Energy Transfer 2012 Annual Report Download - page 52

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During 2012, Natural Gas Exchange, Inc., Kinder Morgan, XTO and Total Gas & Power North America collectively accounted
for approximately 28% of our intrastate transportation and storage revenues.
With respect to our interstate transportation and storage operations we have an agreement with Chesapeake Energy Marketing,
Inc. that provides for a 15-year commitment for firm transportation capacity on the Tiger pipeline of approximately 1.0 Bcf/d. We
also have agreements with other shippers that provide for 10-year commitments for firm transportation capacity on the Tiger
pipeline totaling approximately 1.4 Bcf/d, bringing the total shipper commitments to approximately 2.4 Bcf/d of firm transportation
service in the Tiger pipeline project. Transwestern generates the majority of its revenues from long-term and short-term firm
transportation contracts with natural gas producers, local distribution companies and end-users. Additionally, Panhandle has long-
term transportation contracts with BG LNG Services and ProLiance, which accounted for 43% of Panhandle's 2012 revenue.
Our joint ventures, FEP and Citrus, also depend on key customers for the transport of natural gas through their pipelines. FEP
has 10-12 year agreements from a small number of major shippers for approximately 1.85 Bcf/d of firm transportation service on
the 2.0 Bcf/d Fayetteville Express Pipeline, while Citrus has 10 and 14 year agreements with its top two customers, respectively,
which accounted for 59% of its 2012 revenue.
During 2012, Chesapeake Energy Marketing, Inc., EnCana Marketing (USA), Inc. (“EnCana”), Shell Energy North America (US),
L.P. and Petrohawk Energy Corporation collectively accounted for 47% of our interstate transportation and storage revenues.
The failure of the major shippers on our and our joint ventures' intrastate and interstate transportation and storage pipelines to
fulfill their contractual obligations could have a material adverse effect on our cash flow and results of operations if we or our
joint ventures were unable to replace these customers under arrangements that provide similar economic benefits as these existing
contracts.
Our interstate pipelines are subject to laws, regulations and policies governing the rates they are allowed to charge for their
services, which may prevent us from fully recovering our costs.
Laws, regulations and policies governing interstate natural gas pipeline rates could affect the ability of our interstate pipelines to
establish rates, to charge rates that would cover future increases in its costs, or to continue to collect rates that cover current costs.
We are required to file tariff rates (also known as recourse rates) with FERC that shippers may elect to pay for interstate natural
gas transportation services. We may also agree to discount these rates on a not unduly discriminatory basis or negotiate rates with
shippers who elect not to pay the recourse rates. We must also file with FERC all negotiated rates that do not conform to our
tariff rates and all changes to our tariff or negotiated rates. FERC must approve or accept all rate filings for us to be allowed to
charge such rates.
FERC may review existing tariffs rates own initiative or upon receipt of a complaint filed by a third party. FERC may, on a
prospective basis, order refunds of amounts collected if it finds the rates to have been shown not to be just and reasonable or to
have been unduly discriminatory. FERC has recently exercised this authority with respect to several other pipeline companies,
as it had in 2007 with respect to Southwest Gas. If FERC were to initiate a proceeding against us and find that our rates were not
just and reasonable or unduly discriminatory, the maximum rates customers could elect to pay us may be reduced and the reduction
could have an adverse effect on our revenues and results of operations.
The costs of our interstate pipeline operations may increase and we may not be able to recover all of those costs due to FERC
regulation of our rates. If we propose to change our tariff rates, our proposed rates may be challenged by FERC or third parties,
and FERC may deny, modify or limit our proposed changes if we are unable to persuade FERC that changes would result in just
and reasonable rates that are not unduly discriminatory. We also may be limited by the terms of rate case settlement agreements
or negotiated rate agreements with individual customers from seeking future rate increases, or we may be constrained by competitive
factors from charging our tariff rates.
To the extent our costs increase in an amount greater than our revenues increase, or there is a lag between our cost increases and
our ability to file for, and obtain rate increases, our operating results would be negatively affected. Even if a rate increase is
permitted by FERC to become effective, the rate increase may not be adequate. We cannot guarantee that our interstate pipelines
will be able to recover all of our costs through existing or future rates.
In 2010, in response to an intervention and protest filed by BG LNG Services (BGLS) regarding its rates with Trunkline LNG
applicable to certain LNG expansions, FERC determined that there was no reason at that time to expend FERC's resources on a
rate proceeding with respect to Trunkline LNG even though cost and revenue studies provided by the Company to FERC indicated
Trunkline LNG's revenues were in excess of its associated cost of service. However, since the current fixed rates expire at the
end of 2015 and revert to tariff rate for these LNG expansions as well as the base LNG facilities for which rates were set in 2002,
a rate proceeding could be initiated at that time and result in significant revenue reductions if the cost of service remains lower
than revenues.
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