Quarterly report pursuant to Section 13 or 15(d)

TRANSPORTATION AND DISTRIBUTION REVENUE

v3.23.3
TRANSPORTATION AND DISTRIBUTION REVENUE
 9 Months Ended
Sep. 30, 2023
Revenue from Contract with Customer [Abstract]  
TRANSPORTATION AND DISTRIBUTION REVENUE TRANSPORTATION AND DISTRIBUTION REVENUE
The Company's contracts related to transportation and distribution revenue are primarily comprised of a mix of crude oil, natural gas supply and natural gas transportation and distribution performance obligations, as well as limited performance obligations related to system maintenance and improvement.
Crude Oil and Natural Gas Transportation and Distribution
Under the Company's (i) crude oil and natural gas transportation, (ii) natural gas supply and (iii) natural gas distribution performance obligations, the customer simultaneously receives and consumes the benefit of the services as the commodity is delivered. Therefore, the transaction price is allocated proportionally over the series of identical performance obligations with each contract, and the Company satisfies performance obligations over time as transportation and distribution services are performed. The transaction price is calculated based on (i) CPUC and Federal Energy Regulatory Commission ("FERC") regulated rates or negotiated rates in the case of transportation agreements, (ii) index price, plus a contractual markup in the case of natural gas supply agreements (considered variable due to fluctuations in the index) and (iii) contracted amounts (with annual Consumer Price Index escalators) in the case of the Company's distribution agreement.
The Company's crude oil transportation revenue also includes amounts earned for pipeline loss allowance ("PLA"), which represents the estimated realizable value of the earned loss allowance volumes received by the Company as applicable under the tariff or contract. As is common in the pipeline transportation industry, as crude oil is transported, the Company earns a small percentage of the crude oil volume transported to offset any measurement uncertainty or actual volumes lost in transit. The Company will settle the PLA with its shippers either in-kind or in cash. PLA received by the Company typically exceeds actual pipeline losses in transit and typically results in a benefit to the Company.
When PLA is paid-in-kind, the barrels are valued at current market price less standard deductions, recorded as inventory and recognized as non-cash consideration revenue, concurrent with related transportation services. PLA paid in cash is treated in the same way as in-kind, but no inventory is created. In accordance with ASC 606, "Revenue from Contracts with Customers" ("ASC 606") when control of the PLA volumes has been transferred to the purchaser, the Company records this non-cash consideration as revenue at the contractual sales price within PLA revenue and PLA cost of revenues.
Based on the nature of the agreements, revenue for all but one of the Company's natural gas supply, transportation and distribution performance obligations is recognized on a right-to-invoice basis as the performance obligations are met, which represents what the Company expects to receive in consideration and is representative of value delivered to the customer.
System Maintenance & Improvement
System maintenance and improvement contracts are specific and tailored to the customer's needs, have no alternative use and have an enforceable right to payment as the services are provided. Revenue is recognized on an input method, based on the actual cost of service as a measure of the performance obligation satisfaction. Differences between amounts invoiced and revenue recognized under the input method are reflected as an asset or liability on the Consolidated Balance Sheets. The costs of system improvement projects are recognized as a financing arrangement in accordance with guidance in ASC 842, "Leases," while the margin is recognized in accordance with the ASC 606 revenue standard as discussed above.
The table below summarizes the Company's contract liability balance related to its transportation and distribution revenue contracts:
Contract Liability(1)
September 30, 2023 December 31, 2022
Beginning Balance January 1 $ 5,927,873  $ 5,339,364 
Unrecognized Performance Obligations 294,997  1,175,824 
Recognized Performance Obligations (664,782) (587,315)
Ending Balance (2)
$ 5,558,088  $ 5,927,873 
(1) As of September 30, 2023, the contract liability balance is included in unearned revenue (Crimson portion) and liabilities held-for-sale (MoGas and Omega portion) in the Consolidated Balance Sheets. As of December 31, 2022, the contract liability balance was included in unearned revenue in the Consolidated Balance Sheets.
(2) As of September 30, 2023, the contract liability balance for MoGas and Omega was $5.1 million and is recorded in liabilities held-for-sale on the Consolidated Balance Sheets.
The Company's contract asset balances were immaterial as of both September 30, 2023 and December 31, 2022. The Company also recognized deferred contract costs related to incremental costs to obtain a transportation performance obligation contract, which are amortized on a straight-line basis over the remaining term of the contract. As of September 30, 2023, the remaining
unamortized deferred contract costs balance was approximately $684 thousand. The contract asset and deferred contract costs balances are included in assets held-for-sale and prepaid expenses and other assets in the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, respectively.
The following is a breakout of the Company's transportation and distribution revenue for the three and nine months ended September 30, 2023 and 2022:
For the Three Months Ended For the Nine Months Ended
September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
Crude oil transportation revenue $ 23,259,963  81  % $ 26,099,075 84  % $ 70,332,482  81  % $ 73,201,850  82  %
Natural gas transportation revenue 3,594,334  12  % 3,572,522  11  % 10,943,272  13  % 11,711,243  13  %
Natural gas distribution revenue 1,269,927  4  % 1,229,040  4  % 3,780,008  4  % 3,663,206  4  %
Other 738,315  3  % 372,856  1  % 1,586,524  2  % 961,822  1  %
Total $ 28,862,539  100  % $ 31,273,493  100  % $ 86,642,286  100  % $ 89,538,121  100  %