Energy Transfer 2010 Annual Report Download - page 22

guarantee that supplies of propane will be readily available in the future, we believe that our diversification of
suppliers will enable us to purchase all of our supply needs at market prices without a material disruption of our
operations if supplies are interrupted from any of our existing sources. However, increased demand for propane
in periods of severe cold weather, or otherwise, could cause future propane supply interruptions or significant
volatility in the price of propane.
Except for our agreements with Enterprise and M.P. Oils, Ltd., we typically enter into one-year supply
agreements. The percentage of contract purchases may vary from year to year. Supply contracts generally
provide for pricing in accordance with posted prices at the time of delivery or at the current prices established at
major delivery or storage points, and some contracts include a pricing formula that typically is based on these
market prices. We generally have attempted to reduce price risk by purchasing propane on a short-term basis. We
have on occasion purchased for future resale significant volumes of propane for storage during periods of low
demand, which generally occur during the summer months, at the then current market price, both at our customer
service locations and in major storage facilities. We receive our supply of propane predominately through local
production, railroad tank cars, pipeline shipments and common carrier transport.
We lease space in larger storage facilities in Arizona, New Mexico, Texas, and smaller storage facilities in other
locations, and have the opportunity to use storage facilities in additional locations when we “pre-buy” product
from sources having such facilities. We believe that we have adequate third party storage to take advantage of
supply purchasing advantages as they may occur from time to time. Access to storage facilities allows us to buy
and store large quantities of propane during periods of low demand, which generally occur during the summer
months, or at favorable prices, thereby helping to ensure a more secure supply of propane during periods of
intense demand or price instability.
Pricing Policy
Pricing policy is an essential element in the marketing of propane. We rely on regional management to set prices
based on prevailing market conditions and product cost, as well as local management input. All regional
managers are advised regularly of any changes in the posted price of each customer service location’s propane
suppliers. In most situations, we believe that our pricing methods will permit us to respond to changes in supply
costs in a manner that protects our gross margins and customer base to the extent such protection is possible. In
some cases, however, our ability to respond quickly to cost increases could occasionally cause our retail prices to
rise more rapidly than those of our competitors, possibly resulting in a loss of customers.
Environmental Matters
The operation of pipelines, plants and other facilities for gathering, compressing, treating, processing or
transporting natural gas, NGLs and other products is subject to stringent and complex federal, state and local
environmental and safety laws and regulations governing the discharge of materials into the environment or
otherwise relating to the protection of the environment. These laws and regulations can impair our business
activities that affect the environment in many ways, such as:
• restricting how we can release materials or waste products into the air, water, or soils;
• limiting or prohibiting construction activities in sensitive areas such as wetlands or areas of endangered
species habitat, or otherwise constraining how or when construction is conducted;
• requiring remedial action to mitigate pollution from former operations, or requiring plans and activities to
prevent pollution from ongoing operations; and
• imposing substantial liabilities on us for pollution resulting from our operations, including, for example,
potentially enjoining the operations of facilities if it were determined that they did not comply with permit
terms.
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