Energy Transfer 2010 Annual Report Download - page 140

Our propane operations grant credit to their customers for the purchase of propane and propane-related
products. Included in accounts receivable are trade accounts receivable arising from HOLP’s retail and
wholesale propane and Titan’s retail propane operations and receivables arising from liquids marketing
activities. Accounts receivable for retail and wholesale propane operations are recorded as amounts are
billed to customers less an allowance for doubtful accounts. The allowance for doubtful accounts for the
propane segment is based on management’s assessment of the realizability of customer accounts, based on
the overall creditworthiness of our customers and any specific disputes.
We enter into netting arrangements with counterparties of derivative contracts to mitigate credit risk.
Transactions are confirmed with the counterparty and the net amount is settled when due. Amounts
outstanding under these netting arrangements are presented on a net basis in the consolidated balance sheets.
Inventories
Inventories consist principally of natural gas held in storage valued at the lower of cost or market utilizing
the weighted-average cost method. Propane inventories are also valued at the lower of cost or market
utilizing the weighted-average cost of propane delivered to the customer service locations, including storage
fees and inbound freight costs. The cost of appliances, parts and fittings is determined by the first-in,
first-out method.
Inventories consisted of the following:
December 31,
2010 2009
Natural gas and NGLs, excluding propane $ 168,378 $ 157,103
Propane 76,341 66,686
Appliances, parts and fittings and other 117,339 166,165
Total inventories $ 362,058 $ 389,954
We utilize commodity derivatives to manage price volatility associated with our natural gas inventory. In
April 2009, we began designating certain of these derivatives as fair value hedges for accounting purposes.
Subsequent to the designation of those fair value hedging relationships, changes in fair value of the
designated hedged inventory have been recorded in inventory on our consolidated balance sheet and cost of
products sold in our consolidated statements of operations.
During 2009, we recorded lower of cost or market adjustments of $54.0 million and fair value adjustments
related to our application of fair value hedging of $66.1 million.
Exchanges
Exchanges consist of natural gas and NGL delivery imbalances (over and under deliveries) with others.
These amounts, which are valued at market prices or weighted average market prices pursuant to contractual
imbalance agreements, turn over monthly and are recorded as exchanges receivable or exchanges payable on
our consolidated balance sheets. These imbalances are generally settled by deliveries of natural gas or
NGLs, but may be settled in cash, depending on contractual terms.
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