UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-K

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number ENERGY TRANSFER EQUITY, L.P. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 3738 Oak Lawn Avenue, Dallas, Texas (Address of principal executive offices) (zip code) Registrant s telephone number, including area code: (214) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Units New York Stock Exchange Securities registered pursuant to section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No È Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes È No Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes È No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer È Accelerated filer Non-accelerated filer Smaller reporting company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No È The aggregate market value as of June 30, 2010, of the registrant s Common Units held by non-affiliates of the registrant, based on the reported closing price of such Common Units on the New York Stock Exchange on such date, was $3.83 billion. Common Units held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Units have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. At February 22, 2011, the registrant had 222,942,708 Common Units outstanding.

2 TABLE OF CONTENTS PART I PAGE ITEM 1. BUSINESS... 2 ITEM 1A. RISK FACTORS ITEM 1B. UNRESOLVED STAFF COMMENTS ITEM 2. PROPERTIES ITEM 3. LEGAL PROCEEDINGS ITEM 4. [RESERVED]... PART II ITEM 5. MARKET FOR REGISTRANT S COMMON UNITS, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES ITEM 6. SELECTED FINANCIAL DATA ITEM 7. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ITEM 9A. CONTROLS AND PROCEDURES ITEM 9B. OTHER INFORMATION PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES Signatures ii

3 PART I Forward-Looking Statements Certain matters discussed in this report, excluding historical information, as well as some statements by Energy Transfer Equity, L.P. ( Energy Transfer Equity, the Partnership or ETE ) in periodic press releases and some oral statements of the Partnership s officials during presentations about the Partnership, include forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as anticipate, believe, intend, project, plan, expect, continue, estimate, goal, forecast, may, will, or similar expressions help identify forwardlooking statements. Although the Partnership and its general partner believe such forward-looking statements are based on reasonable assumptions and current expectations and projections about future events, no assurance can be given that such assumptions, expectations or projections will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the Partnership s actual results may vary materially from those anticipated, estimated, projected or expected. When considering forward-looking statements, please read the section titled Risk Factors included under Item 1A of this annual report. Definitions The following is a list of certain acronyms and terms generally used in the energy industry and throughout this document: /d per day Bbls barrels Btu British thermal unit, an energy measurement. A therm factor is used by gas companies to convert the volume of gas used to its heat equivalent, and thus calculate the actual energy used Capacity capacity of a pipeline, processing plant or storage facility refers to the maximum capacity under normal operating conditions and, with respect to pipeline transportation capacity, is subject to multiple factors (including natural gas injections and withdrawals at various delivery points along the pipeline and the utilization of compression) which may reduce the throughput capacity from specified capacity levels Dth million British thermal units ( dekatherm ). A therm factor is used by gas companies to convert the volume of gas used to its heat equivalent, and thus calculate the actual energy used Mcf thousand cubic feet MMBtu million British thermal units MMcf million cubic feet Bcf billion cubic feet NGL natural gas liquid, such as propane, butane and natural gasoline Tcf trillion cubic feet LIBOR London Interbank Offered Rate NYMEX New York Mercantile Exchange Reservoir a porous and permeable underground formation containing a natural accumulation of producible natural gas and/or oil that is confined by impermeable rock or water barriers and is separate from other reservoirs WTI West Texas Intermediate Crude 1

4 ITEM 1. BUSINESS Overview We are a publicly traded Delaware limited partnership. Our Common Units are publicly traded on the New York Stock Exchange ( NYSE ) under the ticker symbol ETE. We were formed in September 2002 and completed our initial public offering in February Unless the context requires otherwise, references to we, us, our, the Partnership and ETE shall mean Energy Transfer Equity, L.P. and its consolidated subsidiaries, which include Energy Transfer Partners, L.P. ( ETP ); Energy Transfer Partners GP, L.P. ( ETP GP ), the general partner of ETP; Energy Transfer Partners, L.L.C. ( ETP LLC ), ETP GP s general partner; Regency Energy Partners LP ( Regency ); Regency GP LP ( Regency GP ), the general partner of Regency; and Regency GP LLC ( Regency LLC ), Regency GP s general partner. References to the Parent Company shall mean ETE on a stand-alone basis. The Parent Company s only cash generating assets are its direct and indirect investments in limited partner and general partner interests in ETP and Regency, both of which are publicly traded master limited partnerships engaged in diversified energy-related services. At December 31, 2010, our interests in ETP and Regency consisted of: General Partner Interest (as a % of total partnership interest) Incentive Distribution Rights ( IDRs ) Limited Partner Units ETP 1.8% 100% 50,226,967 Regency 2.0% 100% 26,266,791 We acquired our equity interests in Regency in a series of transactions, which we refer to as the Regency Transactions, that were completed on May 26, In the Regency Transactions, the Parent Company: acquired the general partner interest and IDRs in Regency in exchange for 3,000,000 Series A Convertible preferred units ( the Preferred Units ) having an aggregate liquidation preference of $300.0 million; acquired from ETP an indirect 49.9% interest in Midcontinent Express Pipeline LLC ( MEP ), ETP s joint venture with Kinder Morgan Energy Partners, L.P. ( KMP ) to operate the Midcontinent Express Pipeline, and an option to acquire an additional 0.1% interest in MEP in exchange for the redemption by ETP of approximately 12.3 million ETP Common Units we previously owned; and, acquired 26.3 million Regency Common Units in exchange for our contribution to Regency of all interests in MEP acquired by the Parent Company from ETP, including the option to acquire an additional 0.1% interest. The Parent Company s principal sources of cash flow have been distributions it receives from its direct and indirect investments in limited and general partner interests of its subsidiaries. The Parent Company s primary cash requirements are for distributions to its partners and holders of the Preferred Units, general and administrative expenses and debt service requirements. The Parent Company-only assets and liabilities are not available to satisfy the debts and other obligations of ETP, Regency or their respective subsidiaries. 2

5 The following is a brief description of ETP s and Regency s operations: ETP is a publicly traded partnership owning and operating a diversified portfolio of energy assets. ETP has pipeline operations in Arkansas, Arizona, Colorado, Louisiana, Mississippi, New Mexico, Utah and West Virginia and owns the largest intrastate pipeline system in Texas. ETP currently has natural gas operations that include more than 17,500 miles of gathering and transportation pipelines, treating and processing assets, and three storage facilities located in Texas. ETP is also one of the three largest retail marketers of propane in the United States, serving more than one million customers across the country. Regency is a publicly traded Delaware limited partnership formed in 2005 engaged in the gathering, treating, processing, compression and transportation of natural gas and NGLs. Regency focuses on providing midstream services in some of the most prolific natural gas producing regions in the United States, including the Haynesville, Eagle Ford, Barnett, Fayetteville and Marcellus shales as well as the Permian Delaware basin. Its assets are primarily located in Louisiana, Texas, Arkansas, Pennsylvania, Mississippi, Alabama and the mid-continent region of the United States, which includes Kansas, Colorado and Oklahoma. In order to fully understand the financial condition and results of operations of the Parent Company on a standalone basis, we have included herein discussions of Parent Company matters apart from those of our consolidated group. Significant Achievements in 2010 Our significant achievements included the following, as discussed in more detail herein: The Parent Company acquired a controlling interest in Regency through a series of transactions on May 26, Those interests comprise of 26,266,791 of Regency s Common Units, 100% general partner interest and 100% of IDRs. The Parent Company completed the issuance of an aggregate principal amount $1.8 billion of Senior Notes in September ETP Related ETP acquired a natural gas gathering company, which provides dehydration, treating, redelivery and compression services on a 120-mile pipeline system in the Haynesville Shale for approximately $150.0 million in cash, excluding certain adjustments as defined in the purchase agreement. The gas gathering system has 275 MMcf/d of capacity and 480 MMcf/d of treating capacity. ETP completed construction of Fayetteville Express pipeline ahead of ETP s original timeline and significantly below its original cost estimates. The Fayetteville Express pipeline is an approximately 185-mile natural gas pipeline that originates in Conway County, Arkansas, continues eastward through White County, Arkansas and terminates at an interconnect with Trunkline Gas Company in Panola County, Mississippi. The pipeline has a capacity to transport 2.0 Bcf/d, which is supported by long term contracts ranging from 10 to 12 years for transportation. Fayetteville Express Pipeline LLC ( FEP ) is a 50/50 joint venture between ETP and KMP. ETP completed construction of its Tiger pipeline ahead of its original timeline and significantly below its original cost estimates. The Tiger pipeline is an approximately 175-mile interstate natural gas pipeline that connects to its dual 42-inch pipeline system near Carthage, Texas, extends through the heart of the Haynesville Shale and ends near Delhi, Louisiana, with interconnects to at least seven interstate pipelines at various points in Louisiana. The pipeline has an initial capacity of 2.0 Bcf/d. On February 3, 2011, the Federal Energy Regulatory Commission ( FERC ) approved a planned expansion project which will increase the total capacity of the pipeline to 2.4 Bcf/d, all of which is sold under long-term contracts ranging from 10 to 15 years. 3

6 ETP completed the Lumberjack pipeline - a 63-mile natural gas pipeline to provide additional transportation, gathering and treating services to the Haynesville Shale region. The pipeline originates in Shelby County, Texas, and terminates in Nacogdoches County, Texas. This pipeline was placed into partial service in August 2010, and full service began in December This project consists of 20- and 24-inch pipe and has an initial capacity of 645 MMcf/d. The pipeline interconnects with two interstate pipelines in addition to its Houston Pipe Line System ( HPL System ). ETP completed a 50-mile, 24-inch pipeline that originates in Northwest Webb County, Texas and extends to its existing Houston pipeline rich gas gathering system in eastern Webb County, Texas. The project in the Eagle Ford Shale, the Dos Hermanas pipeline, has a capacity of approximately 400 MMcf/d. As part of the project, approximately 6,000 horsepower of compression will be added to the HPL System. In September 2010, ETP placed in service its gathering system in the Marcellus Shale. As of December 31, 2010, ETP was gathering approximately 50 MMcf/d in the Marcellus Shale and anticipates demand volumes to increase throughout ETP increased its overall processing volumes and margins, primarily in North Texas as processing margins improved in 2010, and we expect processing conditions to remain favorable in ETP issued an aggregate of 25,894,287 ETP Common Units for total net proceeds of $1.15 billion, primarily to fund its internal growth projects and capital contributions to joint ventures and to manage its investment grade credit metrics. Regency Related In September 2010, Regency acquired Zephyr Gas Services, LLC, a Texas based field services company for approximately $193.3 million in cash. Regency issued $600.0 million aggregate principal amount of Regency Senior Notes in October Regency issued 17,537,500 Regency Common Units for proceeds of $400.2 million, net of commissions, from a public offering in August

7 Organizational Structure The following chart summarizes our organizational structure as of December 31, LE GP, LLC Preferred Unitholder 3,000,000 Preferred Units 0.3% General Partner Interest Public Unitholders 222,941,172 ETE Common Units Energy Transfer Equity, L.P. (NYSE: ETE) 99.99% Limited Partner Interest 100% Membership Interest 100% Membership Interest % Limited Partner Interest Energy Transfer Partners, L.L.C. Regency GP LLC 50,226,967 ETP Common Units 0.01% General Partner Interest 0.001% General Partner Interest 26,266,791 Regency Common Units Energy Transfer Partners GP, L.P. Regency GP LP 1.8% General Partner Interest 100% Incentive Distribution Rights Public Unitholders 142,985,623 ETP Common Units 2% General Partner Interest 100% Incentive Distribution Rights Public Unitholders 111,014,545 Regency Common Units Energy Transfer Partners, L.P. (NYSE: ETP) Regency Energy Partners LP (NASDAQ: RGNC) ETP Operating Subsidiaries Regency Operating Subsidiaries 5

8 Business Strategy Our current primary business objective is to increase cash distributions to our Unitholders by actively assisting ETP and Regency in executing their business strategies by assisting in identifying, evaluating and pursuing strategic acquisitions and growth opportunities. In general, we expect that we will allow ETP or Regency the first opportunity to pursue any acquisition or internal growth project that may be presented to us which may be within the scope of ETP and Regency s operations or business strategies. In the future, we may also support the growth of ETP and Regency through the use of our capital resources which could involve loans, capital contributions or other forms of credit support to ETP and Regency. This funding could be used for the acquisition by ETP or Regency of a business or asset or for an internal growth project. In addition, the availability of this capital could assist ETP or Regency in arranging financing for a project, reducing its financing costs or otherwise supporting a merger or acquisition transaction. Segment Overview Our reportable segments consist of our investment in ETP and our investment in Regency. The businesses within these two segments are described below. See Note 14 to our consolidated financial statements for additional financial information about our reportable segments. Investment in ETP ETP s operations include the following: Intrastate Transportation and Storage Operations Through ETP s intrastate transportation and storage operations, it owns and operates approximately 7,700 miles of natural gas transportation pipelines and three natural gas storage facilities located in the state of Texas. Through Energy Transfer Company ( ETC OLP ), ETP owns the largest intrastate pipeline system in the United States with interconnects to Texas markets and to major consumption areas throughout the United States. ETP s intrastate transportation and storage operations focuses on the transportation of natural gas to major markets from various prolific natural gas producing areas through connections with other pipeline systems as well as through ETP s Oasis pipeline, its East Texas pipeline, its natural gas pipeline and storage assets that are referred to as the Energy Transfer Fuel System ( ET Fuel System ), and its HPL System, which are described below. ETP s intrastate transportation and storage operations accounted for approximately 49%, 56% and 65% of its total consolidated operating income for the years ended December 31, 2010, 2009 and 2008, respectively. ETP s intrastate transportation and storage operations are determined primarily by the amount of capacity its customers reserve as well as the actual volume of natural gas that flows through the transportation pipelines. Under transportation contracts, ETP s customers are charged (i) a demand fee, which is a fixed fee for the reservation of an agreed amount of capacity on the transportation pipeline for a specified period of time and which obligates the customer to pay even if the customer does not transport natural gas on the respective pipeline, (ii) a transportation fee, which is based on the actual throughput of natural gas by the customer, (iii) fuel retention based on a percentage of gas transported on the pipeline, or (iv) a combination of the three, generally payable monthly. ETP also generates revenues and margin from the sale of natural gas to electric utilities, independent power plants, local distribution companies, industrial end-users and other marketing companies on its HPL System. Generally, ETP purchases natural gas from either the market (including purchases from ETP s midstream marketing operations) or from producers at the wellhead. To the extent the natural gas comes from producers, it is primarily purchased at a discount to a specified market price and typically resold to customers based on an index price. In addition, ETP s intrastate transportation and storage operations generate revenues from fees charged for storing customers working natural gas in its storage facilities and from margin from managing natural gas for ETP s own account. 6

9 Interstate Transportation Operations Through ETP s interstate transportation operations, it owns and operates approximately 2,875 miles of interstate natural gas pipeline and has a 50% interest in the joint venture that owns the 185-mile Fayetteville Express pipeline. ETP s interstate transportation operations accounted for approximately 13%, 12% and 11% of its total consolidated operating income for the years ended December 31, 2010, 2009 and 2008, respectively. The results from its interstate transportation operations are primarily derived from the fees ETP earns from natural gas transportation services and, for the Transwestern pipeline, from operational gas sales. Midstream Operations Through ETP s midstream operations, it owns and operates approximately 7,000 miles of in-service natural gas gathering pipelines, 3 natural gas processing plants, 17 natural gas treating facilities and 10 natural gas conditioning facilities. ETP s midstream operations focuses on the gathering, compression, treating, blending, processing and marketing of natural gas, and its operations are currently concentrated in major producing basins and shales, including the Austin Chalk trend and Eagle Ford Shale in South and Southeast Texas, the Permian Basin in West Texas and New Mexico, the Barnett Shale in North Texas, the Bossier Sands in East Texas, and the Uinta and Piceance Basins in Utah and Colorado, the Marcellus Shale in West Virginia, and the Haynesville Shale in East Texas and Louisiana. Many of ETP s midstream assets are integrated with its intrastate transportation and storage assets. ETP s midstream operations accounted for approximately 21%, 12% and 14% of its total consolidated operating income for the years ended December 31, 2010, 2009 and 2008, respectively. ETP s midstream operations results are derived primarily from margins ETP earns for natural gas volumes that are gathered, transported, purchased and sold through its pipeline systems and the natural gas and NGL volumes processed at its processing and treating facilities. ETP also markets natural gas on its pipeline systems in addition to other pipeline systems to realize incremental revenue on gas purchased, increase pipeline utilization and provide other services that are valued by its customers. Retail Propane Operations ETP is one of the three largest retail propane marketers in the United States based on gallons sold and serves more than one million customers through a nationwide retail distribution network consisting of approximately 440 customer service locations in approximately 40 states. ETP s propane operations extend from coast to coast with concentrations in the western, upper midwestern, northeastern and southeastern regions of the United States. ETP s propane business has grown primarily through acquisitions of retail propane operations and, to a lesser extent, through internal growth. ETP s retail propane operations accounted for approximately 17%, 20% and 10% of its total consolidated operating income for the years ended December 31, 2010, 2009 and 2008, respectively. The retail propane business is a margin-based business in which gross profits depend on the excess of sales price over propane supply cost. Consequently, the profitability of ETP s retail propane business is sensitive to changes in wholesale propane prices. ETP s retail propane business is largely seasonal and dependent upon weather conditions in its service areas, as discussed further in Industry Overview Retail Propane Operations. All Other ETP s other operations include wholesale propane and natural gas compression services. 7

10 Investment in Regency Regency s operations include the following: Gathering, Treating and Processing Operations Regency provides wellhead-to-market services to producers of natural gas, including transporting raw natural gas from the wellhead through gathering systems, treating raw natural gas to remove carbon dioxide and hydrogen sulfide, processing raw natural gas to separate NGLs and selling or delivering the pipeline-quality natural gas and NGLs to various markets and pipeline systems. Transportation Operations Regency owns an approximate 49.99% general partner interest in its RIGS Haynesville Partnership Co. joint venture ( HPC ), which delivers natural gas from northwest Louisiana to markets through the 450-mile intrastate pipeline system. Regency also owns a 49.9% interest in MEP. Contract Compression Operations Regency owns and operates a fleet of compressors used to provide turn-key natural gas compression services for customer specific systems. Contract Treating Operations Regency owns and operates a fleet of equipment used to provide treating services, such as carbon dioxide and hydrogen sulfide removal, natural gas cooling, dehydration and BTU management, to natural gas producers and midstream pipeline companies. Other Operations Regency also owns a small regulated pipeline. Asset Overview Investment in ETP The following details the assets in ETP s natural gas operations: Intrastate Transportation and Storage Operations The following details ETP s pipelines and storage facilities in its intrastate transportation and storage operations. ET Fuel System Capacity of 5.2 Bcf/d Approximately 2,600 miles of natural gas pipeline 2 storage facilities with 12.4 Bcf of total working gas capacity The ET Fuel System serves some of the most active drilling areas in the United States and is comprised of intrastate natural gas pipeline and related natural gas storage facilities. With approximately 460 receipt and/or delivery points, including interconnects with pipelines providing direct access to power plants and interconnects with other intrastate and interstate pipelines, the ET Fuel System is strategically located near high-growth production areas and provides access to the Waha Hub near Midland, Texas, the Katy Hub near Houston, Texas and the Carthage Hub in East Texas, the three major natural gas trading centers in Texas. The major shippers on its pipelines include XTO Energy, Inc. ( XTO ), EOG Resources, Inc., Chesapeake Energy Marketing, Inc., Encana Marketing (USA), Inc. ( Encana ) and Quicksilver Resources, Inc. 8

11 The ET Fuel System also includes ETP s Bethel natural gas storage facility, with a working capacity of 6.4 Bcf, an average withdrawal capacity of 300 MMcf/d and an injection capacity of 75 MMcf/d, and its Bryson natural gas storage facility, with a working capacity of 6.0 Bcf, an average withdrawal capacity of 120 MMcf/d and an average injection capacity of 96 MMcf/d. All of ETP s storage capacity on the ET Fuel System is contracted to third parties under fee-based arrangements that expire in 2011 and In addition, the ET Fuel System is integrated with ETP s Godley processing plant which gives ETP the ability to bypass the plant when processing margins are unfavorable by blending the untreated natural gas from the North Texas System with natural gas on the ET Fuel System while continuing to meet pipeline quality specifications. Oasis Pipeline Capacity of 1.2 Bcf/d Approximately 600 miles of natural gas pipeline Connects Waha to Katy market hubs The Oasis pipeline is primarily a 36-inch natural gas pipeline. It has bi-directional capability with approximately 1.2 Bcf/d of throughput capacity moving west-to-east and greater than 750 MMcf/d of throughput capacity moving east-to-west. The Oasis pipeline has many interconnections with other pipelines, power plants, processing facilities, municipalities and producers. The Oasis pipeline is integrated with ETP s Southeast Texas System and is an important component to maximizing its Southeast Texas System s profitability. The Oasis pipeline enhances the Southeast Texas System by (i) providing access for natural gas on the Southeast Texas System to other third party supply and market points and interconnecting pipelines and (ii) allowing ETP to bypass its processing plants and treating facilities on the Southeast Texas System when processing margins are unfavorable by blending untreated natural gas from the Southeast Texas System with gas on the Oasis pipeline while continuing to meet pipeline quality specifications. HPL System Capacity of 5.5 Bcf/d Approximately 4,100 miles of natural gas pipeline Bammel storage facility with 62 Bcf of total working gas capacity The HPL System is comprised of intrastate natural gas pipelines, the underground Bammel storage reservoir and related transportation assets. The system has access to multiple sources of historically significant natural gas supply reserves from South Texas, the Gulf Coast of Texas, East Texas and the western Gulf of Mexico, and is directly connected to major gas distribution, electric and industrial load centers in Houston, Corpus Christi, Texas City and other cities located along the Gulf Coast of Texas. The HPL System is well situated to gather gas in many of the major gas producing areas in Texas including the strong presence in the key Houston Ship Channel and Katy Hub markets, allowing ETP to play an important role in the Texas natural gas markets. The HPL System also offers its shippers off-system opportunities due to its numerous interconnections with other pipeline systems, its direct access to multiple market hubs at Katy, the Houston Ship Channel and Agua Dulce, and its Bammel storage facility. The Bammel storage facility has a total working gas capacity of approximately 62 Bcf, a peak withdrawal rate of 1.3 Bcf/d and a peak injection rate of 0.6 Bcf/d. The Bammel storage facility is located near the Houston Ship Channel market area and the Katy Hub and is ideally suited to provide a physical backup for on-system and off-system customers. As of December 31, 2010, ETP had approximately 21.5 Bcf committed under fee-based arrangements with third parties and approximately 39.8 Bcf stored in the facility for ETP s own account. East Texas Pipeline Capacity of 2.4 Bcf/d Approximately 370 miles of natural gas pipeline 9

12 The East Texas pipeline connects three treating facilities, one of which ETP owns, with its Southeast Texas System. The East Texas pipeline was the first phase of a multi-phased project that increased service to producers in East and North Central Texas and provided access to the Katy Hub. The East Texas pipeline expansions include the 36-inch East Texas extension to connect its Reed compressor station in Freestone County to its Grimes County compressor station, the 36-inch Katy expansion connecting Grimes to the Katy Hub, and the 42-inch Southeast Bossier pipeline connecting its Cleburne to Carthage pipeline to the HPL System. Key shippers on the East Texas pipeline include XTO and EnCana with an average of 520,000 MMBtu/d and 410,000 MMBtu/d, respectively. Interstate Transportation Operations The following details ETP s pipelines in its interstate transportation operations. Transwestern Pipeline Capacity of 2.1 Bcf/d Approximately 2,700 miles of interstate natural gas pipeline The Transwestern pipeline is an open-access interstate natural gas pipeline extending from the gas producing regions of West Texas, eastern and northwestern New Mexico, and southern Colorado primarily to pipeline interconnects off the east end of its system and to pipeline interconnects at the California border. The Transwestern pipeline has access to three significant gas basins: the Permian Basin in West Texas and eastern New Mexico; the San Juan Basin in northwestern New Mexico and southern Colorado; and the Anadarko Basin in the Texas and Oklahoma panhandle. Natural gas sources from the San Juan Basin and surrounding producing areas can be delivered eastward to Texas intrastate and mid-continent connecting pipelines and natural gas market hubs as well as westward to markets like Arizona, Nevada and California. Transwestern s Phoenix lateral pipeline, with a throughput capacity of 500 MMcf/d, connects the Phoenix area to the Transwestern mainline. Transwestern s customers include local distribution companies, producers, marketers, electric power generators and industrial end-users. Transwestern transports natural gas in interstate commerce. As a result, Transwestern qualifies as a natural gas company under the Natural Gas Act ( NGA ) and is subject to the regulatory jurisdiction of the FERC. Tiger Pipeline Initial capacity of 2.0 Bcf/d Planned expansion of 0.4 Bcf/d (expected to be completed in the second half of 2011) Approximately 175 miles of interstate natural gas pipeline See additional description of the Tiger pipeline included in Significant Achievements in 2010 above. Fayetteville Express Pipeline Initial capacity of 2.0 Bcf/d Approximately 185 miles of interstate natural gas pipeline 50/50 joint venture with KMP See additional description of the Fayetteville Express pipeline included in Significant Achievements in 2010 above. Midcontinent Express Pipeline On May 26, 2010, ETP completed the transfer of the membership interests in ETC Midcontinent Express Pipeline III, L.L.C. ( ETC MEP III ) to ETE pursuant to the Redemption and Exchange Agreement between ETP and ETE, dated as of May 10, 2010 (the MEP Transaction ). ETC MEP III owns a 49.9% membership interest 10

13 in Midcontinent Express Pipeline, LLC ( MEP ), ETP s joint venture with KMP that owns and operates the Midcontinent Express pipeline. In exchange for the membership interests in ETC MEP III, ETP redeemed 12,273,830 ETP Common Units that were previously owned by ETE. ETP also granted ETE an option to acquire the membership interests in ETC Midcontinent Express Pipeline II, L.L.C. ( ETC MEP II ). ETC MEP II owns a 0.1% membership interest in MEP. The option may not be exercised until May 27, As part of the MEP Transaction, on May 26, 2010, ETE completed the contribution of the membership interests in ETC MEP III and the assignment of its rights under the option to acquire all of the membership interests in ETC MEP II, to a subsidiary of Regency, in exchange for 26,266,791 Regency Common Units. In addition, ETE completed the acquisition of a 100% equity interest in the general partner entities of Regency from an affiliate of GE Energy Financial Services, Inc. ( GE EFS ). In exchange, ETE issued 3,000,000 Series A Convertible Preferred Units to the affiliate of GE EFS. Midstream Operations The following details ETP s assets in its midstream operations. Southeast Texas System 5,200 miles of natural gas pipeline 1 natural gas processing plant (the La Grange plant) with aggregate capacity of 240 MMcf/d 12 natural gas treating facilities with aggregate capacity of 1.5 Bcf/d 4 natural gas conditioning facilities with aggregate capacity of 670 MMcf/d The Southeast Texas System is an integrated system located in Southeast Texas that gathers, compresses, treats, processes and transports natural gas from the Austin Chalk trend. Upon completion of the Chisholm pipeline, the La Grange processing plant will also process rich gas from the Eagle Ford Shale. The Southeast Texas System is a large natural gas gathering system covering thirteen counties between Austin and Houston. This system is connected to the Katy Hub through the East Texas pipeline and is connected to the Oasis pipeline, as well as two power plants. This allows ETP to bypass its processing plants and treating facilities when processing margins are unfavorable by blending untreated natural gas from the Southeast Texas System with natural gas on the Oasis pipeline while continuing to meet pipeline quality specifications. The La Grange processing plant is a cryogenic natural gas processing plant that processes the rich natural gas that flows through ETP s system to produce residue gas and NGLs. ETP s treating facilities remove carbon dioxide and hydrogen sulfide from natural gas gathered into its system before the natural gas is introduced to transportation pipelines to ensure that the gas meets pipeline quality specifications. In addition, ETP s conditioning facilities remove heavy hydrocarbons from the gas gathered into ETP s systems so the gas can be redelivered and meet downstream pipeline hydrocarbon dew point specifications. North Texas System 160 miles of natural gas pipeline 1 natural gas processing plant (the Godley plant) with aggregate capacity of 480 MMcf/d 1 natural gas conditioning facility with capacity of 100 MMcf/d The North Texas System is an integrated system located in four counties in North Texas that gathers, compresses, treats, processes and transports natural gas from the Barnett Shale trend. The system includes ETP s Godley processing plant, which processes rich natural gas produced from the Barnett Shale and is integrated with the North Texas System and the ET Fuel System. The facility consists of a cryogenic processing plant and a conditioning facility. 11

14 Canyon Gathering System 1,390 miles of natural gas pipeline 5 natural gas conditioning facilities with aggregate capacity of 96 MMcf/d The Canyon Gathering System consists of gathering pipeline ranging in diameters from two inches to 24 inches in the Piceance and Uinta Basins of Colorado and Utah and conditioning plants. Northern Louisiana 238 miles of natural gas pipeline 5 natural gas treating facilities with aggregate capacity of 435 MMcf/d ETP s Northern Louisiana assets comprise several gathering systems in the Haynesville Shale with access to multiple markets through interconnects with several pipelines, including ETP s Tiger pipeline. ETP s Northern Louisiana assets include the Bistineau, Creedence, and Tristate Systems. Other Midstream Assets ETP s midstream operations also includes its interests in various midstream assets located in Texas, New Mexico and Louisiana, with gathering pipelines aggregating a combined capacity of approximately 115 MMcf/d, as well as one processing facility. ETP also owns gathering pipelines serving the Marcellus Shale in West Virginia with aggregate capacity of approximately 250 MMcf/d. Marketing Operations ETP conducts marketing operations in which it markets the natural gas that flows through its gathering and intrastate transportation assets, referred to as on-system gas. ETP also attracts other customers by marketing volumes of natural gas that do not move through its assets, referred to as off-system gas. For both on-system and off-system gas, ETP purchases natural gas from natural gas producers and other suppliers and sell that natural gas to utilities, industrial consumers, other marketers and pipeline companies, thereby generating gross margins based upon the difference between the purchase and resale prices of natural gas, less the costs of transportation. For the off-system gas, ETP purchases gas or acts as an agent for small independent producers that may not have marketing operations. ETP develops relationships with natural gas producers to facilitate the purchase of their production on a long-term basis. ETP believes that this business provides it with strategic insight and market intelligence, which may positively impact its expansion and acquisition strategy. Retail Propane Operations ETP s propane operations own substantially all of the bulk storage facilities at its customer service locations and have entered into long-term leases for those that it does not own. ETP believes that the increasing difficulty associated with obtaining permits for new propane distribution locations makes its high level of site ownership and control a competitive advantage. ETP owns approximately 52.1 million gallons of above-ground storage capacity at its various propane plant sites and have leased an aggregate of approximately 8.7 million gallons of underground storage facilities in Arizona, New Mexico and Texas and smaller storage facilities in other locations. ETP does not own or operate any underground propane storage facilities (excluding customer and local distribution tanks) or propane pipeline transportation assets (other than local delivery systems). The transportation of propane requires specialized equipment. The trucks and railroad tank cars used for this purpose carry specialized steel tanks that maintain the propane in a liquefied state. As of December 31, 2010, ETP utilized approximately 152 transport truck tractors, 209 transport trailers, 16 railroad tank cars, 1,848 bobtails and 3,514 other delivery and service vehicles, all of which ETP owns. As of December 31, 2010, ETP 12

15 owned approximately 1,200,000 customer storage tanks with typical capacities of 120 to 1,000 gallons that are leased or available for lease to customers. Heritage Operating, L.P. s ( HOLP ) customer storage tanks are pledged as collateral to secure the obligations of HOLP to its banks and the holders of its notes. ETP utilizes a variety of trademarks and trade names in its propane operations that it owns or has secured the right to use, including Heritage Propane, Titan Propane, and Relationships Matter. These trademarks and trade names have been registered or are pending registration before the United States Patent and Trademark Office or the various jurisdictions in which the trademarks or trade names are used. ETP believes that its strategy of retaining the names of the companies it has acquired has maintained the local identification of these companies and has been important to the continued success of these businesses. Some of ETP s most significant trade names include Balgas, Bi-State Propane, Blue Flame Gas of Charleston, Blue Flame Gas of Mt. Pleasant, Blue Flame Gas, Carolane Propane Gas, Gas Service Company, EnergyNorth Propane, Gibson Propane, Guilford Gas, Holton s L.P. Gas, Ikard & Newsom, Northern Energy, Sawyer Gas, ProFlame, Rural Bottled Gas and Appliance, ServiGas, V-1 Propane, Coast Gas, Empiregas, Flame Propane, Graves Propane, Heritage Propane Express and Synergy Gas. ETP regards its trademarks, trade names and other proprietary rights as valuable assets and believes that they have significant value in the marketing of its products. Investment in Regency The following details the assets in Regency s natural gas operations: Gathering, Treating and Processing Operations Regency operates gathering and processing assets in four geographic regions of the United States: North Louisiana, the mid-continent region of the United States, South Texas and West Texas. Regency contracts with producers to gather raw natural gas from individual wells or central receipt points, which may have multiple wells behind them, located near its processing plants, treating facilities and/or gathering systems. Following the execution of a contract, Regency connects wells and central delivery points to its gathering lines through which the raw natural gas flows to a processing plant, treating facility or directly to interstate or intrastate gas transportation pipelines. At its processing plants and treating facilities, Regency removes impurities from the raw natural gas stream and extracts the NGLs. Regency also performs a producer service function, whereby it purchases natural gas from producers at gathering systems and plants and sells this gas at downstream outlets. All raw natural gas flowing through Regency s gathering and processing facilities is supplied under gathering and processing contracts having terms ranging from month-to-month to the life of the oil and gas lease. The pipeline-quality natural gas remaining after separation of NGLs through processing is either returned to the producer or sold, for Regency s own account or for the account of the producer, at the tailgates of Regency s processing plants for delivery to interstate or intrastate gas transportation pipelines. North Louisiana Region Approximately 442 miles of natural gas pipeline 2 cryogenic natural gas processing facilities, a refrigeration plant, and a conditioning plant Regency s North Louisiana region assets gather, compress, treat and dehydrate natural gas in five Parishes (Claiborne, Union, DeSoto, Lincoln and Ouachita) of North Louisiana and Shelby County, Texas. Through the gathering and processing systems described above and their interconnections with HPC s pipeline system in North Louisiana, Regency offers producers wellhead-to-market services, including natural gas gathering, compression, processing, treating and transportation. South Texas Region Approximately 541 miles of natural gas pipeline 2 treating plants 13

16 Regency s south Texas assets gather, compress, treat and dehydrate natural gas in LaSalle, Webb, Karnes, Atascosa, McMullen, Frio and Dimmitt counties. Some of the natural gas produced in this region can have significant quantities of hydrogen sulfide and carbon dioxide that require treating to remove these impurities. The pipeline systems that gather this gas are connected to third-party processing plants and Regency s treating facilities that include an acid gas reinjection well located in McMullen County, Texas. The natural gas supply for Regency s South Texas gathering systems is derived primarily from natural gas wells located in a mature basin that generally have long lives and predictable gas flow rates. The emerging Eagle Ford shale formation lies directly under Regency s existing south Texas gathering system infrastructure. One of Regency s treating plants consists of inlet gas compression, a 60 MMcf/d amine treating unit, a 55 MMcf/ d amine treating unit and a 40 ton (per day) liquid sulfur recovery unit. This plant removes hydrogen sulfide from the natural gas stream, recovers condensate, delivers pipeline quality gas at the plant outlet and reinjects acid gas. An additional 55 MMcf/d amine treating unit is currently inactive. Regency owns a 60% interest in a joint venture that includes a treating plant in Atascosa County with a 500 gallons per minute amine treater, pipeline interconnect facilities and approximately 13 miles of 10-inch pipeline. Regency operates this plant and the pipeline for the joint venture while its joint venture partner operates a lean gas gathering system in the Edwards Lime natural gas trend that delivers to this system. West Texas Region Approximately 806 miles of natural gas pipeline 1 cryogenic natural gas processing plant Regency s gathering system assets offer wellhead-to-market services to producers in Ward, Winkler, Reeves, and Pecos counties, which surround the Waha Hub, one of Texas major natural gas market areas. As a result of the proximity of Regency s system to the Waha Hub, the Waha gathering system has a variety of market outlets for the natural gas that Regency gathers and processes, including several major interstate and intrastate pipelines serving California, the mid-continent region of the United States and Texas natural gas markets. Natural gas exploration and production drilling in this area has primarily targeted productive zones in the Permian Delaware basin and Devonian basin. These basins are mature basins with wells that generally have long lives and predictable flow rates. Regency offers producers four different levels of natural gas compression on the Waha gathering system, as compared to the two levels typically offered in the industry. By offering multiple levels of compression, Regency s gathering system is often more cost-effective for its producers, since the producer is typically not required to pay for a level of compression that is higher than the level they require. This plant was constructed in 1965, and, due to recent upgrades to state-of-the-art cryogenic processing capabilities, is a highly efficient natural gas processing plant. The Waha processing plant also includes an amine treating facility, which removes carbon dioxide and hydrogen sulfide from raw natural gas gathered before moving the natural gas to the processing plant. The acid gas is injected underground. Mid-Continent Region Approximately 3,470 miles of natural gas pipeline 1 processing plant Regency s mid-continent region includes natural gas gathering systems located primarily in Kansas and Oklahoma. Regency s mid-continent gathering assets are extensive systems that gather, compress and dehydrate low-pressure gas from approximately 1,500 wells. These systems are geographically concentrated, with each central facility located within 90 miles of the others. Regency operates its mid-continent gathering systems at low 14

17 pressures to maximize the total throughput volumes from the connected wells. Wellhead pressures are therefore adequate to allow for flow of natural gas into the gathering lines without the cost of wellhead compression. Regency also owns the Hugoton gathering system that has approximately 1,875 miles of pipeline extending over nine counties in Kansas and Oklahoma. This system is operated by a third party. Regency s mid-continent systems are located in two of the largest and most prolific natural gas producing regions in the United States, the Hugoton Basin in southwest Kansas and the Anadarko Basin in western Oklahoma. These mature basins have continued to provide generally long-lived, predictable production volume. Transportation Operations Regency owns an approximate 49.99% general partner interest in HPC, which owns RIGS, a pipeline that, delivers natural gas from Northwest Louisiana to downstream pipelines and markets through the 450-mile intrastate natural gas pipeline. Regency also owns a 49.9% interest in MEP, a joint venture entity operated by an affiliate of KMP and owning an interstate natural gas pipeline with approximately 500 miles stretching from southeast Oklahoma through northeast Texas, northern Louisiana and central Mississippi to an interconnect with the Transcontinental Gas Pipe Line system in Butler, Alabama. Contract Compression Operations The natural gas contract compression operations include designing, sourcing, owning, insuring, installing, operating, servicing, repairing and maintaining compressors and related equipment for which Regency guarantees its customers 98% mechanical availability for land installations and 96% mechanical availability for over-water installations. Regency focuses on meeting the complex requirements of field-wide compression applications, as opposed to targeting the compression needs of individual wells within a field. These field-wide applications include compression for natural gas gathering, natural gas lift for crude oil production and natural gas processing. Regency believes that it improves the stability of its cash flow by focusing on field-wide compression applications because such applications generally involve long-term installations of multiple large horsepower compression units. Regency s contract compression operations are primarily located in Texas, Louisiana, Arkansas and Pennsylvania. Contract Treating Operations Regency owns and operates a fleet of equipment used to provide treating services, such as carbon dioxide and hydrogen sulfide removal, natural gas cooling, dehydration and Btu management, to natural gas producers and midstream pipeline companies. Regency s contract treating operations are primarily located in Texas, Louisiana and Arkansas. Other Operations Regency s other operations comprise of a small regulated pipeline. The regulated pipeline owns and operates an interstate pipeline that consists of 10 miles of pipeline that extends from Harrison County, Texas to Caddo Parish, Louisiana. Industry Overview The following is a discussion of the different industries in which our subsidiaries operate. ETP and Regency both have natural gas operations, and ETP also has retail propane operations. Natural Gas Operations The midstream natural gas industry is the link between the exploration and production of natural gas and the delivery of its components to end-use markets. The midstream industry consists of natural gas gathering, 15