Energy Transfer 2010 Annual Report Download - page 49

minor incident to six months or more for a major interruption. Any event that interrupts the revenues generated
by our operations, or which causes us to make significant expenditures not covered by insurance, could reduce
our cash available for paying distributions to our Unitholders and, accordingly, adversely affect the market price
of our Common Units.
As a result of market conditions, premiums and deductibles for certain insurance policies can increase
substantially, and in some instances, certain insurance may become unavailable or available only for reduced
amounts of coverage. As a result, we may not be able to renew existing insurance policies or procure other
desirable insurance on commercially reasonable terms, if at all. If we were to incur a significant liability for
which we were not fully insured, it could have a material adverse effect on our financial position and results of
operations. In addition, the proceeds of any such insurance may not be paid in a timely manner and may be
insufficient if such an event were to occur.
Terrorist attacks aimed at our facilities could adversely affect our business, results of operations, cash flows
and financial condition.
Since the September 11, 2001 terrorist attacks on the United States, the United States government has issued
warnings that energy assets, including our nation’s pipeline infrastructure, may be the future target of terrorist
organizations. Any terrorist attack on our facilities or pipelines or those of our customers could have a material
adverse effect on our business.
Sudden and sharp propane price increases that cannot be passed on to customers may adversely affect our
profit margins.
The propane industry is a “margin-based” business in which gross profits depend on the excess of sales prices
over supply costs. As a result, our profitability is sensitive to changes in energy prices, and in particular, changes
in wholesale prices of propane. When there are sudden and sharp increases in the wholesale cost of propane, we
may be unable to pass on these increases to our customers through retail or wholesale prices. Propane is a
commodity and the price we pay for it can fluctuate significantly in response to changes in supply or other
market conditions over which we have no control. In addition, the timing of cost pass-throughs can significantly
affect margins. Sudden and extended wholesale price increases could reduce our gross profits and could, if
continued over an extended period of time, reduce demand by encouraging our retail customers to conserve their
propane usage or convert to alternative energy sources.
Our results of operations could be negatively impacted by price and inventory risk related to our propane
business and management of these risks.
We generally attempt to minimize our cost and inventory risk related to our propane business by purchasing
propane on a short-term basis under supply contracts that typically have a one-year term and at a cost that
fluctuates based on the prevailing market prices at major delivery points. In order to help ensure adequate supply
sources are available during periods of high demand, we may purchase large volumes of propane during periods
of low demand or low price, which generally occur during the summer months, for storage in our facilities, at
major storage facilities owned by third parties or for future delivery. This strategy may not be effective in
limiting our cost and inventory risks if, for example, market, weather or other conditions prevent or allocate the
delivery of physical product during periods of peak demand. If the market price falls below the cost at which we
made such purchases, it could adversely affect our profits.
Some of our propane sales are pursuant to commitments at fixed prices. To mitigate the price risk related to our
anticipated sales volumes under the commitments, we may purchase and store physical product and/or enter into
fixed price over-the-counter energy commodity forward contracts and options. Generally, over-the-counter
energy commodity forward contracts have terms of less than one year. We enter into such contracts and exercise
such options at volume levels that we believe are necessary to manage these commitments. The risk management
of our inventory and contracts for the future purchase of product could impair our profitability if the customers
do not fulfill their obligations.
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