Energy Transfer 2010 Annual Report Download - page 91

• changes in laws and regulations to which we are subject, including tax, environmental, transportation and
employment regulations or new interpretations by regulatory agencies concerning such laws and
regulations; and
• the costs and effects of legal and administrative proceedings.
You should not put undue reliance on any forward-looking statements. When considering forward-looking
statements, please review the risks described under “Item 1A. Risk Factors” in this annual report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes the risk of loss arising from adverse changes in market rates and prices. We face market risk
from commodity variations, risks related to interest rate variations, and to a lesser extent, credit risks. From time
to time, we may utilize derivative financial instruments as described below to manage our exposure to such risks.
The United States Congress recently adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act
(HR 4173), which, among other provisions, establishes federal oversight and regulation of the over-the-counter
derivatives market and entities that participate in that market. The new legislation was signed into law by the
President on July 21, 2010 and requires the CFTC and the SEC to promulgate rules and regulations implementing
the new legislation within 360 days from the date of enactment. The CFTC has also proposed regulations to set
position limits for certain futures and option contracts in the major energy markets, although it is not possible at
this time to predict whether or when the CFTC will adopt those rules or include comparable provisions in its
rulemaking under the new legislation. The financial reform legislation may also require us to comply with
margin requirements and with certain clearing and trade-execution requirements in connection with our
derivative activities, although the application of those provisions to us is uncertain at this time. The financial
reform legislation may also require the counterparties to our derivative instruments to spin off some of their
derivatives activities to a separate entity, which may not be as creditworthy as the current counterparty. The new
legislation and any new regulations could significantly increase the cost of derivative contracts (including
through requirements to post collateral, which could adversely affect our available liquidity), materially alter the
terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce
our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less
creditworthy counterparties. If we reduce our use of derivatives as a result of legislation and regulations, our
results of operations may become more volatile and our cash flows may be less predictable.
Commodity Price Risk
For certain of our activities, we are exposed to market risks related to the volatility of natural gas, NGL and
propane prices. To manage the impact of volatility from these prices, we utilize various exchange-traded and
over-the-counter commodity financial instrument contracts. These contracts consist primarily of futures and
swaps and are recorded at fair value in the consolidated balance sheets. In general, we use derivatives to reduce
market exposure and price risk within our segments as follows:
• We use derivative financial instruments in connection with our natural gas inventory at the Bammel
storage facility by purchasing physical natural gas and then selling forward financial contracts at a price
sufficient to cover our carrying costs and provide a gross profit margin. We also use derivatives in our
intrastate transportation and storage segment to hedge the sales price of retention natural gas in excess
of consumption, a portion of volumes purchased at the wellhead from producers, and location price
differentials related to the transportation of natural gas.
• Our propane segment permits customers to guarantee the propane delivery price for the next heating
season. As we execute fixed sales price contracts with our customers, we may enter into propane futures
89