Related Party Transactions

12 Months Ended

Dec. 31, 2011

We serve HFC’s refineries under long-term pipeline and terminal, tankage and throughput agreements expiring in 2019 to 2026. Under these agreements, HFC agreed to transport, store and throughput volumes of refined product and crude oil on our pipelines and terminal, tankage and loading rack facilities that result in minimum annual payments to us. These minimum annual payments or revenues are subject to annual tariff rate adjustments on July 1, based on the Producer Price Index (“PPI”) or the Federal Energy Regulatory Commission (“FERC”) index. As of December 31, 2011, these agreements with HFC will result in minimum annualized payments to us of $192 million.

If HFC fails to meet its minimum volume commitments under the agreements in any quarter, it will be required to pay us in cash the amount of any shortfall by the last day of the month following the end of the quarter. Under certain of the agreements, a shortfall payment may be applied as a credit in the following four quarters after minimum obligations are met.

In November 2011, we reached an agreement with HFC that clarifies certain terms of a crude pipelines and tankage throughput agreement, whereby HFC agreed to pay us $5.5 million for certain past deliveries on our crude pipeline system. We recognized this settlement as revenue in the fourth quarter of 2011 that will be billed in six equal quarterly installments through March 2013.

Under certain provisions of an omnibus agreement we have with HFC (the “Omnibus Agreement”), we pay HFC an annual administrative fee for the provision by HFC or its affiliates of various general and administrative services to us, currently $2.3 million. This fee does not include the salaries of pipeline and terminal personnel or the cost of their employee benefits, which are charged to us separately by HFC. Also, we reimburse HFC and its affiliates for direct expenses they incur on our behalf.

Related party transactions with HFC are as follows:


•	Revenues received from HFC were $167.6 million, $146.4 million and $101.4 million for the years ended December 31, 2011, 2010 and 2009, respectively.


•	HFC charged general and administrative services under the Omnibus Agreement of $2.3 million for each of the years ended December 31, 2011, 2010 and 2009.


•	We reimbursed HFC for costs of employees supporting our operations of $21.4 million, $18.6 million and $17 million for the years ended December 31, 2011, 2010 and 2009, respectively.


•	HFC reimbursed us $11.9 million, $3.7 million and $1.7 million for certain costs paid on their behalf for the years ended December 31, 2011, 2010 and 2009, respectively.


•	We paid HFC a $2.5 million finder’s fee in connection the acquisition of our 25% joint venture interest in the SLC Pipeline in the first quarter of 2009.


•	We distributed $40.6 million, $35.9 million and $29.5 million for the years ended December 31, 2011, 2010 and 2009, respectively, to HFC as regular distributions on its common units, subordinated units and general partner interest, including general partner incentive distributions.


•	Accounts receivable from HFC were $31 million and $19 million at December 31, 2011 and 2010, respectively.


•	Accounts payable to HFC were $5.3 million and $3.9 million at December 31, 2011 and 2010, respectively.

•

Revenues for the years ended December 31, 2011, 2010 and 2009 include $3.3 million, $3.6 million and $2.4 million, of shortfall payments billed in 2010, 2009 and 2008, respectively, as HFC did not exceed its minimum volume commitment in any of the subsequent four quarters in 2011, 2010 and 2009. Deferred revenue in the consolidated balance sheets at December 31, 2011 and 2010 includes $4 million and $3.3 million, respectively, related to certain shortfall billings. It is possible that HFC may not exceed its minimum obligations to receive credit for any of the $4 million deferred at December 31, 2011.


•	We acquired various pipeline, terminal and tankage assets from HFC in 2011, 2010 and 2009. See Note 3 for a description of these transactions.

- Definition

The entire disclosure for related party transactions, including the nature of the relationship(s), a description of the transactions, the amount of the transactions, the effects of any change in the method of establishing the terms of the transaction from the previous period, stated interest rate, expiration date, terms and manner of settlement per the agreement with the related party, and amounts due to or from related parties. If the entity and one or more other entities are under common ownership or management control and this control affects the operating results or financial position, disclosure includes the nature of the control relationship even if there are no transactions between the entities. Disclosure may also include the aggregate amount of current and deferred tax expense for each statement of earnings presented where the entity is a member of a group that files a consolidated tax return, the amount of any tax related balances due to or from affiliates as of the date of each statement of financial position presented, the principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to the members of the group and the nature and effect of any changes in that method. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

+ References

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+ Details