marine terminal is on a long-term lease agreement through April 2014. Each of our rail terminals consist of two
to three propane tanks with capacity of between 120,000 and 270,000 gallons for storage, and two high volume
racks for loading propane into trucks. Our aggregate truck-loading capacity is approximately 400 trucks per
day. We could expand each of our terminals’ loading capacity by adding a third rack to handle future growth.
High volume submersible pumps are utilized to enable trucks to fully load within 15 minutes. Each facility also
has the ability to unload multiple railcars simultaneously. We have numerous railcar leases that allow us to
increase our storage and throughput capacity as propane demand increases. Each terminal relies on leased rail
trackage for the storage of the majority of its propane inventory in these leased railcars. These railcars mitigate
the need for larger numbers of fixed storage tanks and reduce initial capital needs when constructing a terminal.
Each railcar holds approximately 30,000 gallons of propane.
Propane Supply
Our wholesale propane business has a strategic network of supply arrangements under annual and multi-
year agreements under index-based pricing. The remaining supply is purchased on annual or month-to-month
terms to match our anticipated sale requirements. Our primary suppliers of propane include a subsidiary of DCP
Midstream, LLC, Aux Sable Liquid Products LP, Spectra Energy and BP Canada. We may also obtain supply
from our NGL storage facility in Marysville, Michigan. Our supply agreement with Spectra Energy is effective
through April 30, 2012. We are currently assessing several available options for future supply sources.
For our rail terminals, we contract for propane at various major supply points in the United States and
Canada, and transport the product to our terminals under long-term rail commitments, which provide fixed
transportation costs that are subject to prevailing fuel surcharges. We also purchase propane supply from
natural gas fractionation plants and crude oil refineries located in the Texas and Louisiana Gulf Coast. Through
this process, we take custody of the propane and either sell it in the wholesale market or store it at our facilities.
We have supply contracts with Spectra Energy for both marine terminals.
Based on the carrying value of our inventory, timing of inventory transactions and the volatility of the
market value of propane, we have historically and may periodically recognize non-cash lower of cost or market
inventory adjustments.
Customers and Contracts
We typically sell propane to retail propane distributors under annual sales agreements, negotiated each
spring, that specify floating price terms that provide us a margin in excess of our floating index-based supply
costs under our supply purchase arrangements. In the event that a retail propane distributor desires to purchase
propane from us on a fixed price basis, we sometimes enter into fixed price sales agreements with terms of
generally up to one year. We manage this commodity price risk by purchasing and storing propane, by entering
into physical purchase agreements or by entering into offsetting financial derivative instruments, with DCP
Midstream, LLC or third parties that generally match the quantities of propane subject to these fixed price sales
agreements
.
Our ability to help our clients manage their commodity price exposure by offering propane at a
fixed price may lead to improved margins and a larger customer base. Historically, approximately 75% of the
gross margin generated by our wholesale propane business is earned in the heating season months of October
through April, which corresponds to the general market demand for propane.
We had one third-party customer in our Wholesale Propane Logistics segment that accounted for greater
than 10% of our segment revenues.
Competition
The wholesale propane business is highly competitive in the mid-Atlantic, upper midwestern and
northeastern regions of the United States. Our wholesale propane business’ competitors include integrated oil
and gas and energy companies, and interstate and intrastate pipelines.
Other
For additional information on our segments, please see Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and Note 18 of the Notes to Consolidated Financial Statements
in Item 8. “Financial Statements and Supplementary Data.”
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