Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Notes to Financial Statements [Abstract]

Commitments and Contingencies

12. Commitments and Contingencies

Environmental Matters

The Company's operations are subject to federal, state and local laws, rules and regulations regarding water quality, hazardous and solid waste management, air quality control and other environmental matters. These laws, rules and regulations require the Company to conduct its operations in a specified manner and to obtain and comply with a wide variety of environmental registrations, licenses, permits, inspections and other approvals. Failure to comply with applicable environmental laws, rules and regulations may expose the Company to significant fines, penalties and/or interruptions in operations. The Company's environmental policies and procedures are designed to achieve compliance with such applicable laws and regulations. These evolving laws and regulations and claims for damages to property, employees, other persons and the environment resulting from current or past operations may result in significant expenditures and liabilities in the future. The Company engages in a process of updating and revising its procedures for the ongoing evaluation of its operations to identify potential environmental exposures and enhance compliance with regulatory requirements.

Environmental Remediation

Transportation and Storage Segment

Panhandle is responsible for environmental remediation at certain sites on its natural gas transmission systems for contamination resulting from the past use of lubricants containing PCBs in compressed air systems; the past use of paints containing PCBs; and the prior use of wastewater collection facilities and other on-site disposal areas. Panhandle has implemented a program to remediate such contamination. The primary remaining remediation activity on the Panhandle systems is associated with past use of paints containing PCBs or PCB impacts to equipment surfaces and to a building at one location. The PCB assessments are ongoing and the related estimated remediation costs are subject to further change.

Other remediation typically involves the management of contaminated soils and may involve remediation of groundwater. Activities vary with site conditions and locations, the extent and nature of the contamination, remedial requirements, complexity and sharing of responsibility. The ultimate liability and total costs associated with these sites will depend upon many factors. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, Panhandle could potentially be held responsible for contamination caused by other parties. In some instances, Panhandle may share liability associated with contamination with other PRPs. Panhandle may also benefit from contractual indemnities that cover some or all of the cleanup costs. These sites are generally managed in the normal course of business or operations.

The Company's environmental remediation activities are undertaken in cooperation with and under the oversight of appropriate regulatory agencies, enabling the Company under certain circumstances to take advantage of various voluntary cleanup programs in order to perform the remediation in the most effective and efficient manner.

Gathering and Processing Segment

SUGS is responsible for environmental remediation at certain sites on its gathering and processing systems, resulting primarily from releases of hydrocarbons. SUGS has a program to remediate such contamination. The remediation typically involves the management of contaminated soils and may involve remediation of groundwater. Activities vary with site conditions and locations, the extent and nature of the contamination, remedial requirements and complexity. The ultimate liability and total costs associated with these sites will depend upon many factors. These sites are generally managed in the normal course of business or operations.

Distribution Segment

The Company is allowed to recover environmental remediation expenditures through rates in certain jurisdictions within its Distribution segment. Significant charges to earnings could be required prior to rate recovery for jurisdictions that do not have rate recovery mechanisms.

The Company is responsible for environmental remediation at various contaminated sites that are primarily associated with former MGPs and sites associated with the operation and disposal activities of former MGPs that produced a fuel known as “town gas”. Some byproducts of the historic manufactured gas process may be regulated substances under various federal and state environmental laws. To the extent these byproducts are present in soil or groundwater at concentrations in excess of applicable standards, investigation and remediation may be required. The sites include properties that are part of the Company's ongoing operations, sites formerly owned or used by the Company and sites owned by third parties. Remediation typically involves the management of contaminated soils and may involve removal of old MGP structures and remediation of groundwater. Activities vary with site conditions and locations, the extent and nature of the contamination, remedial requirements, complexity and sharing of responsibility; some contamination may be unrelated to former MGPs. The ultimate liability and total costs associated with these sites will depend upon many factors. If remediation activities involve statutory joint and several liability provisions, strict liability, or cost recovery or contribution actions, the Company could potentially be held responsible for contamination caused by other parties. In some instances, the Company may share liability associated with contamination with other PRPs and may also benefit from insurance policies or contractual indemnities that cover some or all of the cleanup costs. These sites are generally managed in the normal course of business or operations.

North Attleboro MGP Site in Massachusetts (North Attleboro Site). In November 2003, the MADEP issued a Notice of Responsibility to New England Gas Company, acknowledging receipt of prior notifications and investigative reports submitted by New England Gas Company, following the discovery of suspected coal tar material at the North Attleboro Site. Subsequent sampling in the adjacent river channel revealed sediment impacts necessitating the investigation of off-site properties. Assessment activities have recently been completed and it is estimated that the Company will spend approximately $10.6million over the next several years to complete remediation activities at the North Attleboro Site, as well as maintain the engineered barrier constructed in 2008 at the upland portion of the site. As New England Gas Company is allowed to recover environmental remediation expenditures through rates associated with its Massachusetts operations, the estimated costs associated with the North Attleboro Site have been included in Regulatory assets in the unaudited interim Condensed Consolidated Balance Sheet.

Environmental Remediation Liabilities

The table below reflects the amount of accrued liabilities recorded in the Condensed Consolidated Balance Sheet at the dates indicated to cover environmental remediation actions where management believes a loss is probable and reasonably estimable. The Company does not have any material environmental remediation matters assessed as reasonably possible.

	June 30,		December 31,
	2011		2010
	(In thousands)
Current	$	5,890	$	10,648
Noncurrent		15,517		11,920
Total environmental liabilities	$	21,407	$	22,568

Litigation and Other Claims

Will Price. Will Price, an individual, filed actions in the U.S. District Court for the District of Kansas for damages against a number of companies, including Panhandle, alleging mis-measurement of natural gas volumes and Btu content, resulting in lower royalties to mineral interest owners.  On September 19, 2009, the Court denied plaintiffs' request for class certification.  Plaintiffs have filed a motion for reconsideration, which the Court denied on March 31, 2010.  Panhandle believes that its measurement practices conformed to the terms of its FERC natural gas tariffs, which were filed with and approved by FERC.  As a result, the Company believes that it has meritorious defenses to the Will Price lawsuit (including FERC-related affirmative defenses, such as the filed rate/tariff doctrine, the primary/exclusive jurisdiction of FERC, and the defense that Panhandle complied with the terms of its tariffs).  In the event that Plaintiffs refuse Panhandle's pending request for voluntary dismissal, Panhandle will continue to vigorously defend the case.  The Company believes it has no liability associated with this proceeding.

East End Project. The East End project involved the installation of a total of approximately 31 miles of pipeline in and around Tuscola, Illinois, Montezuma, Indiana and Zionsville, Indiana.  Construction began in 2007 and was completed in the second quarter of 2008.  PEPL sought recovery of each contractor's share of approximately $50 million of cost overruns from the construction contractor, an inspection contractor and the construction management contractor for improper welding, inspection and construction management of the East End Project.  Certain of the contractors filed counterclaims against PEPL for alleged underpayments of approximately $18 million.  Panhandle settled with three defendants prior to trial in Harris County, Texas. Trial began on May 16, 2011 and after the fourth week of trial a settlement was reached with the last defendant, Acuren.  The various settlements resulted in the Company receiving a total of approximately $16 million and $9 million for reimbursement of previously incurred legal expenses associated with the proceeding and project cost overruns, respectively.

Attorney General of the Commonwealth of Massachusetts Attorney General v New England Gas Company.   On July 7, 2011, the Massachusetts Attorney General (AG) filed a regulatory complaint with the MDPU against New England Gas Company with respect to certain environmental cost recoveries.   The AG is seeking a refund to New England Gas Company customers for alleged "excessive and imprudently incurred costs" related to legal fees associated with the Company's environmental response activities.  In the complaint, the AG requests that the MDPU initiate an investigation into the New England Gas Company's collection and reconciliation of recoverable environmental costs including:  (i) the prudence of any and all legal fees, totaling $18.5 million, that were charged by the Kasowitz, Benson, Torres & Friedman firm and passed through the recovery mechanism since 2005, the year when a partner in the firm, the Company's current Vice Chairman, President and COO, joined the Company's management team; (ii) the prudence of any and all legal fees that were charged by the Bishop, London & Dodds firm and passed through the recovery mechanism since 2005, the period during which a member of the firm served as the Company's Chief Ethics Officer; and (iii) the propriety and allocation of legal fees charged that were passed through the recovery mechanism and whether they would qualify for a lesser, 50 percent, level of recovery.The Company believes it has complied with all applicable requirements of the MDPU regarding its filings for cost recovery; however, the Company will continue to assess its potential exposure for such cost recoveries as the matter progresses.

Air Quality Control.SUGS is currently negotiating settlements to certain enforcement actions by the NMED and the TCEQ. In March, the NMED amended the consent order it filed against SUGS in 2010, removing numerous claims and adding several more.

Litigation Relating to the Merger with ETE

On June 21, 2011, a putative class action lawsuit captioned Jaroslawicz v. Southern Union Company, et al., Cause No. 2011-37091, was filed in the 333rd Judicial District Court of Harris County, Texas. The petition names as defendants the members of Southern Union's Board, as well as Southern Union and ETE. The plaintiff alleges that the defendants breached their fiduciary duties to Southern Union's stockholders or aided and abetted breaches of fiduciary duties in connection with the merger. The petition alleges that the merger involves an unfair price and an inadequate sales process and that defendants entered into the transaction to benefit themselves personally. The petition seeks injunctive relief, including to enjoin the merger, attorneys' and other fees and costs, indemnification and other relief.

Also on June 21, 2011, another putative class action lawsuit captioned Magda v. Southern Union Company, et al., Cause No. 2011-37134, was filed in the 11th Judicial District Court of Harris County, Texas.  The petition named as defendants the members of Southern Union's Board, Southern Union, and ETE.  The plaintiff alleges that the Southern Union directors breached their fiduciary duties to Southern Union's stockholders in connection with the merger and that Southern Union and ETE aided and abetted those alleged breaches.  The petition alleges that the merger involves an unfair price and an inadequate sales process, that Southern Union's directors entered into the merger to benefit themselves personally, and that defendants have failed to disclose all material information related to the merger to Southern Union stockholders. The petition seeks injunctive relief, including to enjoin the merger, and an award of attorneys' and other fees and costs, in addition to other relief.  On June 28, 2011, an amended petition was filed, naming the same defendants and alleging that the Southern Union directors breached their fiduciary duties to Southern Union's stockholders in connection with the merger and that Southern Union and ETE aided and abetted those alleged breaches of fiduciary duty.  The amended petition alleges that the merger involves an unfair price and an inadequate sales process, that Southern Union's directors entered into the merger to benefit themselves personally, including through consulting and noncompete agreements and that defendants have failed to disclose all material information related to the merger to Southern Union stockholders.  The amended petition seeks injunctive relief, including to enjoin the merger, and an award of attorneys' and other fees and costs, in addition to other relief.

The plaintiffs in the two Texas cases filed a motion to appoint lead counsel and a motion for expedited discovery. To date, no preliminary injunctions have been filed in these Texas cases.

On June 27, 2011, a putative class action lawsuit captioned Southeastern Pennsylvania Transportation Authority, et al. v. Southern Union Company, et al., C.A. No. 6615-CS, was filed in the Delaware Court of Chancery. The complaint names as defendants the members of Southern Union's Board, Southern Union, and ETE. The plaintiffs allege that the Southern Union directors breached their fiduciary duties to Southern Union's stockholders in connection with the merger, and further claim that ETE aided and abetted those alleged breaches. The complaint alleges that the merger involves an unfair price and an inadequate sales process, that Southern Union's directors entered into the merger to benefit themselves personally, including through consulting and noncompete agreements, and that the directors should deem a competing proposal made by The Williams Companies, Inc. (Williams) to be superior. The complaint seeks compensatory damages, injunctive relief, including to enjoin the merger, and an award of attorneys' and other fees and costs, in addition to other relief.

On June 29 and 30, 2011, putative class action lawsuits captioned KBC Asset Management NV v. Southern Union Company, et al., C.A. No. 6622-CS, and LBBW Asset Management Investment GmbH v. Southern Union Company, et al., C.A. No. 6627-CS, respectively, were filed in the Delaware Court of Chancery. The complaints name as defendants the members of Southern Union's Board, Southern Union, ETE, and Merger Sub. The plaintiffs allege that the Southern Union directors breached their fiduciary duties to Southern Union's stockholders in connection with the merger and that ETE aided and abetted those alleged breaches. The complaints allege that the merger involves an unfair price and an inadequate sales process, that Southern Union's directors entered into the merger to benefit themselves personally, including through consulting and noncompete agreements, and that the directors must give full consideration to the Williams proposal. The complaint seeks compensatory damages, injunctive relief, including to enjoin the merger, and an award of attorneys' and other fees and costs, in addition to other relief.

On July 6, 2011, a putative class action lawsuit captioned Memo v. Southern Union Company, et al., C.A. No. 6639-CS, was filed in the Delaware Court of Chancery. The complaint names as defendants the members of Southern Union's Board, Southern Union, ETE, and Merger Sub. The plaintiffs allege that the Southern Union directors breached their fiduciary duties to Southern Union's stockholders in connection with the amended merger agreement and that Southern Union, ETE, and Merger Sub aided and abetted those alleged breaches. The complaint alleges that the merger involves an unfair price and an inadequate sales process, that Southern Union's directors entered into the merger to benefit themselves personally, and that the terms of the amended merger agreement are preclusive. The complaint seeks injunctive relief, including to enjoin the merger, and an award of attorneys' and other fees and costs, in addition to other relief.

To date, the four Delaware plaintiffs have filed no preliminary injunctions or motions to appoint lead counsel or consolidate the lawsuits.  The Company believes the allegations of all the foregoing actions lack merit and will contest them.

Liabilities for Litigation and Other Claims

In addition to the matters discussed above, the Company is involved in legal, tax and regulatory proceedings before various courts, regulatory commissions and governmental agencies regarding matters arising in the ordinary course of business.

The Company establishes reserves for litigation and other claim costs when management believes a loss is probable and reasonably estimable. As of June 30, 2011 and December 31, 2010, the Company recorded litigation and other claim-related accrued liabilities of $28.2 million and $26.9 million, respectively. Except for the matters discussed above, the Company does not have any material litigation or other claim contingency matters assessed as reasonably possible.

Other Commitments and Contingencies

Regulation and Rates.See Note 14 – Regulation and Rates for potential contingent matters associated with the Company's regulated operations.

Future Regulatory Compliance Commitments

SPCC Rules. In 2008 and 2009, the EPA adopted amendments to the SPCC rules with the stated intention of providing greater clarity, tailoring requirements and streamlining requirements. On October 7, 2010, EPA amended the compliance date for certain facilities from November 10, 2010 to November 10, 2011. The Company is currently reviewing the impact of the modified regulations on its operations in its Transportation and Storage and Gathering and Processing segments and may incur costs for tank integrity testing, alarms and other associated corrective actions as well as potential upgrades to containment structures. Costs associated with such activities cannot be estimated with certainty at this time, but the Company believes, based on the current understanding of the current and proposed rules, such costs will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

Air Quality Control

Transportation and Storage Segment. In August 2010, EPA finalized a rule that requires reductions in a number of pollutants, including formaldehyde and carbon monoxide, for certain engines regardless of size at Area Sources (sources that emit less than ten tons per year of any one Hazardous Air Pollutant (HAP) or twenty-five tons per year of all HAPs) and engines less than 500 horsepower at Major Sources (sources that emit ten tons per year or more of any one HAP or twenty-five tons per year of all HAPs). Compliance is required by October 2013. It is anticipated that the limits adopted in this rule will be used in a future EPA rule that is scheduled to be finalized in 2013, with compliance required in 2016. This future rule is expected to require reductions in formaldehyde and carbon monoxide emissions from engines greater than 500 horsepower at Major Sources.

Nitrogen oxides are the primary air pollutant from natural gas-fired engines. Nitrogen oxide emissions may form ozone in the atmosphere. EPA lowered the ozone standard to seventy-five parts per billion (ppb) in 2008 with compliance anticipated in 2013 to 2015. In January 2010, EPA proposed lowering the standard to sixty to seventy ppb in lieu of the seventy-five ppb standard, with compliance required in 2014 or later.

In January 2010, EPA finalized a 100 ppb one-hour nitrogen dioxide standard. The rule requires the installation of new nitrogen dioxide monitors in urban communities and roadways by 2013. This new monitoring may result in additional nitrogen dioxide non-attainment areas. In addition, ambient air quality modeling may be required to demonstrate compliance with the new standard.

The Company is currently reviewing the potential impacts of the August 2010 Area Source National Emissions Standards for Hazardous Air Pollutants rule, proposed revisions to the ozone standard and the new nitrogen dioxide standard on operations in its Transportation and Storage and Gathering and Processing segments and the potential costs associated with the installation of emission control systems on its existing engines. The ultimate costs associated with these activities cannot be estimated with any certainty at this time, but the Company believes, based on the current understanding of the current and proposed rules, such costs will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

The Kansas Department of Health and Environment set certain contingency measures as part of the agency's ozone maintenance plan for the Kansas City area. These measures must be revised to conform to the requirements of the EPA ozone standard discussed above. As such, the costs associated with these activities cannot be estimated with any certainty at this time, but the Company believes, based on the current understanding of the proposed plan, such costs will not have a material adverse effect on its consolidated financial position, results of operations or cash flows.

Gathering and Processing Segment. The Texas Commission on Environmental Quality recently initiated a state-wide emissions inventory for the sulfur dioxide emissions from sites with reported emissions of 10 tons per year or more. If this data demonstrates that any source or group of sources may cause or contribute to a violation of the National Ambient Air Quality Standards, they must be sufficiently controlled to ensure timely attainment of the standard. This may potentially affect three SUGS recovery units in Texas. It is unclear at this time how New Mexico will address the sulfur dioxide standard.