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 ~~September 30, 2017~~March 31, 2020



¨☐	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, Texas75225

(Address of ~~principle~~principal executive offices) (zip code)

~~(214)~~ (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 xNo ¨

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 xNo ¨

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



PART I -— FINANCIAL INFORMATION

~~ITEM 1.~~	~~FINANCIAL STATEMENTS (UNAUDITED)~~

ITEM 1. FINANCIAL STATEMENTS (Unaudited)

Consolidated Balance Sheets	1

	Consolidated Statements of Operations and Comprehensive Income	3

	Consolidated ~~Statement~~Statements of Partners’ Capital	4

	Consolidated Statements of Cash Flows	5

	Notes to Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	8

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	9

ITEM 4. CONTROLS AND PROCEDURES	10

~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~PART II — OTHER INFORMATION	11

~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~	11

~~PART II - OTHER INFORMATION~~

ITEM 1.	LEGAL PROCEEDINGS	12

~~ITEM 1A.~~	~~RISK FACTORS~~	12

~~ITEM 6.~~	~~EXHIBITS~~	1211

~~SIGNATURE~~ITEM 1A. RISK FACTORS	11

ITEM 6. EXHIBITS	13

SIGNATURE	14

Table of Contents

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, ~~2016~~2019 filed with the Securities and Exchange Commission on February ~~24, 2017.~~21, 2020 and “Part II – Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q.

Definitions

The following is a list of certain acronyms and terms ~~generally~~ used ~~in the energy industry and~~ throughout this document:



	ET	Energy Transfer LP, the parent company of ETO

~~ETE~~	ETO	Energy Transfer ~~Equity,~~Operating, L.P.

	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

	Southwest Gas	Pan Gas Storage LLC (d.b.a. Southwest Gas)

	TBtu	Trillion British thermal units

	Trunkline	Trunkline Gas Company, LLC

Table of Contents

PART I.I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)

September 30, 2017 December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents $ 15
$ 4
Accounts receivable, net 37
46
Accounts receivable from related companies 12
17
Exchanges receivable 5
7
Inventories 95
179
Other current assets 3
4
Total current assets 167
257

Property, plant and equipment 3,317
3,242
Accumulated depreciation (411 ) (355 )
2,906
2,887

Other non-current assets, net 161
153
Notes receivable from related parties 189
251
Goodwill 285
285
Total assets $ 3,708
$ 3,833



	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	—		$	—
Accounts receivable, net	49			45
Accounts receivable from related companies	9			9
Exchanges receivable	5			9
Inventories	38			61
Other current assets	6			7
Total current assets	107			131

Property, plant and equipment	3,281			3,281
Accumulated depreciation	(629		)	(607		)
	2,652			2,674

Operating lease right-of-use assets	5			5
Other non-current assets, net	157			159
Total assets	$	2,921		$	2,969

PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)


	September 30, 2017		December 31, 2016		March 31, 2020			December 31, 2019
LIABILITIES AND PARTNERS’ CAPITAL
Current liabilities:
Current maturities of long-term debt	$	710	$	307
Accounts payable and accrued liabilities	3		11
Accounts payable					$	3		$	11
Accounts payable to related companies	44		66		44			34
Exchanges payable	77		165		25			47
Accrued interest	24		12
Customer advances and deposits	9		9
Other current liabilities	47		40		49			70
Total current liabilities	914		610		121			162

Long-term debt, less current maturities	413		834		247			247
Deferred income taxes	740		711
Note payable to related company					677			732
Non-current operating lease liabilities					5			5
Other non-current liabilities	216		217		220			221
Commitments and contingencies

Partners’ capital:
Partners’ capital	1,415		1,456		1,670			1,626
Accumulated other comprehensive income	10		5
Accumulated other comprehensive loss					(19		)	(24		)
Total partners’ capital	1,425		1,461		1,651			1,602
Total liabilities and partners’ capital	$	3,708	$	3,833	$	2,921		$	2,969

PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in millions)

(unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
OPERATING REVENUES:
Transportation and storage of natural gas $ 104
$ 115
$ 327
$ 370
Other 6
5
15
15
Total operating revenues 110
120
342
385
OPERATING EXPENSES:
Cost of natural gas and other energy —
—
2
2
Operating and maintenance 52
53
149
155
General and administrative 10
11
27
29
Depreciation and amortization 32
33
95
98
Total operating expenses 94
97
273
284
OPERATING INCOME 16
23
69
101
OTHER INCOME (EXPENSE):
Interest expense, net (11 ) (12 ) (34 ) (37 )
Interest income — affiliates 1
9
9
23
Other, net —
—
1
—
INCOME BEFORE INCOME TAX EXPENSE 6
20
45
87
Income tax expense 2
7
19
28
NET INCOME $ 4
$ 13
$ 26
$ 59

OTHER COMPREHENSIVE INCOME, NET OF TAX
Actuarial gain relating to postretirement benefit plans 5
—
5
—

COMPREHENSIVE INCOME $ 9
$ 13
$ 31
$ 59



	Three Months Ended March 31,
	2020			2019
OPERATING REVENUES:
Transportation and storage of natural gas	$	139		$	152
Other	5			6
Total operating revenues	144			158
OPERATING EXPENSES:
Operating and maintenance	50			47
General and administrative	10			6
Depreciation and amortization	26			29
Total operating expenses	86			82
OPERATING INCOME	58			76
OTHER EXPENSE:
Interest expense, net	(4		)	(5		)
Interest expense — related company	(9		)	(4		)
Other, net	(7		)	—
INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE	38			67
Income tax (benefit) expense	(2		)	17
NET INCOME	40			50

OTHER COMPREHENSIVE INCOME, NET OF TAX
Actuarial gain relating to postretirement benefit plans	5			6

COMPREHENSIVE INCOME	$	45		$	56

PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF PARTNERS’ CAPITAL

FOR THE ~~NINE~~THREE MONTHS ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2020 AND 2019

(Dollars in millions)

(unaudited)



	Partners’ Capital		Accumulated Other Comprehensive Loss			Total
Balance, December 31, 2019	$	1,626	$	(24	)	$	1,602
Net income	40		—			40
Other comprehensive income, net of tax	—		5			5
Other	4		—			4
Balance, March 31, 2020	$	1,670	$	(19	)	$	1,651

Partners’ Capital
Accumulated Other
Comprehensive Income
Total
Balance, December 31, 2016 $ 1,456
$ 5
$ 1,461
Distributions to partners (74 ) —
(74 )
Unit-based compensation expense 2
—
2
Other comprehensive income —
5
5
Deemed contribution from partners 5
—
5
Net income 26
—
26
Balance, September 30, 2017 $ 1,415
$ 10
$ 1,425



	Partners’ Capital		Accumulated Other Comprehensive Loss			Total
Balance, December 31, 2018	$	1,409	$	(47	)	$	1,362
Net income	50		—			50
Other comprehensive income, net of tax	—		6			6
Balance, March 31, 2019	$	1,459	$	(41	)	$	1,418

PANHANDLE EASTERN PIPE LINE COMPANY, LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(unaudited)

Nine Months Ended
September 30,
2017 2016
OPERATING ACTIVITIES:
Net income $ 26
$ 59
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization 95
98
Deferred income taxes 29
45
Amortization of deferred financing fees (19 ) (18 )
Other non-cash 12
8
Changes in operating assets and liabilities (4 ) 110
Net cash flows provided by operating activities 139
302
INVESTING ACTIVITIES:
Capital expenditures (118 ) (70 )
Repayment of note receivable from related party 102
35
Notes receivable issued to related party (40 ) (265 )
Other 2
—
Net cash flows used in investing activities (54 ) (300 )
FINANCING ACTIVITIES:
Distributions to partners (74 ) —
Net cash flows used in financing activities (74 ) —
Net change in cash and cash equivalents 11
2
Cash and cash equivalents, beginning of period 4
3
Cash and cash equivalents, end of period $ 15
$ 5

SUPPLEMENTAL INFORMATION:
Non-cash activity - Settlement of related party payable $ 5
$ 541
Cash paid for interest $ 43
$ 43



	Three Months Ended March 31,
	2020			2019
OPERATING ACTIVITIES:
Net income	$	40		$	50
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	26			29
Deferred income taxes	(2		)	3
Amortization of deferred financing fees	—			(2		)
Other non-cash	2			2
Changes in operating assets and liabilities	—			(20		)
Net cash flows provided by operating activities	66			62
INVESTING ACTIVITIES:
Capital expenditures	(11		)	(14		)
Net cash flows used in investing activities	(11		)	(14		)
FINANCING ACTIVITIES:
Note payable issued from related company	65			—
Repayment of note payable from related company	(120		)	(64		)
Net cash flows used in financing activities	(55		)	(64		)
Net change in cash and cash equivalents	—			(16		)
Cash and cash equivalents, beginning of period	—			20
Cash and cash equivalents, end of period	$	—		$	4

SUPPLEMENTAL INFORMATION:
Non-cash activity - Accrued capital expenditures	$	2		$	7
Non-cash activity - Settlement of related company payables	$	4		$	—
Cash paid for interest	$	6		$	6

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 ~~are~~(collectively, the “Company”) primarily ~~engaged in the transportation of~~operate interstate pipelines that transport natural gas from the Gulf of Mexico, ~~south~~South Texas and the ~~panhandle~~Panhandle region of Texas and Oklahoma to major United States markets in the Midwest and Great Lakes regions and ~~the~~natural gas storage ~~of natural gas~~assets and are subject to the rules and regulations of the FERC. The Company’s subsidiaries ~~are~~include Trunkline, Sea Robin and Southwest Gas.

In April 2017, Energy Transfer Partners, L.P. (“ETP”) merged with a subsidiary of Sunoco Logistics Partners L.P., at which time ETP changed its name from “Energy Transfer Partners, L.P.” to “Energy Transfer, LP” and Sunoco Logistics Partners L.P. changed its name to “Energy Transfer Partners, L.P.” References to “ETP” refer to the consolidated entity named Energy Transfer Partners, L.P. subsequent to the close of the merger.

~~Energy Transfer, LP is a wholly-owned subsidiary of Energy Transfer Partners, L.P.~~

Southern Union Panhandle LLC, an indirect wholly-owned subsidiary of ~~ETP,~~ETO, owns a 1% general ~~partner~~partnership interest in PEPL and ~~ETP~~ETO indirectly owns a 99% limited ~~partner~~partnership interest in PEPL.

~~Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net income, total partners’ capital, or cash flows.~~

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, ~~2016.~~2019. 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 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 expects to adopt ASU 2014-09 in the first quarter of 2018 and will apply the cumulative catchup transition method, which requires recognition, upon the date of initial application, of the cumulative effect of the retrospective application of the standard.

We are continuing the process of evaluating our revenue contracts by fee type to determine the potential impact of adopting the new standard. At this point in our evaluation process, we have determined that the timing and/or amount of revenue that we recognize on certain contracts (as discussed below) may be impacted by the adoption of the new standard; however, we

~~are still in the process of quantifying these impacts and cannot say whether or not they would be material to our financial statements.~~

We currently anticipate a change to revenues and costs associated with the accounting for noncash consideration and do not expect these changes in the accounting for noncash consideration to impact net income.

We continue to assess the impact of the disclosure requirements under the new standard and are evaluating the manner in which we will disaggregate revenue into categories that show how economic factors affect the nature, timing and uncertainty of revenue and cash flows generated from contracts with customers. In addition, we are in the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under the new standard. We continue to monitor additional authoritative or interpretive guidance related to the new standard as it becomes available, as well as comparing our conclusions on specific interpretative issues to other peers in our industry, to the extent that such information is available to us.

~~ASU 2016-02~~

~~In February 2016, the 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. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that adopting this new standard will have on the consolidated financial statements and related disclosures.

~~ASU 2017-04~~

~~In January 2017, the FASB issued ASU No. 2017-04 “Intangibles-Goodwill and other (Topic 350): Simplifying the test for goodwill impairment~~”. The amendments in this update remove the second step of the two-step test currently required by Topic 350. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. We expect that our adoption of this standard will change our approach for testing goodwill for impairment; however, this standard requires prospective application and therefore will only impact periods subsequent to adoption. The Company plans to apply this ASU for its annual goodwill impairment test in the fourth quarter of 2017.


2.	RELATED PARTY TRANSACTIONS

Accounts receivable from related companies reflected on the consolidated balance sheets primarily related to services provided to ~~ETE, ETP~~ET, ETO and other affiliates. Accounts payable to related companies reflected on the consolidated balance sheets related to various services provided by ~~ETP~~ETO and other affiliates.

The following table provides a summary of the related party activity included in ~~the~~our consolidated statements of operations:



	Three Months Ended March 31,
	2020		2019
Operating revenues	$	22	$	24
Operating and maintenance	3		1
General and administrative	7		4
Interest expense — related company	9		4

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Operating revenues $ 11
$ 4
$ 18
$ 13
Operating and maintenance 1
4
5
11
General and administrative 7
6
18
20
Interest income — affiliates 1
9
9
23

~~The Company settled related party payables with a subsidiary~~As of ~~ETP through a non-cash contribution during the nine months ended September 30, 2017 for $5 million. Additionally,~~March 31, 2020 and December 31, 2019, the Company ~~settled~~had $677 million and $732 million, respectively, outstanding under a note ~~receivable and related accrued~~payable with ETO. The note payable accrues interest ~~from a subsidiary~~monthly at an annual interest rate of ~~ETP through a non-cash distribution during the nine months ended September 30, 2016 for $541 million.~~5.05% as of March 31, 2020. The note matures on July 31, 2027.


3.	FAIR VALUE MEASURES

The Company ~~did not have any assets or liabilities measured at~~had $26 million and $31 million of fair value ~~on a recurring basis at September 30, 2017 or~~of available-for-sale securities, included in other non-current assets, as of March 31, 2020 and December 31, ~~2016.~~2019, respectively. At March 31, 2020, $17 million in equity securities were valued at Level 1 and $9 million in fixed income securities were valued at Level 2. At December 31, 2019, $20 million in equity securities were valued at Level 1 and $11 million in fixed income securities were valued at Level 2. During the three months ended March 31, 2020 and 2019, the Company recognized $5 million in unrealized losses and $2 million in unrealized gains, respectively, on available-for-sale securities, reflected in other, net in our consolidated statements of operations. The carrying ~~amount~~amounts of cash and cash equivalents, accounts receivable and accounts payable ~~approximates~~approximate fair ~~value due to their short-term maturities.~~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 (excluding related company balances) was ~~$1.13 billion~~$202 million and ~~$1.14 billion~~$247 million at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, 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 ~~September 30, 2017~~March 31, 2020 or December 31, ~~2016,~~2019, and there were no transfers between hierarchy ~~levels.~~

4. ~~DEBT OBLIGATIONS~~

~~Senior Notes~~

~~Panhandle’s 6.20% Senior Notes in~~levels during the ~~amount of $300 million matured on November 1, 2017 and were repaid with borrowings under an affiliate loan agreement.~~periods presented.


5.4.	REGULATORY MATTERS, COMMITMENTS, CONTINGENCIES AND ENVIRONMENTAL LIABILITIES

Contingent Residual Support Agreement with ~~ETP~~ETO

~~The~~Under a contingent residual support agreement with ETO and Citrus ETO Finance LLC, the Company provides contingent, residual support to Citrus ~~ETP~~ETO Finance LLC (on a non-recourse basis to the Company) with respect to Citrus ~~ETP~~ETO Finance LLC’s obligations to ~~ETP~~ETO to support the payment of $2 billion in principal amount of senior notes issued by ~~ETP~~ETO on January 17, 2012.

FERC ~~Audit~~Proceedings

~~In March 2016,~~By order issued January 16, 2019, the FERC ~~commenced an audit~~initiated a review of ~~Trunkline for the period from January 1, 2013~~Panhandle’s existing rates pursuant to ~~present to evaluate Trunkline’s compliance with the requirements of its FERC gas tariff, the accounting regulations~~Section 5 of the ~~Uniform System~~Natural Gas Act to determine whether the rates currently charged by Panhandle are just and reasonable and set the matter for hearing. On August 30, 2019, Panhandle filed a general rate proceeding under Section 4 of ~~Accounts as prescribed~~the Natural Gas Act. The Natural Gas Act Section 5 and Section 4 proceedings were consolidated by order dated October 1, 2019. A hearing in the ~~FERC, and the FERC’s annual reporting requirements. The audit~~combined proceedings is ~~ongoing.~~scheduled for August, 2020, with an initial decision expected in early 2021.

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.

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 ~~table below reflects the amount of accrued liabilities recorded on the~~Company’s consolidated balance sheets ~~at the dates indicated~~reflected $1 million in non-current liabilities as of March 31, 2020 and December 31, 2019 to cover environmental remediation ~~activities~~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.

September 30, 2017 December 31, 2016
Current $ —
$ —
Non-current 2
2
Total environmental liabilities $ 2
$ 2

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 ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the Company has litigation and other claim-related accrued liabilities ~~of $21~~$18 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.

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, ~~2016~~2019 filed with the SEC on February ~~24, 2017.~~21, 2020.

RESULTS OF OPERATIONS


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2020			2019
OPERATING REVENUES:
Transportation and storage of natural gas	$	327		$	370		$	139		$	152
Other	15			15			5			6
Total operating revenues	342			385			144			158
OPERATING EXPENSES:
Cost of natural gas and other energy	2			2
Operating and maintenance	149			155			50			47
General and administrative	27			29			10			6
Depreciation and amortization	95			98			26			29
Total operating expenses	273			284			86			82
OPERATING INCOME	69			101			58			76
OTHER INCOME (EXPENSE):
OTHER EXPENSE:
Interest expense, net	(34		)	(37		)	(4		)	(5		)
Interest income — affiliates	9			23
Interest expense — related company							(9		)	(4		)
Other, net	1			—			(7		)	—
INCOME BEFORE INCOME TAX EXPENSE	45			87
Income tax expense	19			28
INCOME BEFORE INCOME TAX (BENEFIT) EXPENSE							38			67
Income tax (benefit) expense							(2		)	17
NET INCOME	$	26		$	59		$	40		$	50

Panhandle natural gas volumes transported (TBtu):
PEPL	452			458			196			234
Trunkline	378			369			155			187
Sea Robin	56			64			24			28

Operating ~~Revenues~~revenues. Operating revenues decreased for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 compared to the same period in the prior year primarily due to lower capacity sold at lower rates on the Panhandle and Trunkline ~~pipelines due to lower customer demand driven by weak spreads~~pipelines.

General and ~~mild weather~~administrative. General and ~~on the Sea Robin pipeline due to producer maintenance and production declines.~~

~~Operating Expenses. Operating~~administrative expenses ~~decreased~~increased for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 compared to the same period in the prior year due to ~~lower~~an increase in overhead costs allocated ~~costs and system gas activity.~~by the parent company.

Interest ~~income - affiliates~~expense — related company. Interest ~~income - affiliates~~expense — related company increased for the three months ended March 31, 2020 compared to the same period in the prior year primarily due to additional borrowings under a note payable with ETO.

Other, net. Other, net increased for the three months ended March 31, 2020 compared to the same period in the prior year primarily due to unrealized losses on available-for-sale securities.

Income tax. Income tax expense decreased for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 compared to the same period in the prior year primarily due to the ~~settlement of a note receivable from a subsidiary of ETP~~PEPL restructuring transaction in ~~August 2016.~~July 2019. In connection with the restructuring, PEPL’s tax sharing agreement with its former corporate parent was terminated, and PEPL is no longer subject to corporate level income tax.

~~Income Taxes.~~ ~~The change in income tax expense for the nine months ended September 30, 2017 compared to the same period in the prior year was primarily due to lower pre-tax income.~~

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~~Chief Executive Officer and the ~~Principal~~Chief Financial Officer of our General Partner concluded that our disclosure controls and procedures were effective as of ~~September 30, 2017~~March 31, 2020 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~~Chief Executive Officer and ~~Principal~~Chief 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 ~~September 30, 2017~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART ~~II.~~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 54 in this Quarterly Report on Form 10-Q and in Note 118 in the Company’s Form 10-K for the year ended December 31, ~~2016.~~2019.

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 54 in this Quarterly Report on Form 10-Q and Note 118 included in the Company’s Form 10-K for the year ended December 31, ~~2016.~~2019.

ITEM 1A. RISK FACTORS

~~There have been no material changes to the~~The following risk factors ~~previously disclosed~~should be read in ~~the Company’s~~conjunction with our risk factors described in “Part I - Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February ~~24, 2017.~~21, 2020.

The outbreak of COVID-19 and recent geopolitical developments in the crude oil market could adversely impact ET’s and our business, financial condition and results of operations.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus known as COVID-19 due to the risks it imposes on the international community as the virus spreads globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The global spread of COVID-19 caused a significant decline in economic activity and a reduced demand for goods and services, particularly in the energy industry, due to reduced operations and/or closures of businesses, “shelter in place” and other similar requirements imposed by government authorities, or other actions voluntarily undertaken by individuals and businesses concerned about exposure to COVID-19. The extent to which the COVID-19 pandemic continues to impact our business, operations and financial results depends on numerous evolving factors that we cannot accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions taken in response to the pandemic and the associated impact on economic activity; the effect on the level of demand for natural gas, NGLs, refined products and/or crude oil; ETO’s or our ability to procure materials and services from third parties that are necessary for the operation of our businesses; ETO’s or our ability to provide our services, including as a result of travel restrictions on our employees and employees of third parties that we utilize in connection with our services; the potential for key executives or employees to fall ill with COVID-19; and the ability of our customers to pay for our services if their businesses suffer as a result of the pandemic.

In addition, policy disputes between the Organization of Petroleum Exporting Countries (“OPEC”) and Russia in the first quarter of 2020 resulted in Saudi Arabia significantly discounting the price of its crude oil, as well as Saudi Arabia and Russia significantly increasing the amount of crude oil they produce. These actions have led to significant declines in crude oil prices. More specifically, the spot price for West Texas Intermediate (WTI) crude oil, for physical delivery at Cushing, Oklahoma, decreased from $63.27 per barrel on January 6, 2020 to $-(36.98) per barrel on April 20, 2020.

Reduced demand for natural gas and/or other commodities caused by the COVID-19 pandemic and a continuation of low WTI crude oil prices caused by the actions of foreign oil-producing nations may result in the shut-in of production from U.S. oil and gas wells, which in turn may result in decreased utilization of our services.

The factors discussed above could have a material adverse effect on our business, results of operations and financial condition. In addition, significant price fluctuations for natural gas could materially affect the value of our proprietary product inventory. We may be forced to delay some of our capital projects and our customers, who may be in financial distress, may slow down decision-making, delay planned projects or seek to renegotiate or terminate agreements with us. To the extent our counterparties are successful, we may not be able to obtain new contract terms that are favorable to us or to replace contracts that are terminated. Counterparties may also be forced to file for bankruptcy protection, in which case our existing contracts with those counterparties may be rejected by the bankruptcy court.

Further, the effects of the pandemic and geopolitical developments have caused a decline in the trading price of ET’s common units, which increases ET’s cost of capital. Additional capital may be more difficult for ET to obtain or available only on terms less favorable to ET. ET’s inability to fund capital expenditures could have a material impact on ET’s and our results of operations.

At this time, we cannot estimate the magnitude and duration of potential social, economic and labor instability as a direct result of COVID-19, or of potential industry disruption as a direct result of geopolitical developments in the oil market. Should any of

these potential impacts continue for an extended period of time, it will have a negative impact on the demand for our services and an adverse effect on our financial position and results of operations. To the extent these factors adversely affect our business and financial results, they may also have the effect of heightening many of the other risks described in this “Risk Factors” section and the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019, such as those relating to our indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness.

Income from our operations is exposed to risks due to fluctuations in the demand for and price of natural gas that are beyond ETO’s and our control.

The prices for natural gas reflect market demand that fluctuates with changes in global and United States economic conditions and other factors, including:

•the level of domestic natural gas;

•the level of natural gas imports and exports, including liquefied natural gas;

•actions taken by natural gas and oil producing nations;

•instability or other events affecting natural gas and oil producing nations;

the impact of weather, public health crises such as pandemics (including COVID-19), and other events of nature on the demand for natural gas;

•the availability of storage, terminal and transportation systems, and processing and treating facilities;

•the price, availability and marketing of competitive fuels;

•the demand for electricity;


•	activities by non-governmental organizations to limit certain sources of funding for the energy sector or restrict the exploration, development and production of oil and natural gas and related products;

•the cost of capital needed to maintain or increase production levels and to construct and expand facilities;

•the impact of energy conservation and fuel efficiency efforts; and

•the extent of governmental regulations, taxation, fees and duties.

In the past, the prices of natural gas have been extremely volatile, and we expect this volatility to continue.

Any loss of business from existing customers or our inability to attract new customers due to a decline in demand for natural gas could have a material adverse effect on our revenues and results of operations. In addition, significant price fluctuations for natural gas could materially affect our profitability.

ITEM 6. EXHIBITS

The exhibits listed below are filed or furnished, as indicated, as part of this report:



	Exhibit Number		Description
	31.1*		Certification of ~~Principal~~Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
	31.2*		Certification of ~~Principal~~Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 pursuant to Section 302 of the Sarbanes-Oxley Act of ~~2002.~~2002
	32.1**		Certification of ~~Principal~~Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
	32.2**		Certification of ~~Principal~~Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002.~~2002
	101.INS101		~~XBRL Instance Document~~Interactive data files pursuant to Rule 405 of Regulation S-T: (i) our Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019; (ii) our Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2020 and 2019; (iii) our Consolidated Statements of Partners' Capital for the three months ended March 31, 2020 and 2019; (iv) our Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019; and (v) the notes to our Consolidated Financial Statements.
	101.SCH*104		Cover Page Interactive Data File (formatted as inline XBRL ~~Taxonomy Extension Schema Document~~and contained in Exhibit 101)
	101.CAL**		~~XBRL Taxonomy Calculation Linkbase Document~~Filed herewith.
	101.DEF***		~~XBRL Taxonomy Extension Definitions Document~~
	101.LAB*		~~XBRL Taxonomy Label Linkbase Document~~
	101.PRE*		~~XBRL Taxonomy Presentation Linkbase Document~~Furnished herewith.

* Filed herewith.

** Furnished herewith.

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:	~~November 7, 2017~~May 11, 2020	By:	~~/s/~~/s/ A. Troy Sturrock
			A. Troy Sturrock
			~~Senior~~ Vice President and Controller (duly authorized to sign on behalf of the registrant)

1314



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
OPERATING REVENUES:
Transportation and storage of natural gas	$	104		$	115		$	327		$	370
Other	6			5			15			15
Total operating revenues	110			120			342			385
OPERATING EXPENSES:
Cost of natural gas and other energy	—			—			2			2
Operating and maintenance	52			53			149			155
General and administrative	10			11			27			29
Depreciation and amortization	32			33			95			98
Total operating expenses	94			97			273			284
OPERATING INCOME	16			23			69			101
OTHER INCOME (EXPENSE):
Interest expense, net	(11		)	(12		)	(34		)	(37		)
Interest income — affiliates	1			9			9			23
Other, net	—			—			1			—
INCOME BEFORE INCOME TAX EXPENSE	6			20			45			87
Income tax expense	2			7			19			28
NET INCOME	$	4		$	13		$	26		$	59

OTHER COMPREHENSIVE INCOME, NET OF TAX
Actuarial gain relating to postretirement benefit plans	5			—			5			—

COMPREHENSIVE INCOME	$	9		$	13		$	31		$	59



	Partners’ Capital			Accumulated Other Comprehensive Income		Total
Balance, December 31, 2016	$	1,456		$	5	$	1,461
Distributions to partners	(74		)	—		(74		)
Unit-based compensation expense	2			—		2
Other comprehensive income	—			5		5
Deemed contribution from partners	5			—		5
Net income	26			—		26
Balance, September 30, 2017	$	1,415		$	10	$	1,425



	September 30, 2017		December 31, 2016
Current	$	—	$	—
Non-current	2		2
Total environmental liabilities	$	2	$	2