Energy Transfer 2010 Annual Report Download - page 137

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. Excess fuel retained after
consumption 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, and (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. 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.
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.
Our retail propane segment sells propane and propane-related products and services. The HOLP and Titan
customer base includes residential, commercial, industrial and agricultural customers.
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