Accounting Policies

9 Months Ended

Sep. 30, 2018

New Accounting Pronouncements and Changes in Accounting Principles

Accounting Policies

Accounting Pronouncements Adopted in 2018 - Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued ASC 606. ASC 606 supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition (ASC 605), and requires the recognition of revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.

Effective January 1, 2018, the Partnership implemented ASC 606 using the modified retrospective method, without adjustment to the comparative period information, which remains reported under ASC 605. Upon implementation, the Partnership recorded a cumulative reduction to partners’ capital of $12.8 million resulting from two items: (i) contracts which had changes to rates during the service period without corresponding changes in service levels provided by the Partnership, with an offsetting increase to other liabilities of $6.4 million, and (ii) the de-recognition of excess fuel received from customers which elected to have fuel retained in-kind, with an offsetting decrease to current gas stored underground of $6.4 million. Upon the implementation of ASC 606, most retained fuel was not considered additional consideration included in the transaction price. As a result, retained fuel is recorded as a reduction to fuel and transportation expense and will be recognized as Other revenue upon the physical sale of natural gas, when under ASC 605, fuel retained was recognized as part of Transportation revenue. The Partnership elected to apply ASC 606 to contracts with customers, and applicable amendments, which were not completed prior to the implementation date.

The following table summarizes the effect on the Partnership’s condensed consolidated financial statements as of September 30, 2018, and for the three and nine months ended September 30, 2018, (in millions) had ASC 606 not been implemented on January 1, 2018:



	As Reported September 30, 2018		Adjustments			Balance as if ASC 605 was in effect
Condensed Consolidated Balance Sheet:
Other current assets (gas stored underground)	$	0.4	$	4.0		$	4.4
Gas stored underground	81.7		0.3			82.0
Other assets	138.5		(0.1		)	138.4
Other liabilities	76.0		(8.1		)	67.9
Partners' Capital	4,831.0		12.2			4,843.2



	As Reported For the Three Months Ended September 30, 2018		Adjustments		Balance as if ASC 605 was in effect
Condensed Consolidated Income Statement:
Transportation	$	245.8	$	5.5	$	251.3
Storage, parking and lending	21.1		0.1		21.2
Other	11.0		0.1		11.1
Total operating revenues	277.9		5.7		283.6
Fuel and transportation expense	3.5		4.6		8.1
Operating income	80.8		1.0		81.8
Net income	37.9		1.0		38.9



	As Reported For the Nine Months Ended September 30, 2018		Adjustments			Balance as if ASC 605 was in effect
Condensed Consolidated Income Statement:
Transportation	$	792.8	$	17.5		$	810.3
Storage, parking and lending	67.8		0.3			68.1
Other	38.0		(4.5		)	33.5
Total operating revenues	898.6		13.3			911.9
Fuel and transportation expense	12.0		13.8			25.8
Operating income	307.2		(0.6		)	306.6
Net income	177.3		(0.6		)	176.7

The implementation of ASC 606 had no impact on the total operating, financing or investing activities of the Partnership’s Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018.

Revenue Recognition

Nature of Contracts

The Partnership primarily earns revenues from contracts with customers by providing transportation and storage services for natural gas and NGLs on a firm and interruptible basis. The Partnership also provides interruptible natural gas PAL services. The Partnership’s customers choose, based upon their particular needs, the applicable mix of services depending upon availability of pipeline and storage capacity, the price of services and the volume and timing of customer requirements. The maximum rates that may be charged by the majority of the Partnership’s operating subsidiaries are established through the Federal Energy Regulatory Commission's (FERC) cost-based rate-making process; however, rates actually charged by those operating subsidiaries may be less than those allowed by the FERC. Under the FERC regulations, certain revenues that the Partnership's subsidiaries collect may be subject to possible refunds to customers. Accordingly, during a rate case, estimated refund liabilities are recorded considering regulatory proceedings, advice of counsel and estimated risk-adjusted total exposure, as well as other factors. The Partnership's service contracts can range from one to twenty years although the Partnership may enter into shorter- or longer-term contracts, and services are invoiced monthly with payment from the customer generally expected within ten to thirty days, depending on the terms of the contract.

Firm Service Contracts: The Partnership offers firm services to its customers. The Partnership’s customers can reserve a specific amount of pipeline capacity at specified receipt and delivery points on the Partnership’s pipeline system (transportation service) or can reserve a specific amount of storage capacity at specified injection and withdrawal points at the Partnership’s storage facilities (storage service). The Partnership accounts for firm services as a single promise to stand ready each month of the contract term to provide the committed capacity for either transportation or storage services when needed by the customer, which represents a series of distinct monthly services that are substantially the same with the same pattern of transfer to the customer. Although several activities may be required to provide the firm service, the individual activities do not represent distinct performance obligations because all of the activities must be performed in combination in order for the Partnership to provide the firm service.

The transaction price for firm service contracts is comprised of a fixed fee based on the quantity of capacity reserved, regardless of use (capacity reservation fee), plus variable fees in the form of a usage fee paid on the volume of commodity actually transported or injected and withdrawn from storage. Both the fixed and usage fees are allocated to the single performance obligation of providing transportation or storage service and recognized over time based upon the output measure of time as the Partnership completes its stand-ready obligation to provide contracted capacity and the customer receives and consumes the benefit of the reserved capacity, which corresponds with the transfer of control to the customer. The fixed fee is recognized ratably over the contract term, representative of the proportion of the committed stand-ready capacity obligation that has been fulfilled to date, and the usage fee is recognized upon satisfaction of each distinct monthly performance obligation, consistent with the allocation objective and based upon the level of effort required to satisfy the stand-ready obligation in a given month. Capacity reservation revenues derived from a firm service contract are generally consistent during the contract term, but can be higher in winter periods than the rest of the year based upon seasonal rates.

Interruptible Service Contracts: In providing interruptible services to customers, the Partnership agrees to transport natural gas or NGLs for a customer when capacity is available. The Partnership does not account for interruptible services with a customer as a contract until the customer nominates for service and the Partnership accepts the nomination based upon available pipeline or storage capacity because there are no enforceable rights and obligations until that time. The nomination and acceptance process is a daily activity and acceptance is granted based upon priority of service and availability of capacity. Upon acceptance, the Partnership accounts for interruptible services similarly to its firm services.

The transaction price for interruptible service contracts is comprised of a variable fee in the form of a usage fee paid on the volume of commodity actually transported or injected and withdrawn from storage. The usage fee is allocated to the single performance obligation of providing interruptible service. Interruptible service revenues are generally recognized over time based on the output measure of volume transported or stored when services are rendered upon the successful allocation of the services provided to the customer’s account, which best depicts the transfer of control to the customer and satisfaction of the promised service. Interruptible services are recognized in the month services are provided because the Partnership has a right to consideration from customers in amounts that correspond directly to the value that the customer receives from the Partnership's performance. The rates charged may vary on a daily, monthly or seasonal basis.

Minimum Volume Commitment (MVC) Contracts: Certain of the Partnership’s transportation or storage contracts require customers to transport or store a minimum volume of commodity over a specified time period. If a customer fails to meet its MVC for the specified time period, the customer is obligated to pay a contractually-determined deficiency fee based upon the shortfall between the actual volumes transported or stored and the MVC for that period. MVC contracts are similar in nature to a firm service contract where the performance obligation is a stand-ready obligation that is a series of distinct services that are substantially the same with the same pattern of transfer to the customer. The transaction price for an MVC is a fee for the volume of commodity actually transported or stored, which is allocated to each distinct monthly performance obligation, consistent with the allocation objective and based upon the level of effort required to satisfy the obligation of the transacted service in a given month. Revenues are generally recognized over time based on the output measure of volume transported or stored, with the recognition of the deficiency fee in the period when it is known the customer cannot make up the deficient volume in the specified period.

Other: Periodically, the Partnership may enter into contracts with customers for the sale of natural gas or NGLs. The Partnership recognizes revenues for these transactions at the point in time of the physical sale of the commodity, which corresponds with the transfer of control of the commodity to the customer and the consideration is measured as the stated sales price in the contract.

Contract Balances

The Partnership records contract assets primarily related to performance obligations completed but not billed as of the reporting date. The Partnership records contract liabilities, or deferred income, when payment is received in advance of satisfying its performance obligations.

Accounting Pronouncements Adopted in 2018 - Retirement Benefits

In March 2017, the FASB issued ASU 2017-07, Retirement Benefits - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07), which required entities to retroactively present the service cost component of net periodic postretirement benefit cost with other employee compensation costs in the income statement and present all other net periodic pension costs as a component of non-operating income. Effective January 1, 2018, the Partnership implemented ASU 2017-07 and reclassified $0.8 million and $1.8 million of other components of net periodic benefit cost for the three and nine months ended September 30, 2017, which resulted in an increase to Miscellaneous other income, net and Administrative and general expense in the Condensed Consolidated Statements of Income, with no impact on Net income.

Other Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (ASU 2016-02), which will require, among other things, the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. The amendments are to be applied at the beginning of the earliest period presented using a modified retrospective approach, but include an elective transition method that allows entities to initially apply the updated guidance as of the adoption date. The Partnership has elected to apply this elective transition method. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018. The Partnership is progressing with its project to evaluate the impact that ASU 2016-02 will have on its financial statements when implemented. ASU 2016-02 contains a practical expedient package, under which all criteria must be applied to all of its leases. The practical expedient package allows an entity to (i) not reassess whether expired or existing contracts are or contain leases; (ii) not reassess the lease classification for any expired or existing leases; and (iii) not reassess initial direct costs for any existing leases. The Partnership has elected to apply the practical expedient package to all of its leases.