NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General
The terms “we,” “our,” “us” and “Spectra Energy Partners” as used in this report refer collectively to Spectra Energy Partners, LP and its subsidiaries unless the context suggests otherwise. These terms are used for convenience only and are not intended as a precise description of any separate legal entity within Spectra Energy Partners.
Nature of Operations.
Spectra Energy Partners, through its subsidiaries and equity affiliates, is engaged in the transmission, storage and gathering of natural gas and the transportation and storage of crude oil through interstate pipeline systems. We are a Delaware master limited partnership. As of
June 30, 2016
, Spectra Energy Corp (Spectra Energy) and its subsidiaries collectively owned
77%
of us and the remaining
23%
was publicly owned.
Basis of Presentation.
The accompanying Condensed Consolidated Financial Statements include our accounts and the accounts of our majority-owned subsidiaries, after eliminating intercompany transactions and balances. These interim financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K, for the year ended
December 31, 2015
, and reflect all normal recurring adjustments that are, in our opinion, necessary to fairly present our results of operations and financial position. Amounts reported in the Condensed Consolidated Statements of Operations are not necessarily indicative of amounts expected for the respective annual periods.
Spectra Energy and its affiliates are solely responsible for providing the employees and other personnel necessary to conduct our operations. Our costs of doing business have been reflected in our financial accounting records for the periods presented. These costs include direct charges and allocations from Spectra Energy and its affiliates for business services, such as payroll, accounts payable and facilities management; corporate services, such as finance and accounting, legal, human resources, investor relations, public and regulatory policy, and senior executives; and pension and other post-retirement benefit costs.
Use of Estimates.
To conform with generally accepted accounting principles (GAAP) in the United States, we make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and Notes to Condensed Consolidated Financial Statements. Although these estimates are based on our best available knowledge at the time, actual results could differ.
2. Business Segments
We manage our business in
two
reportable segments: U.S. Transmission and Liquids. The remainder of our business operations is presented as “Other,” and consists of certain corporate costs.
Our chief operating decision maker regularly reviews financial information about both segments in deciding how to allocate resources and evaluate performance. There is no aggregation of segments within our reportable business segments.
The U.S. Transmission segment provides interstate transmission, storage and gathering of natural gas. Substantially all of our operations are subject to the Federal Energy Regulatory Commission (FERC) and the Department of Transportation’s (DOT’s) rules and regulations. Our investments in Gulfstream Natural Gas System, LLC (Gulfstream), Southeast Supply Header, LLC (SESH) and Steckman Ridge, LP are included in U.S. Transmission.
The Liquids segment provides transportation of crude oil. The Express-Platte pipeline system (Express-Platte) is a crude oil pipeline system that connects Canadian and U.S. producers to refineries in the U.S. Rocky Mountain and Midwest regions. These operations are primarily subject to the rules and regulations of the FERC and the National Energy Board (NEB). We held direct one-third ownership interests in DCP Sand Hills Pipeline, LLC (Sand Hills) and DCP Southern Hills Pipeline, LLC (Southern Hills) until October 30, 2015.
Our reportable segments offer different products and services and are managed separately as business units. Management evaluates segment performance based on earnings before interest, taxes, and depreciation and amortization (EBITDA). Cash, cash equivalents and investments are managed centrally, so the gains and losses on foreign currency remeasurement, and interest and dividend income, are excluded from the segments’ EBITDA. Our segment EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate EBITDA in the same manner.
Business Segment Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
|
Total Operating Revenues
|
|
Depreciation and Amortization
|
|
Segment EBITDA/Consolidated Earnings Before Income Taxes
|
|
(in millions)
|
Three Months Ended June 30, 2016
|
|
|
|
|
|
U.S. Transmission
|
$
|
529
|
|
|
$
|
69
|
|
|
$
|
406
|
|
Liquids
|
89
|
|
|
8
|
|
|
58
|
|
Total reportable segments
|
618
|
|
|
77
|
|
|
464
|
|
Other
|
—
|
|
|
—
|
|
|
(22
|
)
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
77
|
|
Interest expense
|
—
|
|
|
—
|
|
|
56
|
|
Interest income and other
|
—
|
|
|
—
|
|
|
1
|
|
Total consolidated
|
$
|
618
|
|
|
$
|
77
|
|
|
$
|
310
|
|
Three Months Ended June 30, 2015
|
|
|
|
|
|
U.S. Transmission
|
$
|
509
|
|
|
$
|
65
|
|
|
$
|
396
|
|
Liquids
|
94
|
|
|
8
|
|
|
78
|
|
Total reportable segments
|
603
|
|
|
73
|
|
|
474
|
|
Other
|
—
|
|
|
—
|
|
|
(18
|
)
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
73
|
|
Interest expense
|
—
|
|
|
—
|
|
|
63
|
|
Interest income and other
|
—
|
|
|
—
|
|
|
1
|
|
Total consolidated
|
$
|
603
|
|
|
$
|
73
|
|
|
$
|
321
|
|
Six Months Ended June 30, 2016
|
|
|
|
|
|
U.S. Transmission
|
$
|
1,067
|
|
|
$
|
139
|
|
|
$
|
817
|
|
Liquids
|
175
|
|
|
15
|
|
|
114
|
|
Total reportable segments
|
1,242
|
|
|
154
|
|
|
931
|
|
Other
|
—
|
|
|
—
|
|
|
(42
|
)
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
154
|
|
Interest expense
|
—
|
|
|
—
|
|
|
112
|
|
Interest income and other
|
—
|
|
|
—
|
|
|
2
|
|
Total consolidated
|
$
|
1,242
|
|
|
$
|
154
|
|
|
$
|
625
|
|
Six Months Ended June 30, 2015
|
|
|
|
|
|
U.S. Transmission
|
$
|
1,031
|
|
|
$
|
130
|
|
|
$
|
785
|
|
Liquids
|
178
|
|
|
16
|
|
|
142
|
|
Total reportable segments
|
1,209
|
|
|
146
|
|
|
927
|
|
Other
|
—
|
|
|
—
|
|
|
(35
|
)
|
Depreciation and amortization
|
—
|
|
|
—
|
|
|
146
|
|
Interest expense
|
—
|
|
|
—
|
|
|
120
|
|
Interest income and other
|
—
|
|
|
—
|
|
|
(2
|
)
|
Total consolidated
|
$
|
1,209
|
|
|
$
|
146
|
|
|
$
|
624
|
|
3. Net Income Per Limited Partner Unit and Cash Distributions
The following table presents our net income per limited partner unit calculations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
(in millions, except per unit amounts)
|
Net income—controlling interests
|
|
$
|
287
|
|
|
$
|
307
|
|
|
$
|
585
|
|
|
$
|
600
|
|
Less:
|
|
|
|
|
|
|
|
|
General partner’s interest in net income—2%
|
|
6
|
|
|
6
|
|
|
12
|
|
|
12
|
|
General partner’s interest in net income attributable to incentive distribution rights
|
|
70
|
|
|
55
|
|
|
133
|
|
|
106
|
|
Limited partners’ interest in net income
|
|
$
|
211
|
|
|
$
|
246
|
|
|
$
|
440
|
|
|
$
|
482
|
|
Weighted average limited partner units outstanding—basic and diluted
|
|
298
|
|
|
296
|
|
|
292
|
|
|
296
|
|
Net income per limited partner unit—basic and diluted
|
|
$
|
0.71
|
|
|
$
|
0.83
|
|
|
$
|
1.51
|
|
|
$
|
1.63
|
|
Our partnership agreement requires that, within
60 days
after the end of each quarter, we distribute all of our Available Cash, as defined, to unitholders of record on the applicable record date.
Available Cash.
Available Cash, for any quarter, consists of all cash and cash equivalents on hand at the end of that quarter:
|
|
•
|
less the amount of cash reserves established by the general partner to:
|
|
|
•
|
provide for the proper conduct of business,
|
|
|
•
|
comply with applicable law, any debt instrument or other agreement, or
|
|
|
•
|
provide funds for minimum quarterly distributions to the unitholders and to the general partner for any one or more of the next four quarters,
|
|
|
•
|
plus, if the general partner so determines, all or a portion of cash and cash equivalents on hand on the date of determination of Available Cash for the quarter.
|
Incentive Distribution Rights.
The general partner holds incentive distribution rights beyond the first target distribution in accordance with the partnership agreement as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Total Quarterly Distribution
|
|
Marginal Percentage
Interest in Distributions
|
|
|
Target Per-Unit Amount
|
|
Common
Unitholders
|
|
General
Partner
|
Minimum Quarterly Distribution
|
|
$0.30
|
|
98
|
%
|
|
2
|
%
|
First Target Distribution
|
|
up to $0.345
|
|
98
|
%
|
|
2
|
%
|
Second Target Distribution
|
|
above $0.345 up to $0.375
|
|
85
|
%
|
|
15
|
%
|
Third Target Distribution
|
|
above $0.375 up to $0.45
|
|
75
|
%
|
|
25
|
%
|
Thereafter
|
|
above $0.45
|
|
50
|
%
|
|
50
|
%
|
To the extent these incentive distributions are made to the general partner, there will be more Available Cash proportionately allocated to our general partner than to holders of common units. A cash distribution of
$0.66375
per limited partner unit was declared on
August 3, 2016
and is payable on
August 26, 2016
to unitholders of record at the close of business on
August 15, 2016
.
There is a reduction in the aggregate quarterly distributions, if any, to Spectra Energy, (as holder of incentive distribution rights), by
$4 million
per quarter for a period of 12 consecutive quarters ending on September 30, 2018 as a result of the sale of our interests in Sand Hills and Southern Hills to Spectra Energy.
4. Transaction with Affiliate
During the third quarter of 2015, Gulfstream issued unsecured debt of
$800 million
to fund the repayment of its current debt. Gulfstream distributed
$396 million
, our proportionate share of proceeds, to us of which we contributed
$248 million
back to Gulfstream in the fourth quarter of 2015 and the remaining
$148 million
, classified as Cash Flow from Investing Activities — Distribution to Equity Investment, in the second quarter of 2016.
5. Variable Interest Entities
Sabal Trail.
On April 1, 2016, NextEra Energy, Inc. (NextEra) purchased a
9.5%
interest in Sabal Trail Transmission, LLC (Sabal Trail) from us. Consideration for this transaction consisted of approximately
$110 million
cash,
$102 million
of which is classified as Cash Flows from Financing Activities — Contributions from Noncontrolling Interests. See Note 6 for additional information related to this transaction. As of
June 30, 2016
, we owned a
50%
interest in Sabal Trail, a joint venture that is constructing a natural gas pipeline to transport natural gas to Florida. Sabal Trail is a variable interest entity (VIE) due to insufficient equity at risk to finance its activities. We determined that we are the primary beneficiary because we direct the activities of Sabal Trail that most significantly impact its economic performance and we consolidate Sabal Trail in our financial statements. The current estimate of the total remaining construction cost is approximately
$1.8 billion
.
The following summarizes assets and liabilities for Sabal Trail as of
June 30, 2016
and
December 31, 2015
, respectively:
|
|
|
|
|
|
|
|
|
Condensed Consolidated Balance Sheets
|
June 30, 2016
|
|
December 31, 2015
|
|
(in millions)
|
Assets
|
|
|
|
Current assets
|
$
|
114
|
|
|
$
|
118
|
|
Net property, plant and equipment
|
1,184
|
|
|
773
|
|
Regulatory assets and deferred debits
|
41
|
|
|
25
|
|
Total Assets
|
$
|
1,339
|
|
|
$
|
916
|
|
Liabilities and Equity
|
|
|
|
Current liabilities
|
$
|
90
|
|
|
$
|
84
|
|
Equity
|
1,249
|
|
|
832
|
|
Total Liabilities and Equity
|
$
|
1,339
|
|
|
$
|
916
|
|
Nexus.
We own a
50%
interest in Nexus Gas Transmission, LLC (Nexus), a joint venture that is constructing a natural gas pipeline from Ohio to Michigan and continuing on to Ontario, Canada. Nexus is a VIE due to insufficient equity at risk to finance its activities. We determined that we are not the primary beneficiary because the power to direct the activities of Nexus that most significantly impact its economic performance is shared. We account for Nexus under the equity method. Our maximum exposure to loss is
$1.0 billion
. We have an investment in Nexus of
$205 million
and
$90 million
as of
June 30, 2016
and
December 31, 2015
, respectively, classified as Investments in and Loans to Unconsolidated Affiliates on our Condensed Consolidated Balance Sheets.
6. Intangible Asset
During the first quarter of 2016 we entered into a project coordination agreement (PCA) with NextEra, Duke Energy Corporation and Williams Partners L.P. In accordance with the agreement, payments will be made, based on our proportional ownership interest in the Sabal Trail project, as certain milestones of the project are met. During the first quarter of 2016, the first milestone was achieved and paid, consisting of
$48 million
. On April 1, 2016, NextEra purchased an additional
9.5%
interest in Sabal Trail, reducing our ownership interest in Sabal Trail to
50%
. Upon purchase of the additional ownership interest, NextEra reimbursed us
$8 million
for NextEra’s proportional share of the first milestone payment, which reduced our total milestone payments to
$40 million
as of
June 30, 2016
, both of which are classified as Cash Flows from Investing Activities — Purchase of Intangible, Net. This PCA is an intangible asset and is classified as Investments and Other Assets — Other on our Condensed Consolidated Balance Sheet. The intangible asset will be amortized over a period of
25
years beginning at the time of in-service of Sabal Trail, which is expected to occur during the first half of 2017.
7. Goodwill
We perform our goodwill impairment test annually and evaluate goodwill when events or changes in circumstances indicate that its carrying value may not be recoverable. We completed our annual goodwill impairment test as of April 1, 2016 and no impairments were identified.
We perform our annual review for goodwill impairment at the reporting unit level, which is identified by assessing whether the components of our operating segments constitute businesses for which discrete financial information is available, whether segment management regularly reviews the operating results of those components and whether the economic and regulatory characteristics are similar. We determined that our reporting units are equivalent to our reportable segments.
As permitted under accounting guidance on testing goodwill for impairment, we perform either a qualitative assessment or a quantitative assessment of each of our reporting units based on management’s judgment. With respect to our qualitative assessments, we consider events and circumstances specific to us, such as macroeconomic conditions, industry and market considerations, cost factors and overall financial performance, when evaluating whether it is more likely than not that the fair values of our reporting units are less than their respective carrying amounts.
8. Marketable Securities and Restricted Funds
We routinely invest excess cash and various restricted balances in securities such as commercial paper, corporate debt securities, and money market funds in the United States, as well as equity securities in Canada. We do not purchase marketable securities for speculative purposes, therefore we do not have any securities classified as trading securities. While we do not routinely sell marketable securities prior to their scheduled maturity dates, some of our investments may be held and restricted for the purposes of funding future capital expenditures and NEB regulatory requirements, so these investments are classified as available-for-sale (AFS) marketable securities as they may occasionally be sold prior to their scheduled maturity dates due to the unexpected timing of cash needs. Initial investments in securities are classified as purchases of the respective type of securities (AFS marketable securities or held-to-maturity (HTM) marketable securities). Maturities of securities are classified within proceeds from sales and maturities of securities in the Condensed Consolidated Statements of Cash Flows.
AFS Securities.
We had
$10 million
and
$11 million
of AFS securities classified as Investments and Other Assets — Other on the Condensed Consolidated Balance Sheets as of
June 30, 2016
and
December 31, 2015
, respectively. As of
June 30, 2016
, these investments include
$9 million
of restricted funds related to certain construction projects and
$1 million
are restricted funds held and collected from customers for Canadian pipeline abandonment in accordance with the NEB's regulatory requirements. The balance as of
December 31, 2015
is all related to certain construction projects.
At
June 30, 2016
, the weighted-average contractual maturity of outstanding AFS securities was less than
one year
.
There were
no
material gross unrecognized holding gains or losses associated with investments in AFS securities at
June 30, 2016
or
December 31, 2015
.
HTM Securities.
All of our HTM securities are restricted funds. We had
$3 million
of money market securities classified as Current Assets — Other on the Condensed Consolidated Balance Sheets as of
June 30, 2016
and
December 31, 2015
. These securities are restricted pursuant to certain Express-Platte debt agreements.
At
June 30, 2016
, the weighted-average contractual maturity of outstanding HTM securities was less than
one year
.
There were
no
material gross unrecognized holding gains or losses associated with investments in HTM securities at
June 30, 2016
or
December 31, 2015
.
Other Restricted Funds.
In addition to the AFS and HTM securities that were restricted funds as described above, we had other restricted funds totaling
$10 million
and
$14 million
classified as Investments and Other Assets — Other on the Condensed Consolidated Balance Sheets at
June 30, 2016
and
December 31, 2015
, respectively. These restricted funds are related to certain construction projects.
Changes in restricted balances are presented within Cash Flows from Investing Activities on our Condensed Consolidated Statements of Cash Flows.
9. Debt and Credit Facility
Available Credit Facility and Restricted Debt Covenants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiration Date
|
|
Total Credit Facility Capacity
|
|
Commercial
Paper Outstanding at
June 30, 2016
|
|
Available
Credit Facility
Capacity
|
|
|
|
|
(in millions)
|
Spectra Energy Partners, LP
|
|
2021
|
|
$
|
2,500
|
|
|
$
|
693
|
|
|
$
|
1,807
|
|
On April 29, 2016, we amended our credit agreement. The total capacity was increased to
$2.5 billion
and the expiration date was extended to April 2021.
The issuances of commercial paper, letters of credit and revolving borrowings reduce the amount available under the credit facility. As of
June 30, 2016
, there were no letters of credit issued or revolving borrowings outstanding under the credit facility.
Our credit agreements contain various covenants, including the maintenance of a consolidated leverage ratio, as defined in the agreements. Failure to meet those covenants beyond applicable grace periods could result in accelerated due dates and/or termination of the agreements. As of
June 30, 2016
, we were in compliance with those covenants. In addition, our credit agreements allow for acceleration of payments or termination of the agreements due to nonpayment, or in some cases, due to the acceleration of our other significant indebtedness or other significant indebtedness of some of our subsidiaries. Our debt and credit agreements do not contain provisions that trigger an acceleration of indebtedness based solely on the occurrence of a material adverse change in our financial condition or results of operations.
As noted above, the terms of our credit agreements require us to maintain a ratio of total Consolidated Indebtedness-to-Consolidated EBITDA, as defined in the agreement, of
5.0
to 1 or less. As of
June 30, 2016
, this ratio was
3.5
to 1.
10. Fair Value Measurements
The following presents, for each of the fair value hierarchy levels, assets that are measured at fair value on a recurring basis as of
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Condensed Consolidated Balance Sheet Caption
|
|
June 30, 2016
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in millions)
|
Corporate debt securities
|
Cash and cash equivalents
|
|
$
|
115
|
|
|
$
|
—
|
|
|
$
|
115
|
|
|
$
|
—
|
|
Corporate debt securities
|
Investments and other assets — other
|
|
9
|
|
|
—
|
|
|
9
|
|
|
—
|
|
Canadian equity securities
|
Investments and other assets — other
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Interest rate swaps
|
Investments and other assets — other
|
|
35
|
|
|
—
|
|
|
35
|
|
|
—
|
|
Total Assets
|
|
$
|
160
|
|
|
$
|
1
|
|
|
$
|
159
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
Condensed Consolidated Balance Sheet Caption
|
|
December 31, 2015
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
(in millions)
|
Corporate debt securities
|
Cash and cash equivalents
|
|
$
|
112
|
|
|
$
|
—
|
|
|
$
|
112
|
|
|
$
|
—
|
|
Corporate debt securities
|
Investments and other assets — other
|
|
11
|
|
|
—
|
|
|
11
|
|
|
—
|
|
Interest rate swaps
|
Investments and other assets — other
|
|
14
|
|
|
—
|
|
|
14
|
|
|
—
|
|
Total Assets
|
|
$
|
137
|
|
|
$
|
—
|
|
|
$
|
137
|
|
|
$
|
—
|
|
Level 1
Level 1 valuations represent quoted unadjusted prices for identical instruments in active markets.
Level 2 Valuation Techniques
Fair values of our financial instruments that are actively traded in the secondary market, including our long-term debt, are determined based on market-based prices. These valuations may include inputs such as quoted market prices of the exact or similar instruments, broker or dealer quotations, or alternative pricing sources that may include models or matrix pricing tools, with reasonable levels of price transparency.
For interest rate swaps, we utilize data obtained from a third-party source for the determination of fair value. Both the future cash flows for the fixed-leg and floating-leg of our swaps are discounted to present value.
Level 3 Valuation Techniques
Level 3 valuation techniques include the use of pricing models, discounted cash flow methodologies or similar techniques where at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the determination of fair value requires significant management judgment or estimation.
Financial Instruments
The fair values of financial instruments that are recorded and carried at book value are summarized in the following table. Judgment is required in interpreting market data to develop the estimates of fair value. These estimates are not necessarily indicative of the amounts we could have realized in current markets.
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June 30, 2016
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December 31, 2015
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Book
Value
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Approximate
Fair Value
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Book
Value
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Approximate
Fair Value
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(in millions)
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Note receivable, noncurrent (a)
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$
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71
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$
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71
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$
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71
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$
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71
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Long-term debt, including current maturities (b)
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5,885
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6,309
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6,152
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5,906
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________
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(a)
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Included within Investments in and Loans to Unconsolidated Affiliates.
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(b)
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Excludes commercial paper, unamortized items and fair value hedge carrying value adjustments.
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The fair value of our long-term debt is determined based on market-based prices as described in the Level 2 valuation technique described above and is classified as Level 2.
The fair values of cash and cash equivalents, restricted cash, short-term investments, accounts receivable, note receivable-noncurrent, accounts payable, commercial paper and short-term money market securities - affiliates are not materially different from their carrying amounts because of the short-term nature of these instruments or because the stated rates approximate market rates.
During the
six months ended June 30,
2016
and
2015
, there were no material adjustments to assets and liabilities measured at fair value on a nonrecurring basis.
11. Risk Management and Hedging Activities
Changes in interest rates expose us to risk as a result of our issuance of variable and fixed-rate debt and commercial paper. We are exposed to foreign currency risk from the Canadian portion of Express-Platte. We employ established policies and procedures to manage our risks associated with these market fluctuations, which may include the use of derivatives, mostly around interest rate exposures. For interest rate derivative instruments that are designated and qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk is recognized in the Condensed Consolidated Statements of Operations. There were
no
significant amounts of gains or losses recognized in net income during the
six months ended June 30, 2016
.
At
June 30, 2016
, we had
“pay floating — receive fixed” interest rate swaps outstanding with a total notional amount of
$900 million
to hedge against changes in the fair value of our fixed-rate debt that arise as a result of changes in market interest rates
. These swaps also allow us to transform a portion of the underlying interest payments related to our long-term fixed-rate debt securities into variable-rate interest payments in order to achieve our desired mix of fixed and variable-rate debt.
Information about our interest rate swaps that had netting or rights of offset arrangements are as follows:
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June 30, 2016
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December 31, 2015
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Gross Amounts
Presented in
the Condensed
Consolidated
Balance Sheet
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Amounts Not
Offset in the
Condensed
Consolidated
Balance Sheet
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Net
Amount
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Gross Amounts
Presented in
the Condensed
Consolidated
Balance Sheet
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Amounts Not
Offset in the
Condensed
Consolidated
Balance Sheet
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Net
Amount
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Description
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(in millions)
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Assets
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$
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35
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$
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—
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$
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35
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$
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14
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$
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—
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$
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14
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12. Commitments and Contingencies
Environmental
We are subject to various federal, state and local laws and regulations regarding air and water quality, hazardous and solid waste disposal and other environmental matters. These laws and regulations can change from time to time, imposing new obligations on us.
Like others in the energy industry, we and our affiliates are responsible for environmental remediation at various contaminated sites. These include some properties that are part of our ongoing operations, sites formerly owned or used by us, and sites owned by third parties. Remediation typically involves management of contaminated soils and may involve groundwater remediation. Managed in conjunction with relevant federal, state/provincial and local agencies, activities vary with site conditions and locations, remedial requirements, complexity and sharing of responsibility. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, we or our affiliates could potentially be held responsible for contamination caused by other parties. In some instances, we may share liability associated with contamination with other potentially responsible parties, and may also benefit from contractual indemnities that cover some or all cleanup costs. All of these sites generally are managed in the normal course of business or affiliated operations.
Litigation
Litigation and Legal Proceedings.
We are involved in legal, tax and regulatory proceedings in various forums arising in the ordinary course of business, including matters regarding contract and payment claims, some of which involve substantial monetary amounts. We have insurance coverage for certain of these losses should they be incurred. We believe that the final disposition of these proceedings will not have a material effect on our consolidated results of operations, financial position or cash flows.
Legal costs related to the defense of loss contingencies are expensed as incurred. We had no material reserves for legal matters recorded as of
June 30, 2016
or
December 31, 2015
related to litigation.
13. Issuances of Common Units
During the
six months ended June 30, 2016
, we issued
7.0 million
common units to the public under our at-the-market program, and approximately
143,000
general partner units to Spectra Energy. Total net proceeds were
$327 million
, including approximately
$6 million
of proceeds from Spectra Energy.
In April 2016, we issued
10.4 million
common units and
0.2 million
general partner units to Spectra Energy in a private placement transaction. Total net proceeds were
$489 million
, including
$10 million
for general partner units in order to maintain Spectra Energy's
2%
general partner interest. We intend to use the proceeds from this purchase for general partnership purposes, including the funding of our current expansion capital plan.
14. New Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-10,
“Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation,”
which amends the consolidation guidance around reporting entities that invest in development stage entities. We adopted the consolidation guidance of this amendment on January 1, 2016 and applied it retrospectively with no material effect on our consolidated results of operations, financial position, or cash flows. This ASU did result in certain of our entities being classified as VIE. See Note 5 for discussion of our Variable Interest Entities.
In February 2015, the FASB issued ASU No. 2015-02,
“Consolidation (Topic 810): Amendments to the Consolidation Analysis,”
which makes changes to both the variable interest model and the voting model. These changes required reevaluation of certain entities for consolidation and required us to revise our documentation regarding the consolidation or deconsolidation of such entities. We adopted this standard on January 1, 2016 with no material effect on our consolidated operations, financial position, or cash flows.
In September 2015, the FASB issued ASU No. 2015-16,
“Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
,
”
to simplify accounting for adjustments made to provisional amounts recognized in a business combination and to eliminate the retrospective accounting for those adjustments. We adopted this standard on January 1, 2016 , and it has not had a material impact on our consolidated operations, financial position, or cash flows.
In February 2016, the FASB issued ASU No. 2016-02,
“Leases (Topic 842),”
to improve the financial reporting around leasing transactions. The new guidance requires companies to begin recording assets and liabilities arising from those leases classified as operating leases under previous guidance. Furthermore, the new guidance will require significant additional disclosures about the amount, timing and uncertainty of cash flows from leases. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in previous guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous guidance. This ASU is effective for us January 1, 2019. We are currently evaluating this ASU and its potential impact on us.
In March 2016, the FASB issued ASU No. 2016-05,
“Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,”
which clarifies the hedge accounting impact when there is a change in one of the counterparties to the derivative contract (i.e. novation). This ASU is effective for us January 1, 2017. This ASU is not expected to have a material impact on our consolidated results of operations, financial position or cash flow.
In March 2016, the FASB issued ASU No. 2016-06,
“Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments,”
which simplifies the embedded derivative analysis for debt instruments containing contingent call or put options. This ASU is effective for us January 1, 2017. This ASU is not expected to have a material impact on our consolidated results of operations, financial position or cash flow.
In March 2016, the FASB issued ASU No. 2016-07,
“Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting,”
which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment. This ASU is effective for us January 1, 2017. We are currently evaluating this ASU and its potential impact on us.
In March 2016, the FASB issued ASU No. 2016-08,
“Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),”
to clarify implementation guidance on principal versus agent considerations. This ASU is effective for us on January 1, 2018. We are currently evaluating this ASU and its potential impact on us.
In April 2016, the FASB issued ASU No. 2016-10,
“Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,”
to clarify implementation guidance on performance obligations and licensing. This ASU is effective for us on January 1, 2018. We are currently evaluating this ASU and its potential impact on us.
In May 2016, the FASB issued ASU No. 2016-12,
“Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
,
”
to clarify implementation guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition. This ASU is effective for us on January 1, 2018. We are currently evaluating this ASU and its potential impact on us.
In June 2016, the FASB issued ASU No. 2016-13,
“Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
,
”
to replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires the consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This ASU is effective for us on January 1, 2020. We are currently evaluating this ASU and its potential impact on us.