##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from
 
to
 Commission file number 1-32599
 WILLIAMS PARTNERS L.P.
  DELAWARE
    
    20-2485124(State or other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)ONE WILLIAMS CENTERTULSA, OKLAHOMA
    
    74172-0172(Address of principal executive offices)
    
    (Zip Code)
 
  
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



WILLIAMS PARTNERS L.P.
 INDEX
 PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Statements of Income  Three and Nine Months Ended September 30, 2008 and 2007
    
    
    5Consolidated Balance Sheets  September 30, 2008 and December 31, 2007
    
    
    6Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2008 and 2007
    
    
    7Consolidated Statement of Partners Capital from January 1, 2008 to September 30, 2008
    
    
    8Notes to Consolidated Financial Statements
    
    
    9Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    43Part II. Other InformationItem 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    43Item 6. Exhibits
    
    
    46EX-10EX-31.1EX-31.2EX-32
  2




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FORWARD-LOOKING STATEMENTS
   
    
    Amounts and nature of future capital expenditures;
    
    Expansion and growth of our business and operations;
    
    Financial condition and liquidity;
    
    Business strategy;
    
    Cash flow from operations;
    
    Seasonality of certain business segments; and
    
    Natural gas liquids and gas prices and demand.
  
    
    We may not have sufficient cash from operations to enable us to pay the minimum
distribution following establishment of cash reserves and payment of fees and expenses,
including payments to our general partner.
    
    Because of the natural decline in production from existing wells and competitive factors,
the success of our gathering and transportation businesses depends on our ability to connect
new sources of natural gas supply, which is dependent on factors beyond our control. Any
decrease in supplies of natural gas could adversely affect our business and operating
results.
    
    Lower natural gas and oil prices could adversely affect our fractionation and storage
businesses.
    
    Our processing, fractionation and storage businesses could be affected by any decrease in
natural gas liquids (NGL) prices or a change in NGL prices relative to the price of natural
gas.
    
    We depend on certain key customers and producers for a significant portion of our
revenues and supply of natural gas and NGLs. The loss of any of these key customers or
producers could result in a decline in our revenues and cash available to pay distributions.
    
    The failure of counterparties to perform their contractual
obligations could adversely affect our operating results, financial
condition and cash available to pay distributions.
    
    If third-party pipelines and other facilities interconnected to our pipelines and
facilities become unavailable to transport natural gas and NGLs or to treat natural gas, our
revenues and cash available to pay distributions could be adversely affected.
    
    We do not own all of the interests in Wamsutter LLC (Wamsutter), the Conway fractionator
or Discovery Producer Services LLC (Discovery), which could adversely affect our ability to
operate and control these assets in a manner beneficial to us.
    
    Our results of storage and fractionation operations are dependent upon the demand for
propane and other NGLs. A substantial decrease in this demand could adversely affect our
business and operation results.
 3




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
    
    Discovery and Wamsutter may reduce their cash distributions to us in some situations.
    
    Discoverys interstate tariff rates and terms and conditions are subject to review and
possible adjustment by federal regulators, and are subject to changes in policy by federal
regulators which could have a material adverse effect on our business and operating results.
    
    Our operations are subject to operational hazards and unforeseen interruptions for which
we may not be adequately insured.
    
    Our partnership agreement limits our general partners fiduciary duties to unitholders
and restricts the remedies available to unitholders for actions taken by our general partner
that might otherwise constitute breaches of fiduciary duty.
    
    The Williams Companies Inc.s (Williams) public indentures and our credit facility
contain financial and operating restrictions that may limit our access to credit. In
addition, our ability to obtain credit in the future will be affected by Williams credit
ratings.
    
    Our future financial and operating flexibility may be adversely affected by restrictions
in our debt agreements and by our leverage.
    
    We may not be able to grow or effectively manage our growth.
    
    Recent events in the global financial crisis have made equity and debt markets less
accessible and created a shortage in the availability of credit, which could disrupt our
financing plans and limit our ability to grow.
    
    Common units held by Williams eligible for future sale may have adverse effects on the
price of our common units.
    
    Williams controls our general partner, which has sole responsibility for conducting our
business and managing our operations. Our general partner and its affiliates have conflicts
of interests with us and limited fiduciary duties, and they may favor their own interests to
the detriment of our unitholders.
    
    Even if unitholders are dissatisfied, they currently have little ability to remove our
general partner without its consent.
    
    Additional risks described in our filings with the Securities
and Exchange Commission.
   4




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED STATEMENTS OF INCOME
 (Dollars in thousands, except per-unit amounts)
 (Unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007*
    
    
    2008
    
    
    2007*Revenues:Product sales:Affiliate
    
    $
    92,421
    
    
    $
    75,519
    
    
    $
    264,677
    
    
    $
    194,190Third-party
    
    
    6,430
    
    
    
    4,297
    
    
    
    20,392
    
    
    
    15,680Gathering and processing:Affiliate
    
    
    9,480
    
    
    
    9,178
    
    
    
    28,117
    
    
    
    27,412Third-party
    
    
    50,721
    
    
    
    51,721
    
    
    
    146,479
    
    
    
    154,246Storage
    
    
    8,264
    
    
    
    7,404
    
    
    
    22,699
    
    
    
    20,632Fractionation
    
    
    5,484
    
    
    
    2,723
    
    
    
    13,580
    
    
    
    7,256Other
    
    
    2,913
    
    
    
    (1,266
    )
    
    
    8,376
    
    
    
    3,244Total revenues
    
    
    175,713
    
    
    
    149,576
    
    
    
    504,320
    
    
    
    422,660Costs and expenses:Product cost and shrink replacement:Affiliate
    
    
    22,358
    
    
    
    18,806
    
    
    
    72,077
    
    
    
    59,051Third-party
    
    
    35,391
    
    
    
    30,043
    
    
    
    103,779
    
    
    
    76,670Operating and maintenance expense (excluding
depreciation):Affiliate
    
    
    21,220
    
    
    
    15,275
    
    
    
    60,901
    
    
    
    40,087Third-party
    
    
    29,257
    
    
    
    25,259
    
    
    
    83,192
    
    
    
    77,203Depreciation, amortization and accretion
    
    
    11,735
    
    
    
    10,345
    
    
    
    33,963
    
    
    
    34,757General and administrative expense:Affiliate
    
    
    10,620
    
    
    
    10,816
    
    
    
    32,881
    
    
    
    29,866Third-party
    
    
    664
    
    
    
    925
    
    
    
    2,341
    
    
    
    2,778Taxes other than income
    
    
    2,314
    
    
    
    2,474
    
    
    
    6,986
    
    
    
    7,214Other (income) expense  net
    
    
    (5,822
    )
    
    
    134
    
    
    
    (8,300
    )
    
    
    792Total costs and expenses
    
    
    127,737
    
    
    
    114,077
    
    
    
    387,820
    
    
    
    328,418Operating income
    
    
    47,976
    
    
    
    35,499
    
    
    
    116,500
    
    
    
    94,242Equity earnings-Wamsutter
    
    
    20,801
    
    
    
    18,472
    
    
    
    79,475
    
    
    
    50,358Equity earnings-Discovery Producer Services
    
    
    8,244
    
    
    
    7,902
    
    
    
    30,435
    
    
    
    15,708Interest expense:Affiliate
    
    
    (15
    )
    
    
    (16
    )
    
    
    (55
    )
    
    
    (46
    )Third-party
    
    
    (16,422
    )
    
    
    (14,268
    )
    
    
    (50,738
    )
    
    
    (43,038
    )Interest income
    
    
    249
    
    
    
    312
    
    
    
    667
    
    
    
    2,556Net income
    
    $
    60,833
    
    
    $
    47,901
    
    
    $
    176,284
    
    
    $
    119,780Allocation of net income:Net income
    
    $
    60,833
    
    
    $
    47,901
    
    
    $
    176,284
    
    
    $
    119,780Allocation of net income to general partner
    
    
    17,455
    
    
    
    23,409
    
    
    
    49,374
    
    
    
    58,738Allocation of net income to limited partners
    
    $
    43,378
    
    
    $
    24,492
    
    
    $
    126,910
    
    
    $
    61,042Basic and diluted net income per limited partner common unit
    
    $
    0.82
    
    
    $
    0.62
    
    
    $
    2.40
    
    
    $
    1.41Weighted average number of common units outstanding
    
    
    52,775,912
    
    
    
    39,359,555
    (b)
    
    
    52,775,126
    (b)
    
    
    39,359,053
    (a)(b)
 
 *
    
    Retrospectively adjusted as discussed in Note 1.(a)
    
    Includes Class B units converted to common units on May 21, 2007.(b)
    
    Includes subordinated units converted to common units on February 19, 2008.  5




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WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)(In thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    81,846
    
    
    $
    36,197Accounts receivable:Trade
    
    
    20,166
    
    
    
    12,860Affiliate
    
    
    32,794
    
    
    
    20,402Other
    
    
    3,233
    
    
    
    2,543Product imbalance
    
    
    15,492
    
    
    
    20,660Prepaid expense
    
    
    5,135
    
    
    
    4,056Derivative assets  affiliate
    
    
    3,724
    
    
    
    231Reimbursable projects
    
    
    954
    
    
    
    8,989Other current assets
    
    
    3,665
    
    
    
    3,574Total current assets
    
    
    167,009
    
    
    
    109,512Investment in Wamsutter
    
    
    287,889
    
    
    
    284,650Investment in Discovery Producer Services
    
    
    199,797
    
    
    
    214,526Gross property, plant and equipment
    
    
    1,269,720
    
    
    
    1,239,792Less accumulated depreciation
    
    
    (619,536
    )
    
    
    (597,503
    )Property, plant and equipment, net
    
    
    650,184
    
    
    
    642,289Other noncurrent assets
    
    
    28,838
    
    
    
    32,500Total assets
    
    $
    1,333,717
    
    
    $
    1,283,477LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable:Trade
    
    $
    31,161
    
    
    $
    35,947Affiliate
    
    
    10,011
    
    
    
    17,676Product imbalance
    
    
    15,132
    
    
    
    21,473Deferred revenue
    
    
    10,320
    
    
    
    4,569Derivative liabilities  affiliate
    
    
    86
    
    
    
    2,718Accrued interest
    
    
    10,963
    
    
    
    19,500Other accrued liabilities
    
    
    7,715
    
    
    
    8,243Total current liabilities
    
    
    85,388
    
    
    
    110,126Long-term debt
    
    
    1,000,000
    
    
    
    1,000,000Other noncurrent liabilities
    
    
    15,246
    
    
    
    11,864Commitments and contingent liabilities (Note 9)Partners capital
    
    
    233,083
    
    
    
    161,487Total liabilities and partners capital
    
    $
    1,333,717
    
    
    $
    1,283,477
  6




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WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
 Nine Months EndedSeptember 30,2008
    
    
    2007*(In thousands)OPERATING ACTIVITIES:Net income
    
    $
    176,284
    
    
    $
    119,780Adjustments to reconcile to cash provided by operations:Depreciation, amortization and accretion
    
    
    33,963
    
    
    
    34,757Amortization of gas purchase contract  affiliate
    
    
    
    
    
    
    3,566Gain on involuntary conversion
    
    
    (9,276
    )
    
    
    Equity earnings of Wamsutter
    
    
    (79,475
    )
    
    
    (50,358
    )Equity earnings of Discovery Producer Services
    
    
    (30,435
    )
    
    
    (15,708
    )Distributions related to equity earnings of Wamsutter
    
    
    78,296
    
    
    
    Distributions related to equity earnings of Discovery Producer Services
    
    
    30,435
    
    
    
    13,106Cash provided (used) by changes in assets and liabilities:Accounts receivable
    
    
    (24,871
    )
    
    
    (4,056
    )Prepaid expense
    
    
    (1,079
    )
    
    
    (1,500
    )Other current assets
    
    
    9,504
    
    
    
    35Accounts payable
    
    
    (12,451
    )
    
    
    7,675Product imbalance
    
    
    (1,173
    )
    
    
    2,840Deferred revenue
    
    
    5,544
    
    
    
    4,347Accrued liabilities
    
    
    (8,544
    )
    
    
    10,257Derivative assets and liabilities
    
    
    14
    
    
    
    Other, including changes in noncurrent assets and liabilities
    
    
    2,525
    
    
    
    4,324Net cash provided by operating activities
    
    
    169,261
    
    
    
    129,065INVESTING ACTIVITIES:Purchase of equity investment
    
    
    
    
    
    
    (69,061
    )Capital expenditures
    
    
    (36,996
    )
    
    
    (33,029
    )Cumulative distributions in excess of equity earnings of Discovery Producer Services
    
    
    15,165
    
    
    
    4,964Receipt of insurance proceeds
    
    
    7,718
    
    
    
    Insurance proceeds related to affiliate accounts receivable
    
    
    4,483
    
    
    
    Change in accrued liabilities-capital expenditures
    
    
    (125
    )
    
    
    (4,779
    )Contributions to Wamsutter
    
    
    (2,059
    )
    
    
    Contributions to Discovery Producer Services
    
    
    (437
    )
    
    
    Other
    
    
    
    
    
    
    536Net cash used by investing activities
    
    
    (12,251
    )
    
    
    (101,369
    )FINANCING ACTIVITIES:Distributions to unitholders
    
    
    (113,765
    )
    
    
    (62,935
    )Proceeds from sale of common units
    
    
    28,992
    
    
    
    Redemption of common units from general partner
    
    
    (28,992
    )
    
    
    Excess purchase price over contributed basis of equity investment
    
    
    
    
    
    
    (8,939
    )Contributions per omnibus agreement
    
    
    2,328
    
    
    
    2,726Other
    
    
    76
    
    
    
    Net cash used by financing activities
    
    
    (111,361
    )
    
    
    (69,148
    )Increase (decrease) in cash and cash equivalents
    
    
    45,649
    
    
    
    (41,452
    )Cash and cash equivalents at beginning of period
    
    
    36,197
    
    
    
    57,541Cash and cash equivalents at end of period
    
    $
    81,846
    
    
    $
    16,089
 
 *
    
    Retrospectively adjusted as discussed in Note 1.  7




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WILLIAMS PARTNERS L.P.
 
 CONSOLIDATED STATEMENT OF PARTNERS CAPITAL
 (Unaudited)
 Accumulated Other
    
    
    TotalLimited Partners
    
    
    General
    
    
    Comprehensive
    
    
    PartnersCommon
    
    
    Subordinated
    
    
    Partner
    
    
    Income (Loss)
    
    
    Capital(In thousands)Balance  January 1, 2008
    
    $
    1,473,814
    
    
    $
    109,542
    
    
    $
    (1,419,382
    )
    
    $
    (2,487
    )
    
    $
    161,487Net income
    
    
    155,991
    
    
    
    1,556
    
    
    
    18,737
    
    
    
    
    
    
    
    176,284Other comprehensive income (loss):Net unrealized losses on cash
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (358
    )
    
    
    (358
    )Reclassification into earnings
of derivative instrument
losses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,497
    
    
    
    6,497Total other comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,139Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,423Cash distributions
    
    
    (90,970
    )
    
    
    (4,025
    )
    
    
    (18,770
    )
    
    
    
    
    
    
    (113,765
    )Conversion of subordinated units
into common
    
    
    107,073
    
    
    
    (107,073
    )
    
    
    
    
    
    
    
    
    
    
    Contributions pursuant to the
omnibus agreement
    
    
    
    
    
    
    
    
    
    
    2,328
    
    
    
    
    
    
    
    2,328Issuance of units to public
    
    
    28,992
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,992Repurchase of units from Williams
    
    
    (28,992
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,992
    )Other
    
    
    (405
    )
    
    
    
    
    
    
    1,015
    
    
    
    
    
    
    
    610Balance  September 30, 2008
    
    $
    1,645,503
    
    
    $
    
    
    
    $
    (1,416,072
    )
    
    $
    3,652
    
    
    $
    233,083
  8




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WILLIAMS PARTNERS L.P.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 Note 1. Organization and Basis of Presentation
       9




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Note 2. Recent Accounting Standards
 
 Earnings per Share,
 Note 3. Allocation of Net Income and Distributions
  10




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Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007*
    
    
    2008
    
    
    2007*Allocation to general partner:Net income
    
    $
    60,833
    
    
    $
    47,901
    
    
    $
    176,284
    
    
    $
    119,780Net income applicable to pre-partnership operations
allocated to general partner
    
    
    
    
    
    
    (18,472
    )
    
    
    
    
    
    
    (52,960
    )Beneficial conversion of Class B units(a)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,308
    )Charges direct to general partner:Reimbursable general and administrative costs
    
    
    402
    
    
    
    605
    
    
    
    1,198
    
    
    
    1,795Carbonate Trend overburden indemnified costs
    
    
    112
    
    
    
    
    
    
    
    112
    
    
    
    Total charges direct to general partner
    
    
    514
    
    
    
    605
    
    
    
    1,310
    
    
    
    1,795Income subject to 2% allocation of general partner interest
    
    
    61,347
    
    
    
    30,034
    
    
    
    177,594
    
    
    
    63,307General partners share of net income
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %
    
    
    2.0
    %General partners allocated share of net income before
items directly allocable to general partner interest
    
    
    1,227
    
    
    
    600
    
    
    
    3,552
    
    
    
    1,265Incentive distributions paid to general partner(b)
    
    
    6,765
    
    
    
    1,267
    
    
    
    16,495
    
    
    
    2,835Direct charges to general partner
    
    
    (514
    )
    
    
    (605
    )
    
    
    (1,310
    )
    
    
    (1,795
    )Pre-partnership net income allocated to general partner
    
    
    
    
    
    
    18,472
    
    
    
    
    
    
    
    52,960Net income allocated to general partner
    
    $
    7,478
    
    
    $
    19,734
    
    
    $
    18,737
    
    
    $
    55,265Net income
    
    $
    60,833
    
    
    $
    47,901
    
    
    $
    176,284
    
    
    $
    119,780Net income allocated to general partner
    
    
    7,478
    
    
    
    19,734
    
    
    
    18,737
    
    
    
    55,265Net income allocated to limited partners
    
    $
    53,355
    
    
    $
    28,167
    
    
    $
    157,547
    
    
    $
    64,515
 
 *
    
    Retrospectively adjusted as discussed in Note 1.(a)
    
    During the second quarter of 2007, we converted our outstanding Class B units into common
units on a one-for-one basis. Accordingly, under EITF 98-05, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,
we made a $5.3 million non-cash allocation of income to the Class B units representing the
Class B unit beneficial conversion feature. The $5.3 million beneficial conversion feature was
computed as the product of the 6,805,492 Class B units and the difference between the fair
value of a privately placed common unit on the date of issuance ($36.59) and the issue price
of a Class B unit ($35.81). The $5.3 million is included in net income available to limited
partners; however, it is excluded for the calculation of earnings per limited partner unit.
It does not affect total net income, cash flows or total partners equity.(b)
    
    Under the two class method of computing earnings per share prescribed by SFAS No. 128,
Earnings Per Share, we allocate earnings to participating securities as if all of the
earnings for the period had been distributed. As a result, the general partner receives an
additional allocation of income in quarterly periods where an assumed incentive distribution,
calculated as if all earnings for the period had been distributed, exceeds the actual
incentive distribution. The additional allocation of income to the general partner for the
three and nine months ended September 30, 2008 is $10.0 million and $30.6 million,
respectively. The additional allocation of income to the general partner for the three and
nine months ended September 30, 2007 was $3.7 million.  11




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##### Table of Contents



General PartnerIncentivePer Unit
    
    Common
    
    Subordinated
    
    Class B
    
    
    
    
    
    Distribution
    
    Total CashPayment Date
    
    Distribution
    
    Units
    
    Units
    
    Units
    
    2%
    
    Rights
    
    Distribution2/14/2007
    
    $
    0.4700
    
    
    $
    12,010
    
    
    $
    3,290
    
    
    $
    3,198
    
    
    $
    390
    
    
    $
    603
    
    
    $
    19,4915/15/2007
    
    $
    0.5000
    
    
    $
    12,777
    
    
    $
    3,500
    
    
    $
    3,403
    
    
    $
    421
    
    
    $
    965
    
    
    $
    21,0668/14/2007
    
    $
    0.5250
    
    
    $
    16,989
    
    
    $
    3,675
    
    
    
    
    
    
    $
    447
    
    
    $
    1,267
    
    
    $
    22,37811/14/2007
    
    $
    0.5500
    
    
    $
    17,799
    
    
    $
    3,850
    
    
    
    
    
    
    $
    487
    
    
    $
    2,211
    
    
    $
    24,3472/14/2008
    
    $
    0.5750
    
    
    $
    26,321
    
    
    $
    4,025
    
    
    
    
    
    
    $
    706
    
    
    $
    4,231
    
    
    $
    35,2835/15/2008
    
    $
    0.6000
    
    
    $
    31,665
    
    
    
    
    
    
    
    
    
    
    $
    758
    
    
    $
    5,499
    
    
    $
    37,9228/14/2008
    
    $
    0.6250
    
    
    $
    32,984
    
    
    
    
    
    
    
    
    
    
    $
    811
    
    
    $
    6,765
    
    
    $
    40,56011/14/2008 (a)
    
    $
    0.6350
    
    
    $
    33,514
    
    
    
    
    
    
    
    
    
    
    $
    832
    
    
    $
    7,272
    
    
    $
    41,618
 
 (a)
    
    The board of directors of our general partner declared this cash distribution on October 27,
2008 to be paid on November 14, 2008 to unitholders of record at the close of business on
November 7, 2008. Note 4. Reclassification of Assets Previously Held for Sale
  12




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##### Table of Contents



Note 5. Equity Investments
 Wamsutter
   September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)Current assets
    
    $
    23,656
    
    
    $
    27,114Property, plant and equipment, net
    
    
    293,287
    
    
    
    275,163Other non-current assets
    
    
    4
    
    
    
    191Current liabilities
    
    
    (10,039
    )
    
    
    (13,016
    )Non-current liabilities
    
    
    (4,003
    )
    
    
    (2,740
    )Members capital
    
    $
    302,905
    
    
    $
    286,712
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)Revenues:Affiliate
    
    $
    38,764
    
    
    $
    20,076
    
    
    $
    138,568
    
    
    $
    63,765Third-party
    
    
    19,056
    
    
    
    18,075
    
    
    
    57,099
    
    
    
    55,093Costs and expenses:Affiliate
    
    
    11,031
    
    
    
    7,440
    
    
    
    61,510
    
    
    
    31,198Third-party
    
    
    14,782
    
    
    
    12,239
    
    
    
    43,476
    
    
    
    37,302Net income
    
    $
    32,007
    
    
    $
    18,472
    
    
    $
    90,681
    
    
    $
    50,358Williams Partners interest  equity earnings
    
    $
    20,801
    
    
    $
    18,472
    
    
    $
    79,475
    
    
    $
    50,358
 13




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##### Table of Contents



Discovery Producer Services LLC
  September 30,
    
    
    December 31,2008
    
    
    2007(Unaudited)Current assets
    
    $
    60,204
    
    
    $
    78,035Non-current restricted cash and cash equivalents
    
    
    3,471
    
    
    
    6,222Property, plant and equipment, net
    
    
    359,719
    
    
    
    368,228Current liabilities
    
    
    (23,605
    )
    
    
    (33,820
    )Non-current liabilities
    
    
    (16,287
    )
    
    
    (12,216
    )Members capital
    
    $
    383,502
    
    
    $
    406,449
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)Revenues:Affiliate
    
    $
    53,037
    
    
    $
    51,829
    
    
    $
    202,954
    
    
    $
    144,997Third-party
    
    
    8,243
    
    
    
    8,281
    
    
    
    28,365
    
    
    
    31,098Costs and expenses:Affiliate
    
    
    17,249
    
    
    
    24,973
    
    
    
    87,717
    
    
    
    72,145Third-party
    
    
    30,224
    
    
    
    22,452
    
    
    
    93,403
    
    
    
    78,986Interest income
    
    
    (143
    )
    
    
    (389
    )
    
    
    (593
    )
    
    
    (1,472
    )Loss on sale of operating assets
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    603Foreign exchange loss (gain)
    
    
    208
    
    
    
    (94
    )
    
    
    65
    
    
    
    (346
    )Net income
    
    $
    13,742
    
    
    $
    13,168
    
    
    $
    50,725
    
    
    $
    26,179Williams Partners interest  equity earnings
    
    $
    8,244
    
    
    $
    7,902
    
    
    $
    30,435
    
    
    $
    15,708
 Note 6. Long-Term Debt and Credit Facilities
 Long-Term Debt
  Interest
    
    
    September 30,
    
    
    December 31,Rate
    
    
    2008
    
    
    2007(In millions)Credit agreement term loan, adjustable rate, due 2012
    
    
    (a
    )
    
    $
    250
    
    
    $
    250Senior unsecured notes, fixed rate, due 2017
    
    
    7.25
    %
    
    
    600
    
    
    
    600Senior unsecured notes, fixed rate, due 2011
    
    
    7.50
    %
    
    
    150
    
    
    
    150Total Long-term debt
    
    
    
    
    
    $
    1,000
    
    
    $
    1,000
 
 (a)
    
    3.2375% at September 30, 2008. Credit Facilities
  14




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##### Table of Contents



Note 7. Partners Capital
    Note 8. Fair Value Measurements
 Adoption
of SFAS No. 157
    15




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##### Table of Contents




    
    Level 1  Quoted prices in active markets for identical assets or liabilities that we
have the ability to access. Active markets are those in which transactions for the asset or
liability occur in sufficient frequency and volume to provide pricing information on an
ongoing basis.
    
    Level 2  Inputs are other than quoted prices in active markets included in Level 1, that
are either directly or indirectly observable. These inputs are either directly observable in
the marketplace or indirectly observable through corroboration with market data for
substantially the full contractual term of the asset or liability being measured.
    
    Level 3  Includes inputs that are not observable for which there is little, if any,
market activity for the asset or liability being measured. These inputs reflect managements
best estimate of the assumptions market participants would use in determining fair value.
Our Level 3 consists of instruments valued with valuation methods that utilize unobservable
pricing inputs that are significant to the overall fair value.
    Level 3 Fair-Value Measurements Using Significant Unobservable Inputs
Three Months Ended September 30, 2008
(In thousands)
 Net DerivativeAsset (Liability)Balance as of July 1, 2008
    
    $
    (11,978
    )Realized and unrealized gains:Included in net income
    
    
    143Included in other comprehensive income
    
    
    10,015Purchases, issuances, and settlements
    
    
    5,458Transfers in/(out) of Level 3
    
    
    Balance as of September 30, 2008
    
    $
    3,638Unrealized gains included in net income relating to instruments still held at September 30, 2008
    
    $
    4,962
 16




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##### Table of Contents



Level 3 Fair-Value Measurements Using Significant Unobservable Inputs
Nine Months Ended September 30, 2008
(In thousands)
 Net DerivativeAsset (Liability)Balance as of January 1, 2008
    
    $
    (2,487
    )Realized and unrealized losses:Included in net income
    
    
    (214
    )Included in other comprehensive income
    
    
    (358
    )Purchases, issuances, and settlements
    
    
    6,697Transfers in/(out) of Level 3
    
    
    Balance as of September 30, 2008
    
    $
    3,638Unrealized gains included in net income relating to instruments still held at September 30, 2008
    
    $
    4,585
  Note 9. Commitments and Contingencies
 Environmental Matters-Four Corners.
     Environmental Matters-Conway.
 17




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##### Table of Contents



Will Price.
 Grynberg.
 GEII Litigation.
 Other.
 Summary.
 18




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##### Table of Contents



Note 10. Segment Disclosures
  Gathering &Gathering &
    
    
    Processing -
    
    
    NGLProcessing - West
    
    
    Gulf
    
    
    Services
    
    
    Total(In thousands)Three Months Ended September 30, 2008:Segment revenues
    
    $
    155,217
    
    
    $
    537
    
    
    $
    19,959
    
    
    $
    175,713Product cost and shrink replacement
    
    
    53,902
    
    
    
    
    
    
    
    3,847
    
    
    
    57,749Operating and maintenance expense
    
    
    42,129
    
    
    
    148
    
    
    
    8,200
    
    
    
    50,477Depreciation, amortization and accretion
    
    
    10,811
    
    
    
    153
    
    
    
    771
    
    
    
    11,735Direct general and administrative expense
    
    
    2,188
    
    
    
    
    
    
    
    631
    
    
    
    2,819Other, net
    
    
    (3,703
    )
    
    
    
    
    
    
    195
    
    
    
    (3,508
    )Segment operating income
    
    
    49,890
    
    
    
    236
    
    
    
    6,315
    
    
    
    56,441Equity earnings
    
    
    20,801
    
    
    
    8,244
    
    
    
    
    
    
    
    29,045Segment profit
    
    $
    70,691
    
    
    $
    8,480
    
    
    $
    6,315
    
    
    $
    85,486Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    56,441General and administrative expenses:Allocated-affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,908
    )Third party-direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (557
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    47,976Three Months Ended September 30, 2007*:Segment revenues
    
    $
    134,035
    
    
    $
    521
    
    
    $
    15,020
    
    
    $
    149,576Product cost and shrink replacement
    
    
    45,791
    
    
    
    
    
    
    
    3,058
    
    
    
    48,849Operating and maintenance expense
    
    
    34,267
    
    
    
    443
    
    
    
    5,824
    
    
    
    40,534Depreciation, amortization and accretion
    
    
    8,564
    
    
    
    304
    
    
    
    1,477
    
    
    
    10,345Direct general and administrative expense
    
    
    1,839
    
    
    
    
    
    
    
    510
    
    
    
    2,349Other, net
    
    
    2,414
    
    
    
    
    
    
    
    194
    
    
    
    2,608Segment operating income (loss)
    
    
    41,160
    
    
    
    (226
    )
    
    
    3,957
    
    
    
    44,891Equity earnings
    
    
    18,472
    
    
    
    7,902
    
    
    
    
    
    
    
    26,374Segment profit
    
    $
    59,632
    
    
    $
    7,676
    
    
    $
    3,957
    
    
    $
    71,265Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    44,891General and administrative expenses:Allocated-affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,670
    )Third party-direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (722
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    35,499
 
 *
    
    Retrospectively adjusted as discussed in Note 1. 19




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##### Table of Contents



Gathering &Gathering &
    
    
    Processing -
    
    
    NGLProcessing - West
    
    
    Gulf
    
    
    Services
    
    
    Total(In thousands)Nine Months Ended September 30, 2008:Segment revenues
    
    $
    446,113
    
    
    $
    1,650
    
    
    $
    56,557
    
    
    $
    504,320Product cost and shrink replacement
    
    
    162,492
    
    
    
    
    
    
    
    13,364
    
    
    
    175,856Operating and maintenance expense
    
    
    119,699
    
    
    
    1,191
    
    
    
    23,203
    
    
    
    144,093Depreciation, amortization and accretion
    
    
    31,246
    
    
    
    457
    
    
    
    2,260
    
    
    
    33,963Direct general and administrative expense
    
    
    6,176
    
    
    
    
    
    
    
    1,875
    
    
    
    8,051Other, net
    
    
    (1,899
    )
    
    
    
    
    
    
    585
    
    
    
    (1,314
    )Segment operating income
    
    
    128,399
    
    
    
    2
    
    
    
    15,270
    
    
    
    143,671Equity earnings
    
    
    79,475
    
    
    
    30,435
    
    
    
    
    
    
    
    109,910Segment profit
    
    $
    207,874
    
    
    $
    30,437
    
    
    $
    15,270
    
    
    $
    253,581Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    143,671General and administrative expenses:Allocated-affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (25,416
    )Third party-direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,755
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    116,500Nine Months Ended September 30, 2007*:Segment revenues
    
    $
    379,510
    
    
    $
    1,541
    
    
    $
    41,609
    
    
    $
    422,660Product cost and shrink replacement
    
    
    127,779
    
    
    
    
    
    
    
    7,942
    
    
    
    135,721Operating and maintenance expense
    
    
    96,851
    
    
    
    1,354
    
    
    
    19,085
    
    
    
    117,290Depreciation, amortization and accretion
    
    
    30,942
    
    
    
    911
    
    
    
    2,904
    
    
    
    34,757Direct general and administrative expense
    
    
    5,457
    
    
    
    
    
    
    
    1,478
    
    
    
    6,935Other, net
    
    
    7,422
    
    
    
    
    
    
    
    584
    
    
    
    8,006Segment operating income (loss)
    
    
    111,059
    
    
    
    (724
    )
    
    
    9,616
    
    
    
    119,951Equity earnings
    
    
    50,358
    
    
    
    15,708
    
    
    
    
    
    
    
    66,066Segment profit
    
    $
    161,417
    
    
    $
    14,984
    
    
    $
    9,616
    
    
    $
    186,017Reconciliation to the Consolidated Statements of Income:Segment operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    119,951General and administrative expenses:Allocated-affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,324
    )Third party-direct
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,385
    )Combined operating income
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    94,242
 
 *
    
    Retrospectively adjusted as discussed in Note 1. 20




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Please read the following discussion of our financial condition and results of operations in
conjunction with the consolidated financial statements included in Item 1 of Part I of this
quarterly report.
 Business Overview
  
    
    Gathering and Processing  West.Our West segment includes (1) the Four Corners
gathering and processing system and (2) ownership interests in Wamsutter, which owns a
gathering and processing system in Wyoming. We account for our ownership interests in
Wamsutter as an equity investment.
    
    Gathering and ProcessingGulf.Our Gulf segment includes (1) our 60% ownership interest
in Discovery, which owns a transportation, gathering and processing system extending from
offshore in the Gulf of Mexico to a natural gas processing plant and a natural gas liquids
fractionator in Louisiana and (2) the Carbonate Trend gathering pipeline off the coast of
Alabama. We account for our ownership interest in Discovery as an equity investment.
    
    NGL Services.Our NGL Services segment includes three integrated NGL storage facilities
and a 50% undivided interest in a fractionator near Conway, Kansas.
 Executive Summary
  Recent Events
   21




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##### Table of Contents




    
    We have no debt maturities until 2011.
    
    As of September 30, 2008, we have approximately $81.8 million of cash and cash
equivalents and $220 million of available capacity under our credit facilities. (See further
discussion in Managements Discussion and Analysis of Financial Condition  Available
Liquidity.)
  Results of Operations
 Consolidated Overview
  Three months ended
    
    
    
    
    
    
    Nine months endedSeptember 30,
    
    
    % Change from
    
    
    September 30,
    
    
    % Change from2008
    
    

2007
(1)
    
    

2007 (1)
    
    
    2008
    
    
    2007
    
    

2007
(1)(Thousands)
    
    
    
    
    
    (Thousands)Revenues
    
    $
    175,713
    
    
    $
    149,576
    
    
    
    +17
    %
    
    $
    504,320
    
    
    $
    422,660
    
    
    
    +19
    %Costs and expenses:Product cost and shrink
replacement
    
    
    57,749
    
    
    
    48,849
    
    
    
    -18
    %
    
    
    175,856
    
    
    
    135,721
    
    
    
    -30
    %Operating and maintenance
expense
    
    
    50,477
    
    
    
    40,534
    
    
    
    -25
    %
    
    
    144,093
    
    
    
    117,290
    
    
    
    -23
    %Depreciation, amortization
and accretion
    
    
    11,735
    
    
    
    10,345
    
    
    
    -13
    %
    
    
    33,963
    
    
    
    34,757
    
    
    
    +2
    %General and administrative
expense
    
    
    11,284
    
    
    
    11,741
    
    
    
    +4
    %
    
    
    35,222
    
    
    
    32,644
    
    
    
    -8
    %Taxes other than income
    
    
    2,314
    
    
    
    2,474
    
    
    
    +6
    %
    
    
    6,986
    
    
    
    7,214
    
    
    
    +3
    %Other (income) expense  net
    
    
    (5,822
    )
    
    
    134
    
    
    NM
    
    
    
    (8,300
    )
    
    
    792
    
    
    NMTotal costs and expenses
    
    
    127,737
    
    
    
    114,077
    
    
    
    -12
    %
    
    
    387,820
    
    
    
    328,418
    
    
    
    -18
    %Operating income
    
    
    47,976
    
    
    
    35,499
    
    
    
    +35
    %
    
    
    116,500
    
    
    
    94,242
    
    
    
    +24
    %Equity earnings  Wamsutter
    
    
    20,801
    
    
    
    18,472
    
    
    
    +13
    %
    
    
    79,475
    
    
    
    50,358
    
    
    
    +58
    %Equity earnings  Discovery
    
    
    8,244
    
    
    
    7,902
    
    
    
    +4
    %
    
    
    30,435
    
    
    
    15,708
    
    
    
    +94
    %Interest expense
    
    
    (16,437
    )
    
    
    (14,284
    )
    
    
    -15
    %
    
    
    (50,793
    )
    
    
    (43,084
    )
    
    
    -18
    %Interest income
    
    
    249
    
    
    
    312
    
    
    
    -20
    %
    
    
    667
    
    
    
    2,556
    
    
    
    -74
    %Net income
    
    $
    60,833
    
    
    $
    47,901
    
    
    
    +27
    %
    
    $
    176,284
    
    
    $
    119,780
    
    
    
    +47
    %
 
 (1)
    
    + = Favorable Change;  = Unfavorable Change; NM = A percentage calculation is not meaningful
due to change in signs, a zero-value denominator or a percentage change greater than 200. Three months ended September 30, 2008 vs. three months ended September 30, 2007
 Revenues
 22




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##### Table of Contents




    
    Revenues in our Gathering and Processing  West segment increased due primarily to
higher NGL sales resulting from higher average NGL sales prices, higher sales of NGLs on
behalf of third-party producers and higher condensate and LNG sales. These increases were
partially offset by lower NGL sales volumes.
    
    Revenues in our NGL services segment increased due primarily to higher fractionation
revenue and higher storage revenues.
 Product
cost and shrink replacement
 Operating and maintenance expense
 Depreciation, amortization and accretion
 Other (income) expense  net
 Operating income
 Equity earnings  Wamsutter
 Equity earnings  Discovery
 Interest expense
 Nine months ended September 30, 2008 vs. nine months ended September 30, 2007
 Revenues
 
    
    Revenues in our Gathering and Processing  West segment increased due primarily to
higher product sales resulting from significantly higher average NGL sales prices, higher
sales of NGLs on behalf of third-party producers and higher condensate sales revenues.
These increases were partially offset by lower NGL sales volumes received under keep-whole
and percent-of-liquids processing contracts and lower fee-based gathering revenues on lower
volumes.
    
    Revenues in our NGL Services segment increased due primarily to higher fractionation,
product sales and storage revenues.
 23




---



##### Table of Contents



Product
cost and shrink replacement
 
    
    Product cost and shrink replacement increased in our Gathering and Processing  West
segment due primarily to higher cost of purchases from third-party producers who elected to
have us sell their NGLs, higher average natural gas prices for shrink replacement and
higher condensate product cost.
    
    Product cost increased in our NGL Services segment due primarily to higher product sales
volumes and prices.
 Operating
and maintenance expense
 General
and administrative expense
 Other
(income) expense  net
 Operating
income
 Equity
earnings  Wamsutter
 Equity
earnings  Discovery
 Interest
expense
 Interest
income
 24




---



##### Table of Contents



Results of operations  Gathering and Processing  West
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Thousands)Revenues
    
    $
    155,217
    
    
    $
    134,035
    
    
    $
    446,113
    
    
    $
    379,510Costs and expenses, including interest:Product cost and shrink replacement
    
    
    53,902
    
    
    
    45,791
    
    
    
    162,492
    
    
    
    127,779Operating and maintenance expense
    
    
    42,129
    
    
    
    34,267
    
    
    
    119,699
    
    
    
    96,851Depreciation, amortization and accretion
    
    
    10,811
    
    
    
    8,564
    
    
    
    31,246
    
    
    
    30,942General and administrative expense  direct
    
    
    2,188
    
    
    
    1,839
    
    
    
    6,176
    
    
    
    5,457Taxes other than income
    
    
    2,119
    
    
    
    2,278
    
    
    
    6,400
    
    
    
    6,628Other (income) expense  net
    
    
    (5,822
    )
    
    
    136
    
    
    
    (8,299
    )
    
    
    794Total costs and expenses, including interest
    
    
    105,327
    
    
    
    92,875
    
    
    
    317,714
    
    
    
    268,451Segment operating income
    
    
    49,890
    
    
    
    41,160
    
    
    
    128,399
    
    
    
    111,059Equity earnings  Wamsutter
    
    
    20,801
    
    
    
    18,472
    
    
    
    79,475
    
    
    
    50,358Segment profit
    
    $
    70,691
    
    
    $
    59,632
    
    
    $
    207,874
    
    
    $
    161,417
 Four Corners
 Three months ended September 30, 2008 vs. three months ended September 30, 2007
 Revenues
  
    
    $15.2 million from 36% higher average per-unit NGL sales prices realized under keep-whole
and percent-of-liquids processing contracts. The higher per-unit NGL sales prices are caused
by general increases in market prices for these commodities between the two periods;
    
    $4.5 million higher sales prices on lower NGL volumes sold on behalf of third-party
producers. Under these arrangements, we purchase the NGLs from the third-party producers and
sell them to an affiliate. This increase is offset by higher associated product costs of
$4.6 million discussed below; and
    
    $2.0 million higher condensate and LNG sales resulting from higher per-unit sales prices
for both condensate and LNG and higher condensate sales volumes.
    
    These product sales increases were partially offset by a decrease of $3.4 million related
to 8% lower NGL sales volumes resulting from lower processed volumes.
  Product cost and shrink replacement
 
    
    $4.6 million higher NGLs purchased from third-party producers, which was offset by the
corresponding increased product sales discussed above; and
    
    $4.6 million increase from 31% higher average natural gas prices.
 25




---



##### Table of Contents



Operating
and maintenance expense
 
    
    $3.4 million higher expense related to unfavorable price changes on system imbalances;
    
    $2.5 million higher materials and supplies expense; and
    
    $1.5 million higher gathering fuel expense caused primarily by higher natural gas prices.
 Depreciation,
 amortization and accretion
 Other
(income) expense  net
 Segment
operating income
 
    
    $10.8 million from 40% higher per-unit NGL margins;
    
    $6.0 million third-quarter 2008 involuntary conversion gain;
    
    the absence of a $2.0 million third-quarter 2007 net out-of-period correction; and
    
    $1.6 million higher net condensate and LNG margins.
  Nine months ended September 30, 2008 vs. nine months ended September 30, 2007
 Revenues
  
    
    $49.3 million from 45% higher average per-unit NGL sales prices which we received under
keep-whole and percent-of-liquids processing contracts. This increase resulted from general
increases in market prices for these commodities between the two periods;
    
    $21.6 million higher sales of NGLs on behalf of third-party producers. Under these
arrangements, we purchase NGLs from the third-party producers and sell them to an affiliate.
This increase is offset by higher associated product costs of $21.7 million discussed below;
and
    
    $6.2 million higher condensate sales resulting primarily from higher prices.
  26




---



##### Table of Contents




    
    lower processing volumes caused by prolonged, severe weather during early 2008; and
    
    lower processing volumes resulting from the impact of the November 2007 fire at the
Ignacio gas processing plant which was shut down until January 18, 2008.
   Product
cost and shrink replacement
 
    
    $21.7 million higher NGL purchases from third-party producers who elected to have us
purchase their NGLs, which was offset by the corresponding increase in product sales
discussed above;
    
    $13.9 million from 29% higher average natural gas prices for shrink replacement; and
    
    $1.3 million increase in condensate cost of sales.
  Operating
and maintenance expense
 
    
    $8.5 million higher system losses. During 2008 our volumetric loss, as a percentage of
total volume received, was significantly higher than in 2007. While our system losses are
generally an unpredictable component of our operating costs, they can be higher during
periods of prolonged, severe weather, such as those we experienced during early 2008.
Additionally, operating inefficiencies caused by the fire at Ignacio plant unfavorably
impacted our system losses;
    
    $4.2 million higher gathering fuel expense related to lower fuel reimbursements from
customers as a result of lower volumes, and higher natural gas prices;
    
    $4.1 million higher expense related to revaluation of product imbalances; and
    
    $3.7 million higher materials and supplies expense.
 Other
(income) expense  net
 Segment
operating income
 
    
    $34.1 million higher NGL margins resulting from 54% higher per-unit NGL margins;
    
    $9.3 million of 2008 involuntary conversion gains;
    
    $4.9 million higher condensate sales margins; and
    
    the absence of a $2.0 million third-quarter 2007 net out-of-period correction.
  27




---



##### Table of Contents



Outlook
 NGL margins.
 NGL hedges.
 Gathering and processing volumes.
 Operating costs.
 Assets on Jicarilla land.
 28




---



##### Table of Contents



Wamsutter
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Thousands)Revenues
    
    $
    57,820
    
    
    $
    38,151
    
    
    $
    195,667
    
    
    $
    118,858Costs and expenses, including interest:Product cost and shrink replacement
    
    
    15,536
    
    
    
    7,909
    
    
    
    67,992
    
    
    
    32,791Operating and maintenance expense
    
    
    1,357
    
    
    
    2,965
    
    
    
    10,408
    
    
    
    12,607Depreciation and accretion
    
    
    5,295
    
    
    
    4,586
    
    
    
    15,736
    
    
    
    13,284General and administrative expense
    
    
    3,198
    
    
    
    3,222
    
    
    
    10,037
    
    
    
    8,453Taxes other than income
    
    
    501
    
    
    
    420
    
    
    
    1,404
    
    
    
    1,242Other (income) expense, net
    
    
    (74
    )
    
    
    577
    
    
    
    (591
    )
    
    
    123Total costs and expenses
    
    
    25,813
    
    
    
    19,679
    
    
    
    104,986
    
    
    
    68,500Net income
    
    $
    32,007
    
    
    $
    18,472
    
    
    $
    90,681
    
    
    $
    50,358Williams Partners interest  equity
earnings per our Consolidated
Statements of Income
    
    $
    20,801
    
    
    $
    18,472
    
    
    $
    79,475
    
    
    $
    50,358
 Three months ended September 30, 2008 vs. three months ended September 30, 2007
 Revenues
 Product
cost and shrink replacement
 
    
    $5.9 million increase from 64% higher average natural gas prices. Gas prices in 2007 were
impacted by very low local natural gas costs compared with other natural gas markets.
    
    $1.7 million increase from 23% higher volumetric shrink requirements due to higher
volumes processed under Wamsutters keep-whole processing contracts.
 Operating
and maintenance expense
 Depreciation
and accretion
 Net
income
 
    
    $11.0 million higher product sales margins resulting primarily from sharply increased
per-unit margins on higher NGL sales volumes; and
    
    $1.6 million lower operating and maintenance expense.
 29




---



##### Table of Contents



Nine months ended September 30, 2008 vs. nine months ended September 30, 2007
 Revenues
 
    
    $52.1 million related to a 64% increase in average sales prices resulting from general
increases in market prices for these commodities between the two periods.
    
    $20.7 million related to a 34% increase in volumes. This increase was primarily due to a
lower percentage of total gas delivered by Wamsutters fee-based customers in the first
quarter of 2008 due to inclement weather and additional keep-whole gas processed at CIGs
Rawlins natural gas processing plant.
    
    $3.1 million related to favorable adjustments to the margin-sharing provisions of one of
Wamsutters significant contracts.
 Product
cost and shrink replacement
 
    
    $25.6 million increase from 62% higher average natural gas prices. Gas prices in 2007
were impacted by very low local natural gas costs compared with other natural gas markets.
    
    $11.0 million increase from 36% higher volumetric shrink requirements due to higher
volumes processed under Wamsutters keep-whole processing contracts.
 Operating
and maintenance expense
 
    
    $1.9 million higher gathering fuel costs related to higher average natural gas prices and
weather-related operational problems in first-quarter 2008; and
    
    $1.2 million higher third-party processing and compression services costs.
 Depreciation
and accretion
 General
and administrative expenses
 Net
income
  Wamsutter Net Income Allocation
    
    Our Share
    
    
    Other
    
    
    Wamsutter(Dollars
in millions)
    

Class A
    
    
    Class C
    
    
    WPZ Total
    
    
    Class C
    
    
    Net IncomeNet income, beginning December 1, 2007 up to $70.0 million.*
    
    $
    62.6
    
    
    $
    
    
    
    $
    62.6
    
    
    $
    
    
    
    $
    62.6Net income allocation related to transition support
payments paid to us
    
    
    5.7
    
    
    
    
    
    
    
    5.7
    
    
    
    
    
    
    
    5.7Remainder net income allocated to Class C members
    
    
    
    
    
    
    11.2
    
    
    
    11.2
    
    
    
    11.2
    
    
    
    22.4Totals
    
    $
    68.3
    
    
    $
    11.2
    
    
    $
    79.5
    
    
    $
    11.2
    
    
    $
    90.7
 
 *
    
    $7.4 million of the $70.0 million was recognized in 2007. 30




---



##### Table of Contents



Outlook
 NGL margins.
 Gathering and processing volumes.
 Pipeline capacity restrictions.
 Operating costs.
 Results of Operations  Gathering and Processing  Gulf
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Thousands)Segment revenues
    
    $
    537
    
    
    $
    521
    
    
    $
    1,650
    
    
    $
    1,541Costs and expenses:Operating and maintenance expense
    
    
    148
    
    
    
    443
    
    
    
    1,191
    
    
    
    1,354Depreciation
    
    
    153
    
    
    
    304
    
    
    
    457
    
    
    
    911Total costs and expenses
    
    
    301
    
    
    
    747
    
    
    
    1,648
    
    
    
    2,265Segment operating income (loss)
    
    
    236
    
    
    
    (226
    )
    
    
    2
    
    
    
    (724
    )Equity earnings  Discovery
    
    
    8,244
    
    
    
    7,902
    
    
    
    30,435
    
    
    
    15,708Segment profit
    
    $
    8,480
    
    
    $
    7,676
    
    
    $
    30,437
    
    
    $
    14,984
 Carbonate Trend
 Segment
operating income (loss)
 Outlook
  31




---



##### Table of Contents



Discovery Producer Services  100 %
 Three months ended
    
    
    Nine months endedSeptember
30,
    
    

September
30,2008
    
    

2007
    
    

2008
    
    

2007(Thousands)Revenues
    
    $
    61,280
    
    
    $
    60,110
    
    
    $
    231,319
    
    
    $
    176,095Costs and expenses, including interest:Product cost and shrink replacement
    
    
    35,491
    
    
    
    34,538
    
    
    
    139,090
    
    
    
    107,945Operating and maintenance expense
    
    
    8,079
    
    
    
    5,751
    
    
    
    23,498
    
    
    
    21,265Depreciation and accretion
    
    
    3,726
    
    
    
    6,243
    
    
    
    17,511
    
    
    
    19,234General and administrative expense
    
    
    (125
    )
    
    
    579
    
    
    
    3,375
    
    
    
    1,702Interest income
    
    
    (143
    )
    
    
    (389
    )
    
    
    (593
    )
    
    
    (1,472
    )Other (income) expense, net
    
    
    510
    
    
    
    220
    
    
    
    (2,287
    )
    
    
    1,242Total costs and expenses, including interest
    
    
    47,538
    
    
    
    46,942
    
    
    
    180,594
    
    
    
    149,916Net income
    
    $
    13,742
    
    
    $
    13,168
    
    
    $
    50,725
    
    
    $
    26,179Williams Partners 60% interest  Equity
Earnings per our Consolidated Statements of
Income
    
    $
    8,244
    
    
    $
    7,902
    
    
    $
    30,435
    
    
    $
    15,708
 Three months ended September 30, 2008 vs. three months ended September 30, 2007
 Revenues
 
    
    $6.5 million lower third-party NGL sales on behalf of third-party producers. This
decrease results primarily from the impact of Hurricanes Ike and Gustav and is offset by
lower product costs of $6.5 million discussed below;
    
    $1.9 million on 8% lower product sales volumes caused by
reduced percent-of-liquids volumes and including an estimated
8 million lower NGL equity sales gallons caused by the effects of
Hurricanes Ike and Gustav; and
    
    $1.4 million lower transportation, gathering and fractionation revenue primarily
resulting from the impact of Hurricanes Ike and Gustav.
 Product
cost and shrink replacement
 Operating
and maintenance expense
 Depreciation
and accretion
 32




---



##### Table of Contents



General and administrative expense
 Net income
 Nine months ended September 30, 2008 vs. nine months ended September 30, 2007
 Revenues
 
    
    $36.7 million related to a 41% increase in average NGL sales prices realized on sales of
NGLs which Discovery received under certain processing contracts. This increase resulted
from general increases in market prices for these commodities between the two periods.
    
    $17.3 million from 24% higher NGL volumes processed under keep-whole and percent-of-liquids
arrangements, including an estimated 8 million lower NGL equity sales gallons caused by the effects of Hurricanes Ike and Gustav.
    
    $2.7 million higher sales of NGLs on behalf of third-party producers. This increase is
net of the impact of lower third-party sales volumes caused by the hurricanes and is offset
by higher associated product costs of $2.7 million discussed below.
  Product cost and shrink replacement
 
    
    $15.8 million on 38% higher natural gas volumes from higher
keep-whole volumes;
    
    $11.0 million from 36% higher average natural gas prices;
    
    $6.0 million increase in payments to producers for the
rights to process their gas; and
    
    $2.7 million higher product purchased from third-party producers, which was substantially
offset by the corresponding increase in product sales discussed.
  Operating and maintenance expense
 Depreciation and accretion
 General and administrative expense
 Other (income) expense, net
 Net income
 33




---



##### Table of Contents



Outlook
 Hurricane damage impact.
  Uninsured hurricane cost recovery.
 New throughput volumes.
 Tahiti production delay.
 NGL margins.
 Compression projects increase capacity.
 Management fees
 34




---



##### Table of Contents



Results of Operations  NGL Services
  Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Thousands)Segment revenues
    
    $
    19,959
    
    
    $
    15,020
    
    
    $
    56,557
    
    
    $
    41,609Costs and expenses:Product cost
    
    
    3,847
    
    
    
    3,058
    
    
    
    13,364
    
    
    
    7,942Operating and maintenance expense
    
    
    8,200
    
    
    
    5,824
    
    
    
    23,203
    
    
    
    19,085Depreciation and accretion
    
    
    771
    
    
    
    1,477
    
    
    
    2,260
    
    
    
    2,904General and administrative expense  direct
    
    
    631
    
    
    
    510
    
    
    
    1,875
    
    
    
    1,478Other expense, net
    
    
    195
    
    
    
    194
    
    
    
    585
    
    
    
    584Total costs and expenses
    
    
    13,644
    
    
    
    11,063
    
    
    
    41,287
    
    
    
    31,993Segment profit
    
    $
    6,315
    
    
    $
    3,957
    
    
    $
    15,270
    
    
    $
    9,616
 Three months ended September 30, 2008 vs. three months ended September 30, 2007
 Segment revenues
 Operating and maintenance expense
 Segment profit
 Nine months ended September 30, 2008 vs. nine months ended September 30, 2007
 Segment revenues
 
    
    Fractionation revenues increased $6.3 million due primarily to a 67% higher average
fractionation rate and slightly higher fractionation volumes. The higher average rate is due
primarily to the December 2007 expiration of a fractionation contract with a cap on the
per-unit fee, which limited our ability to pass through increases in fractionation fuel
expense to this customer.
    
    Product sales increased $5.4 million due to higher sales volumes and a 39% increase in
average propane prices. This increase was offset by the related increase in product cost
discussed below.
    
    Storage revenues increased $2.1 million due primarily to higher storage revenues
from new storage leases.
 Product cost
 35




---



##### Table of Contents



Operating and maintenance expense
 
    
    $2.3 million higher fractionation fuel costs related to increased natural gas prices and
slightly higher fractionation volumes; and
    
    $1.9 million unfavorable storage product losses.
  Segment profit
 Outlook
 Storage and fractionation revenues.
 Cavern workovers and wellhead modifications.


36



---



##### Table of Contents



Financial Condition and Liquidity
  
    
    Cash and cash equivalents on hand;
    
    Cash generated from operations, including cash distributions from Wamsutter and
Discovery;
    
    Insurance recoveries related to the fire at the Ignacio gas processing plant;
    
    Capital contributions from Williams pursuant to the omnibus agreement; and
    
    Credit facilities, as needed.
  
    
    Possible payments to the Jicarilla Apache Nation;
    
    Maintenance and expansion capital expenditures for our Four Corners and Conway assets;
    
    Contributions we must make to Wamsutter to fund certain of its capital expenditures;
    
    Cash calls from Discovery for hurricane damage repairs, which generally should be
reimbursed by insurance;
    
    Completion of the Four Corners repair expenditures related to the fire at Ignacio gas
processing plant, which generally should be reimbursed by insurance;
    
    Interest on our long-term debt; and
    
    Quarterly distributions to our unitholders and general partner.
 Available Liquidity at September 30, 2008 (in millions):
 Cash and cash equivalents
    
    $
    81.8Available capacity under our $450 million five-year senior unsecured credit facility (1)
    
    
    188.0Available capacity under our $20 million revolving credit facility with Williams as lender
    
    
    20.0Total
    
    $
    289.8
 
 (1)
    
    The original amount has been reduced by $12.0 million due to the
Lehman bankruptcy. See Note 6 of Notes to Consolidated Financial
Statements. The committed amounts of  other participating banks
under this agreement remain in effect and are not impacted by this
reduction. 37




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##### Table of Contents



Wamsutter Distributions
  Total Distribution
    
    
    Our ShareDate of Distribution
    
    to Members
    
    
    Class A
    
    
    Class C
    
    
    Other Class C3/28/08
    
    $
    25,000
    
    
    $
    17,874
    
    
    $
    3,563
    
    
    $
    3,5636/30/08
    
    
    30,500
    
    
    
    18,150
    
    
    
    6,175
    
    
    
    6,1759/30/08
    
    
    35,500
    
    
    
    18,400
    
    
    
    8,550
    
    
    
    8,550Total
    
    $
    91,000
    
    
    $
    54,424
    
    
    $
    18,288
    
    
    $
    18,288
  Discovery
  Total Distribution toDate of Distribution
    
    Members
    
    Our 60% Share1/30/08
    
    $28,000
    
    $16,8004/30/08
    
    $26,000
    
    $15,6007/30/08
    
    $22,000
    
    $13,20010/30/08
    
    $18,000
    
    $10,800
  Insurance Recoveries
   38




---



##### Table of Contents



Capital Contributions from Williams
  
    
    Approximately $7.5 million remains available for indemnification of environmental and
related expenditures not subject to a time limitation. These include indemnification for
Conway plumes and required wellhead control equipment and well meters.
    
    An annual credit for general and administrative expenses of $1.6 million in 2008 and $0.8
million in 2009; and
    
    Up to $3.4 million to fund our initial 40% share of the expected total cost of
Discoverys Tahiti pipeline lateral expansion project in excess of the $24.4 million we
contributed during September 2005. As of September 30, 2008 we have received $1.6 million
from Williams for this indemnification since inception. Although in 2007 we acquired an
additional 20% ownership interest in Discovery, Tahiti-related indemnifications under the
omnibus agreement continue to be based on the 40% ownership interest we held when this
agreement became effective.
 Credit Facilities
    Negotiation with the Jicarilla Apache Nation
  Capital Expenditures
  
    
    maintenance capital expenditures, which are capital expenditures made to replace
partially or fully depreciated assets in order to maintain the existing operating capacity
of our assets and to extend their useful lives; and
 
    
    expansion capital expenditures such as those to acquire additional assets to grow our
business, to expand and upgrade plant or pipeline capacity and to construct new plants,
pipelines and storage facilities.
 39




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##### Table of Contents



Maintenance
    
    Expansion
    
    TotalThrough
    
    
    
    
    
    Through
    
    
    
    
    
    ThroughCompany
    
    Total Year Estimate
    
    September 30, 2008
    
    Total Year Estimate
    
    September 30, 2008
    
    Total Year Estimate
    
    September 30, 2008Four Corners
    
    $
    22.8
    
    
    $
    14.7
    
    
    $
    7.3
    
    
    $
    3.6
    
    
    $
    30.1
    
    
    $
    18.3Conway
    
    
    2.7
    
    
    
    1.6
    
    
    
    7.3
    
    
    
    4.7
    
    
    
    10.0
    
    
    
    6.3Wamsutter  (our share)
    
    
    19.2
    
    
    
    15.4
    
    
    
    7.9
    
    
    
    2.3
    
    
    
    27.1
    
    
    
    17.7Discovery  (our share)
    
    
    3.5
    
    
    
    0.7
    
    
    
    7.7
    
    
    
    2.3
    
    
    
    11.2
    
    
    
    3.0
      Cash Distributions to Unitholders
  Results of Operations  Cash Flows
 Nine months endedSeptember 30,Williams
Partners L.P.
    
    2008
    
    2007(Thousands)Net cash provided by operating activities
    
    $
    169,261
    
    
    $
    129,065Net cash used by investing activities
    
    
    (12,251
    )
    
    
    (101,369
    )Net cash used by financing activities
    
    
    (111,361
    )
    
    
    (69,148
    )
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
    
    $38.1 million decrease in cash provided by working capital excluding accrued interest.
Cash provided by working capital decreased due primarily to changes in accounts payable and
accounts receivable; and
    
    $24.2 million higher cash interest payments for the interest on our $600.0 million senior
unsecured notes issued in December 2006 to finance a portion of our acquisition of Four
Corners and on our $250.0 million term loan issued in December 2007 to finance a portion of
our acquisition of Wamsutter.
   Nine months endedSeptember 30,Wamsutter
100%
    
    2008
    
    
    2007(Thousands)Net cash provided by operating activities
    
    $
    107,903
    
    
    $
    66,837Net cash used by investing activities
    
    
    (33,415
    )
    
    
    (26,293
    )Net cash used by financing activities
    
    
    (74,488
    )
    
    
    (40,544
    )
    Nine months endedSeptember 30,Discovery
100 %
    
    2008
    
    
    2007(Thousands)Net cash provided by operating activities
    
    $
    84,818
    
    
    $
    39,557Net cash used by investing activities
    
    
    (5,715
    )
    
    
    (7,444
    )Net cash used by financing activities
    
    
    (73,672
    )
    
    
    (41,252
    )
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Fair Value Measurements
   
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Price Risk
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Interest Rate Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  Our future financial and operating flexibility may be adversely affected by restrictions in
our debt agreements and by our leverage.
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
    
    Make it more difficult for us to satisfy our obligations with respect to our senior
unsecured notes and our other indebtedness, which could in turn result in an event of
default on such other indebtedness or our outstanding notes;
    
    Impair our ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions, general corporate purposes or other purposes;
    
    Adversely affect our ability to pay cash distributions to unitholders;
    
    Diminish our ability to withstand a downturn in our business or the economy generally;
    
    Require us to dedicate a substantial portion of our cash flow from operations to debt
service payments, thereby reducing the availability of cash for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes; limit our
flexibility in planning for, or reacting to, changes in our business and the industry in
which we operate; and
    
    Place us at a competitive disadvantage compared to our competitors that have
proportionately less debt.
   We may not be able to grow or effectively manage our growth.
  
    
    Identify businesses engaged in managing, operating or owning pipeline, processing,
fractionation and storage assets, or other midstream assets for acquisitions, joint ventures
and construction projects;
    
    Control costs associated with acquisitions, joint ventures or construction projects;
    
    Consummate acquisitions or joint ventures and complete construction projects;
    
    Integrate any acquired or constructed business or assets successfully with our existing
operations and into our operating and financial systems and controls;
    
    Hire, train and retain qualified personnel to manage and operate our growing business;
and
    
    Obtain required financing for our existing and new operations.
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Recent events in the global financial crisis have made equity and debt markets less accessible
and created a shortage in the availability of credit, which could disrupt our financing plans and
limit our ability to grow.
   The failure of counterparties to perform their contractual obligations could adversely affect
our operating results, financial condition and cash available to pay distributions.
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Item 6. Exhibits
  ExhibitNumber
    
    DescriptionExhibit 10
    
    Director Compensation Policy dated November 29, 2005, as revised August 20, 2008.Exhibit 31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.Exhibit 31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.Exhibit 32
    
    Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
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SIGNATURES
  WILLIAMS PARTNERS L.P.(Registrant)By: Williams Partners GP LLC, its general partner/s/ Ted T. Timmermans

Ted. T. TimmermansController (Duly Authorized Officer and PrincipalAccounting Officer)
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EXHIBIT INDEX
 ExhibitNumber
    
    DescriptionExhibit 10
    
    Director Compensation Policy dated November 29, 2005, as revised August 20, 2008.Exhibit 31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.Exhibit 31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.Exhibit 32
    
    Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
 48