Forward-Looking Statements

This report, including information included or incorporated by reference in this report, contains forward-looking statements concerning the financial condition, results of operations, plans, objectives, future performance and business of our company and its subsidiaries. These forward-looking statements include:

• statements that are not historical in nature, but not limited to, our belief that our acquisition expertise should allow us to continue to grow through acquisitions; our belief that we will have adequate propane supply to support our retail operations; and our belief that our diversification of suppliers will enable us to meet supply needs, and

• statements preceded by, followed by or that contain forward-looking terminology including the words "believe," "expect," "may," "will," "should," "could," "anticipate," "estimate," "intend" or similar expressions.

Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties and assumptions. Actual results may differ materially from those contemplated by the forward-looking statements due to, among others, the following factors:

• weather conditions;

• price and availability of propane, and the capacity to transport to market areas;

• declining commodity price environment requiring cash collateral payments;

• the ability to pass the wholesale cost of propane through to our customers;

• costs or difficulties related to the integration of the business of our company and its acquisition targets may be greater than expected;

• governmental legislation and regulations;

• local economic conditions;

• the demand for high deliverability natural gas storage capacity in the Northeast;

• the availability of natural gas and the price of natural gas to the consumer compared to the price of alternative and competing fuels;

• our ability to successfully implement our business plan for our natural gas storage facilities;

• labor relations;

• environmental claims;

• competition from the same and alternative energy sources;

• operating hazards and other risks incidental to transporting, storing, and distributing propane;

• energy efficiency and technology trends;

• interest rates;

• the price and availability of debt and equity financing; and

• large customer defaults.

We have described under "Factors That May Affect Future Results of Operations, Financial Condition or Business" additional factors that could cause actual results to be materially different from those described in the forward-looking statements. Other factors that we have not identified in this report could also have this effect. You are cautioned not to put undue reliance on any forward-looking statement, which speaks only as of the date it was made.

General

We are a Delaware limited partnership formed to own and operate a growing retail and wholesale propane supply, marketing and distribution business. We also own and operate a growing midstream operation. We further intend to pursue our growth objectives through, among other things, future acquisitions, maintaining a high percentage of retail sales to residential customers, operating in attractive markets and focusing our operations under established, and locally recognized trade names.

We have grown primarily through acquisitions. Since the inception of our predecessor in November 1996 through September 30, 2008, we have acquired 80 companies, 74 propane companies and 6 midstream businesses, for an aggregate purchase price of approximately $1.7 billion, including working capital, assumed liabilities and acquisition costs. During the fiscal year ended September 30, 2008, we made 6 retail acquisitions, including Riverside Gas & Oil Company, Capitol Propane L.L.C., Rice Oil Co., Farm & Home Oil Retail Company LLC, Little's Gas Service, Inc. and Deerfield Valley Energy, Inc. We also acquired 2 midstream businesses: US Salt and 100% of the membership interests of ASC. ASC is the majority owner and operator of Steuben, which owns a natural gas storage facility located in Steuben County, New York, and US Salt is an industry-leading solution mining and salt production company located in Schuyler County, New York. The aggregate purchase price of these 8 acquisitions, net of cash acquired, was approximately $212.7 million. The purchase price allocation for these acquisitions has been prepared on a preliminary basis pending final asset valuation and asset rationalization, and changes are expected when additional information becomes available. Changes to final asset valuation of prior fiscal year acquisitions have been included in our consolidated financial statements but are not material.

For the fiscal year ended September 30, 2008, we sold approximately 331.9 million gallons of propane to retail customers and sold approximately 358.5 million gallons of propane to wholesale customers.

The results of operations discussed below are those of Inergy, L.P. Audited financial statements for Inergy, L.P. are included elsewhere in this Form 10-K.

The retail propane distribution business is largely seasonal due to propane's primary use as a heating source in residential and commercial buildings. As a result, cash flows from operations are generally highest from November through April when customers pay for propane purchased during the six-month peak heating season of October through March. Our propane operations generally experience net losses in the six-month, off season of April through September.

Because a substantial portion of our propane is used in the weather-sensitive residential markets, the temperatures realized in our areas of operations, particularly during the six-month peak heating season, have a significant effect on our financial performance. In any given area, warmer-than-normal temperatures will tend to result in reduced propane use, while sustained colder-than-normal temperatures will tend to result in greater propane use. Therefore, we use information on normal temperatures in understanding how historical results of operations are affected by temperatures that are colder or warmer than normal and in preparing forecasts of future operations, which are based on the assumption that normal weather will prevail in each of our operating regions. "Heating degree days" are a general indicator of how weather impacts propane usage and are calculated for any given period by adding the difference between 65 degrees and the average temperature of each day in the period (if less than 65 degrees).

In determining actual and normal weather for a given period of time, we compare the actual number of heating degree days for the period to the average number of heating degree days for a longer, historical time period assumed to more accurately reflect the average normal weather, in each case as such information is published by the National Oceanic and Atmospheric Administration, for each measuring point in each of our regions. When we discuss "normal" weather in our results of operations presented below we are referring to a 30-year average consisting of the years 1978 through 2008. We then calculate weighted averages, based on retail volumes

attributable to each measuring point, of actual and normal heating degree days within each region. Based on this information, we calculate a ratio of actual heating degree days to normal heating degree days, first on a regional basis consistent with our operational structure and then on a partnership-wide basis.

The retail propane business is a "margin-based" business where the level of profitability is largely dependent on the difference between sales prices and product cost. The unit cost of propane is subject to volatile changes as a result of product supply or other market conditions. Propane unit cost changes can occur rapidly over a short period of time and can impact margins as sales prices may not change as rapidly. There is no assurance that we will be able to fully pass on product cost increases, particularly when product costs increase rapidly. We have generally been successful in passing on higher propane costs to our customers and have historically maintained or increased our gross margin per gallon in periods of rising costs. In periods of increasing costs, we have experienced a decline in our gross profit as a percentage of revenues. In addition, during those periods we have historically experienced conservation of propane gallons used by our customers which has resulted in a decline in gross profit. In periods of decreasing costs, we have experienced an increase in our gross profit as a percentage of revenues. There is no assurance that because propane prices decline customers will use more propane and thus historical gallon sales declines we're attributed to customer conservation will increase. Propane is a by-product of crude oil refining and natural gas processing and, therefore, its cost tends to correlate with the price fluctuations of these underlying commodities. The prices of crude oil and natural gas have maintained historically high costs in 2006, 2007 and 2008, and propane has also been at historically high costs. As such, our selling prices have been at higher levels in order to attempt to maintain our historical gross margin per gallon. Retail sales generate significantly higher margins than wholesale sales, and sales to residential customers generally generate higher margins than sales to our other retail customers.

We believe our wholesale supply, marketing and distribution business complements our retail distribution business. Through our wholesale operations, we distribute propane and also offer price risk management services to propane retailers, resellers and other related businesses as well as energy marketers and dealers, through a variety of financial and other instruments, including:

• forward contracts involving the physical delivery of propane;

• swap agreements which require payments to (or receipt of payments from) counterparties based on the differential between a fixed and variable price for propane; and

• options, futures contracts on the New York Mercantile Exchange and other contractual arrangements.

We engage in derivative transactions to reduce the effect of price volatility on our product costs and to help ensure the availability of propane during periods of short supply. We attempt to balance our contractual portfolio by purchasing volumes only when we have a matching purchase commitment from our wholesale customers. However, we may experience net unbalanced positions from time to time.

Results of Operations

Fiscal Year Ended September 30, 2008 Compared to Fiscal Year Ended September 30, 2007

The following table summarizes the consolidated income statement components for the fiscal years ended September 30, 2008 and 2007, respectively (in millions):

                                                  Year Ended
                                                September 30,                       Change
                                             2008           2007          In Dollars       Percentage
Revenue                                    $ 1,878.9      $ 1,483.1      $      395.8            26.7 %
Cost of product sold                         1,376.7        1,026.1             350.6            34.2

Gross profit                                   502.2          457.0              45.2             9.9
Operating and administrative expenses          265.6          247.8              17.8             7.2
Depreciation and amortization                   98.0           83.4              14.6            17.5
Loss on disposal of assets                      11.5            8.0               3.5            43.8

Operating income                               127.1          117.8               9.3             7.9
Interest expense, net                          (60.9 )        (52.0 )            (8.9 )         (17.1 )
Other income                                     1.0            1.9              (0.9 )         (47.4 )

Income before income taxes and interest
of non-controlling partners in ASC              67.2           67.7              (0.5 )          (0.7 )
Provision for income taxes                      (0.7 )         (0.7 )              -               -
Interest of non-controlling partners in
ASC's consolidated net income                   (1.4 )           -               (1.4 )             *

Net income                                 $    65.1      $    67.0      $       (1.9 )          (2.8 )%

* not meaningful

The following table summarizes revenues, including associated volume of gallons sold, for the years ended September 30, 2008 and 2007, respectively (in millions):

                                                    Revenues                                       Gallons
                                      Year Ended                                      Year Ended
                                     September 30,               Change              September 30,           Change
                                   2008        2007       In Dollars    Percent      2008     2007    In Units     Percent
Retail propane                   $   840.7   $   733.2   $      107.5      14.7 %    331.9    362.2      (30.3 )      (8.4 )%
Wholesale propane                    546.1       417.2          128.9      30.9      358.5    383.9      (25.4 )      (6.6 )
Other retail                         223.0       168.8           54.2      32.1         -        -          -           -
Storage, fractionation and
other midstream                      269.1       163.9          105.2      64.2         -        -          -           -

Total                            $ 1,878.9   $ 1,483.1   $      395.8      26.7 %    690.4    746.1      (55.7 )      (7.5 )%

Volume. During fiscal 2008, we sold 331.9 million retail gallons of propane compared to 362.2 million retail gallons of propane during fiscal 2007. This 30.3 million gallon, or 8.4%, net decline was due primarily to customer conservation, which we believe has resulted, in large part, from the higher average cost of Mt. Belvieu propane. The average cost of Mt. Belvieu propane increased approximately 49% during fiscal 2008 as compared to fiscal 2007. To a lesser extent, volume declines arising from a loss of less profitable customers and fewer gallon sales to lower margin customers, including agricultural sales, contributed to the decline in gallons sold during the year. Also contributing to the decline was the warmer weather during fiscal 2008, which, on average for our operating areas, was slightly warmer than fiscal 2007 and approximately 7% warmer than normal. These factors that resulted in a decrease in comparable gallon sales were partially offset by acquisition-related volume, which resulted in an increase of 12.2 million gallons during fiscal 2008 compared to fiscal 2007.

Wholesale gallons delivered decreased 25.4 million gallons, or 6.6%, to 358.5 million gallons in fiscal 2008 from 383.9 million gallons in fiscal 2007. This change was primarily attributable to decreased sales volumes to existing customers.

The total natural gas liquid gallons sold or processed by our West Coast NGL operations increased 68.8 million gallons, or 36.2%, to 259.1 million gallons in fiscal 2008 from 190.3 million gallons in fiscal 2007. This increase was attributable to the addition of natural gas liquid marketing and processing contracts in fiscal 2008. Stagecoach had 26.25 bcf of working gas storage capacity during fiscal year 2008. Stagecoach had 13.25 bcf of working gas storage capacity for the first six months in fiscal 2007, 17.45 bcf of working gas storage capacity for the following five months and 26.25 bcf of working gas storage capacity during September 2007. Stagecoach's storage services were 100% contracted during each of the periods noted above. Steuben, which we acquired a controlling interest in October 2007, had 6.2 bcf of working gas storage capacity and the storage services were 100% contracted during fiscal 2008. The Bath LPG Storage Facility had a storage capacity of 1.5 million barrels and storage services were 100% contracted during fiscal 2008 and fiscal 2007.

Revenues. Revenues in fiscal 2008 were $1,878.9 million, an increase of approximately $395.8 million, or 26.7% from $1,483.1 million in fiscal 2007.

Revenues from retail propane sales were $840.7 million for the year ended September 30, 2008, an increase of $107.5 million, or 14.7%, compared to $733.2 million for the year ended September 30, 2007. These higher retail propane revenues were primarily the result of the higher average selling price of propane and acquisition-related sales, which contributed $162.8 million and $30.8 million, respectively, to the year over year increase. These factors were partially offset by an $86.1 million reduction in retail propane revenues arising from lower retail volume sales at our existing locations as discussed above.

Revenues from wholesale propane sales were $546.1 million in fiscal 2008, an increase of $128.9 million or 30.9%, from $417.2 million in fiscal 2007. Approximately $156.4 million of this increase was attributable to the higher sales price of propane partially offset by lower sales volumes to existing customers. The higher selling price in our wholesale division in 2008 compared to 2007 is the result of the increased cost of propane.

Revenues from other retail sales, which primarily include distillates, service, rental, appliance sales and transportation services, were $223.0 million in fiscal 2008, an increase of $54.2 million, or 32.1% from $168.8 million in fiscal 2007. This increase was primarily related to $39.3 million of acquisition-related sales, a $13.3 million increase in distillate revenues from existing locations and a $4.1 million increase in transportation revenues. Distillate revenues increased during fiscal 2008 due primarily to a 35% increase in the average selling price. These increases were partially offset by a $2.5 million decline related to other products and services, primarily appliances and retail services.

Revenues from storage, fractionation and other midstream activities were $269.1 million in fiscal 2008, an increase of $105.2 million or 64.2% from $163.9 million in fiscal 2007. Revenues from our West Coast NGL operations were $67.1million higher as a result of increases in commodity cost and expected changes in the variety of natural gas liquid products sold due to additional contracts and $7.8 million was due to increased transportation and processing activities. Additionally, $30.3 million of this increase was due to the acquisitions of US Salt and ASC, the Stagecoach Phase II expansion being placed into partial service in April 2007 and full service in September 2007, and increased contractual rates on the Stagecoach Storage Facility and Bath LPG Storage Facility.

Cost of Product Sold. Retail propane cost of product sold was $527.9 million for the year ended September 30, 2008 compared to $419.3 million for the year ended September 30, 2007. This $108.6 million, or 25.9%, increase in retail propane cost of product sold was driven by an approximate 37% higher average per gallon cost of propane, which resulted in a $137.1 million increase in cost. Also contributing to the higher cost of product sold during fiscal 2008 was an increase of $20.1 million associated with acquisition-related volume and a $0.7 million

increase due to changes in non-cash charges related to derivative contracts associated with retail propane fixed price sales contracts. These factors, which increased retail propane cost of product sold, were partially offset by lower volume sales at our existing locations as discussed above, which reduced costs by approximately $49.3 million.

Wholesale propane cost of product sold in fiscal 2008 was $525.1 million, an increase of $124.4 million or 31.0%, from wholesale cost of product sold of $400.7 million in fiscal 2007. Contributing to these higher costs was an approximate $150.9 million increase due to the higher average cost of propane partially offset by lower volumes sold to existing customers.

Other retail cost of product sold was $146.6 million for the year ended September 30, 2008 compared to $100.0 million for the year ended September 30, 2007. This $46.6 million, or 46.6% increase was primarily due to higher costs of $31.9 million related to acquisitions, an increase of $13.4 million associated with distillate sales from existing locations and a $3.0 million increase in transportation costs. These increases to cost of product sold were partially offset by a $1.7 million decline in costs for other products and services, primarily appliances sales.

Storage, fractionation and other midstream cost of product sold was $177.1 million, an increase of $71.0 million, or 66.9%, from $106.1 million in fiscal 2007. Costs from our West Coast NGL operations were $64.4 million higher as a result of increases in commodity cost and expected changes in the variety of natural gas liquid products sold due to additional contracts and $5.6 million was due to increased transportation and processing activities. The remaining increase resulted from the acquisitions of ASC and US Salt, partially offset by lower power and transportation costs at our Stagecoach facility.

Our retail cost of product sold consists primarily of tangible products sold including all propane, distillates and other natural gas liquids sold and all propane-related appliances sold. Other costs incurred in conjunction with the distribution of these products consist primarily of wages to delivery personnel, delivery vehicle costs consisting of fuel costs, repair and maintenance and lease expense are included in operating and administrative expense. Costs associated with delivery vehicles approximated $67.0 million and $63.1 million in 2008 and 2007, respectively. In addition, the depreciation expense associated with the delivery vehicles and customer tanks is reported within depreciation and amortization expense and amounted to $30.8 million and $30.4 million in 2008 and 2007, respectively. Since we include these costs in our operating and administrative expenses and depreciation and amortization expenses rather than in cost of product sold, our results may not be comparable to other entities in our lines of business if they include these costs in cost of product sold.

Our storage, fractionation and other midstream cost of product sold consists primarily of commodity and transportation costs. Other costs incurred in conjunction with these services consist primarily of depreciation, vehicle costs consisting of fuel costs and repair and maintenance and wages are included in operating and administrative expense and depreciation and amortization expense. Depreciation expense for storage, fractionation and other midstream amounted to $27.7 million and $17.4 million in 2008 and 2007, respectively. Vehicle costs and wages for personnel directly involved in providing midstream services amounted to $5.7 million and $3.8 million in 2008 and 2007, respectively. Since we include these costs in our operating and administrative expenses and depreciation and amortization expenses rather than in cost of product sold, our results may not be comparable to other entities in our lines of business if they include these costs in cost of product sold.

Gross Profit. Retail propane gross profit was $312.8 million in fiscal 2008, a decline of $1.1 million, or 0.4%, compared to $313.9 million in fiscal 2007. During fiscal 2008, gross profit declined by $36.8 million primarily as a result of lower retail gallon sales at existing locations as discussed above. This decline in gross profit was partially offset by an increase in gross profit of $25.7 million relating to a higher cash margin per gallon and an increase of $10.7 million due to acquisitions. The increase in cash margin per gallon was primarily the result of our ability to raise selling prices in certain markets in excess of the increased cost of propane.

Wholesale propane gross profit was $21.0 million in fiscal 2008 compared to $16.5 million in fiscal 2007, an increase of $4.5 million or 27.3%. Approximately $5.5 million of this increase was the result of a higher margin per gallon from our existing business partially offset by decreased wholesale volumes from our existing business. The improved margin per gallon is primarily the result of a higher average selling price in excess of our increased cost of propane.

Other retail gross profit was $76.4 million for the year ended September 30, 2008 compared to $68.8 million for the year ended September 30, 2007. This $7.6 million, or 11.0%, increase was due primarily to acquisitions and higher transportation sales, which together resulted in an increase to other retail gross profit of approximately $8.5 million. These increases were partially offset by a combined decrease in gross profit for distillate sales, appliance sales and other retail services of approximately $0.9 million.

Storage, fractionation and other midstream gross profit was $92.0 million in fiscal 2008 compared to $57.8 million in fiscal 2007, an increase of $34.2 million, or 59.2%. Approximately $29.3 million of this increase was due to the acquisitions of US Salt and ASC, the Stagecoach Phase II expansion being placed into partial service in April 2007 and full service in September 2007, and increased contractual rates on the Stagecoach Storage Facility and Bath LPG Storage Facility. The remaining $4.9 million increase relates to increases in transportation, processing activities and natural gas liquids gross profit at our West Coast NGL operations.

Operating and Administrative Expenses. Operating and administrative expenses were $265.6 million in fiscal 2008 compared to $247.8 million in fiscal 2007. This $17.8 million, or 7.2%, increase in operating expenses was primarily the result of higher expenses of approximately $15.7 million arising from acquisitions. The remaining increase resulted from higher vehicle, insurance and other operating expenses, partially offset by lower wages and other personnel expenses due to integration efficiencies and lower expenses as a result of lesser volumes sold at existing locations.

Depreciation and Amortization. Depreciation and amortization increased to $98.0 million in fiscal 2008 from $83.4 million in fiscal 2007. This $14.6 million, or 17.5%, increase was primarily the result of acquisitions and the completion of the Stagecoach Phase II expansion project in our midstream segment.

Loss on Disposal of Assets. Loss on disposal of assets increased $3.5 million, or 43.8%, to $11.5 million in fiscal 2008 compared to $8.0 million in fiscal 2007. The losses recognized in fiscal 2008 and 2007 include unrealized losses of approximately $11.5 million and $6.2 million, respectively, related to assets held for sale, which have been written down to their estimated selling price. In addition, we had realized losses in fiscal 2007 of approximately $1.8 million. These assets, both those sold and those held for sale, consist primarily of vehicles, tanks and real estate deemed to be excess, redundant or underperforming assets. In fiscal 2008, these assets were identified primarily . . .