Energy Transfer 2012 Annual Report Download - page 157

F - 12
Our intrastate transportation and storage and interstate transportation and storage segments’ results are determined primarily
by the amount of capacity our customers reserve as well as the actual volume of natural gas that flows through the transportation
pipelines. Under transportation contracts, our customers are charged (i) a demand fee, which is a fixed fee for the reservation
of an agreed amount of capacity on the transportation pipeline for a specified period of time and which obligates the customer
to pay even if the customer does not transport natural gas on the respective pipeline, (ii) a transportation fee, which is based
on the actual throughput of natural gas by the customer, (iii) fuel retention based on a percentage of gas transported on the
pipeline, or (iv) a combination of the three, generally payable monthly. Fuel retained for a fee is typically valued at market
prices.
Our intrastate transportation and storage segment also generates revenues and margin from the sale of natural gas to electric
utilities, independent power plants, local distribution companies, industrial end-users and other marketing companies on the
HPL System. Generally, we purchase natural gas from the market, including purchases from the midstream segment’s marketing
operations, and from producers at the wellhead.
In addition, our intrastate transportation and storage segment generates revenues and margin from fees charged for storing
customers’ working natural gas in our storage facilities. We also engage in natural gas storage transactions in which we seek
to find and profit from pricing differences that occur over time utilizing the Bammel storage reservoir. We purchase physical
natural gas and then sell financial contracts at a price sufficient to cover our carrying costs and provide for a gross profit
margin. We expect margins from natural gas storage transactions to be higher during the periods from November to March
of each year and lower during the period from April through October of each year due to the increased demand for natural
gas during colder weather. However, we cannot assure that management’s expectations will be fully realized in the future and
in what time period, due to various factors including weather, availability of natural gas in regions in which we operate,
competitive factors in the energy industry, and other issues.
Results from the midstream segment are determined primarily by the volumes of natural gas gathered, compressed, treated,
processed, purchased and sold through our pipeline and gathering systems and the level of natural gas and NGL prices. We
generate midstream revenues and gross margins principally under fee-based or other arrangements in which we receive a fee
for natural gas gathering, compressing, treating or processing services. The revenue earned from these arrangements is directly
related to the volume of natural gas that flows through our systems and is not directly dependent on commodity prices.
We also utilize other types of arrangements in our midstream segment, including (i) discount-to-index price arrangements,
which involve purchases of natural gas at either (1) a percentage discount to a specified index price, (2) a specified index
price less a fixed amount or (3) a percentage discount to a specified index price less an additional fixed amount, (ii) percentage-
of-proceeds arrangements under which we gather and process natural gas on behalf of producers, sell the resulting residue
gas and NGL volumes at market prices and remit to producers an agreed upon percentage of the proceeds based on an index
price, (iii) keep-whole arrangements where we gather natural gas from the producer, process the natural gas and sell the
resulting NGLs to third parties at market prices, (iv) purchasing all or a specified percentage of natural gas and/or NGL
delivered from producers and treating or processing our plant facilities, and (v) making other direct purchases of natural gas
and/or NGL at specified delivery points to meet operational or marketing obligations. In many cases, we provide services
under contracts that contain a combination of more than one of the arrangements described above. The terms of our contracts
vary based on gas quality conditions, the competitive environment at the time the contracts are signed and customer
requirements. Our contract mix may change as a result of changes in producer preferences, expansion in regions where some
types of contracts are more common and other market factors.
NGL storage and pipeline transportation revenues are recognized when services are performed or products are delivered,
respectively. Fractionation and processing revenues are recognized when product is either loaded into a truck or injected into
a third party pipeline, which is when title and risk of loss pass to the customer.
We conduct marketing activities in which we market the natural gas that flows through our assets, referred to as on-system
gas. We also attract other customers by marketing volumes of natural gas that do not move through our assets, referred to as
off-system gas. For both on-system and off-system gas, we purchase natural gas from natural gas producers and other supply
points and sell that natural gas to utilities, industrial consumers, other marketers and pipeline companies, thereby generating
gross margins based upon the difference between the purchase and resale prices.
Terminalling and storage revenues are recognized at the time the services are provided. Pipeline revenues are recognized upon
delivery of the barrels to the location designated by the shipper. Crude oil acquisition and marketing revenues, as well as
refined product marketing revenues, are recognized when title to the product is transferred to the customer. Revenues are not
recognized for crude oil exchange transactions, which are entered into primarily to acquire crude oil of a desired quality or
to reduce transportation costs by taking delivery closer to end markets. Any net differential for exchange transactions is
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