Investment in Unconsolidated Affiliate and Transactions with Affiliates

3 Months Ended

Mar. 31, 2012

Investment in Unconsolidated Affiliate and Transactions with Affiliates [Abstract]

Investment in Unconsolidated Affiliate and Transactions with Affiliates

5. Investment in Unconsolidated Affiliate and Transactions with Affiliates

Investment in Unconsolidated Affiliate

We have a 50 percent ownership interest in Bear Creek Storage Company, L.L.C. (Bear Creek), a joint venture equally owned with Southern Natural Gas Company, L.L.C., our affiliate. For the quarters ended March 31, 2012 and 2011, we received $3 million and $1 million in cash distributions from Bear Creek.

Summarized financial information for Bear Creek for the quarters ended March 31 is presented as follows:

		000000000		000000000
	2012		2011
	(In millions)
Operating results data:
Operating revenues	$	9	$	10
Operating expenses		3		2
Income from continuing operations and net income		6		8

In November 2011, Bear Creek, along with other unaffiliated companies, received an order from the FERC related to an investigation into the rates charged to customers. The FERC ordered Bear Creek to file a full cost and revenue study within 75 days of the order. Bear Creek filed the cost and revenue study in January 2012 and the outcome of the proceeding is not expected to be material to our results of operations.

Transactions with Affiliates

Cash Management Program. We participate in El Paso’s cash management program which matches short-term cash surpluses and needs of participating affiliates, thus minimizing total borrowings from outside sources. El Paso uses the cash management program to settle intercompany transactions between participating affiliates. We have historically advanced cash to El Paso in exchange for an affiliated note receivable that is due upon demand. At March 31, 2012 and December 31, 2011, we had a note receivable from El Paso of $523 million and $519 million. We have classified this receivable as noncurrent on our balance sheet at March 31, 2012 as we do not anticipate using it in the next twelve months considering available cash sources and needs. The interest rate on this note is variable and was 2.5% at March 31, 2012 and December 31, 2011.

Income Taxes. Effective October 1, 2011, we changed our tax entity status from a corporation to a limited liability company. As a single member limited liability company, we continue to record federal income taxes on a separate return basis. El Paso files consolidated U.S. federal and certain state tax returns which include our taxable income. At March 31, 2012, we had federal and state income taxes payable of $9 million and a net federal and state income taxes receivable of $1 million at December 31, 2011. The majority of these balances, as well as deferred income taxes and amounts associated with the resolution of unrecognized tax benefits, will become payable to or receivable from El Paso.

Other Affiliate Balances. At March 31, 2012 and December 31, 2011, we had contractual deposits from our affiliates of $10 million.

Affiliate Revenues and Expenses. We enter into transactions with our affiliates within the ordinary course of business. For a further discussion of our affiliated transactions, see our 2011 Annual Report on Form 10-K. The following table shows revenues, expenses and reimbursements from our affiliates for the quarters ended March 31:

		xxxxxxxx		xxxxxxxx
	2012		2011
	(In millions)
Revenues (1)	$	7	$	43
Operation and maintenance expenses (2)		76		17
Reimbursement of operating expenses		17		17

⁽¹⁾  During the first quarter of 2011, we sold 5.8 TBtu of natural gas not used in operations to our affiliate, El Paso Marketing, L.P. In June 2011, we terminated our contract to sell gas to El Paso Marketing, L.P. in connection with the implementation of a fuel volume tracker as part of our rate case filed with the FERC.

⁽²⁾  Following our conversion to a limited liability company in October 2011, we entered into a master services agreement with our affiliate in which we reimburse them for cost incurred on our behalf. For further discussion of the master services agreement, see our 2011 Annual Report on Form 10-K.