compressing the natural gas from the wellhead or receipt point and for processing the natural gas at certain of
our processing plants. We also purchase natural gas from ConocoPhillips at the wellhead or receipt point,
transport the wellhead natural gas through our gathering systems, treat and process the natural gas, and then sell
a portion of the resulting residue natural gas and NGLs at index prices based on published index market prices.
We sell NGLs processed at certain of our plants, and sell condensate removed from the gas gathering
systems that deliver to certain of our systems under contracts to a subsidiary of DCP Midstream, LLC equal to
that subsidiary’s net weighted-average sales price, adjusted for transportation, processing and other charges
from the tailgate of the respective asset.
Please read Item 1. “Business — Natural Gas Services Segment — Customers and Contracts” and Note 5
of the Notes to Consolidated Financial Statements in Item 8. “Financial Statements and Supplementary Data.”
Merchant Arrangements
Under our merchant arrangements, we use a subsidiary of DCP Midstream, LLC (DCP Midstream
Marketing, LP) as our agent to purchase natural gas from third parties at pipeline interconnect points, as well as
residue gas from certain of our processing plants, and then resell the aggregated natural gas primarily to third
parties. DCP Midstream, LLC owns certain assets and is party to certain contractual relationships around our
Pelico system, included in our Northern Louisiana system, that are periodically used for the benefit of Pelico.
DCP Midstream, LLC is able to source natural gas upstream of Pelico and deliver it to us and is able to take
natural gas from the outlet of the Pelico system and market it downstream of Pelico. We purchase natural gas
from DCP Midstream, LLC upstream of Pelico and transport it to Pelico under a firm transportation agreement
with an affiliate. Our purchases from DCP Midstream, LLC are at DCP Midstream LLC’s actual acquisition
cost plus any transportation service charges. Volumes that exceed our on-system demand are sold to DCP
Midstream, LLC at an index-based price, less contractually agreed to marketing fees. Please read Note 5 of the
Notes to Consolidated Financial Statements in Item 8. “Financial Statements and Supplementary Data.”
Propane Supply Arrangements
We have a propane supply agreement with Spectra Energy, effective from May 1, 2008 through April 30,
2012, which provides us propane supply at our marine terminals, which are included in our Wholesale Propane
Logistics segment, for up to approximately 185 million gallons of propane annually. We are currently assessing
available options for future supply sources.
In December 2010, Spectra Energy’s international propane supplier breached its contract with Spectra
Energy by failing to make certain scheduled propane deliveries that were to be delivered to us under our
propane supply contracts with Spectra Energy. We were able to secure spot shipments on the open market at a
price higher than our contract price to cover these missing deliveries. In December 2010 Spectra Energy made a
$17.0 million payment to us to reimburse us for the damages we incurred for our open market purchases.
Transportation Arrangements
We also have a contractual arrangement with a subsidiary of DCP Midstream, LLC that provides that DCP
Midstream, LLC will pay us to transport NGLs over our Seabreeze and Wilbreeze pipelines, pursuant to
fee-based rates that will be applied to the volumes transported. DCP Midstream, LLC is the sole shipper on
these pipelines under the transportation agreements.
In conjunction with our acquisition of the Wattenberg pipeline, which is part of our NGL Logistics
segment, we signed a transportation agreement with DCP Midstream, LLC pursuant to fee-based rates that will
be applied to the volumes transported. The agreement was effective through December 31, 2010. Effective
January 1, 2011, we entered into a 10-year dedication and transportation agreement with a subsidiary of DCP
Midstream, LLC whereby certain NGL volumes produced at several of DCP Midstream, LLC’s processing
facilities are dedicated for transportation on the Wattenberg pipeline. We collect fee-based transportation
revenues under our tariff.
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