$
20,773

 
$
(5
)
 
$
(42
)
 
$
10,291

 
$
31,017

Distributions to partners
(799
)
 
(1
)
 

 

 
(800
)
Distributions to noncontrolling interests

 

 

 
(425
)
 
(425
)
Capital contributions from noncontrolling interests

 

 

 
140

 
140

Sale of noncontrolling interest in subsidiary

 

 

 
93

 
93

Other comprehensive income, net of tax

 

 
8

 

 
8

Other, net
17

 

 

 
12

 
29

Net income, excluding amounts attributable to redeemable noncontrolling interests
807

 
1

 

 
297

 
1,105

Balance, March 31, 2019*
$
20,798

 
$
(5
)
 
$
(34
)
 
$
10,408

 
$
31,167

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.
5


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019*
OPERATING ACTIVITIES
 
 
 
Net income (loss)
$
(964
)
 
$
1,118

Reconciliation of net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
867

 
774

Deferred income taxes
42

 
98

Inventory valuation adjustments
227

 
(93
)
Non-cash compensation expense
22

 
29

Impairment losses
1,325

 
50

Losses on extinguishments of debt
62

 
18

Distributions on unvested awards
(11
)
 
(8
)
Equity in (earnings) losses of unconsolidated affiliates
7

 
(65
)
Distributions from unconsolidated affiliates
58

 
66

Other non-cash
17

 
107

Net change in operating assets and liabilities, net of effects of acquisitions
164

 
(279
)
Net cash provided by operating activities
1,816

 
1,815

INVESTING ACTIVITIES
 
 
 
Cash proceeds from sale of noncontrolling interest in subsidiary

 
93

Cash paid for all other acquisitions, net of cash received

 
(5
)
Capital expenditures, excluding allowance for equity funds used during construction
(1,621
)
 
(1,150
)
Contributions in aid of construction costs
25

 
15

Contributions to unconsolidated affiliates
(9
)
 
(28
)
Distributions from unconsolidated affiliates in excess of cumulative earnings
52

 
13

Proceeds from the sale of other assets
2

 
4

Other
(6
)
 
(40
)
Net cash used in investing activities
(1,557
)
 
(1,098
)
FINANCING ACTIVITIES
 
 
 
Proceeds from borrowings
12,134

 
11,295

Repayments of debt
(12,898
)
 
(10,733
)
Subsidiary units issued for cash
1,580

 

Capital contributions from noncontrolling interests
95

 
140

Distributions to partners
(770
)
 
(800
)
Distributions to noncontrolling interests
(444
)
 
(425
)
Debt issuance costs
(51
)
 
(84
)
Net cash used in financing activities
(354
)
 
(607
)
Increase (decrease) in cash and cash equivalents
(95
)
 
110

Cash and cash equivalents, beginning of period
291

 
419

Cash and cash equivalents, end of period
$
196

 
$
529

*As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.
6


ENERGY TRANSFER LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar and unit amounts, except per unit data, are in millions)
(unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
Organization
The consolidated financial statements presented herein contain the results of Energy Transfer LP and its subsidiaries (the “Partnership,” “we,” “us,” “our” or “ET”). References to the “Parent Company” mean Energy Transfer LP on a stand-alone basis.
In December 2019, we completed the acquisition of SemGroup. In connection with the transaction, a wholly owned subsidiary of ET merged with and into SemGroup, with SemGroup surviving the merger. During the first quarter of 2020, ET contributed certain former SemGroup subsidiaries to ETO through sale and contribution transactions (together, the “SemGroup Transaction”).
Substantially all of the Partnership’s cash flows are derived from distributions related to its investment in ETO, whose cash flows are derived from its subsidiaries, including ETO’s investments in Sunoco LP and USAC. The Parent Company’s primary cash requirements are for general and administrative expenses, debt service requirements and distributions to its partners. Parent Company-only assets are not available to satisfy the debts and other obligations of ET’s subsidiaries.
Our financial statements reflect the following reportable segments:
intrastate transportation and storage;
interstate transportation and storage;
midstream;
NGL and refined products transportation and services;
crude oil transportation and services;
investment in Sunoco LP;
investment in USAC; and
corporate and other, including the following:
activities of the Parent Company; and
certain operations and investments that are not separately reflected as reportable segments.
Basis of Presentation
The unaudited financial information included in this Form 10-Q has been prepared on the same basis as the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020. In the opinion of the Partnership’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC.
The consolidated financial statements of ET presented herein include the results of operations of:
the Parent Company;
our controlled subsidiary, ETO;
ETP GP, the general partner of ETO, and Energy Transfer Partners, L.L.C. (“ETP LLC”), the general partner of ETP GP; and
our subsidiary, SemCAMS.
Our subsidiaries also own varying undivided interests in certain pipelines. Ownership of these pipelines has been structured as an ownership of an undivided interest in assets, not as an ownership interest in a partnership, limited liability company,

7


joint venture or other forms of entities. Each owner controls marketing and invoices separately, and each owner is responsible for any loss, damage or injury that may occur to their own customers. As a result, we apply proportionate consolidation for our interests in these entities.
Certain prior period amounts have also been reclassified to conform to the current period presentation. These reclassifications had no impact on net income or total equity.
Change in Accounting Policy
Effective January 1, 2020, the Partnership elected to change its accounting policy related to certain barrels of crude oil that were previously accounted for as inventory. Under the revised accounting policy, certain amounts of crude oil that are not available for sale have been reclassified from inventory to non-current assets. These crude oil barrels, which are owned by the Partnership’s crude oil acquisition and marketing business, include pipeline linefill and tank bottoms and are not considered to be available for sale because the volumes must be maintained in order to continue normal operation of the related pipelines or tanks and because there is no expectation of liquidation or sale of these volumes in the near term.
Under the previous accounting policy, all crude oil barrels were recorded as inventory under the weighted-average cost method. Under the revised accounting policy, barrels related to pipeline linefill and tank bottoms are accounted for as long-lived assets and reflected as non-current assets on the consolidated balance sheet. These crude oil barrels will be tested for impairment consistent with the Partnership’s existing accounting policy for impairments of long-lived assets. The Partnership’s management believes that the change in accounting policy is preferable as it more closely aligns the accounting policies across the consolidated entity, given that similar assets in the Partnership’s natural gas, NGLs and refined products businesses are accounted for as non-current assets. In addition, management believes that reflecting these crude oil barrels as non-current assets better represents the economic results of the Partnership’s crude oil acquisition and marketing business by reducing volatility resulting from market price adjustments to crude oil barrels that are not expected to be sold or liquidated in the near term.
The impact of this accounting policy change on the Partnership’s net income for three months ended March 31, 2020, was approximately $265 million, or $0.10 per limited partner unit. As a result of this change in accounting policy, the Partnership’s consolidated balance sheets for prior periods have been retrospectively adjusted as follows:
 
December 31, 2019
 
December 31, 2018
 
As Originally Reported
 
Effect of Change
 
As Adjusted
 
As Originally Reported
 
Effect of Change
 
As Adjusted
Inventories
$
1,935

 
$
(403
)
 
$
1,532

 
$
1,677

 
$
(305
)
 
$
1,372

Total current assets
7,867

 
(403
)
 
7,464

 
6,750

 
(305
)
 
6,445

Other non-current assets, net
1,075

 
496

 
1,571

 
1,006

 
472

 
1,478

Total assets
98,880

 
93

 
98,973

 
88,246

 
167

 
88,413

Total partners’ capital
21,827

 
93

 
21,920

 
20,559

 
167

 
20,726


8


In addition, the Partnership’s consolidated statements of operations, comprehensive income and cash flows for prior periods have been retrospectively adjusted as follows:
 
Year Ended December 31,
 
Three Months Ended March 31,
 
2019
 
2018
 
2019
As originally reported:
 
 
 
 
 
Consolidated Statements of Operations and Comprehensive Income
 
 
 
 
 
Cost of products sold
$
39,727

 
$
41,658

 
$
9,415

Operating income
7,277

 
5,348

 
1,927

Income from continuing operations before income tax expense (benefit)
5,094

 
3,634

 
1,306

Net income
4,899

 
3,365

 
1,180

Net income per limited partner unit
1.37

 
1.16

 
0.33

Comprehensive income
4,930

 
3,322

 
1,188

Comprehensive income attributable to partners
3,623

 
1,651

 
878

 
 
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
 
Net income
4,899

 
3,365

 
1,180

Net change in operating assets and liabilities
(518
)
 
289

 
(341
)
 
 
 
 
 
 
Effect of change:
 
 
 
 
 
Consolidated Statements of Operations and Comprehensive Income
 
 
 
 
 
Cost of products sold
74

 
(55
)
 
62

Operating income
(74
)
 
55

 
(62
)
Income from continuing operations before income tax expense (benefit)
(74
)
 
55

 
(62
)
Net income
(74
)
 
55

 
(62
)
Net income per limited partner unit
(0.03
)
 
0.04

 
(0.02
)
Comprehensive income
(74
)
 
55

 
(62
)
Comprehensive income attributable to partners
(74
)
 
55

 
(62
)
 
 
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
 
Net income
(74
)
 
55

 
(62
)
Net change in operating assets and liabilities
74

 
(55
)
 
62

 
 
 
 
 
 
As adjusted:
 
 
 
 
 
Consolidated Statements of Operations and Comprehensive Income
 
 
 
 
 
Cost of products sold
39,801

 
41,603

 
9,477

Operating income
7,203

 
5,403

 
1,865

Income from continuing operations before income tax expense (benefit)
5,020

 
3,689

 
1,244

Net income
4,825

 
3,420

 
1,118

Net income per limited partner unit
1.34

 
1.20

 
0.31

Comprehensive income
4,856

 
3,377

 
1,126

Comprehensive income attributable to partners
3,549

 
1,706

 
816

 
 
 
 
 
 
Consolidated Statements of Cash Flows
 
 
 
 
 
Net income
4,825

 
3,420

 
1,118

Net change in operating assets and liabilities
(444
)
 
234

 
(279
)

Use of Estimates
The unaudited consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues, expenses

9


and disclosure of contingent assets and liabilities that exist at the date of the consolidated financial statements. Although these estimates are based on management’s available knowledge of current and expected future events, actual results could be different from those estimates.
Recent Accounting Pronouncements
Effective January 1, 2020, the Partnership adopted Accounting Standards Update (“ASU”) 2016-13 "Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. The impact of adoption was immaterial to the Partnership. However, due in large part to the global economic impacts of COVID-19, the Partnership and its subsidiaries recorded an aggregate $16 million of current expected credit losses for the three months ended March 31, 2020.
Goodwill
During the first quarter of 2020, due to the impacts of the COVID-19 pandemic, the decline in commodity prices and the decreases in the Partnership’s market capitalization, we determined that interim impairment testing should be performed on certain reporting units. We performed the interim impairment tests consistent with our approach for annual impairment testing, including using similar models, inputs and assumptions. As a result of the interim impairment test, the Partnership recognized a goodwill impairment of $483 million related to our Arklatex and South Texas operations within the midstream segment, a goodwill impairment of $183 million related to our Lake Charles LNG regasification operations within the interstate transportation and storage segment due to a contractual reduction in payments for the remainder of the contract term, and a goodwill impairment of $40 million related to our all other operations primarily due to decreases in projected future revenues and cash flows as a result of the overall market demand decline. In addition, USAC recognized a goodwill impairment of $619 million during the three months ended March 31, 2020, which is included in the Partnership's consolidated results of operations. No other impairments of the Partnership’s goodwill were identified.
In connection with aforementioned impairments, the Partnership determined the fair value of our reporting units using the income approach. The income approach is based on the present value of future cash flows, which are derived from our long-term financial forecasts, and requires significant assumptions including, among others, revenue growth rates, operating margins, weighted average costs of capital and future market conditions, among others. The Partnership believes the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated. Cash flow projections are derived from one-year budgeted amounts and three-year operating forecasts plus an estimate of later period cash flows, all of which are evaluated by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur.
Of the $3.84 billion of goodwill on the Partnership’s consolidated balance sheet as of March 31, 2020, approximately $1.2 billion is recorded in reporting units for which the estimated fair value exceeded the carrying value by less than 20% in the most recent quantitative test. Management believes that all of the $1.2 billion is at significant risk of impairment, if commodity prices and/or overall market demand remains low. In addition, as of March 31, 2020, the Partnership’s goodwill balance includes approximately $265 million of goodwill related to the SemGroup assets that were acquired in December 2019; these goodwill balances are subject to change as the purchase price allocation has not been finalized. Any future adjustments to the SemGroup-related goodwill balances could also increase the likelihood of a future goodwill impairment.
Changes in the carrying amount of goodwill were as follows:
 
Intrastate
Transportation
and Storage
 
Interstate
Transportation and Storage
 
Midstream
 
NGL and Refined Products Transportation and Services
 
Crude Oil Transportation and Services
 
Investment in Sunoco LP
 
Investment in USAC
 
All Other
 
Total
Balance, December 31, 2019
$
10

 
$
226

 
$
483

 
$
693

 
$
1,397

 
$
1,555

 
$
619

 
$
184

 
$
5,167

Impaired

 
(183
)
 
(483
)
 

 

 

 
(619
)
 
(40
)
 
(1,325
)
Other

 

 

 

 

 

 

 
(7
)
 
(7
)
Balance, March 31, 2020
$
10

 
$
43

 
$

 
$
693

 
$
1,397

 
$
1,555

 
$

 
$
137

 
$
3,835



10


2.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash on hand, demand deposits, and investments with original maturities of three months or less. We consider cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. The Partnership’s balance sheets did not include any material amounts of restricted cash as of March 31, 2020 or December 31, 2019.
We place our cash deposits and temporary cash investments with high credit quality financial institutions. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.
The net change in operating assets and liabilities (net of effects of acquisitions) included in cash flows from operating activities is comprised as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
Accounts receivable
$
1,667

 
$
(302
)
Accounts receivable from related companies
(20
)
 
(38
)
Inventories
281

 
135

Other current assets
110

 
99

Other non-current assets, net
(101
)
 
(34
)
Accounts payable
(1,704
)
 
321

Accounts payable to related companies
(21
)
 
(10
)
Accrued and other current liabilities
(233
)
 
(406
)
Other non-current liabilities
25

 
(31
)
Derivative assets and liabilities, net
160

 
(13
)
Net change in operating assets and liabilities, net of effects of acquisitions
$
164

 
$
(279
)

Non-cash activities are as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
NON-CASH INVESTING AND FINANCING ACTIVITIES:
 
 
 
Accrued capital expenditures
$
1,015

 
$
630

Accrued distributions to partners
822

 

Lease assets obtained in exchange for new lease liabilities
17

 
8


3.
INVENTORIES
As further discussed in Note 1, the Partnership elected to change its accounting policy related to certain barrels of crude oil that were previously accounted for as inventory. As a result of this change in accounting policy, the Partnership’s inventory balance for the prior period has been retrospectively adjusted. Inventories consisted of the following:
 
March 31, 2020
 
December 31, 2019
Natural gas, NGLs and refined products
$
463

 
$
833

Crude oil
105

 
251

Spare parts and other
456

 
448

Total inventories
$
1,024

 
$
1,532



11


We utilize commodity derivatives to manage price volatility associated with its natural gas inventories. 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.
4.
FAIR VALUE MEASURES
Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value and carrying amount of our consolidated debt obligations as of March 31, 2020 were $43.92 billion and $50.33 billion, respectively. As of December 31, 2019, the aggregate fair value and carrying amount of our consolidated debt obligations were $54.79 billion and $51.05 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the respective debt obligations’ observable inputs used for similar liabilities.
We have commodity derivatives and interest rate derivatives that are accounted for as assets and liabilities at fair value in our consolidated balance sheets. We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of marketable securities and commodity derivatives transacted through a clearing broker with a published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. We consider OTC commodity derivatives entered into directly with third parties as a Level 2 valuation since the values of these derivatives are quoted on an exchange for similar transactions. Additionally, we consider our options transacted through our clearing broker as having Level 2 inputs due to the level of activity of these contracts on the exchange in which they trade. We consider the valuation of our interest rate derivatives as Level 2 as the primary input, the LIBOR curve, is based on quotes from an active exchange of Eurodollar futures for the same period as the future interest swap settlements. Level 3 inputs are unobservable. During the three months ended March 31, 2020, no transfers were made between any levels within the fair value hierarchy.

12


The following tables summarize the gross fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2020 and December 31, 2019 based on inputs used to derive their fair values:
 
 
 
Fair Value Measurements at
March 31, 2020
 
Fair Value Total
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Commodity derivatives:
 
 
 
 
 
Natural Gas:
 
 
 
 
 
Basis Swaps IFERC/NYMEX
$
108

 
$
108

 
$

Swing Swaps IFERC
2

 

 
2

Fixed Swaps/Futures
31

 
31

 

Forward Physical Contracts
6

 

 
6

Power:
 
 
 
 
 
Forwards
15

 

 
15

Futures
5

 
5

 

Options – Puts
2

 
2

 

Options – Calls
1

 
1

 

NGLs – Forwards/Swaps
527

 
527

 

Crude – Forwards/Swaps
3

 
3

 

Total commodity derivatives
700

 
677

 
23

Other non-current assets
26

 
17

 
9

Total assets
$
726

 
$
694

 
$
32

Liabilities:
 
 
 
 
 
Interest rate derivatives
$
(573
)
 
$

 
$
(573
)
Commodity derivatives:
 
 
 
 
 
Natural Gas:
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(85
)
 
(85
)
 

Swing Swaps IFERC
(2
)
 
(1
)
 
(1
)
Fixed Swaps/Futures
(33
)
 
(33
)
 

Forward Physical Contracts
(1
)
 

 
(1
)
Power:
 
 
 
 
 
Forwards
(9
)
 

 
(9
)
Futures
(5
)
 
(5
)
 

NGLs – Forwards/Swaps
(489
)
 
(489
)
 

Refined Products – Futures
(7
)
 
(7
)
 

Total commodity derivatives
(631
)
 
(620
)
 
(11
)
Total liabilities
$
(1,204
)
 
$
(620
)
 
$
(584
)

13


 
 
 
Fair Value Measurements at
December 31, 2019
 
Fair Value Total
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Commodity derivatives:
 
 
 
 
 
Natural Gas:
 
 
 
 
 
Basis Swaps IFERC/NYMEX
$
17

 
$
17

 
$

Swing Swaps IFERC
1

 

 
1

Fixed Swaps/Futures
65

 
65

 

Forward Physical Contracts
3

 

 
3

Power:
 
 
 
 
 
Forwards
11

 

 
11

Futures
4

 
4

 

Options – Puts
1

 
1

 

Options – Calls
1

 
1

 

NGLs – Forwards/Swaps
260

 
260

 

Refined Products – Futures
8

 
8

 

Crude – Forwards/Swaps
13

 
13

 

Total commodity derivatives
384

 
369

 
15

Other non-current assets
31

 
20

 
11

Total assets
$
415

 
$
389

 
$
26

Liabilities:
 
 
 
 
 
Interest rate derivatives
$
(399
)
 
$

 
$
(399
)
Commodity derivatives:
 
 
 
 
 
Natural Gas:
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(49
)
 
(49
)
 

Swing Swaps IFERC
(1
)
 

 
(1
)
Fixed Swaps/Futures
(43
)
 
(43
)
 

Power:
 
 


 


Forwards
(5
)
 

 
(5
)
Futures
(3
)
 
(3
)
 

NGLs – Forwards/Swaps
(278
)
 
(278
)
 

Refined Products – Futures
(10
)
 
(10
)
 

Total commodity derivatives
(389
)
 
(383
)
 
(6
)
Total liabilities
$
(788
)
 
$
(383
)
 
$
(405
)


14


5.
NET INCOME (LOSS) PER LIMITED PARTNER UNIT
A reconciliation of income and weighted average units used in computing basic and diluted income (loss) per unit is as follows:
 
Three Months Ended
March 31,
 
2020
 
2019
Net income (loss)
$
(964
)
 
$
1,118

Less: Net income attributable to noncontrolling interests
(121
)
 
297

Less: Net income attributable to redeemable noncontrolling interests
12

 
13

Net income (loss), net of noncontrolling interests
(855
)
 
808

Less: General Partner’s interest in income (loss)
(1
)
 
1

Income (loss) available to Limited Partners
$
(854
)
 
$
807

Basic Income (Loss) per Limited Partner Unit:
 
 
 
Weighted average limited partner units
2,691.7

 
2,619.5

Basic income (loss) per Limited Partner unit
$
(0.32
)
 
$
0.31

Diluted Income (Loss) per Limited Partner Unit:
 
 
 
Income (loss) available to Limited Partners
$
(854
)
 
$
807

Dilutive effect of equity-based compensation of subsidiaries (1)

 

Diluted income (loss) available to Limited Partners
$
(854
)
 
$
807

Weighted average limited partner units
2,691.7

 
2,619.5

Dilutive effect of unvested unit awards (1)

 
8.4

Weighted average limited partner units, assuming dilutive effect of unvested unit awards
2,691.7

 
2,627.9

Diluted income (loss) from per Limited Partner unit
$
(0.32
)
 
$
0.31


(1) Dilutive effects are excluded from the calculation for periods where the impact would have been antidilutive.
6.
DEBT OBLIGATIONS
Parent Company Indebtedness
ET Term Loan Facility
On January 15, 2019, ET paid in full all outstanding borrowings under its senior secured term loan agreement and thereafter terminated the term loan agreement. In connection with the termination of the term loan agreement, the collateral securing certain series of the Partnership’s outstanding senior notes was released in accordance with the terms of the applicable indentures governing such senior notes.
Subsidiary Indebtedness
ETO January 2020 Senior Notes Offering and Redemption
On January 22, 2020, ETO completed a registered offering (the “January 2020 Senior Notes Offering”) of $1.00 billion aggregate principal amount of the Partnership’s 2.900% Senior Notes due 2025, $1.50 billion aggregate principal amount of the Partnership’s 3.750% Senior Notes due 2030 and $2.00 billion aggregate principal amount of the Partnership’s 5.000% Senior Notes due 2050 (collectively, the “Notes”). The Notes are fully and unconditionally guaranteed by the Partnership’s wholly-owned subsidiary, Sunoco Logistics Operations, on a senior unsecured basis.
Using proceeds from the January 2020 Senior Notes Offering, ETO redeemed its $400 million aggregate principal amount of 5.75% Senior Notes due September 1, 2020, its $1.05 billion aggregate principal amount of 4.15% Senior Notes due October 1, 2020, its $1.14 billion aggregate principal amount of 7.50% Senior Notes due October 15, 2020, its $250 million aggregate principal amount of 5.50% Senior Notes due February 15, 2020, ET’s $52 million aggregate principal amount of 7.50% Senior Notes due October 15, 2020 and Transwestern’s $175 million aggregate principal amount of 5.36% Senior Notes due December 9, 2020.

15


HFOTCO Long-Term Debt
In connection with the contribution transactions discussed in Note 2, HFOTCO became a wholly-owned subsidiary of ETO. As of March 31, 2020, HFOTCO had $225 million outstanding of tax exempt notes due 2050 (the "IKE Bonds"). The IKE Bonds are fully and unconditionally guaranteed by the Partnership, on a senior unsecured basis. The indentures under which the IKE Bonds were issued are subject to customary representations and warranties and affirmative and negative covenants, the majority of which are substantially similar to those found in ETO’s revolving credit facility, as further discussed below.
Credit Facilities and Commercial Paper
ETO Term Loan
ETO’s term loan credit agreement provides for a $2 billion three-year term loan credit facility (the “ETO Term Loan”). Borrowings under the term loan agreement mature on October 17, 2022 and are available for working capital purposes and for general partnership purposes. The term loan agreement is unsecured and is guaranteed by our subsidiary, Sunoco Logistics Operations.
As of March 31, 2020, the ETO Term Loan had $2 billion outstanding and was fully drawn. The weighted average interest rate on the total amount outstanding as of March 31, 2020 was 1.92%.
ETO Five-Year Credit Facility
ETO’s revolving credit facility (the “ETO Five-Year Credit Facility”) allows for unsecured borrowings up to $5.00 billion and matures on December 1, 2023. The ETO Five-Year Credit Facility contains an accordion feature, under which the total aggregate commitment may be increased up to $6.00 billion under certain conditions.
As of March 31, 2020, the ETO Five-Year Credit Facility had $1.96 billion of outstanding borrowings, $113 million of which was commercial paper. The amount available for future borrowings was $2.97 billion after taking into account letters of credit of $72 million. The weighted average interest rate on the total amount outstanding as of March 31, 2020 was 2.24%.
ETO 364-Day Facility
ETO’s 364-day revolving credit facility (the “ETO 364-Day Facility”) allows for unsecured borrowings up to $1.00 billion and matures on November 27, 2020. As of March 31, 2020, the ETO 364-Day Facility had no outstanding borrowings.
Sunoco LP Credit Facility
Sunoco LP maintains a $1.50 billion revolving credit facility (the “Sunoco LP Credit Facility”), which matures in July 2023. As of March 31, 2020, the Sunoco LP Credit Facility had $265 million of outstanding borrowings and $8 million in standby letters of credit. As of March 31, 2020, Sunoco LP had $1.23 billion of availability under the Sunoco LP Credit Facility. The weighted average interest rate on the total amount outstanding as of March 31, 2020 was 2.63%.
USAC Credit Facility
USAC maintains a $1.60 billion revolving credit facility (the “USAC Credit Facility”), with a further potential increase of $400 million, which matures in April 2023. As of March 31, 2020, the USAC Credit Facility had $459 million of outstanding borrowings and no outstanding letters of credit. As of March 31, 2020, USAC had $1.14 billion of borrowing base availability and, subject to compliance with the applicable financial covenants, available borrowing capacity of $186 million under the USAC Credit Facility. The weighted average interest rate on the total amount outstanding as of March 31, 2020 was 3.67%.
Compliance with Our Covenants
We and our subsidiaries were in compliance with all requirements, tests, limitations, and covenants related to our debt agreements as of March 31, 2020.
7.
REDEEMABLE NONCONTROLLING INTERESTS
Certain redeemable noncontrolling interests in the Partnership’s subsidiaries are reflected as mezzanine equity on the consolidated balance sheet. Redeemable noncontrolling interests as of March 31, 2020 included a balance of $477 million related to the USAC Preferred Units described below and a balance of $15 million related to noncontrolling interest holders in one of the Partnership’s consolidated subsidiaries that have the option to sell their interests to the Partnership. In addition, redeemable noncontrolling interests includes a balance of $253 million in SemCAMS preferred shares acquired as part of the merger with SemGroup (see Note 1 above).

16


USAC Preferred Units
As of March 31, 2020, USAC had 500,000 USAC Preferred Units issued and outstanding, which are entitled to receive cumulative quarterly distributions equal to $24.375 per USAC Preferred Unit, subject to increase in certain limited circumstances. The USAC Preferred Units will have a perpetual term, unless converted or redeemed. Certain portions of the USAC Preferred Units will be convertible into USAC common units at the election of the holders beginning in 2021. To the extent the holders of the USAC Preferred Units have not elected to convert their preferred units by April 2, 2023, USAC will have the option to redeem all or any portion of the USAC Preferred Units for cash. In addition, at any time on or after the tenth anniversary of the issue date, the holders of the USAC Preferred Units will have the right to require USAC to redeem all or any portion of the USAC Preferred Units, and the Partnership may elect to pay up to 50% of such redemption amount in USAC common units.
SemCAMS Redeemable Preferred Stock
As of March 31, 2020, SemCAMS had 300,000 shares of cumulative preferred stock issued and outstanding. The preferred stock is redeemable at SemCAMS’s option subsequent to January 3, 2021 at a redemption price of C$1,100 (US$775 at the March 31, 2020 exchange rate) per share. The preferred stock is redeemable by the holder contingent upon a change of control or liquidation of SemCAMS. The preferred stock is convertible to SemCAMS common shares in the event of an initial public offering by SemCAMS.
The preferred stock was recorded at fair value in connection with the SemGroup purchase accounting. Dividends on the preferred stock are payable in-kind through the quarter ending June 30, 2020. The dividends paid-in-kind increased the liquidation preference such that as of March 31, 2020, the preferred stock was convertible into 315,859 shares.
8.
EQUITY
The change in ET Common Units during the three months ended March 31, 2020 was as follows:
 
Three Months Ended March 31, 2020
Number of Common Units, beginning of period
2,689.6

Common Units issued in connection with the distribution reinvestment plan
4.1

Common Units vested under equity incentive plans and other
0.5

Number of Common Units, end of period
2,694.2


ET Equity Distribution Program
In March 2017, the Partnership entered into an equity distribution agreement relating to at-the-market offerings of its common units with an aggregate offering price up to $1 billion. As of March 31, 2020, there have been no sales of common units under the equity distribution agreement.
ET Repurchase Program
During the three months ended March 31, 2020, ET did not repurchase any ET common units under its current buyback program. As of March 31, 2020, $911 million remained available to repurchase under the current program.
ET Distribution Reinvestment Program
During the three months ended March 31, 2020, distributions of $53 million were reinvested under the distribution reinvestment program. As of March 31, 2020, a total of $25 million common units remain available to be issued under the existing registration statement in connection with the distribution reinvestment program.
Subsidiary Equity Transactions
ETO Preferred Units
As of March 31, 2020 and December 31, 2019, ETO’s outstanding preferred units included 950,000 ETO Series A Preferred Units, 550,000 ETO Series B Preferred Units, 18,000,000 ETO Series C Preferred Units, 17,800,000 ETO Series D Preferred Units and 32,000,000 ETO Series E Preferred Units. As of March 31, 2020, ETO’s outstanding preferred units also included 500,000 ETO Series F Preferred Units and 1,100,000 ETO Series G Preferred Units.

17


ETO Series F Preferred Units
On January 22, 2020, ETO issued 500,000 of its 6.750% Series F Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units representing limited partner interest in ETO, at a price to the public of $1,000 per unit. Distributions on the ETO Series F Preferred Units are cumulative from and including the original issue date and will be payable semi-annually in arrears on the 15th day of May and November of each year, commencing on May 15, 2020 to, but excluding, May 15, 2025, at a rate equal to 6.750% per annum of the $1,000 liquidation preference. On and after May 15, 2025, the distribution rate on the ETO Series F Preferred Units will equal a percentage of the $1,000 liquidation preference equal to the five-year U.S. treasury rate plus a spread of 5.134% per annum. The ETO Series F Preferred Units are redeemable at ETO’s option on or after May 15, 2025 at a redemption price of $1,000 per ETO Series F Preferred Unit, plus an amount equal to all accumulated and unpaid distributions thereon to, but excluding, the date of redemption.
ETO Series G Preferred Units
On January 22, 2020, ETO issued 1,100,000 of its 7.125% Series G Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Units representing limited partner interest in ETO, at a price to the public of $1,000 per unit. Distributions on the ETO Series G Preferred Units are cumulative from and including the original issue date and will be payable semi-annually in arrears on the 15th day of May and November of each year, commencing on May 15, 2020 to, but excluding, May 15, 2030, at a rate equal to 7.125% per annum of the $1,000 liquidation preference. On and after May 15, 2030, the distribution rate on the ETO Series G Preferred Units will equal a percentage of the $1,000 liquidation preference equal to the five-year U.S. treasury rate plus a spread of 5.306% per annum. The ETO Series G Preferred Units are redeemable at ETO’s option on or after May 15, 2030 at a redemption price of $1,000 per ETO Series G Preferred Unit, plus an amount equal to all accumulated and unpaid distributions thereon to, but excluding, the date of redemption.
Sunoco LP Equity Distribution Program
For the three months ended March 31, 2020, Sunoco LP issued no additional units under its at-the-market equity distribution program. As of March 31, 2020, $295 million of Sunoco LP common units remained available to be issued under the currently effective equity distribution agreement.
USAC Distribution Reinvestment Program
During the three months ended March 31, 2020, distributions of $0.3 million were reinvested under the USAC distribution reinvestment program resulting in the issuance of approximately 18,883 USAC common units.
Parent Company Cash Distributions
Distributions declared and/or paid subsequent to December 31, 2019 were as follows:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2019
 
February 7, 2020
 
February 19, 2020
 
$
0.3050

March 31, 2020
 
May 7, 2020
 
May 19, 2020
 
0.3050


ETO Cash Distributions
Distributions declared and/or paid by ETO to its preferred unitholders subsequent to December 31, 2019 were as follows:
Period Ended
 
Record Date
 
Payment Date
 
Series A (1)
 
Series B (1)
 
Series C
 
Series D
 
Series E
 
Series F (2)
 
Series G (2)
December 31, 2019
 
February 3, 2020
 
February 18, 2020
 
$
31.25

 
$
33.125

 
$
0.4609

 
$
0.4766

 
$
0.4750

 
$

 
$

March 31, 2020
 
May 1, 2020
 
May 15, 2020
 

 

 
0.4609

 
0.4766

 
0.4750

 
21.19

 
22.36


(1)    ETO Series A Preferred Unit and ETO Series B Preferred Unit distributions are paid on a semi-annual basis.    
(2) 
ETO Series F and G Preferred Unit distributions related to the period ended March 31, 2020 represent a prorated initial distribution. Distributions are paid on a semi-annual basis.  

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Sunoco LP Cash Distributions
Distributions declared and/or paid by Sunoco LP subsequent to its common unitholders December 31, 2019 were as follows:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2019
 
February 7, 2020
 
February 19, 2020
 
$
0.8255

March 31, 2020
 
May 7, 2020
 
May 19, 2020
 
0.8255


USAC Cash Distributions
Distributions declared and/or paid by USAC to its common unitholders subsequent to December 31, 2019 were as follows:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2019
 
January 27, 2020
 
February 7, 2020
 
$
0.5250

March 31, 2020
 
April 27, 2020
 
May 8, 2020
 
0.5250


Accumulated Other Comprehensive Income (Loss)
The following table presents the components of AOCI, net of tax:
 
March 31, 2020
 
December 31, 2019
Available-for-sale securities
$
4

 
$
13

Foreign currency translation adjustment
(62
)
 
2

Actuarial loss related to pensions and other postretirement benefits
(22
)
 
(25
)
Investments in unconsolidated affiliates, net
(17
)
 
(1
)
Total AOCI, net of tax
$
(97
)
 
$
(11
)
Amounts attributable to noncontrolling interest
38

 

Total AOCI included in partners’ capital, net of tax
$
(59
)
 
$
(11
)

9.
INCOME TAXES
The Partnership’s effective tax rate differs from the statutory rate primarily due to partnership earnings that are not subject to United States federal and most state income taxes at the partnership level.
10.
REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES
FERC Proceedings
By Order issued January 16, 2019, the FERC initiated a review of Panhandle’s existing rates pursuant to Section 5 of the Natural Gas Act to determine whether the rates currently charged by Panhandle are just and reasonable and set the matter for hearing. On August 30, 2019, Panhandle filed a general rate proceeding under Section 4 of the Natural Gas Act. The Natural Gas Act Section 5 and Section 4 proceedings were consolidated by the Order dated October 1, 2019.  A hearing in the combined proceedings is scheduled for August, 2020, with an initial decision expected in early 2021.
Commitments
In the normal course of business, ETO purchases, processes and sells natural gas pursuant to long-term contracts and enters into long-term transportation and storage agreements. Such contracts contain terms that are customary in the industry. ETO believes that the terms of these agreements are commercially reasonable and will not have a material adverse effect on its financial position or results of operations.
ETO’s joint venture agreements require that they fund their proportionate share of capital contributions to their unconsolidated affiliates. Such contributions will depend upon their unconsolidated affiliates’ capital requirements, such as for funding capital projects or repayment of long-term obligations.

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We have certain non-cancelable rights-of-way (“ROW”) commitments, which require fixed payments and either expire upon our chosen abandonment or at various dates in the future. The table below reflects ROW expense included in operating expenses in the accompanying statements of operations:
 
Three Months Ended
March 31,
 
2020
 
2019
ROW expense
$
10

 
$
6


PES Refinery Fire and Bankruptcy
We own an approximately 7.4% non-operating interest in PES, which owns a refinery in Philadelphia. In addition, the Partnership provides logistics services to PES under commercial contracts and Sunoco LP has historically purchased refined products from PES. In June 2019, an explosion and fire occurred at the refinery complex.
On July 21, 2019, PES Holdings, LLC and seven of its subsidiaries (collectively, the "Debtors") filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under the provisions of Chapter 11 of the United States Bankruptcy Code, as a result of the explosion and fire at the Philadelphia refinery complex. The Debtors have also defaulted on a $75 million note payable to a subsidiary of the Partnership. The Partnership has not recorded a valuation allowance related to the note receivable as of March 31, 2020, because management is not yet able to determine the collectability of the note in bankruptcy.
In addition, the Partnership’s subsidiaries retained certain environmental remediation liabilities when the refinery was sold to PES. As of March 31, 2020, the Partnership has funded these environmental remediation liabilities through its wholly-owned captive insurance company, based upon actuarially determined estimates for such costs, and these liabilities are included in the total environmental liabilities discussed below under “Environmental Remediation.” In the event that PES property is sold in connection with the bankruptcy proceeding, it may be necessary for the Partnership to record additional environmental remediation liabilities in the future depending upon the proposed use of such property by the buyer of the property; however, management is not currently able to estimate such additional liabilities.
PES has rejected certain of the Partnership’s commercial contracts pursuant to Section 365 of the Bankruptcy Code; however, the impact of the bankruptcy on the Partnership’s commercial contracts and related revenue loss (temporary or permanent) is unknown at this time. In addition, Sunoco LP has been successful at acquiring alternative supplies to replace fuel volume lost from PES and does not anticipate any material impact to its business going forward.
Litigation and Contingencies
We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business. Natural gas and crude oil are flammable and combustible. Serious personal injury and significant property damage can arise in connection with their transportation, storage or use. In the ordinary course of business, we are sometimes threatened with or named as a defendant in various lawsuits seeking actual and punitive damages for product liability, personal injury and property damage. We maintain liability insurance with insurers in amounts and with coverage and deductibles management believes are reasonable and prudent, and which are generally accepted in the industry. However, there can be no assurance that the levels of insurance protection currently in effect will continue to be available at reasonable prices or that such levels will remain adequate to protect us from material expenses related to product liability, personal injury or property damage in the future.
Dakota Access Pipeline
On July 27, 2016, the Standing Rock Sioux Tribe (“SRST”) filed a lawsuit in the United States District Court for the District of Columbia challenging permits issued by the United States Army Corps of Engineers (“USACE”) permitting Dakota Access, LLC (“Dakota Access”) to cross the Missouri River at Lake Oahe in North Dakota. The case was subsequently amended to challenge an easement issued by the USACE allowing the pipeline to cross land owned by the USACE adjacent to the Missouri River. Dakota Access and the Cheyenne River Sioux Tribe (“CRST”) intervened. Separate lawsuits filed by the Oglala Sioux Tribe (“OST”) and the Yankton Sioux Tribe (“YST”) were consolidated with this action and several individual tribal members intervened (collectively with SRST and CRST, the “Tribes”). Plaintiffs and Defendants filed cross motions for summary judgment. On March 25, 2020, the Court remanded the case back to the USACE for preparation of an Environment Impact Statement. The Court has requested briefing on whether to suspend operation of the pipeline during the time the USACE conducts any additional environmental analysis. Briefing will conclude on May 27, 2020.

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Energy Transfer cannot determine when or how these lawsuits will be resolved or the impact they may have on the Dakota Access project.
Mont Belvieu Incident
On June 26, 2016, a hydrocarbon storage well located on another operator’s facility adjacent to Lone Star NGL Mont Belvieu’s (“Lone Star”) facilities in Mont Belvieu, Texas experienced an over-pressurization resulting in a subsurface release. The subsurface release caused a fire at Lone Star’s South Terminal and damage to Lone Star’s storage well operations at its South and North Terminals. Normal operations have resumed at the facilities with the exception of one of Lone Star’s storage wells, however, Lone Star is still quantifying the extent of its incurred and ongoing damages and has obtained, and will continue to seek, reimbursement for these losses.
MTBE Litigation
ETC Sunoco Holdings LLC and Sunoco (R&M), LLC (collectively, “Sunoco”) are defendants in lawsuits alleging MTBE contamination of groundwater. The plaintiffs, state-level governmental entities, assert product liability, nuisance, trespass, negligence, violation of environmental laws, and/or deceptive business practices claims. The plaintiffs seek to recover compensatory damages, and in some cases also seek natural resource damages, injunctive relief, punitive damages, and attorneys’ fees.
As of March 31, 2020, Sunoco is a defendant in five cases, including one case each initiated by the States of Maryland and Rhode Island, one by the Commonwealth of Pennsylvania and two by the Commonwealth of Puerto Rico. The more recent Puerto Rico action is a companion case alleging damages for additional sites beyond those at issue in the initial Puerto Rico action. The actions brought by the State of Maryland and Commonwealth of Pennsylvania have also named as defendants ETO, ETP Holdco Corporation, and Sunoco Partners Marketing & Terminals L.P. (“SPMT”).
It is reasonably possible that a loss may be realized in the remaining cases; however, we are unable to estimate the possible loss or range of loss in excess of amounts accrued. An adverse determination with respect to one or more of the MTBE cases could have a significant impact on results of operations during the period in which any such adverse determination occurs, but such an adverse determination likely would not have a material adverse effect on the Partnership’s consolidated financial position.
Regency Merger Litigation
On June 10, 2015, Adrian Dieckman (“Dieckman”), a purported Regency unitholder, filed a class action complaint related to the Regency-ETO merger (the “Regency Merger”) in the Court of Chancery of the State of Delaware (the “Regency Merger Litigation”), on behalf of Regency’s common unitholders against Regency GP LP, Regency GP LLC, ET, ETO, ETP GP, and the members of Regency’s board of directors.
The Regency Merger Litigation alleges that the Regency Merger breached the Regency partnership agreement. On March 29, 2016, the Delaware Court of Chancery granted the defendants’ motion to dismiss the lawsuit in its entirety. Plaintiff appealed, and the Delaware Supreme Court reversed the judgment of the Court of Chancery. Plaintiff then filed an Amended Verified Class Action Complaint, which defendants moved to dismiss. The Court of Chancery granted in part and denied in part the motions to dismiss, dismissing the claims against all defendants other than Regency GP, LP and Regency GP LLC (the “Regency Defendants”). The Court of Chancery later granted Plaintiff’s unopposed motion for class certification. Trial was held on December 10-16, 2019, and a post-trial hearing was held on May 6, 2020.
The Regency Defendants cannot predict the outcome of the Regency Merger Litigation or any lawsuits that might be filed subsequent to the date of this filing; nor can the Regency Defendants predict the amount of time and expense that will be required to resolve the Regency Merger Litigation. The Regency Defendants believe the Regency Merger Litigation is without merit and intend to vigorously defend against it.
Litigation Filed By or Against Williams
In April and May, 2016, the Williams Companies, Inc. (“Williams”) filed two lawsuits (the “Williams Litigation”) against ET, LE GP, and, in one of the lawsuits, Energy Transfer Corp LP, ETE Corp GP, LLC, and Energy Transfer Equity GP, LLC (collectively, “Defendants”), alleging that Defendants breached their obligations under the ET-Williams merger agreement (the “Merger Agreement”). In general, Williams alleges that Defendants breached the Merger Agreement by (a) failing to use commercially reasonable efforts to obtain from Latham & Watkins LLP (“Latham”) the delivery of a tax opinion concerning Section 721 of the Internal Revenue Code (“721 Opinion”), (b) issuing the Partnership’s Series A Convertible Preferred Units (the “Issuance”), and (c) making allegedly untrue representations and warranties in the Merger Agreement.

21


After a two-day trial on June 20 and 21, 2016, the Court ruled in favor of Defendants and issued a declaratory judgment that ET could terminate the merger after June 28, 2016 because of Latham’s inability to provide the required 721 Opinion. The Court did not reach a decision regarding Williams’ claims related to the Issuance nor the alleged untrue representations and warranties. On March 23, 2017, the Delaware Supreme Court affirmed the Court’s ruling on the June 2016 trial.
In September 2016, the parties filed amended pleadings. Williams filed an amended complaint seeking a $410 million termination fee based on the alleged breaches of the Merger Agreement listed above. Defendants filed amended counterclaims and affirmative defenses, asserting that Williams materially breached the Merger Agreement by, among other things, (a) failing to use its reasonable best efforts to consummate the merger, (b) failing to provide material information to ET for inclusion in the Form S-4 related to the merger, (c) failing to facilitate the financing of the merger, and (d) breaching the Merger Agreement’s forum-selection clause.
In March 2020, the Court held argument on Defendant’s Motion for Summary Judgment and William’s Motion for Partial Summary Judgment. Those motions remain pending before the Court. Trial is currently set for August 2020. Defendants cannot predict the outcome of the Williams Litigation or any lawsuits that might be filed subsequent to the date of this filing; nor can Defendants predict the amount of time and expense that will be required to resolve these lawsuits. Defendants believe that Williams’ claims are without merit and intend to defend vigorously against them.
Rover
On November 3, 2017, the State of Ohio and the Ohio Environmental Protection Agency (“Ohio EPA”) filed suit against Rover and other defendants (collectively, the Defendants”) seeking to recover civil penalties allegedly owed and certain injunctive relief related to permit compliance. The Defendants filed several motions to dismiss, which were granted on all counts. The Ohio EPA appealed, and on December 9, 2019, the Fifth District Court of Appeals entered a unanimous judgment affirming the trial court. The Ohio EPA sought review from the Ohio Supreme Court, which Defendants opposed in briefs filed in February 2020. On April 22, 2020, the Ohio Supreme Court granted the Ohio EPA’s request for review. The briefing schedule for the Ohio Supreme Court’s review has not yet been set.
Bayou Bridge
On January 11, 2018, environmental groups and a trade association filed suit against the USACE in the United States District Court for the Middle District of Louisiana. Plaintiffs allege that the USACE’s issuance of permits authorizing the construction of the Bayou Bridge Pipeline through the Atchafalaya Basin (“Basin”) violated the National Environmental Policy Act, the Clean Water Act, and the Rivers and Harbors Act. They asked the district court to vacate these permits and to enjoin construction of the project through the Basin until the USACE corrects alleged deficiencies in its decision-making process. ETO, through its subsidiary Bayou Bridge Pipeline, LLC (“Bayou Bridge”), intervened on January 26, 2018.
In February 2018, the District Court initially granted Plaintiffs’ motion for a preliminary injunction, but the Fifth Circuit Court of Appeals subsequently vacated that decision. The Fifth Circuit’s ruling allowed construction to continue and be completed during the pendency of the case. Plaintiffs filed a second motion for preliminary injunction in January 2019, which was denied. Plaintiffs and Defendants filed cross motions for summary judgment. On March 25, 2020, the Court granted summary judgment in favor of the USACE. Plaintiffs have until May 26, 2020 to file a notice of appeal.
Revolution
On September 10, 2018, a pipeline release and fire (the “Incident”) occurred on the Revolution pipeline, a natural gas gathering line located in Center Township, Beaver County, Pennsylvania. There were no injuries. On February 8, 2019, the Pennsylvania Department of Environmental Protection (“PADEP”) issued a Permit Hold on any requests for approvals/permits or permit amendments for any project in Pennsylvania pursuant to the state’s water laws. The Partnership filed an appeal of the Permit Hold with the Pennsylvania Environmental Hearing Board. On January 3, 2020, the Partnership entered into a Consent Order and Agreement with the Department in which, among other things, the Permit Hold was lifted, the Partnership agreed to pay a $28.6 million civil penalty and fund a $2 million community environmental project, and all related appeals were withdrawn.
The Pennsylvania Office of Attorney General has commenced an investigation regarding the Incident, and the United States Attorney for the Western District of Pennsylvania has issued a federal grand jury subpoena for documents relevant to the Incident. The scope of these investigations is not further known at this time.
Chester County, Pennsylvania Investigation
In December 2018, the former Chester County District Attorney (“DA”) sent a letter to the Partnership stating that his office was investigating the Partnership and related entities for “potential crimes” related to the Mariner East pipelines.

22


Subsequently, the matter was submitted to an Investigating Grand Jury in Chester County, Pennsylvania, which has issued subpoenas seeking documents and testimony. On September 24, 2019, the former DA sent a Notice of Intent to the Partnership of its intent to pursue an abatement action if certain conditions were not remediated. The Partnership responded to the Notice of Intent within the proscribed time period. To date, the Partnership is not aware of any further action with regard to this Notice.
In December 2019, the former DA announced charges against a current employee related to the provision of security services. The Partnership has secured independent counsel for the employee. While the Partnership will continue to cooperate with the investigation, it intends to vigorously defend itself.
Delaware County, Pennsylvania Investigation
On March 11, 2019, the Delaware County District Attorney’s Office (“DA”) announced that the DA and the Pennsylvania Attorney General’s Office, at the request of the DA, are conducting an investigation of alleged criminal misconduct involving the construction and related activities of the Mariner East pipelines in Delaware County. The Partnership has not been appraised of the specific conduct under investigation. While the Partnership will cooperate with the investigation, it intends to vigorously defend itself.
Recently Filed Litigation Involving Energy Transfer LP
Four purported unitholders of ET filed derivative actions against various past and current members of ET’s Board of Directors, LE GP, and ET, as a nominal defendant that assert claims for breach of fiduciary duties, unjust enrichment, waste of corporate assets, breach of ET’s LPA, tortious interference, abuse of control, and gross mismanagement related primarily to matters involving the construction of pipelines in Pennsylvania. They also seek damages and changes to ET’s corporate governance structure. See Bettiol v. LP GP, Case No. 3:19-cv-02890-X (N.D. Tex.); Davidson v. Kelcy L. Warren, Cause No. DC-20-02322 (44th Judicial District of Dallas County, Texas); and Harris v. Kelcy L. Warren, Case No. 2:20-cv-00364-GAM (E.D. Pa.); King v. LE GP, Case No. 3:20-cv-00719-X (N.D. Tex.). Another purported unitholder of ET, Allegheny County Employees’ Retirement System , individually and on behalf of all others similarly situated, filed a federal securities class action suit against ET and three of ET’s directors Kelcy L. Warren, John W. McReynolds, and Thomas E. Long. See Allegheny County Emps.’ Ret. Sys. v. Energy Transfer LP, Case No. 2:20-00200-GAM (E.D. Pa.). The complaint asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder related primarily to matters involving the construction of pipelines in Pennsylvania. The defendants cannot predict the outcome of these lawsuits or any lawsuits that might be filed subsequent to the date of this filing; nor can the defendants predict the amount of time and expense that will be required to resolve these lawsuits. However, the defendants believe that the claims are without merit and intend to vigorously contest them.
Other Litigation and Contingencies
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 and can be estimated, we accrue the contingent obligation, as well as any expected insurance recoverable amounts related to the contingency.  As of March 31, 2020 and December 31, 2019, accruals of approximately $116 million and $120 million, respectively, were reflected on our consolidated balance sheets related to these contingent obligations.  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 there can be no assurance that the outcome of a particular matter will not result in the payment of amounts that have not been accrued for the matter. Furthermore, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome. Currently, we are not able to estimate possible losses or a range of possible losses in excess of amounts accrued.
In addition, other legal proceedings exist that are considered reasonably possible to result in unfavorable outcomes.  For those where possible losses can be estimated, the range of possible losses related to these contingent obligations is estimated to be up to $80 million; however, no accruals have been recorded as of March 31, 2020 or December 31, 2019.
Environmental Matters
Our operations are subject to extensive federal, tribal, state and local environmental and safety laws and regulations that 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. Historically, our environmental compliance

23


costs have not had a material adverse effect on our results of operations but there can be no assurance that such costs will not be material in the future or that such future compliance with existing, amended or new legal requirements will not have a material adverse effect on our business and operating results. Costs of planning, designing, constructing and operating pipelines, plants and other facilities must incorporate compliance with environmental laws and regulations and safety standards. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of investigatory, remedial and corrective action obligations, natural resource damages, the issuance of injunctions in affected areas and the filing of federally authorized citizen suits. Contingent losses related to all significant known environmental matters have been accrued and/or separately disclosed. However, we may revise accrual amounts prior to resolution of a particular contingency based on changes in facts and circumstances or changes in the expected outcome.
Environmental exposures and liabilities are difficult to assess and estimate due to unknown factors such as the magnitude of possible contamination, the timing and extent of remediation, the determination of our liability in proportion to other parties, improvements in cleanup technologies and the extent to which environmental laws and regulations may change in the future. Although environmental costs may have a significant impact on the results of operations for any single period, we believe that such costs will not have a material adverse effect on our financial position.
Based on information available at this time and reviews undertaken to identify potential exposure, we believe the amount reserved for environmental matters is adequate to cover the potential exposure for cleanup costs.
In February 2017, we received letters from the DOJ on behalf of EPA and Louisiana Department of Environmental Quality (“LDEQ”) notifying SPLP and Mid-Valley Pipeline Company (“Mid-Valley”) that enforcement actions were being pursued for three separate crude oil releases: (a) an estimated 550 barrels released from the Colmesneil-to-Chester pipeline in Tyler County, Texas (“Colmesneil”) which allegedly occurred in February 2013; (b) an estimated 4,509 barrels released from the Longview-to-Mayersville pipeline in Caddo Parish, Louisiana (a/k/a Milepost 51.5) which allegedly occurred in October 2014; and (c) an estimated 40 barrels released from the Wakita 4-inch gathering line in Oklahoma which allegedly occurred in January 2015. In January 2019, a Consent Decree approved by all parties as well as an accompanying Complaint was filed in the United States District Court for the Western District of Louisiana seeking public comment and final court approval to resolve all penalties with DOJ and LDEQ for the three releases. Subsequently, the court approved the Consent Decree and the penalty payment of $5.4 million was satisfied. The Consent Decree requires certain injunctive relief to be completed on the Longview-to-Mayersville pipeline within three years but the injunctive relief is not expected to have any material impact on operations. In addition to resolution of the civil penalty and injunctive relief, we continue to discuss natural resource damages with the Louisiana trustees related to the Caddo Parish, Louisiana release.
In October 2018, Pipeline Hazardous Materials Safety Administration (“PHMSA”) issued a notice of proposed safety order (the “Notice”) to SPMT, a wholly-owned subsidiary of ETO. The Notice alleged that conditions exist on certain pipeline facilities owned and operated by SPMT in Nederland, Texas that pose a pipeline integrity risk to public safety, property or the environment. The Notice also made preliminary findings of fact and proposed corrective measures. SPMT responded to the Notice by submitting a timely written response on November 2, 2018, attended an informal consultation held on January 30, 2019 and entered into a consent agreement with PHMSA resolving the issues in the Notice as of March 2019. SPMT is currently awaiting response from PHMSA regarding the approval status of the submitted Remedial Work Plan.
On June 4, 2019, the Oklahoma Corporation Commission’s (“OCC”) Transportation Division filed a complaint against SPLP seeking a penalty of up to $1 million related to a May 2018 rupture near Edmond, Oklahoma.  The release occurred on the Noble to Douglas 8” pipeline in an area of external corrosion and caused the release of approximately fifteen barrels of crude oil. SPLP responded immediately to the release and remediated the surrounding environment and pipeline in cooperation with the OCC.  The OCC filed the complaint alleging that SPLP failed to provide adequate cathodic protection to the pipeline causing the failure.  SPLP is negotiating a settlement agreement with the OCC for a lesser penalty. The OCC has accepted our counter offer in conjunction with a proposed consent order. The Consent Order will be presented to the OCC at a final hearing, the date of which is to be determined.
Environmental Remediation
Our subsidiaries are responsible for environmental remediation at certain sites, including the following:
certain of our interstate pipelines conduct soil and groundwater remediation related to contamination from past uses of polychlorinated biphenyls (“PCBs”). PCB assessments are ongoing and, in some cases, our subsidiaries could be contractually responsible for contamination caused by other parties.
certain gathering and processing systems are responsible for soil and groundwater remediation related to releases of hydrocarbons.

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legacy sites related to Sunoco that are subject to environmental assessments, including formerly owned terminals and other logistics assets, retail sites that Sunoco no longer operates, closed and/or sold refineries and other formerly owned sites.
Sunoco is potentially subject to joint and several liability for the costs of remediation at sites at which it has been identified as a potentially responsible party (“PRP”). As of March 31, 2020, Sunoco had been named as a PRP at approximately 29 identified or potentially identifiable “Superfund” sites under federal and/or comparable state law. Sunoco is usually one of a number of companies identified as a PRP at a site. Sunoco has reviewed the nature and extent of its involvement at each site and other relevant circumstances and, based upon Sunoco’s purported nexus to the sites, believes that its potential liability associated with such sites will not be significant.
To the extent estimable, expected remediation costs are included in the amounts recorded for environmental matters in our consolidated balance sheets. In some circumstances, future costs cannot be reasonably estimated because remediation activities are undertaken as claims are made by customers and former customers. To the extent that an environmental remediation obligation is recorded by a subsidiary that applies regulatory accounting policies, amounts that are expected to be recoverable through tariffs or rates are recorded as regulatory assets on our consolidated balance sheets.
The table below reflects the amounts of accrued liabilities recorded in our consolidated balance sheets related to environmental matters that are considered to be probable and reasonably estimable. Currently, we are not able to estimate possible losses or a range of possible losses in excess of amounts accrued. Except for matters discussed above, we do not have any material environmental matters assessed as reasonably possible that would require disclosure in our consolidated financial statements.
 
March 31, 2020
 
December 31, 2019
Current
$
42

 
$
46

Non-current
271

 
274

Total environmental liabilities
$
313

 
$
320


We have established a wholly-owned captive insurance company to bear certain risks associated with environmental obligations related to certain 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.
During the three months ended March 31, 2020 and 2019, the Partnership recorded $9 million and $6 million, respectively, of expenditures related to environmental cleanup programs.
Our pipeline operations are subject to regulation by the United States Department of Transportation under PHMSA, pursuant to which PHMSA has established requirements relating to the design, installation, testing, construction, operation, replacement and management of pipeline facilities. Moreover, PHMSA, through the Office of Pipeline Safety, has promulgated a rule requiring pipeline operators to develop integrity management programs to comprehensively evaluate their pipelines, and take measures to protect pipeline segments located in what the rule refers to as “high consequence areas.” Activities under these integrity management programs involve the performance of internal pipeline inspections, pressure testing or other effective means to assess the integrity of these regulated pipeline segments, and the regulations require prompt action to address integrity issues raised by the assessment and analysis. Integrity testing and assessment of all of these assets will continue, and the potential exists that results of such testing and assessment could cause us to incur future capital and operating expenditures for repairs or upgrades deemed necessary to ensure the continued safe and reliable operation of our pipelines; however, no estimate can be made at this time of the likely range of such expenditures.
Our operations are also subject to the requirements of OSHA, and comparable state laws that regulate the protection of the health and safety of employees. In addition, the Occupational Safety and Health Administration’s hazardous communication standard requires that information be maintained about hazardous materials used or produced in our operations and that this information be provided to employees, state and local government authorities and citizens. We believe that our past costs for OSHA required activities, including general industry standards, record keeping requirements, and monitoring of occupational exposure to regulated substances have not had a material adverse effect on our results of operations but there is no assurance that such costs will not be material in the future.

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11.
REVENUE
Disaggregation of Revenue
The Partnership’s consolidated financial statements reflect eight reportable segments, which also represent the level at which the Partnership aggregates revenue for disclosure purposes. Note 14 depicts the disaggregation of revenue by segment.
Contract Balances with Customers
The Partnership satisfies its obligations by transferring goods or services in exchange for consideration from customers. The timing of performance may differ from the timing the associated consideration is paid to or received from the customer, thus resulting in the recognition of a contract asset or a contract liability.
The Partnership recognizes a contract asset when making upfront consideration payments to certain customers or when providing services to customers prior to the time at which the Partnership is contractually allowed to bill for such services.
The Partnership recognizes a contract liability if the customer’s payment of consideration precedes the Partnership’s fulfillment of the performance obligations. Certain contracts contain provisions requiring customers to pay a fixed fee for a right to use our assets, but allows customers to apply such fees against services to be provided at a future point in time. These amounts are reflected as deferred revenue until the customer applies the deficiency fees to services provided or becomes unable to use the fees as payment for future services due to expiration of the contractual period the fees can be applied or physical inability of the customer to utilize the fees due to capacity constraints. Additionally, Sunoco LP maintains some franchise agreements requiring dealers to make one-time upfront payments for long term license agreements. Sunoco LP recognizes a contract liability when the upfront payment is received and recognizes revenue over the term of the license.
The following table summarizes the consolidated activity of our contract liabilities:
 
Contract Liabilities
Balance, December 31, 2019
$
377