Operating Segments (Tables)

3 Months Ended

Mar. 31, 2017

The following tables reflect certain financial data for each segment (in millions):



Three Months Ended March 31, 2017	Transportation		Facilities		Supply and Logistics		Intersegment Adjustment ⁽¹⁾			Total
Revenues:
External customers	$	225	$	134	$	6,395	$	(87	)	$	6,667
Intersegment ⁽²⁾	164		159		5		87			415
Total revenues of reportable segments	$	389	$	293	$	6,400	$	—		$	7,082
Equity earnings in unconsolidated entities	$	53	$	—	$	—				$	53
Segment adjusted EBITDA	$	273	$	188	$	51				$	512
Maintenance capital	$	29	$	27	$	3				$	59



Three Months Ended March 31, 2016	Transportation		Facilities		Supply and Logistics		Intersegment Adjustment ⁽¹⁾			Total
Revenues:
External customers	$	241	$	138	$	3,819	$	(87	)	$	4,111
Intersegment ⁽²⁾	142		127		2		87			358
Total revenues of reportable segments	$	383	$	265	$	3,821	$	—		$	4,469
Equity earnings in unconsolidated entities	$	47	$	—	$	—				$	47
Segment adjusted EBITDA	$	281	$	167	$	184				$	632
Maintenance capital	$	35	$	9	$	3				$	47

⁽¹⁾

Transportation revenues from external customers include inventory exchanges that are substantially similar to tariff-like arrangements with our customers. Under these arrangements, our Supply and Logistics segment has transacted the inventory exchange and serves as the shipper on our pipeline systems. See Note 2 to our Consolidated Financial Statements included in Part IV of our 2016 Annual Report on Form 10-K for a discussion of our related accounting policy. We have included an estimate of the revenues from these inventory exchanges in our Transportation segment revenue presented above and adjusted those revenues out such that Total revenue from External customers reconciles to our Condensed Consolidated Statements of Operations. This presentation is consistent with the information provided to our CODM.


⁽²⁾	Segment revenues include intersegment amounts that are eliminated in Purchases and related costs and Field operating costs in our Condensed Consolidated Statements of Operations. Intersegment sales are conducted at posted tariff rates, rates similar to those charged to third parties or rates that we believe approximate market at the time the agreement is executed or renegotiated.

Reconciliation of segment adjusted EBITDA to net income attributable to PAGP

The following table reconciles segment adjusted EBITDA to net income attributable to PAGP (in millions):



	Three Months Ended March 31,
	2017			2016
Segment adjusted EBITDA	$	512		$	632
Adjustments ⁽¹⁾:
Depreciation and amortization of unconsolidated entities ⁽²⁾	(14		)	(12		)
Gains/(losses) from derivative activities net of inventory valuation adjustments ⁽³⁾	289			(122		)
Long-term inventory costing adjustments⁽⁴⁾	(7		)	(23		)
Deficiencies under minimum volume commitments, net ⁽⁵⁾	(11		)	(27		)
Equity-indexed compensation expense ⁽⁶⁾	(3		)	(4		)
Net gain/(loss) on foreign currency revaluation ⁽⁷⁾	4			(1		)
Significant acquisition-related expenses ⁽⁸⁾	(5		)	—
Unallocated general and administrative expenses	(1		)	(1		)
Depreciation and amortization	(122		)	(114		)
Interest expense, net	(129		)	(116		)
Other income/(expense), net	(5		)	5
Income before tax	508			217
Income tax expense	(106		)	(40		)
Net income	402			177
Net income attributable to noncontrolling interests	(361		)	(141		)
Net income attributable to PAGP	$	41		$	36


⁽¹⁾	Represents adjustments utilized by our CODM in the evaluation of segment results.


⁽²⁾	Includes our proportionate share of the depreciation and amortization of equity method investments.

⁽³⁾

We use derivative instruments for risk management purposes and our related processes include specific identification of hedging instruments to an underlying hedged transaction. Although we identify an underlying transaction for each derivative instrument we enter into, there may not be an accounting hedge relationship between the instrument and the underlying transaction. In the course of evaluating our results, we identify the earnings that were recognized during the period related to derivative instruments for which the identified underlying transaction does not occur in the current period and exclude the related gains and losses in determining segment adjusted EBITDA. In addition, we exclude gains and losses on derivatives that are related to investing activities, such as the purchase of linefill. We also exclude the impact of corresponding inventory valuation adjustments, as applicable.

⁽⁴⁾

We carry crude oil and NGL inventory that is comprised of minimum working inventory requirements in third-party assets and other working inventory that is needed for our commercial operations. We consider this inventory necessary to conduct our operations and we intend to carry this inventory for the foreseeable future. Therefore, we classify this inventory as long-term on our balance sheet and do not hedge the inventory with derivative instruments (similar to linefill in our own assets). We exclude the impact of changes in the average cost of the long-term inventory (that result from fluctuations in market prices) and writedowns of such inventory that result from price declines from segment adjusted EBITDA.

⁽⁵⁾

We have certain agreements that require counterparties to deliver, transport or throughput a minimum volume over an agreed upon period. Substantially all of such agreements were entered into with counterparties to economically support the return on our capital expenditure necessary to construct the related asset. Some of these agreements include make-up rights if the minimum volume is not met. We record a receivable from the counterparty in the period that services are provided or when the transaction occurs, including amounts for deficiency obligations from counterparties associated with minimum volume commitments. If a counterparty has a make-up right associated with a deficiency, we defer the revenue attributable to the counterparty’s make-up right and subsequently recognize the revenue at the earlier of when the deficiency volume is delivered or shipped, when the make-up right expires or when it is determined that the counterparty’s ability to utilize the make-up right is remote. We include the impact of amounts billed to counterparties for their deficiency obligation, net of applicable amounts subsequently recognized into revenue, as a selected item impacting comparability. Our CODM views the inclusion of the contractually committed revenues associated with that period as meaningful to segment adjusted EBITDA as the related asset has been constructed, is standing ready to provide the committed service and the fixed operating costs are included in the current period results.


⁽⁶⁾	Includes equity-indexed compensation expense associated with awards that will or may be settled in PAA common units.


⁽⁷⁾	Includes gains and losses from the revaluation of foreign currency transactions and monetary assets and liabilities.

⁽⁸⁾

Includes acquisition-related expenses associated with the ACC Acquisition. See Note 6 for additional discussion. An adjustment for these non-recurring expenses is included in the calculation of segment adjusted EBITDA for the three months ended March 31, 2017 as our CODM does not view such expenses as integral to understanding our core segment operating performance. Acquisition-related expenses for the 2016 period were not significant to segment adjusted EBITDA.