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Estimates, Significant Accounting Policies and Balance Sheet Detail
 12 Months Ended
Dec. 31, 2023
Accounting Policies [Abstract]  
Estimates, Significant Accounting Policies and Balance Sheet Detail ESTIMATES, SIGNIFICANT ACCOUNTING POLICIES AND BALANCE SHEET DETAIL:
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the accrual for and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
The natural gas industry conducts its business by processing actual transactions at the end of the month following the month of delivery. Consequently, the most current month’s financial results for the midstream, NGL and intrastate transportation and storage operations are estimated using volume estimates and market prices. Any differences between estimated results and actual results are recognized in the following month’s financial statements. Management believes that the estimated operating results represent the actual results in all material respects.
Some of the other significant estimates made by management include, but are not limited to, the timing of certain forecasted transactions that are hedged, the fair value of derivative instruments, useful lives for depreciation and amortization, purchase accounting allocations and subsequent realizability of intangible assets, fair value measurements used in the goodwill impairment test, market value of inventory, assets and liabilities resulting from the regulated ratemaking process, contingency reserves and environmental reserves. Actual results could differ from those estimates.
Regulatory Accounting – Regulatory Assets and Liabilities
Our interstate transportation and storage segment is subject to regulation by certain state and federal authorities, and certain subsidiaries in that segment have accounting policies that conform to the accounting requirements and ratemaking practices of the regulatory authorities, in accordance with Accounting Standards Codification (“ASC”) Topic 980. The application of these accounting policies allows certain of our regulated entities to defer expenses and revenues on the balance sheet as regulatory assets and liabilities when it is probable that those expenses and revenues will be allowed in the ratemaking process in a period different from the period in which they would have been reflected in the consolidated statement of operations by an unregulated company. These deferred assets and liabilities will be reported in results of operations in the period in which the same amounts are included in rates and recovered from or refunded to customers. Management’s assessment of the probability of recovery or pass through of regulatory assets and liabilities will require judgment and interpretation of laws and regulatory commission orders. If, for any reason, we cease to meet the criteria for application of regulatory accounting treatment under ASC Topic 980 for these entities, the regulatory assets and liabilities related to those portions ceasing to meet such criteria would be eliminated from the consolidated balance sheet for the period in which the discontinuance of regulatory accounting treatment occurs.
Although Panhandle’s natural gas transmission systems and storage operations are subject to the jurisdiction of the FERC in accordance with the NGA and NGPA, Panhandle does not currently apply ASC Topic 980 in its GAAP-basis consolidated financial statements, primarily due to the level of discounting from tariff rates and its inability to recover specific costs.
Cash, Cash Equivalents and Supplemental Cash Flow Information
Cash and cash equivalents include all cash on hand, demand deposits and investments with original maturities of three months or less. We consider cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
We place our cash deposits and temporary cash investments with high credit quality financial institutions. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.
The net change in operating assets and liabilities, net of effects of acquisitions, included in cash flows from operating activities is comprised as follows:
 Years Ended December 31,
 202320222021
Accounts receivable$(171)$(863)$(3,356)
Accounts receivable from related companies(5)23 38 
Inventories35 (361)(19)
Other current assets221 (326)(216)
Other non-current assets, net(125)146 1 
Accounts payable(501)25 3,834 
Accounts payable to related companies(38)6 (34)
Accrued and other current liabilities209 131 238 
Other non-current liabilities(33)66 117 
Derivative assets and liabilities, net(43)(349)(88)
Net change in operating assets and liabilities, net of effects of acquisitions$(451)$(1,502)$515 
Non-cash investing and financing activities and supplemental cash flow information are as follows:
 Years Ended December 31,
 202320222021
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Accrued capital expenditures$442 $575 $464 
Units issued in connection with the Enable acquisition (1)
— — 3,509 
Units issued in connection with the Crestwood acquisition (1)
3,366 — — 
Units issued in connection with the Lotus Midstream acquisition (1)
574 — — 
Lease assets obtained in exchange for new lease liabilities23 42 18 
Acquisition of interest in unconsolidated affiliate— — 49 
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of interest capitalized$2,298 $2,167 $2,188 
Cash paid for income taxes (net of refunds)103 54 41 
(1)See Note 3 for additional information.
Accounts Receivable, net
Our operations deal with a variety of counterparties across the energy sector. Internal credit ratings and credit limits are assigned to all counterparties and limits are monitored against credit exposure. Letters of credit or prepayments may be required from those counterparties that are not investment grade depending on the internal credit rating and level of commercial activity with the counterparty.
We have a diverse portfolio of customers; however, because of the midstream and transportation services we provide, many of our customers are engaged in the exploration and production sector. We manage trade credit risk to mitigate credit losses and exposure to uncollectible trade receivables. Prospective and existing customers are reviewed regularly for creditworthiness to manage credit risk within approved tolerances. Customers that do not meet minimum credit standards are required to provide additional credit support in the form of a letter of credit, prepayment, or other forms of security. We establish an allowance for credit losses on trade receivables based on the expected ultimate recovery of these receivables and consider many factors including historical customer collection experience, general and specific economic trends, and known specific issues related to individual customers, sectors, and transactions that might impact collectability. Changes in the allowance are recorded as a component of operating expenses; reductions in the allowance are recorded when receivables are subsequently collected or written-off. Past due receivable balances are written-off when our efforts have been unsuccessful in collecting the amount due.
Inventories
Inventories consist principally of natural gas held in storage, NGLs and refined products, crude oil and spare parts, all of which are valued at the lower of cost or net realizable value utilizing the weighted-average cost method.
Sunoco LP’s fuel inventories are stated at the lower of cost or market using the last-in-first-out (“LIFO”) method. As of December 31, 2023 and 2022, Sunoco LP’s fuel inventory balance included lower of cost or market reserves of $230 million and $116 million, respectively. For the years ended December 31, 2023, 2022 and 2021, the Partnership’s consolidated statements of operations and comprehensive income did not include any material amounts of income from the liquidation of Sunoco LP’s LIFO fuel inventory. For the years ended December 31, 2023, 2022 and 2021, the Partnership’s cost of products sold included an unfavorable inventory adjustment of $114 million, a favorable inventory adjustment of $5 million and a favorable inventory adjustment of $190 million, respectively, related to Sunoco LP’s LIFO inventory.
The Partnership’s inventories consisted of the following:
 December 31,
 20232022
Natural gas, NGLs and refined products$1,658 $1,802 
Crude oil258 246 
Spare parts and other562 413 
Total inventories$2,478 $2,461 
We utilize commodity derivatives to manage price volatility associated with our natural gas inventory. Changes in fair value of designated hedged inventory are recorded in inventory on our consolidated balance sheets and cost of products sold in our consolidated statements of operations.
Other Current Assets
Other current assets consisted of the following:
 December 31,
 20232022
Deposits paid to vendors$205 $334 
Prepaid expenses and other308 392 
Total other current assets$513 $726 
Property, Plant and Equipment, net
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful or FERC-mandated lives of the assets, if applicable. Expenditures for maintenance and repairs that do not add capacity or extend the useful life are expensed as incurred. Expenditures to refurbish assets that either extend the useful lives of the asset or prevent environmental contamination are capitalized and depreciated over the remaining useful life of the asset. Additionally, we capitalize certain costs directly related to the construction of assets including internal labor costs, interest and engineering costs. Upon disposition or retirement of pipeline components or natural gas plant components, any gain or loss is recorded to accumulated depreciation. When entire pipeline systems, gas plants or other property and equipment is retired or sold, any gain or loss is included in our consolidated statements of operations.
Property, plant and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of long-lived assets is not recoverable, we reduce the carrying amount of such assets to fair value.
For the years ended December 31 2023, 2022 and 2021, USAC recognized fixed asset impairments of $12 million, $1 million and $5 million, respectively, related to its compression equipment as a result of its evaluation of the future deployment of idle fleet.
Capitalized interest is included for pipeline construction projects, except for certain interstate projects for which an allowance for funds used during construction (“AFUDC”) is accrued. Interest is capitalized based on the current borrowing rate of our revolving credit facilities when the related costs are incurred. AFUDC is calculated under guidelines prescribed
by the FERC and capitalized as part of the cost of utility plant for interstate projects. It represents the cost of servicing the capital invested in construction work-in-process. AFUDC is segregated into two component parts – borrowed funds and equity funds.
Components and useful lives of property, plant and equipment were as follows:
 December 31,
 20232022
Land and improvements$1,529 $1,427 
Buildings and improvements (1 to 45 years)3,848 3,546 
Pipelines and equipment (5 to 83 years)88,195 82,353 
Product storage and related facilities (2 to 83 years)7,978 7,274 
Right of way (20 to 83 years)7,379 6,252 
Other (1 to 48 years)3,688 2,739 
Construction work-in-process
2,315 2,405 
114,932 105,996 
Less – Accumulated depreciation and depletion(29,581)(25,685)
Property, plant and equipment, net$85,351 $80,311 
We recognized the following amounts for the periods presented:
 Years Ended December 31,
 202320222021
Depreciation, depletion and amortization expense$3,986 $3,774 $3,465 
Capitalized interest77 112 135 
Investments in Unconsolidated Affiliates
We own interests in a number of related businesses that are accounted for by the equity method. In general, we use the equity method of accounting for an investment for which we exercise significant influence over, but do not control, the investee’s operating and financial policies. An impairment of an investment in an unconsolidated affiliate is recognized when circumstances indicate that a decline in the investment value is other than temporary.
Other Non-Current Assets, net
Other non-current assets, net are stated at cost less accumulated amortization. Other non-current assets, net consisted of the following:
December 31,
20232022
Crude pipeline linefill and tank bottoms$598 $489 
Regulatory assets48 55 
Pension assets145 129 
Deferred charges148 140 
Restricted funds121 121 
Other673 624 
Total other non-current assets, net$1,733 $1,558 
Restricted funds include an immaterial amount of restricted cash primarily held in our wholly owned captive insurance companies.
Intangible Assets, net
Intangible assets are stated at cost, net of amortization computed on the straight-line method. The Partnership removes the gross carrying amount and the related accumulated amortization for any fully amortized intangibles in the year they are fully amortized.
Components and useful lives of intangible assets were as follows: 
 December 31, 2023December 31, 2022
Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization
Amortizable intangible assets:
Customer relationships, contracts and agreements (3 to 46 years)$9,098 $(3,196)$7,884 $(2,807)
Patents (10 years)48 (48)48 (48)
Trade names (20 years)66 (44)66 (41)
Other (5 to 20 years)12 (11)12 (13)
Total amortizable intangible assets9,224 (3,299)8,010 (2,909)
Non-amortizable intangible assets:
Trademarks302 — 302 — 
Other12 — 12 — 
Total non-amortizable intangible assets314 — 314 — 
Total intangible assets$9,538 $(3,299)$8,324 $(2,909)
Aggregate amortization expense of intangible assets was as follows:
Years Ended December 31,
202320222021
Reported in depreciation, depletion and amortization expense$399 $390 $352 
Estimated aggregate amortization of intangible assets for the next five years is as follows:
Years Ending December 31: 
2024$434 
2025423 
2026417 
2027400 
2028397 
We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of amortizable intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value. We review non-amortizable intangible assets for impairment annually, or more frequently if circumstances dictate.
Goodwill
Goodwill is tested for impairment annually or more frequently if circumstances indicate that goodwill might be impaired. The annual impairment test was performed during the fourth quarter.
Changes in the carrying amount of goodwill were as follows:
Intrastate
Transportation
and Storage		Interstate
Transportation and Storage		MidstreamNGL and Refined Products Transportation and ServicesCrude Oil Transportation and ServicesInvestment in Sunoco LPInvestment in USACAll OtherTotal
Balance, December 31, 2021$— $— $— $693 $190 $1,568 $— $82 $2,533 
Acquired
— — — — — 33 — — 33 
Balance, December 31, 2022— — — 693 190 1,601 — 82 2,566 
Acquired— — 601 191 663 — — — 1,455 
Other— — — — — (2)— — (2)
Balance, December 31, 2023$— $— $601 $884 $853 $1,599 $— $82 $4,019 
Goodwill is recorded at the acquisition date based on a preliminary purchase price allocation and generally may be adjusted when the purchase price allocation is finalized. During the fourth quarter of 2023, $1.46 billion of goodwill was recorded in conjunction with the acquisition of Crestwood, which is not expected to be deductible for tax purposes. In 2022, Sunoco LP recorded $33 million of goodwill in conjunction with its acquisitions.
The Partnership determines the fair value of our reporting units using the discounted cash flow method, the guideline company method, or a weighted combination of the discounted cash flow method and the guideline company method. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating margins, weighted average costs of capital and future market conditions, among others. The Partnership believes the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated. Under the discounted cash flow method, the Partnership determines fair value based on estimated future cash flows of each reporting unit including estimates for capital expenditures, discounted to present value using the risk-adjusted industry rate, which reflect the overall level of inherent risk of the reporting unit. Cash flow projections are derived from one year budgeted amounts and five year operating forecasts plus an estimate of later period cash flows, all of which are evaluated by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. Under the guideline company method, the Partnership determines the estimated fair value of each of our reporting units by applying valuation multiples of comparable publicly-traded companies to each reporting unit’s projected EBITDA and then averaging that estimate with similar historical calculations using a three year average. In addition, the Partnership estimates a reasonable control premium representing the incremental value that accrues to the majority owner from the opportunity to dictate the strategic and operational actions of the business. The fair value estimates used in the long-lived asset and goodwill tests were primarily based on Level 3 inputs of the fair value hierarchy.
Management does not believe that any of the goodwill balances in its reporting units is currently at significant risk of impairment; however, of the $4.02 billion of goodwill on the Partnership’s consolidated balance sheet as of December 31, 2023, approximately $368 million is recorded in reporting units for which the estimated fair value exceeded the carrying value by approximately 20% or less in the most recent quantitative test.
Asset Retirement Obligations
We have determined that we are obligated by contractual or regulatory requirements to remove facilities or perform other remediation upon retirement of certain assets. The fair value of any ARO is determined based on estimates and assumptions related to retirement costs, which the Partnership bases on historical retirement costs, future inflation rates and credit-adjusted risk-free interest rates. These fair value assessments are considered to be Level 3 measurements, as they are based on both observable and unobservable inputs. Changes in the liability are recorded for the passage of time (accretion) or for revisions to cash flows originally estimated to settle the ARO.
An ARO is required to be recorded when a legal obligation to retire an asset exists and such obligation can be reasonably estimated. We will record an ARO in the periods in which management can reasonably estimate the settlement dates.
As of December 31, 2023 and 2022, other non-current liabilities in the Partnership’s consolidated balance sheets included AROs of $410 million and $362 million, respectively. For the years ended December 31, 2023, 2022 and 2021 aggregate accretion expense related to AROs was $10 million, $4 million and $12 million, respectively.
Except for the AROs discussed above, management was not able to reasonably measure the fair value of AROs as of December 31, 2023 and 2022, in most cases because the settlement dates were indeterminable. Although a number of onshore assets in our systems are subject to agreements or regulations that give rise to an ARO upon discontinued use of these assets, AROs were not recorded because these assets have an indeterminate removal or abandonment date given the expected continued use of the assets with proper maintenance or replacement. Our subsidiaries also have legal obligations for several other assets at previously owned refineries, pipelines and terminals, for which it is not possible to estimate when the obligations will be settled. Consequently, the retirement obligations for these assets cannot be measured at this time. At the end of the useful life of these underlying assets, our subsidiaries are legally or contractually required to abandon in place or remove the asset. We believe we may have additional AROs related to pipeline assets and storage tanks, for which it is not possible to estimate whether or when the AROs will be settled. Consequently, these AROs cannot be measured at this time. Sunoco LP also has AROs related to the estimated future cost to remove underground storage tanks.
Individual component assets have been and will continue to be replaced, but the pipeline and the natural gas gathering and processing systems will continue in operation as long as supply and demand for natural gas exists. Based on the widespread use of natural gas in industrial and power generation activities, management expects supply and demand to exist for the
foreseeable future. We have in place a rigorous repair and maintenance program that keeps the pipelines and the natural gas gathering and processing systems in good working order. Therefore, although some of the individual assets may be replaced, the pipelines and the natural gas gathering and processing systems themselves will remain intact indefinitely.
As of December 31, 2023 and 2022, other non-current assets on the Partnership’s consolidated balance sheets included $31 million and $27 million, respectively, of funds that were legally restricted for the purpose of settling AROs.
Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following:
 December 31,
 20232022
Interest payable$637 $559 
Customer advances and deposits240 222 
Accrued capital expenditures442 575 
Accrued wages and benefits406 376 
Taxes payable other than income taxes646 519 
Exchanges payable163 224 
Deferred revenue312 268 
Other675 586 
Total accrued and other current liabilities$3,521 $3,329 
In certain circumstances, customer advances and deposits are received from our customers as prepayments for natural gas deliveries in the following month. Prepayments and security deposits may be required when customers exceed their credit limits or do not qualify for open credit.
Redeemable Noncontrolling Interests
Our redeemable noncontrolling interests relate to certain preferred unitholders of our consolidated subsidiaries that have the option to convert their preferred units to such subsidiary’s common units at the election of the holders and the noncontrolling interest holders in our consolidated subsidiaries that have the option to sell their interests to us. In accordance with applicable accounting guidance, the noncontrolling interest is excluded from total equity and reflected as redeemable noncontrolling interests on our consolidated balance sheets. See Note 7 for further information.
Environmental Remediation
We accrue environmental remediation costs for work at identified sites where an assessment has indicated that cleanup costs are probable and reasonably estimable. Such accruals are undiscounted and are based on currently available information, estimated timing of remedial actions and related inflation assumptions, existing technology and presently enacted laws and regulations. If a range of probable environmental cleanup costs exists for an identified site, the minimum of the range is accrued unless some other point in the range is more likely in which case the most likely amount in the range is accrued.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value.
We have commodity derivatives and interest rate derivatives that are accounted for as assets and liabilities at fair value in our consolidated balance sheets. We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of marketable securities and commodity derivatives transacted through a clearing broker with a published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. We consider OTC commodity derivatives entered into directly with third parties as a Level 2 valuation since the values of these derivatives are quoted on an exchange for similar transactions. Additionally, we consider our options transacted through our clearing broker as having Level 2 inputs due to the level of activity of these contracts on the exchange in which they trade. We consider the valuation of our interest rate derivatives as Level 2 as the primary input, the LIBOR or SOFR curve, is based on quotes from an active exchange of futures for the same period as the
future interest swap settlements. Level 3 inputs are unobservable. During the year ended December 31, 2023, no transfers were made between any levels within the fair value hierarchy.
The following tables summarize the fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of December 31, 2023 and 2022 based on inputs used to derive their fair values:
Fair Value TotalFair Value Measurements at December 31, 2023
Level 1Level 2
Assets:
Interest rate derivatives$6 $— $6 
Commodity derivatives:
Natural Gas:
Basis Swaps FERC/NYMEX24 24 — 
Swing Swaps IFERC20 20 — 
Fixed Swaps/Futures77 77 — 
Forward Physical Contracts8 — 8 
Power:
Forwards57 57 — 
Futures8 8 — 
NGLs – Forwards/Swaps336 336 — 
Refined Products – Futures35 35 — 
Crude – Forwards/Swaps45 45 — 
Total commodity derivatives610 602 8 
Other non-current assets31 20 11 
Total assets$647 $622 $25 
Liabilities:
Interest rate derivatives$(4)$— $(4)
Commodity derivatives:
Natural Gas:
Basis Swaps IFERC/NYMEX(3)(3)— 
Swing Swaps IFERC(2)(2)— 
Fixed Swaps/Futures(16)(16)— 
Options – Puts(2)(2)— 
Power:
Forwards(56)(56)— 
Futures(8)(8)— 
NGL/Refined Products Option - Puts(1)(1)— 
NGL/Refined Products Option - Calls(1)(1)— 
NGLs – Forwards/Swaps(316)(316)— 
Refined Products – Futures(18)(18)— 
Crude – Forwards/Swaps(37)(37)— 
Total commodity derivatives(460)(460)— 
Total liabilities$(464)$(460)$(4)
Fair Value TotalFair Value Measurements at December 31, 2022
Level 1Level 2
Assets:
Interest rate derivatives$— $— $— 
Commodity derivatives:
Natural Gas:
Basis Swaps IFERC/NYMEX60 60 — 
Swing Swaps IFERC75 75 — 
Fixed Swaps/Futures113 113 — 
Forward Physical Contracts10 — 10 
Power:
Forwards52 — 52 
Futures3 3 — 
NGLs – Forwards/Swaps317 317 — 
Refined Products – Futures20 20 — 
Crude - Forwards/Swaps38 38 — 
Total commodity derivatives688 626 62 
Other non-current assets27 18 9 
Total assets$715 $644 $71 
Liabilities:
Interest rate derivatives$(23)$— $(23)
Commodity derivatives:
Natural Gas:
Basis Swaps IFERC/NYMEX(25)(25)
Swing Swaps IFERC(12)(12)— 
Fixed Swaps/Futures(4)(4)— 
Forward Physical Contracts(2)— (2)
Power:
Forwards(51)(51)
Futures(3)(3)— 
NGLs – Forwards/Swaps(358)(358)— 
Refined Products – Futures(59)(59)— 
Crude - Forwards/Swaps(12)(12)— 
Total commodity derivatives(526)(473)(53)
Total liabilities$(549)$(473)$(76)
Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value and carrying amount of our debt obligations as of December 31, 2023 was $51.93 billion and $52.39 billion, respectively. As of December 31, 2022, the aggregate fair value and carrying amount of our debt obligations was $45.42 billion and $48.26 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.
Contributions in Aid of Construction Costs
On certain of our capital projects, third parties are obligated to reimburse us for all or a portion of project expenditures. The majority of such arrangements are associated with pipeline construction and production well tie-ins. Contributions in aid of construction costs (“CIAC”) are netted against our project costs as they are received.
Shipping and Handling Costs
Shipping and handling costs are included in cost of products sold, except for shipping and handling costs related to fuel consumed for compression and treating which are included in operating expenses.
Costs and Expenses
Cost of products sold include actual cost of fuel sold, adjusted for the effects of our hedging and other commodity derivative activities, and the cost of appliances, parts and fittings. Operating expenses include all costs incurred to provide products to customers, including compensation for operations personnel, insurance costs, vehicle maintenance, advertising costs, purchasing costs and plant operations. Selling, general and administrative expenses include all partnership related expenses and compensation for executive, partnership and administrative personnel.
We record the collection of taxes to be remitted to government authorities on a net basis, except for consumer excise taxes collected by Sunoco LP on sales of refined products and merchandise which are included in both revenues and costs and expenses in the consolidated statements of operations, with no effect on net income. For the years ended December 31, 2023, 2022 and 2021, excise taxes collected by Sunoco LP were $274 million, $285 million and $332 million, respectively.
Issuances of Subsidiary Units
We record changes in our ownership interest of our subsidiaries as equity transactions, with no gain or loss recognized in consolidated net income or comprehensive income. For example, upon our subsidiary’s issuance of common units in a public offering, we record any difference between the amount of consideration received or paid and the amount by which the noncontrolling interests are adjusted as a change in partners’ capital.
Related Party Transactions
The Partnership regularly enters into related party transactions with several of its unconsolidated affiliates. In addition to commercial transactions, these transactions include the provision of certain management services and leases of certain assets. While the Partnership believes that such related party transactions generally reflect market rates, the pricing under such agreements may not be comparable to similar transactions with unaffiliated third parties. For the years ended December 31, 2023, 2022 and 2021, the Partnership’s consolidated income statements reflect revenues from related parties of $626 million, $391 million and $410 million, respectively.
Income Taxes
Energy Transfer is a publicly traded limited partnership and is not taxable for federal and most state income tax purposes. As a result, our earnings or losses, to the extent not included in a taxable subsidiary, for federal and most state purposes are included in the tax returns of the individual partners. Net earnings for financial statement purposes may differ significantly from taxable income reportable to Unitholders as a result of differences between the tax basis and financial reporting basis of assets and liabilities, in addition to the allocation requirements related to taxable income under our Partnership Agreement. We do not have access to information regarding each partner’s individual tax basis in our limited partner interests.
As a publicly traded limited partnership, we are subject to a statutory requirement that our “qualifying income” (as defined by the Internal Revenue Code, related Treasury Regulations, and IRS pronouncements) exceed 90% of our total gross income, determined on a calendar year basis. If our qualifying income does not meet this statutory requirement, Energy Transfer would be taxed as a corporation for federal and state income tax purposes. For the years ended December 31, 2023, 2022 and 2021, our qualifying income met the statutory requirement.
The Partnership conducts certain activities through corporate subsidiaries which are subject to federal, state and local, and foreign income taxes. These corporate subsidiaries include ETP Holdco, Sunoco Retail LLC, and Aloha, among others. The Partnership and its corporate subsidiaries account for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
The determination of the provision for income taxes requires significant judgment, use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in our consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. When facts and circumstances change, we reassess these probabilities and record any changes through the provision for income taxes.
Accounting for Derivative Instruments and Hedging Activities
For qualifying hedges, we formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment and the gains and losses offset related results on the hedged item in the statement of operations. The market prices used to value our financial derivatives and related transactions have been determined using independent third-party prices, readily available market information, broker quotes and appropriate valuation techniques.
At inception of a hedge, we formally document the relationship between the hedging instrument and the hedged item, the risk management objectives, and the methods used for assessing and testing effectiveness and how any ineffectiveness will be measured and recorded. We also assess, both at the inception of the hedge and on a quarterly basis, whether the derivatives that are used in our hedging transactions are highly effective in offsetting changes in cash flows. If we determine that a derivative is no longer highly effective as a hedge, we discontinue hedge accounting prospectively by including changes in the fair value of the derivative in net income for the period.
If we designate a commodity hedging relationship as a fair value hedge, we record the changes in fair value of the hedged asset or liability in cost of products sold in our consolidated statements of operations. This amount is offset by the changes in fair value of the related hedging instrument. Any ineffective portion or amount excluded from the assessment of hedge ineffectiveness is also included in the cost of products sold in the consolidated statements of operations.
Cash flows from derivatives accounted for as cash flow hedges are reported as cash flows from operating activities, in the same category as the cash flows from the items being hedged.
If we designate a derivative financial instrument as a cash flow hedge and it qualifies for hedge accounting, the change in the fair value is deferred in AOCI until the underlying hedged transaction occurs. Any ineffective portion of a cash flow hedge’s change in fair value is recognized each period in earnings. Gains and losses deferred in AOCI related to cash flow hedges remain in AOCI until the underlying physical transaction occurs, unless it is probable that the forecasted transaction will not occur by the end of the originally specified time period or within an additional two-month period of time thereafter. For financial derivative instruments that do not qualify for hedge accounting, the change in fair value is recorded in cost of products sold in the consolidated statements of operations.
We manage a portion of our interest rate exposures by utilizing interest rate swaps and similar instruments. Certain of our interest rate derivatives are accounted for as either cash flow hedges or fair value hedges. For interest rate derivatives accounted for as either cash flow or fair value hedges, we report realized gains and losses and ineffectiveness portions of those hedges in interest expense. For interest rate derivatives not designated as hedges for accounting purposes, we report realized and unrealized gains and losses on those derivatives in “Gains (losses) on interest rate derivatives” in the consolidated statements of operations.
Equity Incentive Compensation
For awards of restricted units, we recognize compensation expense over the vesting period based on the grant-date fair value, which is determined based on the market price of the underlying common units on the grant date. For awards of cash restricted units, we remeasure the fair value of the award at the end of each reporting period based on the market price of the underlying common units as of the reporting date, and the fair value is recorded in other non-current liabilities on our consolidated balance sheets.
Pensions and Other Postretirement Benefit Plans
The Partnership recognizes the overfunded or underfunded status of defined benefit pension and other postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation (the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for other postretirement plans). Each overfunded plan is recognized as an asset and each underfunded plan is recognized as a liability. Changes in the funded status of the plan are recorded in the year in which the change occurs within AOCI in equity or, for entities applying regulatory accounting, as a regulatory asset or regulatory liability.
Allocation of Income
For purposes of maintaining partner capital accounts, the Partnership Agreement specifies that items of income and loss shall generally be allocated among the partners in accordance with their percentage interests.