Energy Transfer 2012 Annual Report Download - page 49

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The accounting standards regarding hedge accounting are very complex, and even when we engage in hedging transactions that
are effective economically (whether to mitigate our exposure to fluctuations in commodity prices, or to balance our exposure to
fixed and variable interest rates), these transactions may not be considered effective for accounting purposes. Accordingly, our
consolidated financial statements may reflect some volatility due to these hedges, even when there is no underlying economic
impact at that point. It is also not always possible for us to engage in a hedging transaction that completely mitigates our exposure
to commodity prices. Our consolidated financial statements may reflect a gain or loss arising from an exposure to commodity
prices for which we are unable to enter into a completely effective hedge.
In addition, even though monitored by management, our derivatives activities can result in losses. Such losses could occur under
various circumstances, including if a counterparty does not perform its obligations under the derivative arrangement, the hedge
is imperfect, commodity prices move unfavorably related to our physical or financial positions or hedging policies and procedures
are not followed.
Our natural gas and NGL revenues depend on our customer' ability to use our pipelines and third-party pipelines over which
we have no control.
Our natural gas transportation, storage and NGL businesses depend, in part, on our customers' ability to obtain access to pipelines
to deliver gas to us and receive gas from us. Many of these pipelines are owned by parties not affiliated with us. Any interruption
of service on our pipelines or third party pipelines due to testing, line repair, reduced operating pressures, or other causes or adverse
change in terms and conditions of service could have a material adverse effect on our ability, and the ability of our customers, to
transport natural gas to and from our pipelines and facilities and a corresponding material adverse effect on our transportation and
storage revenues. In addition, the rates charged by interconnected pipelines for transportation to and from our facilities affect the
utilization and value of our storage services. Significant changes in the rates charged by those pipelines or the rates charged by
other pipelines with which the interconnected pipelines compete could also have a material adverse effect on our storage revenues
Shippers using our oil pipelines and terminals are also dependent upon our pipelines and connections to third-party pipelines to
receive and deliver crude oil and refined products. Any interruptions or reduction in the capabilities of these pipelines due to
testing, line repair, reduced operating pressures, or other causes could result in reduced volumes transported in our pipelines or
through our terminals. Similarly, if additional shippers begin transporting volume over interconnecting oil pipelines, the allocations
of pipeline capacity to our existing shippers on these interconnecting pipelines could be reduced, which also could reduce volumes
transported in its pipelines or through our terminals. Allocation reductions of this nature are not infrequent and are beyond our
control. Any such interruptions or allocation reductions that, individually or in the aggregate, are material or continue for a
sustained period of time could have a material adverse effect on our results of operations, financial position, or cash flows.
The inability to continue to access lands owned by third parties could adversely affect our ability to operate and our financial
results.
Our ability to operate our pipeline systems on certain lands owned by third parties, will depend on our success in maintaining
existing rights-of-way and obtaining new rights-of-way on those lands. We are parties to rights-of-way agreements, permits and
licenses authorizing land use with numerous parties, including, private land owners, governmental entities, native American tribes,
rail carriers, public utilities and others. Our ability to secure extensions of existing agreements, permits and licenses is essential
to our continuing business operations, and securing additional rights-of-way will be critical to our ability to pursue expansion
projects. We cannot provide any assurance that we will be able to maintain access to existing rights-of-way upon the expiration
of the current grants, that all of the rights-of-way will be obtained in a timely fashion or that we will acquire new rights-of-way
as needed.
Further, whether we have the power of eminent domain for our pipelines varies from state to state, depending upon the type of
pipeline and the laws of the particular state and the ownership of the land to which we seek access. When we exercise eminent
down rights or negotiate private agreements cases, we must compensate landowners for the use of their property and, in eminent
domain actions, such compensation may be determined by a court. The inability to exercise the power of eminent domain could
negatively affect our business if we were to lose the right to use or occupy the property on which our pipelines are located.
In addition, we do not own all of the land on which our oil terminal facilities and our retail service stations are located. We have
rental agreements for approximately 28% of the company- or dealer-operated retail service stations where we currently control
the real estate and we have rental agreements for certain logistics facilities. As such, we are subject to the possibility of increased
costs under rental agreements with landowners, primarily through rental increases and renewals of expired agreements. We are
also subject to the risk that such agreements may not be renewed. Additionally, certain facilities and equipment (or parts thereof)
used by us are leased from third parties for specific periods. Our inability to renew leases or otherwise maintain the right to utilize
such facilities and equipment on acceptable terms, or the increased costs to maintain such rights, could have a material adverse
effect on our financial condition, results of operations and cash flows.
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