10-Q 1 pepl06-30x201810xq.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-2921
PANHANDLE EASTERN PIPE LINE COMPANY, LP
(Exact name of registrant as specified in its charter)
Delaware
44-0382470
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
8111 Westchester Drive, Suite 600, Dallas, Texas 75225
(Address of principle 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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes x  No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or 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
¨
 
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
ý (Do not check if a smaller reporting company)
 
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 x
Panhandle Eastern Pipe Line Company, LP meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with the reduced disclosure format.


FORM 10-Q

PANHANDLE EASTERN PIPE LINE COMPANY, LP
TABLE OF CONTENTS


i

Forward-Looking Statements
Certain matters discussed in this report, excluding historical information, as well as some statements by Panhandle Eastern Pipe Line Company, LP and its subsidiaries (“PEPL” or the “Company”) in periodic press releases and some oral statements of Panhandle officials during presentations about the Company, include forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “estimate,” “intend,” “continue,” “believe,” “may,” “will” or similar expressions help identify forward-looking statements. Although the Company believes such forward-looking statements are based on reasonable assumptions and current expectations and projections about future events, no assurance can be given that such assumptions, expectations, or projections will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the Company’s actual results may vary materially from those anticipated, projected, forecasted, estimated or expressed in forward-looking statements since many of the factors that determine these results are subject to uncertainties and risks that are difficult to predict and beyond management’s control. For additional discussion of risks, uncertainties and assumptions, see “Part I — Item 1A. Risk Factors” in the Company’s Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on February 23, 2018.
Definitions
The following is a list of certain acronyms and terms generally used in the energy industry and throughout this document:
 
 
 
ETE
 
Energy Transfer Equity, L.P.
 
 
 
ETP
 
Energy Transfer Partners, L.P., a subsidiary of ETE
 
 
 
Exchange Act
 
Securities Exchange Act of 1934
 
 
 
FERC
 
Federal Energy Regulatory Commission
 
 
 
GAAP
 
Accounting principles generally accepted in the United States of America
 
 
 
PCBs
 
Polychlorinated biphenyls
 
 
 
Sea Robin
 
Sea Robin Pipeline Company, LLC
 
 
 
SEC
 
United States Securities and Exchange Commission
 
 
 
TBtu
 
Trillion British thermal units
 
 
 
Trunkline
 
Trunkline Gas Company, LLC

ii

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)

 
June 30,
2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
6

 
$
2

Accounts receivable, net
38

 
45

Accounts receivable from related companies
12

 
12

Exchanges receivable
10

 
5

Inventories
86

 
150

Other current assets
1

 
3

Total current assets
153

 
217

 
 
 
 
Property, plant and equipment
3,230

 
3,199

Accumulated depreciation
(475
)
 
(419
)
 
2,755

 
2,780

 
 
 
 
Other non-current assets, net
173

 
167

Goodwill
23

 
23

Total assets
$
3,104

 
$
3,187





















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

PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)

 
June 30,
2018
 
December 31, 2017
LIABILITIES AND PARTNERS’ CAPITAL
 
 
 
Current liabilities:
 
 
 
Current maturities of long-term debt
$
155

 
$
407

Accounts payable and accrued liabilities
3

 
3

Accounts payable to related companies
33

 
32

Exchanges payable
70

 
131

Other current liabilities
61

 
53

Total current liabilities
322

 
626

 
 
 
 
Long-term debt, less current maturities
253

 
411

Note payable to related party
426

 
113

Deferred income taxes
467

 
451

Other non-current liabilities
246

 
241

Commitments and contingencies


 


 
 
 
 
Partners’ capital:
 
 
 
Partners’ capital
1,396

 
1,348

Accumulated other comprehensive loss
(6
)
 
(3
)
Total partners’ capital
1,390

 
1,345

Total liabilities and partners’ capital
$
3,104

 
$
3,187












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

PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in millions)
(unaudited)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
OPERATING REVENUES:
 
 
 
 
 
 
 
Transportation and storage of natural gas
$
131

 
$
100

 
$
273

 
$
223

Other
3

 
4

 
10

 
9

Total operating revenues
134

 
104

 
283

 
232

OPERATING EXPENSES:
 
 
 
 
 
 
 
Cost of natural gas and other energy
1

 
1

 
2

 
2

Operating and maintenance
54

 
46

 
101

 
97

General and administrative
9

 
7

 
18

 
17

Depreciation and amortization
30

 
32

 
60

 
63

Total operating expenses
94

 
86

 
181

 
179

OPERATING INCOME
40

 
18

 
102

 
53

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Interest expense, net
(8
)
 
(11
)
 
(18
)
 
(23
)
Interest expense — affiliates
(2
)
 
—

 
(3
)
 
—

Interest income — affiliates
—

 
4

 
—

 
8

Other, net
1

 
2

 
2

 
1

INCOME BEFORE INCOME TAX EXPENSE
31

 
13

 
83

 
39

Income tax expense
9

 
5

 
27

 
17

NET INCOME
22

 
8

 
56

 
22

 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE LOSS, NET OF TAX
 
 
 
 
 
 
 
Actuarial loss relating to postretirement benefit plans
—

 
—

 
(1
)
 
—

 


 


 


 


COMPREHENSIVE INCOME
$
22

 
$
8

 
$
55

 
$
22










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

PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED STATEMENT OF PARTNERS’ CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 2018
(Dollars in millions)
(unaudited)

 
Partners’ Capital
 
Accumulated Other
Comprehensive Loss
 
Total
Balance, December 31, 2017
$
1,348

 
$
(3
)
 
$
1,345

Distributions to partners
(24
)
 
—

 
(24
)
Non-cash compensation expense
2

 
—

 
2

Other comprehensive loss, net of tax
—

 
(1
)
 
(1
)
Deemed contribution from partners
11

 
—

 
11

Other
3

 
(2
)
 
1

Net income
56

 
—

 
56

Balance, June 30, 2018
$
1,396

 
$
(6
)
 
$
1,390








































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

PANHANDLE EASTERN PIPE LINE COMPANY, LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)

 
Six Months Ended
June 30,
 
2018
 
2017
OPERATING ACTIVITIES:
 
 
 
Net income
$
56

 
$
22

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
60

 
63

Deferred income taxes
17

 
19

Amortization of deferred financing fees
(9
)
 
(13
)
Other non-cash
5

 
8

Changes in operating assets and liabilities
16

 
(9
)
Net cash flows provided by operating activities
145

 
90

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(31
)
 
(83
)
Repayment of note receivable from related party
—

 
99

Notes receivable issued to related party
—

 
(30
)
Other
—

 
3

Net cash flows used in investing activities
(31
)
 
(11
)
FINANCING ACTIVITIES:
 
 
 
Distributions to partners
(24
)
 
(74
)
Repayment of long-term debt
(400
)
 
—

    Note payable issued from related party
380

 
—

    Repayment of note payable from related party
(66
)
 
—

Net cash flows used in financing activities
(110
)
 
(74
)
Net change in cash and cash equivalents
4

 
5

Cash and cash equivalents, beginning of period
2

 
4

Cash and cash equivalents, end of period
$
6

 
$
9

 
 
 
 
SUPPLEMENTAL INFORMATION:
 
 
 
Non-cash activity - Accrued capital expenditures
$
11

 
$
18

Non-cash activity - Settlement of related party payables
$
11

 
$
5

Cash paid for interest
$
14

 
$
37







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

PANHANDLE EASTERN PIPE LINE COMPANY, LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar amounts are in millions)
(unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
Organization
Panhandle Eastern Pipe Line Company, LP (“PEPL”) and its subsidiaries (collectively, the “Company”) primarily operate interstate pipelines that transport natural gas from the Gulf of Mexico, South Texas and the Panhandle region of Texas and Oklahoma to major United States markets in the Midwest and Great Lakes regions and natural gas storage assets and are subject to the rules and regulations of the FERC. The Company’s subsidiaries are Trunkline Gas Company, LLC (“Trunkline”), Sea Robin Pipeline Company, LLC (“Sea Robin”) and Pan Gas Storage LLC (“Southwest Gas”).
Southern Union Panhandle LLC, an indirect wholly-owned subsidiary of ETP, owns a 1% general partner interest in PEPL and ETP indirectly owns a 99% limited partner interest in PEPL.
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 Company’s Annual Report on Form 10-K for the year ended December 31, 2017. In the opinion of the Company’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.
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 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
ASU 2016-02
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which establishes the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. In January 2018, the FASB issued Accounting Standards Update No. 2018-01, which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under Topic 840. The Company expects to adopt ASU 2016-02 and elect the practical expedient under ASU 2018-01in the first quarter of 2019 and is currently evaluating the impact that adopting this new standard will have on the consolidated financial statements and related disclosures.
ASU 2018-02
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings at partners’ capital for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The Company elected to early adopted this ASU in the first quarter of 2018. The effect of the adoption was not material.



6

Recently Adopted Pronouncements
ASU 2014-09
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“Topic 606”) (“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted ASU 2014-09 on January 1, 2018. The Company has made appropriate design and implementation updates to our business processes, systems and internal controls to support recognition and disclosure under the new standard.
Utilizing the practical expedients allowed under the modified retrospective adoption method, Accounting Standards Codification (“ASC”) Topic 606 was only applied to existing contracts for which the Company has remaining performance obligations as of January 1, 2018, and new contracts entered into after January 1, 2018. ASC Topic 606 was not applied to contracts that were completed prior to January 1, 2018.
The Company has elected to apply the modified retrospective method to adopt the new standard. For contracts in scope of the new revenue standard as of January 1, 2018, the cumulative effect of adjustment to partners’ capital was not material. The comparative information has not been restated under the modified retrospective method and continues to be reported under the accounting standards in effect for those periods.
The adoption of the new revenue standard by the Company resulted in no reclassifications between revenue, cost of sales and operating expenses. There were no changes in the timing of recognition of revenue and therefore no impact to the balance sheet upon adoption.
2.
RELATED PARTY TRANSACTIONS
Accounts receivable from related companies reflected on the consolidated balance sheets primarily related to services provided to ETE, ETP and other affiliates. Accounts payable to related companies reflected on the consolidated balance sheets related to various services provided by ETP and other affiliates.
The following table provides a summary of the related party activity included in the consolidated statements of operations:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2018
 
2017
 
2018
 
2017
Operating revenues
$
24

 
$
3

 
$
47

 
$
7

Operating and maintenance
1

 
2

 
2

 
4

General and administrative
5

 
5

 
11

 
11

Interest expense — affiliate
2

 
—

 
3

 
—

Interest income — affiliate
—

 
4

 
—

 
8

The Company settled related party payables with a subsidiary of ETP through non-cash contributions during the six months ended June 30, 2018 and 2017 for $11 million and $5 million, respectively.

7

3.
FAIR VALUE MEASURES
The Company had $21 million of fair value of available for sale securities, included in other non-current assets, at both June 30, 2018 and December 31, 2017. At June 30, 2018 and December 31, 2017, $14 million in equity securities were valued at Level 1 and $7 million in fixed income securities were valued at Level 2. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value. Based on the estimated borrowing rates currently available to the Company and its subsidiaries for loans with similar terms and average maturities, the aggregate fair value of the Company’s consolidated debt obligations was $406 million and $830 million at June 30, 2018 and December 31, 2017, respectively. The fair value of the Company’s consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities. The Company did not have any Level 3 instruments measured at fair value at June 30, 2018 or December 31, 2017, and there were no transfers between hierarchy levels during the periods presented.
4.
DEBT OBLIGATIONS
Panhandle’s 7.00% Senior Notes in the amount of $400 million matured on June 15, 2018 and were repaid with borrowings under an affiliate loan agreement.
5.
REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES
Contingent Residual Support Agreement with ETP
Under a contingent residual support agreement with ETP and Citrus ETP Finance LLC, the Company provides contingent, residual support to Citrus ETP Finance LLC (on a non-recourse basis to the Company) with respect to Citrus ETP Finance LLC’s obligations to ETP to support the payment of $2 billion in principal amount of senior notes issued by ETP on January 17, 2012.
FERC Audit
In March 2016, the FERC commenced an audit of Trunkline for the period from January 1, 2013 to present to evaluate Trunkline’s compliance with the requirements of its FERC gas tariff, the accounting regulations of the Uniform System of Accounts as prescribed by the FERC, and the FERC’s annual reporting requirements. The audit is ongoing.
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 regulations, licenses, permits, inspections and other approvals.  Failure to comply with 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.
The Company 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.  The Company has implemented a program to remediate such contamination.  The primary remaining remediation activity on the Company’s 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, 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 potentially responsible parties.  The Company 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.

8

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.
The Company’s consolidated balance sheets reflected $2 million in non-current liabilities as of June 30, 2018 and December 31, 2017 to cover environmental remediation actions where management believes a loss is probable and reasonably estimable.  The Company is not able to estimate the possible loss or range of loss in excess of amounts accrued. The Company does not have any material environmental remediation matters assessed as reasonably possible.
Liabilities for Litigation and Other Claims
The Company records accrued liabilities for litigation and other claim costs when management believes a loss is probable and reasonably estimable.  When management believes there is at least a reasonable possibility that a material loss or an additional material loss may have been incurred, the Company discloses (i) an estimate of the possible loss or range of loss in excess of the amount accrued; or (ii) a statement that such an estimate cannot be made. As of June 30, 2018 and December 31, 2017, the Company has litigation and other claim-related accrued liabilities of $20 million and $21 million, respectively, included in other non-current liabilities on the consolidated balance sheets. The Company does not have any material litigation or other claim contingency matters assessed as probable or reasonably possible that would require disclosure in the financial statements.
Other Commitments and Contingencies
The Company is subject to the laws and regulations of states and other jurisdictions concerning the identification, reporting and escheatment (the transfer of property to the state) of unclaimed or abandoned funds, and is subject to audit and examination for compliance with these requirements.  The Company is currently being examined by a third party auditor on behalf of nine states for compliance with unclaimed property laws.
6.
REVENUE
The following disclosures discuss the Company’s revised revenue recognition policies upon the adoption of ASU 2014-09 on January 1, 2018, as discussed in Note 1. These policies were applied to the current period only, and the amounts reflected in the Company’s consolidated financial statements for the six months ended June 30, 2017 were recorded under the Company’s previous accounting policies.
Our revenues are determined primarily by the amount of capacity our customers reserve as well as the actual volume of natural gas that flows through pipelines. Under transportation and storage contracts, customers are charged (i) a demand fee, which is a fixed fee for the reservation of an agreed amount of capacity on the transportation pipeline for a specified period of time and which obligates the customer to pay even if the customer does not transport natural gas on the respective pipeline, (ii) a transportation fee, which is based on the actual throughput of natural gas by the customer, (iii) fuel retention based on a percentage of gas transported on the pipeline, or (iv) a combination of the three, generally payable monthly.
The performance obligation with respect to these contracts is a promise to provide a single type of service daily over the life of the contract, which is fundamentally a “stand-ready” service. While there can be multiple activities required to be performed, these activities are not separable because such activities in combination are required to successfully transfer the overall service for which the customer has contracted. The fixed consideration of the transaction price is allocated ratably over the life of the contract and revenue should be recognized over time because the customer simultaneously receives and consumes the benefit of this service.
Contract Balances with Customers
The Company 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 Company 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 Company is contractually allowed to bill for such services. As of June 30, 2018, no contract assets have been recognized.
The Company recognizes a contract liability if the customer's payment of consideration precedes the Company’s fulfillment of the performance obligations. As of June 30, 2018, no contract liabilities have been recognized.

9

Performance Obligation
At contract inception, the Company assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Company considers all the goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. For a contract that has more than one performance obligation, the Company allocates the total contract consideration it expects to be entitled to, to each distinct performance obligation based on a standalone-selling price basis. Revenue is recognized when (or as) the performance obligations are satisfied, that is, when the customer obtains control of the good or service. Certain of our contracts contain variable components, which, when combined with the fixed component are considered a single performance obligation. For these types of contacts, only the fixed component of the contracts are included in the table below.
As of June 30, 2018, the aggregate amount of transaction price allocated to unsatisfied (or partially satisfied) performance obligations is approximately $3.06 billion and the Company expects to recognize this amount as revenue within the time bands illustrated below:
 
 
2018 (remainder)
 
2019
 
2020
 
Thereafter
 
Total
Revenue expected to be recognized on contracts with customers existing as of June 30, 2018
 
$
225

 
$
425

 
$
341

 
$
2,067

 
$
3,058

Practical Expedients Utilized by the Company
The Company elected the following practical expedients in accordance with Topic 606:        
•
Right to invoice - The Company elected to utilize an output method to recognize revenue that is based on the amount to which the Company has a right to invoice a customer for services performed to date, if that amount corresponds directly with the value provided to the customer for the related performance or its obligation completed to date. As such, the Company recognized revenue in the amount to which it had the right to invoice customers.
•
Significant financing component - The Company elected not to adjust the promised amount of consideration for the effects of significant financing component if the Company expects, at contract inception, that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
•
Unearned variable consideration - The Company elected to only disclose the unearned fixed consideration associated with unsatisfied performance obligations related to our various customer contracts which contain both fixed and variable components.

10

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Tabular dollar amounts are in millions)
The information in Item 2 has been prepared pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q. Accordingly, this Item 2 includes only management’s narrative analysis of the results of operations and should be read in conjunction with (i) our historical consolidated financial statements and accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) our Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 23, 2018.
RESULTS OF OPERATIONS
 
 
Six Months Ended
June 30,
 
 
2018
 
2017
OPERATING REVENUES:
 
 
 
 
Transportation and storage of natural gas
 
$
273

 
$
223

Other
 
10

 
9

Total operating revenues
 
283

 
232

OPERATING EXPENSES:
 
 
 
 

Cost of natural gas and other energy
 
2

 
2

Operating and maintenance
 
101

 
97

General and administrative
 
18

 
17

Depreciation and amortization
 
60

 
63

Total operating expenses
 
181

 
179

OPERATING INCOME
 
102

 
53

OTHER INCOME (EXPENSE):
 
 
 
 

Interest expense, net
 
(18
)
 
(23
)
Interest expense — affiliates
 
(3
)
 
—

Interest income — affiliates
 
—

 
8

Other, net
 
2

 
1

INCOME BEFORE INCOME TAX EXPENSE
 
83

 
39

Income tax expense
 
27

 
17

NET INCOME
 
$
56

 
$
22

 
 
 
 
 
Panhandle natural gas volumes transported (TBtu):
 
 
 
 

PEPL
 
401

 
306

Trunkline
 
310

 
250

Sea Robin
 
35

 
37

Operating Revenues. Operating revenues increased for the six months ended June 30, 2018 compared to the same period in the prior year on the Panhandle and Trunkline pipelines due to higher customer demand driven by colder weather as well as capacity sold at higher rates.
Interest expense, net. Interest expense, net decreased for the six months ended June 30, 2018 compared to the same period in the prior year due to repayment of Panhandle’s $300 million 6.20% Senior Notes in November 2017 and its $400 million 7.00% Senior Notes in June 2018.
Interest expense - affiliates. Interest expense - affiliates increased for the six months ended June 30, 2018 compared to the same period in the prior year primarily due to the issuance of notes payable to a subsidiary of ETP.
Interest income - affiliates. Interest income - affiliates decreased for the six months ended June 30, 2018 compared to the same period in the prior year primarily due to the settlement of a note receivable from a subsidiary of ETP in November 2017.

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Income Taxes. The change in income tax expense for the six months ended June 30, 2018 compared to the same period in the prior year was primarily due to an increase in income before income tax expense offset by a reduction in the federal corporate income rate per the “Tax Cuts and Jobs Act.”
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 3, Quantitative and Qualitative Disclosures About Market Risk, has been omitted from this report pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that information required to be disclosed by us, including our consolidated entities, in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Under the supervision and with the participation of senior management, including the Chief Executive Officer (“Principal Executive Officer”) and the Chief Financial Officer (“Principal Financial Officer”) of our General Partner, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a–15(e) promulgated under the Exchange Act. Based on this evaluation, the Principal Executive Officer and the Principal Financial Officer of our General Partner concluded that our disclosure controls and procedures were effective as of June 30, 2018 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to management, including the Principal Executive Officer and Principal Financial Officer of our General Partner, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) or Rule 15d-15(f) of the Exchange Act) during the three months ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to or has property subject to litigation and other proceedings, including matters arising under provisions relating to the protection of the environment, as described in Note 5 in this Quarterly Report on Form 10-Q and in Note 9 in the Company’s Form 10-K for the year ended December 31, 2017.
The Company is subject to federal and state requirements for the protection of the environment, including those for the discharge of hazardous materials and remediation of contaminated sites. As a result, the Company is a party to or has its property subject to various other lawsuits or proceedings involving environmental protection matters. For information regarding these matters, see Note 5 in this Quarterly Report on Form 10-Q and Note 9 included in the Company’s Form 10-K for the year ended December 31, 2017.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed in the Company’s Form 10-K filed with the SEC on February 23, 2018.
ITEM 6. EXHIBITS
The exhibits listed below are filed or furnished, as indicated, as part of this report:
 
Exhibit
Number
 
Description
 
 
 
 
 
 
 
 
 
101.INS*
 
XBRL Instance Document
 
101.SCH*
 
XBRL Taxonomy Extension Schema Document
 
101.CAL*
 
XBRL Taxonomy Calculation Linkbase Document
 
101.DEF*
 
XBRL Taxonomy Extension Definitions Document
 
101.LAB*
 
XBRL Taxonomy Label Linkbase Document
 
101.PRE*
 
XBRL Taxonomy Presentation Linkbase Document

*    Filed herewith.
**    Furnished herewith.

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, Panhandle Eastern Pipe Line Company, LP has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
PANHANDLE EASTERN PIPE LINE COMPANY, LP
 
 
(Registrant)
 
 
 
 
 
 
 
 
 
Date:
August 9, 2018
By:
 
 /s/   A. Troy Sturrock
 
 
 
 
A. Troy Sturrock
 
 
 
 
Senior Vice President and Controller (duly authorized to sign on behalf of the registrant)

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