Summary of Significant Accounting Policies

Revenue Recognition

Revenue for natural gas and NGL firm storage is recognized ratably over the contract period regardless of the volume of natural gas or NGL stored by the Company's customers, revenue from natural gas firm storage is also affected to a lesser extent by volumes of storage gas received and or delivered by the Company's customers. Revenue for transportation services is recognized ratably over the contract period. Transportation revenue is derived from the sale of capacity that the Company has secured on certain third party pipelines, revenues for transportation on natural gas pipelines acquired in the Seneca Lake acquisition in July 2011, and transportation revenue from placing the North-South Facilities into service in the 2012 fiscal year. Revenue from transportation services is also affected to a lesser extent by volumes of gas transported during the period. Revenue from hub services is recognized ratably over the contract period. The contract period for hub services is typically less than one year. Revenues from salt are recognized when product is shipped to the customer or when certain contractual performance requirements have otherwise been met.

Expense Classification

Storage related costs consist of the direct costs to operate the storage and transportation facilities including power, contractor and fuel costs. These costs support the revenue generated from firm storage, hub services and transportation services due to the intertwined nature of our assets. The Company's transportation related costs consist primarily of costs to procure firm transportation capacity on certain pipelines. With the acquisition of Seneca Lake and two related pipelines on July 13, 2011, transportation related costs also consist of direct costs to operate Seneca Lake's pipeline lateral and the East pipeline. In limited instances, the Company may sell inventory obtained from fuel-in-kind collections. The cost basis of this inventory will be recorded in storage related costs. Operating and administrative expenses consist of all expenses incurred by the Company other than those described above in storage and transportation related costs and depreciation and amortization. Certain operating and administrative expenses and depreciation and amortization are incurred in providing storage services, but are not included in storage and transportation related costs. These amounts were $44.3 million, $35.6 million and $33.9 million during the years ended September 30, 2012, 2011 and 2010, respectively.

Credit Risk and Concentrations

Inherent in the Company's contractual portfolio are certain credit risks. Credit risk is the risk of loss from nonperformance by suppliers, customers or financial counterparties to a contract. Inergy takes an active role in managing credit risk and has established control procedures, which are reviewed on an ongoing basis. The Company attempts to minimize credit risk exposure through credit policies and periodic monitoring procedures as well as through customer deposits, letters of credit and entering into netting agreements that allow for offsetting counterparty receivable and payable balances for certain financial transactions, as deemed appropriate.

One customer, ConEdison, accounted for approximately 14%, 16% and 18% of the Company's total revenue for the fiscal years ended September 30, 2012, 2011 and 2010, respectively. No other customer accounted for 10% or more of the Company's total revenue in those years. All ConEdison revenues are captured in the storage and transportation segment.

ConEdison accounted for 11% and 13% of the Company's consolidated accounts receivable at September 30, 2012 and 2011, respectively.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates.

Inventories

Inventories for storage and transportation operations, consisting primarily of natural gas, are stated at the lower of cost or market and are computed predominantly using the average cost method. Inventories for salt operations are stated at the lower of cost or market, cost being principally determined on the first-in, first-out method. All costs associated with the production of finished goods at the salt production facility are captured as inventory costs.

Property, Plant and Equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation. The Company capitalizes all construction related direct labor and material costs as well as the cost of funds used during construction. Amounts capitalized for cost of funds used during construction amounted to $5.3 million, $8.7 million and $6.4 million for the years ended September 30, 2012, 2011 and 2010, respectively. Depreciation is computed by the straight-line method over the estimated useful lives of the assets, as follows:



	Years
Land, improvements and buildings	15-25
Office furniture and equipment	3-7
Vehicles	3-5
Base gas	10
Plant equipment	3-20

Salt deposits are depleted on a unit of production method. Maintenance and repairs are charged to expense as incurred.

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such events or changes in circumstances are present, a loss is recognized if the carrying value of the asset is in excess of the sum of the undiscounted cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company has not identified any indicators that suggest the carrying amount of an asset may not be recoverable for the period ended September 30, 2012.

Identifiable Intangible Assets

Intangible assets acquired in the acquisition of a business are required to be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer's intent to do so. Deferred financing costs represent financing costs incurred in obtaining financing and are being amortized over the term of the related debt.

The Company has recorded certain identifiable intangible assets, which are amortized on a straight-line basis over their estimated economic lives, as follows:



	Weighted-Average Life (years)
Customer accounts	19.5
Deferred financing costs	5.0

Estimated amortization, including amortization of deferred financing costs reported as interest expense, for the next five years ending September 30, is as follows (in millions):



Year Ending September 30,
2013	$	3.1
2014	3.1
2015	3.1
2016	3.1
2017	2.1

Goodwill

Goodwill is recognized for various acquisitions by the Company as the excess of the cost of the acquisitions over the fair value of the related net assets at the date of acquisition. Goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test.

In connection with the goodwill impairment evaluation, the Company identified two reporting units. The carrying value of each reporting unit is determined by assigning the assets and liabilities, including the existing goodwill and intangible assets, to the reporting units as of the date of the evaluation on a specific identification basis. To the extent a reporting unit's carrying value exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the second step of the impairment test must be performed. In the second step, the implied fair value of the goodwill is determined by allocating the fair value to all of its assets (recognized and unrecognized) and liabilities to its carrying amount.

The Company completed its annual impairment test for each of its reporting units and determined that no impairment existed as of September 30, 2012.

Income Taxes

The Company and its majority unitholder, Inergy, are generally not subject to federal or state income tax. Therefore, the earnings of the Company are included in the federal and state income tax returns of its common unitholders and, as a result of Inergy's majority ownership interest in the Company, the individual partners of Inergy. Net earnings for financial statement purposes may differ significantly from taxable income reportable to unitholders as a result of differences between the tax basis and the financial reporting basis of assets and liabilities and the taxable income allocation requirements under the Company's partnership agreement.

Cash and Cash Equivalents

The Company defines cash equivalents as all highly liquid investments with maturities of three months or less when purchased.

Income Per Unit

The Company calculates basic net income per limited partner unit by utilizing the two class method. Net income available to partners and the weighted-average number of units outstanding are presented only for the period subsequent to the IPO on December 21, 2011. Earnings (net income available to partners) of US Salt is presented only for the period subsequent to the acquisition on May 14, 2012. Basic and diluted net income per unit are the same, as there are no potentially dilutive units outstanding at September 30, 2012.

Fair Value

The carrying amounts of cash, accounts receivable, accounts payable and debt approximate their fair value.

Transactions with Inergy and Inergy Propane, LLC

Inergy, through its subsidiary Inergy Propane, LLC, has historically provided the Company with funding to support its acquisition, capital expansion and working capital needs. The amounts provided by Inergy to finance acquisitions were considered to be permanent investments by Inergy and have accordingly been classified as parent company's investment on the consolidated financial statements of the Company. Amounts financed to support capital expansion and working capital needs, net of what the Company provided to Inergy Propane, LLC, were considered to be loans and were classified as payable to Inergy Propane, LLC and Inergy on the Company's consolidated financial statements. In connection with the Company's IPO on December 21, 2011, Inergy and Inergy Propane, LLC extinguished $152.8 million of indebtedness owed by the Company, which was treated as a capital contribution by Inergy.

Subsequent to the IPO, the Company intends to use its revolving credit facility to finance acquisitions and its capital expansion and working capital needs.

Interest on intercompany loans provided by Inergy was historically charged on the loan balances during the period of construction of the Company's expansion projects.

Allocation of Expenses

The Company shares common management, operating and administrative and overhead costs with Inergy. The shared costs allocated to the Company totaled $12.3 million (including $5.8 million of unit-based compensation charges) and $9.8 million for the years ended September 30, 2012 and 2011, respectively. In conjunction with its IPO, the Company entered into an Omnibus Agreement with Inergy that requires the Company to reimburse Inergy for all shared costs incurred on its behalf. As the Omnibus Agreement was not in place for the prior period, management estimated an allocation of these costs and this amount has been reflected in the financial statements. Management believes the assumptions and allocations were made on a reasonable basis. Due to the nature of these shared costs, it is not practicable to estimate what the costs would have been on a stand-alone basis. Accordingly, the accompanying financial statements may not necessarily be indicative of the conditions that would have existed, or the results of operations that would have occurred, if the Company had operated as a stand-alone entity.

Comprehensive Income (Loss)

Comprehensive income includes net income and other comprehensive income. Other comprehensive income includes the realized loss on a derivative instrument that the Company entered into to hedge the purchase of base gas for one storage facility. The amount included in other comprehensive income associated with this derivative is being reclassified to earnings over the same period that the hedged base gas is recorded in earnings. The amount reclassified to earnings was for the year ended September 30, 2012.

Property Tax Receivable

The Company receives property tax benefits under New York's Empire State Development program. The amounts due to be refunded to the Company under this program amounted to $5.7 million and $2.4 million as of September 30, 2012 and 2011, respectively. At September 30, 2012, $2.0 million of the amounts due to be refunded were classified in prepaid expenses and other current assets, and $3.7 million were classified in other long-term assets on the consolidated balance sheets. At September 30, 2011, $2.4 million were classified in prepaid expenses and other current assets on the consolidated balance sheets.

Prepaid Property Taxes

The Company prepays property taxes in certain taxing jurisdictions and thus records the amount of taxes relating to future periods in prepaid expenses and other current assets totaling $1.7 million and $1.5 million at September 30, 2012 and 2011, respectively.

Business Interruption Insurance

In December 2010, the Stagecoach natural gas storage facility experienced an event that caused damage to various components at its Stagecoach central compressor station near Owego, New York. The loss event caused the Company to incur additional costs to maintain operations, and revenues were lost in addition to the damage to the compressor equipment. The Company is insured for such matters and has recorded $1.1 million, $3.4 million, and $2.1 million during fiscal 2012 to hub services revenues, storage related costs, and property plant and equipment, respectively, for insurance recoveries. The Company has accounted for the recoveries of business interruption insurance losses in accordance with Accounting Standards Codification 225 and recorded the yet to be collected insurance proceeds totaling $0.7 million in prepaid expenses and other current assets on the Company's balance sheet as of September 30, 2012.

Construction Work in Process Accrual

The Company has accrued for certain construction work in process relating to construction efforts on various growth projects. At September 30, 2012 the Company had accrued $40.3 million relating to construction work in process, of which $39.4 million was classified as accrued expenses, and $0.9 million was classified as accounts payable on the consolidated balance sheets. At September 30, 2011 the Company had accrued $15.4 million relating to construction work in process, of which $9.1 million was classified as accrued expenses, and $6.3 million was classified as accounts payable on the consolidated balance sheets.

Asset Retirement Obligations

An asset retirement obligation ("ARO") is an estimated liability for the cost to retire a tangible asset. The fair value of these AROs could not be made as settlement dates (or range of dates) associated with these assets were not estimable.

Accounting for Unit-Based Compensation

The Company has a unit-based employee compensation plan and all share-based payments to employees, including grants of employee stock options, are recognized in the income statement based on their fair values. The amount of compensation expense recorded by the company during the year ended September 30, 2012 was $6.5 million ($5.8 million allocated by Inergy for Inergy units and $0.7 million for Inergy Midstream units). The amount of compensation expense allocated to the Company during the years ended September 30, 2011 and 2010, was $1.8 million and $3.5 million, respectively.

Segment Information

There are certain accounting requirements that establish standards for reporting information about operating segments, as well as related disclosures about products and services, geographic areas and major customers. Further, they define operating segments as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. In determining its reportable segments, the Company examined the way it organizes its business internally for making operating decisions and assessing business performance. See Note 12 for disclosures related to the Company's storage and transportation and salt segments.

Non-controlling Interest

The non-controlling interest on the consolidated statement of operations is related entirely to minority partners in the Company's Steuben natural gas storage facility. The non-controlling interest was acquired during the year ended September 30, 2010.

Recently Issued Accounting Pronouncements

In June 2011 the FASB issued Accounting Standards Update No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). Under ASU 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity will be required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. Furthermore, regardless of the presentation methodology elected, the entity will be required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income. In December 2011, the FASB issued Accounting Standards Update No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" ("ASU 2011-12") which deferred this requirement in order to allow the FASB more time to determine whether reclassification adjustments should be required to be presented on the face of the financial statements. The amendments contained in ASUs 2011-05 and 2011-12 do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments also do not affect how earnings per share is calculated or presented. The Company adopted ASUs 2011-05 and 2011-12 in the fourth quarter of the year ended September 30, 2012. The Company elected to present the total of comprehensive income in two separate but consecutive statements.