Note 4 – Variable Interest Entities

Consolidated VIEs

As of December 31, 2018, we consolidate the following VIEs:

Gulfstar One

We own a 51 percent interest in Gulfstar One, a subsidiary that, due to certain risk-sharing provisions in its customer contracts, is a VIE. Gulfstar One includes a proprietary floating-production system, Gulfstar FPS, and associated pipelines which provide production handling and gathering services in the eastern deepwater Gulf of Mexico. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Gulfstar One’s economic performance.

Constitution

We own a 41 percent interest in Constitution, a subsidiary that, due to shipper fixed-payment commitments under its long-term firm transportation contracts, is a VIE. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Constitution’s economic performance. We, as operator of Constitution, are responsible for constructing the proposed pipeline connecting its gathering system in Susquehanna County, Pennsylvania, to the Iroquois Gas Transmission and the Tennessee Gas Pipeline systems. The total remaining cost of the project is estimated to be approximately $740 million, which would be funded with capital contributions from us and the other equity partners on a proportional basis.

In December 2014, Constitution received approval from the FERC to construct and operate its proposed pipeline. However, in April 2016, the New York State Department of Environmental Conservation (NYSDEC) denied the necessary water quality certification under Section 401 of the Clean Water Act for the New York portion of the pipeline. In May 2016, Constitution appealed the NYSDEC’s denial of the Section 401 certification to the United States Court of Appeals for the Second Circuit and in August 2017, the court issued a decision denying in part and dismissing in part Constitution’s appeal. The court expressly declined to rule on Constitution’s argument that the delay in the NYSDEC’s decision on Constitution’s Section 401 application constitutes a waiver of the certification requirement. The court determined that it lacked jurisdiction to address that contention and found that jurisdiction over the waiver issue lies exclusively with the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit). As to the denial itself, the court determined that NYSDEC’s action was not arbitrary or capricious. Constitution filed a petition for rehearing with the Second Circuit Court of Appeals, but in October 2017 the court denied our petition.

In October 2017, we filed a petition for declaratory order requesting the FERC to find that, by operation of law, the Section 401 certification requirement for the New York State portion of Constitution’s pipeline project was waived due to the failure by the NYSDEC to act on Constitution’s Section 401 application within a reasonable period of time as required by the express terms of such statute. In January 2018, the FERC denied our petition, finding that Section 401 provides that a state waives certification only when it does not act on an application within one year from the date of the application. We filed a request for rehearing of the FERC’s decision, but in July 2018 the FERC denied our request.

The project’s sponsors remain committed to the project. On November 5, 2018, the FERC granted our request for an extension of time to December 2, 2020, to construct and place into service the Constitution pipeline. And, in September 2018, we filed a petition with the D.C. Circuit for review of the FERC’s denial of our petition for declaratory order. An unfavorable resolution of that appeal could result in the impairment of a significant portion of the capitalized project costs, which total $377 million on a consolidated basis at December 31, 2018, and are included within Property, plant, and equipment – net in the Consolidated Balance Sheet. Beginning in April 2016, we discontinued capitalization of development costs related to this project. It is also possible that we could incur certain supplier-related costs in the event of a continued prolonged delay or termination of the project.

Cardinal

We own a 66 percent interest in Cardinal, a subsidiary that provides gathering services for the Utica Shale region and is a VIE due to certain risks shared with customers. We are the primary beneficiary because we have the power to direct the activities that most significantly impact Cardinal’s economic performance. Future expansion activity is expected to be funded with capital contributions from us and the other equity partner on a proportional basis.

The following table presents amounts included in our Consolidated Balance Sheet that are for the use or obligation of our consolidated VIEs:



	December 31,
	2018			2017 (1)			Classification
	(Millions)
Assets (liabilities):
Cash and cash equivalents	$	33		$	881		Cash and cash equivalents
Trade accounts and other receivables – net	62			972			Trade accounts and other receivables
Inventories	—			113			Inventories
Other current assets	2			176			Other current assets and deferred charges
Investments	—			6,552			Investments
Property, plant, and equipment – net	2,363			27,912			Property, plant, and equipment – net
Intangible assets – net	1,177			8,790			Intangible assets – net of accumulated amortization
Regulatory assets, deferred charges, and other noncurrent assets	—			507			Regulatory assets, deferred charges, and other
Accounts payable	(15		)	(957		)	Accounts payable
Accrued liabilities including current asset retirement obligations	(115		)	(857		)	Accrued liabilities
Long-term debt due within one year	—			(501		)	Long-term debt due within one year
Long-term debt	—			(15,996		)	Long-term debt
Deferred income tax liabilities	—			(16		)	Deferred income tax liabilities
Noncurrent asset retirement obligations	(105		)	(944		)	Regulatory liabilities, deferred income, and other
Long-term deferred income	(159		)	(1,119		)	Regulatory liabilities, deferred income, and other
Regulatory liabilities and other	—			(1,690		)	Regulatory liabilities, deferred income, and other

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(1)	Includes WPZ, which was a consolidated VIE at December 31, 2017 (see Note 1 – General, Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies).

Nonconsolidated VIEs

Jackalope

We own a 50 percent interest in Jackalope, which provides gathering and processing services for the Powder River basin and is a VIE due to certain risks shared with customers. Prior to the second quarter of 2018 we were the primary beneficiary of Jackalope. During the second quarter of 2018, the scope of Jackalope’s planned future activities changed, resulting in a VIE reconsideration event. Upon evaluation, we determined that we are no longer the primary beneficiary, most notably due to changes in the activities that most significantly impact Jackalope’s economic performance and our determination that we do not control the power to direct such activities. These activities are primarily related to the capital decision making process. As a result, we deconsolidated Jackalope on June 30, 2018 and now account for our interest using the equity method of accounting as we exert significant influence over the financial and operational policies of Jackalope (see Note 6 – Investing Activities). At December 31, 2018, the carrying value of our investment in Jackalope was $343 million. Our maximum exposure to loss is limited to the carrying value of our investment. Jackalope is currently undertaking an expansion project with a remaining cost up to approximately $350 million as of December 31, 2018, which will be funded on a proportional basis.

Brazos Permian II

We own a 15 percent interest in Brazos Permian II (see Note 6 – Investing Activities), which provides gathering and processing services in the Delaware basin and is a VIE due primarily to our limited participating rights as the minority equity holder. At December 31, 2018, the carrying value of our investment in Brazos Permian II was $191 million. Our maximum exposure to loss is limited to the carrying value of our investment.